Peninsula Securities Ltd v Dunnes Stores (Bangor) Ltd (Northern Ireland)

The Supreme Court considered whether a restrictive covenant in a lease of part of a shopping centre engaged the common-law doctrine against restraint of trade. The court rejected the long-established "pre-existing freedom" test derived from Esso Petroleum Co Ltd v Harper’s Garage (Stourport) Ltd and held that the correct approach is the more flexible "trading society" test associated with Lord Wilberforce. Applying that test to the facts, the court concluded that covenants of the kind commonly granted to secure an anchor tenant in a shopping centre fall within the accepted pattern of commercial practice and therefore do not engage the restraint of trade doctrine. The Court allowed Dunnes' appeal and dismissed Peninsula's common-law claim.

Background and facts

Mr Shortall developed a shopping centre in Londonderry and in 1981 granted a long lease of part of the site to Dunnes Stores (Bangor) Ltd in consideration of a premium and nominal rent. The lease included an undertaking by the lessor not to permit the establishment on the remainder of the centre of any unit of 3,000 square feet or more for sale of food or textiles. In 1983 Mr Shortall assigned the freehold to Peninsula Securities Ltd (a company he controlled), which thereby became bound by the restrictive covenant. The centre later declined in trade and Peninsula sought a declaration that the covenant was unenforceable at common law as an unreasonable restraint of trade.

Procedural history

• First instance: McBride J (Northern Ireland) raised and decided the preliminary question whether the covenant engaged the doctrine; she held it engaged the doctrine while the land was held by Mr Shortall but ceased to do so once assigned to Peninsula ([2017] NIQB 59).
• Court of Appeal (Northern Ireland): held the covenant did engage the doctrine and remitted the case to the High Court to determine reasonableness ([2018] NICA 7).
• Supreme Court: on appeal by Dunnes.

Nature of the claim and issues

• (i) Peninsula sought a common-law declaration that the covenant was in restraint of trade and therefore unenforceable; it also relied alternatively on the Property (Northern Ireland) Order 1978 (statutory remedy) but agreed that the common-law claim should be resolved first.
• (ii) The Supreme Court was asked to decide whether the covenant engaged the restraint of trade doctrine at all and, in doing so, to reassess the relevant tests from authority (notably the Esso decision).

Court’s reasoning

• The court analysed the jurisprudence since Esso, identifying three conceptual approaches: the "pre-existing freedom" test (majority in Esso), the "sterilisation of capacity" idea (Lord Pearce), and the "trading society" or public-policy approach (Lord Wilberforce).
• The court found the pre-existing freedom test logically unsound and exposed to anomalous results; it accepted criticisms developed over decades and concluded the test should be abandoned.
• The court endorsed the trading society test as properly rooted in public policy and compatible with the doctrine: a restriction on land does not engage the doctrine where it is of a type that has become the accepted and normal currency of commercial relations and therefore does not offend public policy.
• Applying that test to the evidence (including unchallenged expert evidence that such covenants are common in securing anchor tenants), the court concluded the covenant had never engaged the doctrine.

Subsidiary and consequential findings

• The court observed that, irrespective of the common-law analysis, Peninsula retained the alternative statutory remedy under the Property (Northern Ireland) Order 1978 and that nothing in the decision should be read to influence the outcome of any proceedings under that Order.

Appeal allowed. The Supreme Court held that the "pre-existing freedom" test from Esso should be rejected and that the appropriate test is the "trading society" test: a covenant of the kind commonly used to secure an anchor tenant in a shopping centre does not engage the restraint of trade doctrine because it forms part of the accepted pattern of commercial practice. Consequently Peninsula's common-law claim that the covenant was unenforceable as an unreasonable restraint of trade was dismissed.

First instance: McBride J ([2017] NIQB 59) raised and determined whether the covenant engaged the doctrine. Court of Appeal (Northern Ireland) allowed Peninsula's appeal on that preliminary issue, holding the covenant engaged the doctrine and remitting the matter to the High Court ([2018] NICA 7). The appellant appealed to the Supreme Court which allowed the appeal ([2020] UKSC 36).