Retail landlord and tenants, particularly those occupying units in shopping centres and retail parks, will be interested in the outcome of Dunnes Stores Unlimited Company & Anor v Dafora Unlimited & Ors[1] where the Court of Appeal upheld the High Court’s decision that a restrictive covenant in an occupational lease was enforceable.

Background and High Court Decision

An exclusivity clause in Dunnes’ 999-year lease provided that a restrictive covenant would be inserted into the leases of ‘all other unit holders’ in the retail park that they would not sell ‘any food, food products or groceries’.

In 2022, the High Court granted a permanent injunction to prevent Dafora Unlimited Company t/a Mr Price Branded Bargains (“Mr Price”) from selling certain ‘food, food products or groceries’ in its outlet in Barrow Valley Retail Park in Carlow. Mr Price was held to be in breach of the restrictive covenant in its lease by selling certain ‘grocery’ items.

Restrictive Covenant and Meaning of ‘Groceries’

The restrictive covenant in Dunnes’ lease provided that no unit would be used as a ‘supermarket, hypermarket, grocery, discount foodstore, frozen-food outlet, mini-foodmarket, convenience store or any similar premises, save as expressly permitted, for the sale of any food, food products or groceries.’  This was a standard clause which Dunnes required in all its leases at the time.  The term ‘grocery’ was undefined in both the Dunnes and Mr Price leases.

Dunnes argued for a broad construction of ‘groceries’, as going beyond food to include other commonly purchased household items like pet food and cleaning supplies.  Mr Price argued for a narrower interpretation based on several grounds and various contract interpretation maxims.  One of its arguments was that ‘groceries’, in the context of ‘food, food products or groceries’, should be regarded as a synonym for ‘food and food products’, particularly in the absence of a definition of ‘groceries’ in the Dunnes lease.  However, the High Court accepted Dunnes’ argument that the disjunctive ‘or’ between “food, food products” and “groceries” was likely to have been intended to differentiate the concept of groceries from food or food products.

The High Court found, on the evidence, that the definition of ‘groceries’ was broad and went beyond food and food products to include non-durable consumable items that must be re-purchased frequently.  Accordingly, such items could not be sold in the Mr Price outlet.

Court of Appeal

Mr Price appealed to the Court of Appeal, which agreed with the High Court’s findings of fact and reasoning and made only one clarification amendment to the wording of one of the High Court orders.

Takeaways

This decision follows the High Court’s decision in Rexbay Limited v McCann & Ors[2] in October 2023 where the court enforced an exclusivity in favour of an occupational tenant (trading as Starbucks) which prohibited a first letting of any other part of a shopping centre to an “Excluded Coffee Chain” (as defined).  The outcome of both cases is good news for landlords, anchor tenants and occupational tenants who have negotiated exclusivities into their leases as they illustrate that such arrangements will be enforced by the courts.

The case also demonstrates the importance of careful drafting of exclusivities, restrictive covenants and accompanying defined terms given the significant economic implications of the scope of such clauses for lease parties.

Dunnes Stores was represented by Arthur Cox LLP.

[1] [2024] IECA 37.

[2] [2023] IEHC 563.