Peninsula Securities Ltd v Dunnes Stores (Bangor) Ltd

A covenant restraining the use of land falls outside the restraint of trade doctrine where it is of a type accepted as normal commercial, contractual or conveyancing machinery and is consistent with current public policy. Whether the covenantor surrendered a pre-existing freedom is not the governing criterion.

Restrictive covenants commonly given by shopping-centre developers to secure anchor tenants facilitate the development business. In the absence of a public policy reason for intervention, they do not engage the doctrine. Changing economic or social conditions may nevertheless require the status of an established category of covenant to be reconsidered.

A developer granted Dunnes Stores a 999-year lease of part of a shopping centre. The developer covenanted against permitting another substantial unit on the retained land to trade in specified competing goods. The freehold was later assigned to Peninsula Securities Ltd, which sought a declaration that the covenant was an unreasonable restraint of trade.

The High Court held that the doctrine initially applied because the developer had surrendered a pre-existing freedom, but ceased to apply after assignment: [2017] NIQB 59. The Court of Appeal held that the doctrine continued to apply and remitted the issue of reasonableness: [2018] NICA 7. The central issue was whether surrender of a pre-existing freedom remained the correct criterion for determining whether a land-use covenant engaged the doctrine.

1. Appeal allowed. Lord Wilson, with whom Lord Lloyd-Jones, Lady Arden and Lord Kitchin agreed, held that the covenant had never engaged the restraint of trade doctrine. Lord Carnwath agreed in a concurring judgment. Peninsula’s common law claim was dismissed, while its alternative claim under the Property (Northern Ireland) Order 1978 could proceed.

2. The pre-existing freedom test adopted by the majority in Esso Petroleum Co Ltd v Harper’s Garage (Stourport) Ltd [1968] AC 269 had no principled relationship to the public policy underlying the doctrine. An identical restraint could affect the parties and the public in the same way whether imposed before or after the covenantor acquired the relevant freedom. The Supreme Court therefore departed from that aspect of Esso.

3. The appropriate approach was Lord Wilberforce’s trading society test. A land-use covenant does not engage the doctrine if it belongs to a type that has entered the accepted and normal currency of commercial, contractual or conveyancing relations and may therefore be regarded as satisfying public policy. Because public policy changes with economic and social conditions, an established category may require later reconsideration.

4. Restrictive covenants given to anchor tenants in long shopping-centre leases were established and normal commercial arrangements. The evidence, supported by Commonwealth authority, showed that such covenants protect the tenant’s investment and facilitate the development scheme. There was no public policy reason to interfere with the parties’ negotiated allocation of interests. The covenant therefore fell outside the doctrine without any need for a trial of its reasonableness.

5. Lord Carnwath emphasised that the doctrine extends to restraints on a business as well as trade in the narrow sense. The practical effect and public policy significance of the restriction are decisive. Here the covenant formed an intrinsic part of the developer’s business and strengthened, rather than restricted, its ability to secure an anchor tenant and undertake the development.

6. The Court exercised its power under the Practice Statement to depart from precedent cautiously. Departure was justified because the discarded test lacked principle, had attracted sustained criticism for more than 50 years, had scarcely been defended, and had been rejected in significant Commonwealth jurisprudence.

1. United Kingdom Supreme Court: Allowed Dunnes Stores’ appeal from [2018] NICA 7. It held that the covenant had never engaged the restraint of trade doctrine and dismissed Peninsula’s common law claim.

2. Court of Appeal in Northern Ireland: In [2018] NICA 7, allowed Peninsula’s appeal and held that the covenant continued to engage the doctrine after assignment. It remitted the case to the High Court to determine reasonableness.

3. High Court of Justice in Northern Ireland: In [2017] NIQB 59, held that the covenant engaged the doctrine while the land was owned by the original covenantor, but ceased to do so when Peninsula acquired the land without surrendering a pre-existing freedom.