knowledge 14 March 2024 |

Restrictive Covenants in Commercial Leases – A Stitch in Time

In this case,¹ the plaintiffs sought to enforce restrictive covenants in a commercial lease, which prevented the defendants from selling “food, food products or groceries” from a unit at a retail park. The defendants accepted that the restrictive covenants applied to their unit. The real dispute between the parties was whether or not the defendants had been in breach of the lease in selling items which should properly be regarded as “groceries” and whether or not the defendants were entitled to sell “groceries” which extended beyond “food or food products”.  

The resolution of this issue ultimately involved five days of hearing before the High Court on liability alone, the tendering of extensive evidence as to what exactly was comprised in the term “groceries” and lengthy and complex legal submissions with the court ultimately unable to draw a final line under the matter.

The defendants appealed to the Court of Appeal who provided greater clarity by slightly varying the High Court order, however the Court of Appeal ultimately dismissed the appeal.

Decision of the High Court

In a lengthy judgment examining relevant case law and evidence, Sanfey J said that in deciding what came within the definition of “groceries”, the court must ascertain “the meaning which [the lease] would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract”…The reasonable person must “have, or acquire, a sympathetic understanding of the commercial or practical context in which the agreement was meant to operate…”.

He said that there was no relevant definition in the lease nor was there a list of items or general categories appended to the lease which might comprise “groceries”.

He ultimately held that the term “groceries” included “non-durable consumable household items which are purchased frequently” and agreed that a list of items cited by the plaintiffs ranging from cosmetics to kitchen towels came within the definition and that the defendants had breached the restrictive covenant.

However, this was not the end of the matter. He said that it might well be possible to pick holes in this formulation, or to suggest that it did not cover every item which might or might not be “groceries”.

Nevertheless, on this point, he expressed confidence that in relation to any remaining items in respect of which there is doubt as to whether or not they are “groceries”, the parties as substantial and responsible traders would be able to come to a business-like accommodation, rather than resorting to further legal action

Finally, he looked to the past, saying that perceptions of what was comprised in the term “groceries” had changed over the years. This meant that in the future, items which had yet to be invented or which were not yet on the market could give rise to a bona fide dispute as to whether they are “groceries” for the purpose of the lease between the parties. He tailored his final order to take this eventuality into account.

Decision of the Court of Appeal

In the judgment of the Court of Appeal, with which Noonan and Butler JJ agreed, Haughton J largely affirmed the orders of the High Court and dismissed the appeal. Haughton J did, however, allow the appeal only to the limited extent of varying the order of the High Court by providing greater clarity to the term “non-durable consumable household items which are purchased frequently.” Haughton J determined that the list of items in this third declaration of the High Court order inadvertently extended to some items that are durable such as a dog leash in the case of pet care products and hair dryers and combs in the case of hair-care products. Haughton J varied the declaration of the High Court by inserting the words “provided that such items are non-durable” after the list to rectify the issue.

Comment

While the High Court and Court of Appeal have attempted to provide clarity in their judgments, the scope for interpretation of the term “groceries” illustrates the need for as much clarity and precision as possible when drafting restrictive covenants using that term in a commercial lease.

Also contributed to by Darragh Murray and Jack Cullen