Williams & Anor v Kiley (t/a CK Supermarkets Limited)

Restrictive covenants in leases may form a letting scheme where the leases show reciprocity of obligation, a clearly defined area and an intention that the restrictions should be mutually enforceable by the lessees. In a commercial scheme, the covenants must be expressed with sufficient clarity because they restrict otherwise permissible competition.

Whether a business breaches a covenant permitting one trade while excluding others is judged by the meaning of the permitted and excluded trades when the lease was granted. The issue is whether the excluded activities amount to a distinct trade or business. The excluded activities need not dominate the business before a breach occurs.

The claimants and defendant occupied adjoining shops in a parade held under leases granted by the same local authority. Each lease restricted the permitted business and excluded categories corresponding to the trades allocated to other units.

The county court judge found that the leases formed a letting scheme and that the defendant’s supermarket breached the restrictions by operating, in addition to a grocery and general store, as a tobacconist and confectioner. He rejected the allegation that it was being used as a newsagent. The defendant appealed those preliminary findings and a case-management direction concerning a joint expert.

The central issues were whether the leases created a letting scheme and whether the defendant’s sales amounted to distinct excluded trades.

1. Appeal dismissed on both preliminary issues. The leases created a letting scheme. Although the same legal principles apply to letting schemes and building schemes, the intention to create mutually enforceable obligations must be inferred with care in a commercial context.
2. Per Carnwath LJ, the leases demonstrated reciprocity because each imposed a positive obligation to carry on a particular business and protected that business from competition by neighbouring lessees. The detailed exclusions, the absence of a power to vary the restrictions, the machinery for resolving disputes between lessees, and the absence of any right to require enforcement by the lessor supported that conclusion.
3. The relevant area was sufficiently defined by the plans and by the interlocking descriptions of permitted and excluded uses. Later shops were not included because they did not exist when the original leases were granted and were not shown on the plans.
4. The permitted and excluded trades had to be assessed as understood when the leases were granted in 1963. A grocery and general store could sell some confectionery and tobacco without breach. The question was whether the scale of those activities amounted to a distinct trade or business.
5. The covenant did not require the excluded trades to dominate the business. The judge was entitled to find, from the size of the display areas and the volume of sales, that the tobacco and confectionery activities were distinct trades. The evidence did not establish a separate newsagent business merely because some stationery and similar products were sold.
6. Buxton LJ added, obiter, that commercial letting schemes restricting competition might raise issues under the Restrictive Trade Practices Act 1976 and the Competition Act 1998. Those issues had not been argued and did not affect the decision.

• Court of Appeal (Civil Division): dismissed the appeal from the county court’s decisions on the letting-scheme and covenant-breach preliminary issues. The procedural challenge concerning the joint expert was not determined.
• Cardiff District Registry: His Honour Judge Moseley QC found that the leases formed a letting scheme and that the defendant’s use breached the restrictive covenants.