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Finding that the application of the doctrine of restraint of trade to successors in title would “cause havoc in the conveyancing and commercial world”, Justice McBride found that the doctrine could not apply to the lease.

Background

The plaintiff, Peninsula Securities Ltd, is a property holding company. its Managing Director is Mr Patrick Shortall, who owns 99 of the 100 shares – his wife owning the remaining share

In 1979, Mr Shortall purchased 5.5 acres of land in Springtown, Co. Derry with the intention of developing it as a retail shopping unit.

In February 1981, Mr Shortall (the lessor) and the defendant – Dunnes Stores Limited (the lessee) – entered into a leasehold agreement in respect of 1.05 of the land. In the third schedule of the lease, the lessor covenanted with the lessee:

“That any development on the lessors’ land comprised in the lessors’ Folio and on his other lands adjoining the premises shall not contain a unit in size measuring 3,000 sq ft or more for the … purpose of trading in textiles, provisions or groceries in one or more units.”

Springtown Shopping Centre was constructed on the leasehold lands, the defendant being the anchor tenant.

In April 1983, Mr Shortall transferred the freehold lands to Peninsula Securities, and also assigned his interest in the leasehold lands to Peninsula Securities. Peninsula Securities therefore became the registered owner, and the successor in title to Mr Shortall’s lessor’s interest in the leasehold lands.

In November 2001, Peninsula Securities applied for planning permission to develop part of the freehold lands which adjoin the Springfield Shopping Centre. Planning permission was granted for this new development in April 2002 and a new shopping centre was built on the freehold lands subject to the covenant.

The centre was completed in 2006, and in 2010, as the result of not being able to attract tenants to the shopping centre, Peninsula Securities applied to the Lands Tribunal pursuant to the Property (Northern Ireland) Order 1978 seeking relief on the basis that the covenant was an unlawful restraint of trade.

As the Lands Tribunal did not have jurisdiction to rule on the question of whether the covenant was an unlawful restraint of trade, Peninsula Securities issued the present proceedings.

High Court

Justice McBride stated that Peninsula Securities’ case was hinged on the following question: could Peninsula Securities rely on the doctrine of restraint of trade as applying to the covenant attaching to its lands contained in the lease with the defendant?

In Esso, the House of Lords sought to reconcile two lines of authority: the common-law principle that restraint of trade would be contrary to public policy unless it was reasonable, and the long-established principle that covenants imposing restrictions on the use of land were valid even though the restriction could totally prohibit the carrying on of trade upon the land subject to the restrictive covenant.

Justice McBride found that Esso established three principles, that the doctrine of restraint of trade:

Restraint of Trade and Public Policy

The doctrine of restraint of trade is based on public policy and the Law Lords in Esso explained on public policy grounds why restrictive leasehold and freehold covenants were exempt from this doctrine.

The Property (Northern Ireland) Order 1978 exists to establish a scheme by which covenants can be modified or extinguished in certain circumstances.

Peninsula Securities’ central submission was that the doctrine of restraint of trade applied to Mr Shortall as he was a lessor who gave up a pre-existing freedom. The issue of restraint of trade fell to be considered at the date Mr Shortall originally entered into the covenant and therefore, if it was unenforceable against him, it could not bind his successors in title. Mr Shortall submitted that assigning the lease to Peninsula Securities did not affect the application of the restraint of trade doctrine.

Firstly, Justice McBride did not accept the submission that if the doctrine applies to the original lessor/covenantor his successor in title can avail of the doctrine. As per Esso, “…one must always bear in mind that an agreement in restraint of trade is not generally unlawful if the parties choose to abide by it, it is only unenforceable if a party choose not to abide by it.” Mr Shortall always abided by the covenant and therefore as of the date of transfer of the leasehold and freehold lands to Peninsula Securities it was a lawful covenant. As such, Justice McBride did not accept that it would now be open to Peninsula Securities to retrospectively argue that the covenant was unenforceable and void when it was entered into.

Secondly, Esso established the principle that the doctrine of restraint of trade did not apply to successors in title.

Thirdly, the restraint of trade doctrine did not apply as the covenant was a Tulk v Moxhay type covenant – exempt from the doctrine of restraint of trade.

Fourthly, the covenant in this case was typical of restrictive covenants applying to both leasehold and freehold lands in existence and enforced for hundreds of years despite restricting trade. Justice McBride stated that if the court was to overrule such long established principles, it would cause uncertainty and adversely impact commercial dealings with land where certainty is required.

Peninsula Securities submitted that even if the doctrine of restraint of trade did not apply to a successor in title, the fact Peninsula Securities was wholly owned and controlled by Mr Shortall meant that there was no difference in substance so as to affect the applicability of the restraint of trade doctrine.

In considering this submission, Justice McBride stated that Alec Lobb (Garages) v Total Oil 1 WLR 173 and Amoco Australia Pty Ltd v Rocca Bros Motor Engineering Company HCA 40 133 CLR 288 were exceptions to the general rule, and could be distinguished from the present case on its facts.

As noted in Irish Shell – the exception to the rule applies, only when the court, looking at the reality of the transaction, decides it is an objectionable one, that is, the purpose of the transaction is to impose a restraint. On the facts of the present case, the transaction was not for such a purpose – therefore, it was not an objectionable transaction.

As such, Justice McBride found that Peninsula Securities, as a successor in title who was not in possession of the land as of the date the covenant was entered, could not avail of the doctrine of restraint of trade.

Finding that the doctrine of restraint of trade did not apply to the covenant in the lease, Justice McBride refused to grant a declaration that the covenant was unlawful and void and/or unenforceable and/or ought to be severed from the said lease.