John Williams Hetty Mary Williams v Christopher Reeves Kiley t/a CK Supermarkets Limited [2002] EWCA Civ 1645

IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM CARDIFF DISTRICT REGISTRY
(His Honour Judge Moseley QC)
[2002] EWCA Civ 1645Case No Case No: A3/2002/0370Venue Royal Courts of Justice, Strand, London, WC2A 2LL
Between
John Williams Hetty Mary WilliamsRespondentsChristopher Reeves Kiley t/a CK Supermarkets LimitedAppellant
Before
Lord Justice Simon BrownLord Justice BuxtonLord Justice CarnwathMr Mark Blackett-Ord (instructed by Messrs. Glass and Company) for the AppellantsMr Michael Davey (instructed by Messrs. John Collins) for the RespondentsHearing dates : 1st November 2002Date 21 November 2002

Lord Justice Carnwath :

Background

[1]The claimants carry on the business of newsagents, confectioners and tobacconists at a small shop (number 4) in a parade of shops called Parkway, Sketty in Swansea. They hold this property under a lease granted on 6 th January 1964 by the County Borough of Swansea ("the Council"), which is subject to a covenant restricting its use to those trades.[2]The defendant carries on business at the adjoining shop, comprising numbers 6 and 8 Parkway. These units began life as two separate shops but were amalgamated at an early stage. They are held under two separate leases from the City Council, both dated 6 th November 1963. Those leases also contain covenants restrictive of use. Number 6 originally had a covenant restricting use to that of a "meat purveyor", but it is accepted that this has long since been waived. Number 8 has a more relevant restriction to that of "a grocery and general store". In both cases the covenants exclude the business of "newsagents, sugar confectioners, tobacconists" and other trades. The defendant runs a "supermarket" at the two shops. They sell a large range of products normally sold at supermarkets, including groceries; they also sell tobacco and cigarettes, confectionery and stationery items.[3]The claimants assert that the defendant's use is in breach of the restrictions in their leases, and that they, as lessees within the same "letting scheme", are entitled to enforce them directly, without having to rely on the intervention of the Council, as lessor. They claim an injunction and damages.

The Judge dealt separately with two preliminary issues:

[4](1) whether the terms of the leases in the shop units at Parkway were part of a "letting scheme";(2) if so, whether the defendant's use involved a breach of the restrictive covenants in their leases. The Judge decided both issues in favour of the claimants; the first by a judgment dated 27 th June 2001, the second by a judgment dated 18 th January 2002. At a subsequent directions hearing on 28 th January, he made various orders for the further conduct of the proceedings, including the following:
"3. The parties should attempt to agree the identity of single joint expert to report on the issues of: (a) the terms of an injunction (b) the quantum of damages. If the parties are unable… to agree the identity of a joint expert each party shall submit to the court… their proposals for the nomination of a joint expert by the court. 4. No later than… the parties shall exchange draft instructions to the joint expert"
. A date was then set for the joint expert's report, followed by a date for the adjourned hearing of the case management conference. "3. The parties should attempt to agree the identity of single joint expert to report on the issues of: (a) the terms of an injunction (b) the quantum of damages. If the parties are unable… to agree the identity of a joint expert each party shall submit to the court… their proposals for the nomination of a joint expert by the court. 4. No later than… the parties shall exchange draft instructions to the joint expert". A date was then set for the joint expert's report, followed by a date for the adjourned hearing of the case management conference.[5]The notice of appeal challenges the Judge's decision on the two preliminary issues, and also on the direction relating to the joint expert. Permission to appeal was granted by this Court on 1 st May 2002. Letting scheme – principles of law Letting scheme – principles of law[6]There was no significant dispute, before the Judge or before us, as to the legal principles which apply to determine whether there is a "letting scheme". Where such a scheme is held to exist, restrictive covenants may be enforceable as part of a "local law" by the owners or lessees of individual plots or buildings, without the need to rely on the original grantor. Both parties relied on the statement of the law in Megarry and Wade, Real Property 6 th Ed (2000) at pages 1034-38. I note in particular paragraph 16-077, dealing with "the intention" to create a scheme, where the authors refer to "two prerequisites", which have been emphasised in recent decisions:- "The first is that there must be reciprocity of obligation between the purchasers of the various lots. There must be an intention to impose a scheme of mutually enforceable restrictions in the interest of all the purchasers and their successors, which must be known to them. The second is that the area affected by the scheme should be clearly defined. It is not sufficient that the common vendor has himself defined the area, it must also be known to the purchasers. If these two requirements are satisfied, neither a common vendor nor laying out in lots is indispensable. The present tendency is to relax formal requirements and to give effect to the manifest intention of the transaction." "The first is that there must be reciprocity of obligation between the purchasers of the various lots. There must be an intention to impose a scheme of mutually enforceable restrictions in the interest of all the purchasers and their successors, which must be known to them. The second is that the area affected by the scheme should be clearly defined. It is not sufficient that the common vendor has himself defined the area, it must also be known to the purchasers. If these two requirements are satisfied, neither a common vendor nor laying out in lots is indispensable. The present tendency is to relax formal requirements and to give effect to the manifest intention of the transaction."[7]Although this passage is principally directed to schemes arising on sale, a subsequent passage states (para 16-080):
"If an estate already built upon is disposed of in sections, whether freehold or leasehold, and the appropriate conditions for schemes of development are satisfied, the covenants will be enforceable as in building schemes."
Among the authorities relied on in relation to leases is that of the House of Lords in Spicer v Martin (1888) 14 App Cas 12, where (at p 25) Lord Macnaghten referred to the "community of interest" which "requires and imports reciprocity of obligation". The same approach has been applied to different flats in a single residential building ( Newman –v-Real Estate Debenture Corp Ltd [1941] AllER 131), although that was later described as a "high-water mark" ( Kelly v Battershell [1949] 2 All ER 830, 841H per Cohen LJ). In Kelly –v- Battershell , the Court of Appeal proceeded on the basis that it was "common ground that letting schemes were based on the same principles as building schemes" (p838E). "If an estate already built upon is disposed of in sections, whether freehold or leasehold, and the appropriate conditions for schemes of development are satisfied, the covenants will be enforceable as in building schemes." Among the authorities relied on in relation to leases is that of the House of Lords in Spicer v Martin (1888) 14 App Cas 12, where (at p 25) Lord Macnaghten referred to the "community of interest" which "requires and imports reciprocity of obligation". The same approach has been applied to different flats in a single residential building ( Newman –v-Real Estate Debenture Corp Ltd [1941] AllER 131), although that was later described as a "high-water mark" ( Kelly v Battershell [1949] 2 All ER 830, 841H per Cohen LJ). In Kelly –v- Battershell , the Court of Appeal proceeded on the basis that it was "common ground that letting schemes were based on the same principles as building schemes" (p838E).[8]Although the application of the principle to lettings is not in doubt, there is a notable absence of reported cases relating to business leases. Counsel were unable to refer the Court to a single case in this jurisdiction, to illustrate the principle as applied to competing traders holding leases within a single development. However, Woodfall, Landlord and Tenant (para 11.072) mentions, as "a modern example of a letting scheme", a Canadian case ( Re Spike and Rocca Group (1979) 107 DLR(3d) 62, Prince Edward Island Supreme Court), in which the principle was applied to enable tenants of a shopping centre to enforce directly against other tenants covenants restricting their use to particular businesses. That case in turn refers (at p 64) to two earlier Ontario cases: Scharf v Mac's Milk Ltd (1965), 51 DLR (2d) 565) (not concerned with leases) which "injected into the shopping mall concept the implied principle of a building scheme…"; and Russo v Field (1970) 12 DLR 665 where the same principle was accepted as applicable to shopping centre leases, but the case failed on the facts.[9]It is unnecessary in the present case to consider how far English law should be taken as having progressed down the same road, in relation to shopping developments generally. The lack of previous cases of this kind may suggest that the normal expectation of tenants of shopping units is to look to their landlord to enforce such covenants. The alternative option of relying on the grantor to enforce the covenants is not normally available in scheme based on sales, since the original vendor will usually have dropped out of the picture once the development is fully sold.[10]Thus, for example, in another case referred to in Woodfall, Andrews v Sohal [1989] EGCS 12, again in the context of restrictions on retail use, it was held that the mere existence of similar restrictive covenants did not justify the inference of a "scheme", since the landlord had expressly retained the right to control uses and consent to changes. Similarly, in St Marylebone Property Limited –v- Tesco Stores Ltd . [1988] 2 EGLR 40, to which I shall be referring further in respect of the second issue, the proceedings were instigated following complaints by other tenants in the same shopping block (see p 41 K-L), but they were in the name of the landlord; it does not seem to have occurred to anyone that the tenants had an independent right to enforce the covenants.[11]Accordingly, although the same principles apply to lettings, the court may in practice have less reason to infer an intention to create a scheme of mutually enforceable obligations. The leases in detail The leases in detail[12]In holding that there was a letting scheme the Judge relied almost entirely on the inferences to be drawn from the form and content of the individual leases in respect of the five shops. The only other contemporary evidence of any significance, although the Judge did not rely on it, was that of a minute of the Council's Housing Committee of 1st February 1961. The Borough Estate Agent was recorded as making recommendations for "the first part of the shop development for Sketty Park (North)". He said that provision could be made for 8 to 10 shops, and that the "main centre" should be of 5 or 6 shops. He recommended the grant of 99 year leases to six named tenants, for named uses. The uses were:
"grocers and provision merchants", "butcher", "pharmaceutical chemist", "café and confectioner", "newsagents, confectioners, tobacconist, and post office", and "baker and flour confectioner"
. His recommendation was approved. As I understood him, Mr Blackett-Ord, for the defendant, accepted that this minute related to what became the relevant development.[13]The first lease in time was the lease of number 2, which was a shop with a maisonette above let to a Mr Charles, for use as a chemist. (He was the chemist named in the 1961 minute.) The lease was dated 8 th November 1962 for 99 years commencing 25 th March 1962. Unlike the later leases, this lease imposed a building obligation on the lessee (clause 3(1)), but nothing appears to turn on that point. The lessee's covenants were set out in clause 3 (15). Paragraph (a) relates to the use of the maisonette. Paragraphs (b) and (c) read as follows:- "(b) TO carry on or permit or suffer to be carried on at all times during the term hereby granted in or upon the said shop premises situate on the ground floor of the demised premises the trade or business of a pharmaceutical chemist (which term shall not include a footwear repair service and collection centre Dry cleaning and Laundry Service Ladies Hairdressing Meat Purveyor Newsagents Grocer and General Stores Sugar confectioner Tobacconist or Post Office) . And for this purpose(a) to display the goods applicable to such business in the shop window and(b) not to obscure the plate glass window in any way either by painting or otherwise AND PROVIDED ALWAYS that any dispute between the Lessee and any other lessees or occupants of the adjoining shopping centre on the question of the articles or commodities which may be sold pursuant to the provisions of this clause shall be referred to the Estate Agent of the Lessors for the time being for settlement and his decision shall be final and binding on the parties to the dispute.(c) NOT to use or permit the use of the demised premises or any part thereof for any other purposes than aforesaid." (Italics added). "(b) TO carry on or permit or suffer to be carried on at all times during the term hereby granted in or upon the said shop premises situate on the ground floor of the demised premises the trade or business of a pharmaceutical chemist (which term shall not include a footwear repair service and collection centre Dry cleaning and Laundry Service Ladies Hairdressing Meat Purveyor Newsagents Grocer and General Stores Sugar confectioner Tobacconist or Post Office) . And for this purpose (a) to display the goods applicable to such business in the shop window and (b) not to obscure the plate glass window in any way either by painting or otherwise AND PROVIDED ALWAYS that any dispute between the Lessee and any other lessees or occupants of the adjoining shopping centre on the question of the articles or commodities which may be sold pursuant to the provisions of this clause shall be referred to the Estate Agent of the Lessors for the time being for settlement and his decision shall be final and binding on the parties to the dispute. (c) NOT to use or permit the use of the demised premises or any part thereof for any other purposes than aforesaid." (Italics added).[14]As can be seen from the italicised words, the clause requires the unit to be used for the specific purpose of a chemist, and precludes use for any other purpose; but it reinforces the exclusion by providing (in parenthesis) that the named use is "not to include" a number of specified categories of retail activity. The relevance of those categories, which would not naturally be "included" in the named use of a chemist, is not immediately obvious. Its significance only becomes apparent when one considers the other leases, each of which follows the same pattern, but with the list of the categories altered to reflect the named use for that lease.[15]The next leases, which are directly relevant to these proceedings, were, first, those for numbers 6 and 8, both dated 6 th November 1963 (the defendant's leases); and, secondly, that for number 4 dated 6 th June 1964 (the claimants' lease). Each of these three leases had annexed to it a plan showing the position of the particular unit within the block of five units numbered 2-10 (evens only). (The Judge found that the equivalent plan attached to lease number 2 had been omitted from the bundle in error.) The corresponding restriction of use in each of those three leases is in clause 3(14). The only differences are in the descriptions of the businesses. Thus, for example, the claimants' lease of number 4 contains the following (in place of the words in italics in clause 3(15) of the lease for number 2):- "…the trade or business of a Newsagent Sugar Confectioner Tobacconist and (if so required) as a Sub-Post Office (which term shall not include a footwear repair service and collection centre Dry Cleaning and Laundry Service Ladies Hairdressing Meat Purveyor Pharmaceutical Chemist or Grocer and General Stores)…" In the same way, in number 6 the named business is "Meat Purveyor" and in number 8 "Grocery and General Stores", each being defined as not including the other categories. "…the trade or business of a Newsagent Sugar Confectioner Tobacconist and (if so required) as a Sub-Post Office (which term shall not include a footwear repair service and collection centre Dry Cleaning and Laundry Service Ladies Hairdressing Meat Purveyor Pharmaceutical Chemist or Grocer and General Stores)…" In the same way, in number 6 the named business is "Meat Purveyor" and in number 8 "Grocery and General Stores", each being defined as not including the other categories.[16]The pattern changed slightly in the lease of number 10, granted on 16 th April 1964. In this case the business use was described as that of "a Ladies Hairdresser and of a Baker and Confectioner". The reference to a "Baker and Confectioner" was new, it not having been one of the excluded uses in the previous leases. No 10 was itself later subdivided into smaller units (Nos 10-14).[17]It is also relevant that the leases contain no provision for the uses to be varied, by the Council or otherwise. Nor is there any express obligation on the Council to enforce the covenants, at the request of the lessees. There is a provision for disputes as to boundaries and any easements or similar rights to be settled by the lessor (cl 4); and there is an ordinary lessor's covenant for "quiet enjoyment" (cl 5).[18]The Judge also noted that just around the corner there is another parade of shops owned by the same landlord and with leases in similar form. From the photograph it appears as an extension to numbers 2-10. The lease for these shops (Nos 16-24) was granted five years later in 1969. Although it contains use restrictions in similar form, the range of named categories is wider. The Judge's reasoning and the grounds of challenge The Judge's reasoning and the grounds of challenge[19]Against that background, the Judge found that "the essential features of a letting scheme as outlined in the textbook are apparent in the leases". He reached this view on the grounds, first, that there was a "a defined area" consisting of the parade of five shops shown in the plans annexed to the leases; secondly, that the restrictions were "clearly enough defined" in the clauses to which I have referred:
"It seems to me that intention both of the Council at the time the leases were granted and of the lessees is to be derived from the wording of the clause, and that that intention was that restrictions be imposed which should bind all the lessees and should be restricted to the parade of shops in respect of which these leases were granted."
This view was not affected by the variation in respect of unit 10. As to that he said:- "Given that if there was a scheme, it came into force immediately the first lease was granted in 1962, the fact that in 1964 the Council allowed one of the lessees in the parade to act other than as envisaged in 1962 in my view does not lead to the conclusion that there was no letting scheme." "It seems to me that intention both of the Council at the time the leases were granted and of the lessees is to be derived from the wording of the clause, and that that intention was that restrictions be imposed which should bind all the lessees and should be restricted to the parade of shops in respect of which these leases were granted." This view was not affected by the variation in respect of unit 10. As to that he said:- "Given that if there was a scheme, it came into force immediately the first lease was granted in 1962, the fact that in 1964 the Council allowed one of the lessees in the parade to act other than as envisaged in 1962 in my view does not lead to the conclusion that there was no letting scheme."[20]Mr Blackett-Ord, for the defendant, challenges this conclusion on a number of grounds. First, he says that there was no positive evidence of any intention to create a scheme, in the minds of the Council or the lessees; and that the mere fact that the covenants were in identical or complementary form is insufficient (relying on what was said to be "trite law" in Re Dolphin's Conveyance [1970] Ch 654, 661e). Secondly, he says that the area is uncertain. Thirdly, he says, there are strong negative indications against such an intention, particularly the improbability that the Council would have wished effectively to freeze the uses of the shops for 99 years, and the fact that it felt free to vary the terms of the covenant, when it came to No 10.[21]Like the Judge, I do not think one needs to look beyond the leases for clear evidence of the intention to create "reciprocity of obligation". It is not simply that the covenants are identical in form; each is carefully constructed, as a combination of requirements and exclusions, to dove-tail with the other leases in the group of five shops. Each lessee not only has a positive obligation to carry on a particular business, but is protected against competition in that business from his neighbours. It is impossible, in my view, to see them as directed simply to protecting the interests of the Council as lessor.[22]This view is reinforced, on the one hand, by the lack of any provision for variation of the clauses by the Council, and, on the other, by the specific machinery, in the proviso to the clause, for settling disputes over "articles or commodities" as between lessees. This, in my view, clearly demonstrates an intention to create rights enforceable by the lessees themselves; a view which is supported by the lack of any right for the lessees to require enforcement by the lessor.[23]It is necessary, of course, that the intention to create such reciprocity must have been known to the lessees, as well as the lessor, and there is no direct evidence that the first lessee was so aware. However, against the background of a development whose general character (including the identity of the first lessee) had apparently been fixed since 1961, it is reasonable to infer that the first lessee and his advisers were aware of the significance of the unusually precise designation of permitted and excluded retail uses.[24]As to the area of the scheme, Mr Blackett-Ord relies on the statement of Cozens Hardy MR in Reid –v- Bickerstaff [1909] 2Ch 305, 319:- "In my opinion there must be a defined area in which this scheme is operative. Reciprocity is the foundation of the idea of a scheme. The purchaser of a parcel cannot be subject to an implied obligation to purchase an undefined and unknown area. He must know both the extent of his burden and the extent of his benefit." He says that the leases themselves contain no definition of the limit of the letting scheme, and there is nothing in the plan attached to each lease to suggest any purpose other than identification of the particular unit. (He also challenges the Judge's inference that the same plan was attached to the lease for No 2.) Furthermore, the five units eventually became part of a larger development of twelve units, and there is no obvious reason to limit the scheme to the original five. "In my opinion there must be a defined area in which this scheme is operative. Reciprocity is the foundation of the idea of a scheme. The purchaser of a parcel cannot be subject to an implied obligation to purchase an undefined and unknown area. He must know both the extent of his burden and the extent of his benefit." He says that the leases themselves contain no definition of the limit of the letting scheme, and there is nothing in the plan attached to each lease to suggest any purpose other than identification of the particular unit. (He also challenges the Judge's inference that the same plan was attached to the lease for No 2.) Furthermore, the five units eventually became part of a larger development of twelve units, and there is no obvious reason to limit the scheme to the original five.[25]The Judge rejected this contention, and I agree with him. The definition of the area is apparent, not only from the plan, but also from the fact that references to the uses in the leases are all directly related to the others in the group of five. Like the Judge, I think it is a fair inference that the plan attached to the first lease defined the same area (whether or not the plan itself was identical). As to the relevance of the later development, the Judge said:
"… those shops were not in existence in 1962 / 63 / 64 when this parade of shops was let, and that parade of shops is not of course, because they were not built, shown on the plans on any of these leases. It does not seem to me to be arguable that that parade of shops is included within the restrictions. The area which was subjected to the letting is, in my view, clearly enough defined in the plans annexed to the leases in this parade."
I see no error of approach in that conclusion, on what was essentially an issue of fact for the Judge "… those shops were not in existence in 1962 / 63 / 64 when this parade of shops was let, and that parade of shops is not of course, because they were not built, shown on the plans on any of these leases. It does not seem to me to be arguable that that parade of shops is included within the restrictions. The area which was subjected to the letting is, in my view, clearly enough defined in the plans annexed to the leases in this parade." I see no error of approach in that conclusion, on what was essentially an issue of fact for the Judge[26]Initially, I saw more force in Mr Blackett-Ord's third point. As he submitted, if the restrictions are mutually enforceable by the lessees, as well as the lessor, the effect would be that any one lessee could insist that the pattern of uses in this block of five shops should in effect be frozen for the whole of the 99 year terms, regardless of any changes in retail patterns or local needs over that period. It would, he says, be most unlikely that the Council intended to give up control to that extent; that it did not do so is illustrated by the variation allowed, as early as 1964, in relation to No 10.[27]On consideration, however, I think that this concern is more theoretical than practical. What happened in 1964 tends to support this view. The introduction of a baker was a departure from the previous pattern of uses, but there was no reason for anyone to object, because it did not conflict with the uses in any of the other units. Thus, the Council only gave up its ability to permit alternative uses, to the limited extent of any conflict with those already permitted. Similarly, in relation to the suggested possibility of a particular lessee blocking any change in the other units, he would have no reason to do so except to the extent of any conflict with his own use. Thus, there seems to have been no problem in practice about the change, in number 6, from the permitted use as a "meat purveyor", presumably because it gave rise to no conflict. The problem in the present case arises simply because there is a direct conflict with the nominated use of number 4.[28]I should add that, even assuming there is the possibility of a "freezing" effect, it is to be borne in mind that the Lands Tribunal has power on certain grounds (including grounds related to the public interest) to remove or modify restrictions in long leases after twenty-five years (Law of Property Act 1925, s 84(12)). Furthermore, in an extreme case, although this was not relied on in argument, the principles of restraint of trade might have a role to play (see Esso Petroleum Co Ltd v Harper's Garage (Stourport) Ltd [1968] AC 269 , 335, per Lord Wilberforce).[29]Accordingly, on the first preliminary issue, I would dismiss the appeal.

User

[30]On the second issue, the Judge accepted Mr Blackett-Ord's analysis of the covenant, which he said raised two questions:- "(1)Whether Mr Kiley is carrying on a trade or business other than that of a grocery and general store and (2) Whether he is carrying on a trade or business of a newsagent, sugar confectioner or tobacconist. All those terms bear the meanings which they bore in November 1963." Before us, Mr Blackett-Ord sought to resile from this formulation, and to suggest that the only real question was the first. However, I agree with his earlier thoughts. The division, in my view, accurately reflects the scheme of the clauses, which is clearly intended, not merely to impose an obligation to carry on the nominated use for that property, but to prevent its use for those nominated for the other units in the group. "(1)Whether Mr Kiley is carrying on a trade or business other than that of a grocery and general store and (2) Whether he is carrying on a trade or business of a newsagent, sugar confectioner or tobacconist. All those terms bear the meanings which they bore in November 1963." Before us, Mr Blackett-Ord sought to resile from this formulation, and to suggest that the only real question was the first. However, I agree with his earlier thoughts. The division, in my view, accurately reflects the scheme of the clauses, which is clearly intended, not merely to impose an obligation to carry on the nominated use for that property, but to prevent its use for those nominated for the other units in the group.[31]It was not in dispute that the character of the nominated uses had to be judged as they would have been at the beginning of the leases. The Judge heard evidence about the changes in retail methods since the 1960s, in particular the move from shops identifiable as "grocery stores and general stores" to the modern supermarket, which would market a wider range of goods. As the Judge observed, the evidence was "imprecise and anecdotal". However he expressed his conclusion thus:- "In my judgment a preponderance of the evidence showed that the transition in retail marketing had begun by November 1963, i.e. some sweets were sold in packages and some groceries and general stores were developing into self-service stores and were expanding their range of products. In my judgment in November 1963 general stores would have sold some tobacco products and a limited range of confectionery and would have been identifiable as general stores notwithstanding such sales. Grocery stores would probably have sold some sweets but probably not tobacco and would have been identifiable as grocery stores notwithstanding the sale of sweets. So in my judgment Mr Kiley is not precluded by the covenant in the lease from selling some confectionery and tobacco provided those sales do not amount to the use of the premises for a trade other than the trade or business of a grocery and general store." "In my judgment a preponderance of the evidence showed that the transition in retail marketing had begun by November 1963, i.e. some sweets were sold in packages and some groceries and general stores were developing into self-service stores and were expanding their range of products. In my judgment in November 1963 general stores would have sold some tobacco products and a limited range of confectionery and would have been identifiable as general stores notwithstanding such sales. Grocery stores would probably have sold some sweets but probably not tobacco and would have been identifiable as grocery stores notwithstanding the sale of sweets. So in my judgment Mr Kiley is not precluded by the covenant in the lease from selling some confectionery and tobacco provided those sales do not amount to the use of the premises for a trade other than the trade or business of a grocery and general store."[32]Having reached that conclusion, but without specifically answering the first question raised by Mr Blackett-Ord, he turned to the second question: whether Mr Kiley was using the premises "as a newsagent sugar confectioner of tobacconist". In that context he derived assistance from the approach of Hoffmann J (as he then was) in St Marylebone Property Limited –v- Tesco Stores Ltd . (see above). That case concerned the construction of a covenant, in lease granted in the early 1950s, restricting the user of premises to that of "grocers provisions wine spirit and beer merchants". The premises had been used as a supermarket, and then underlet to a lessee (Mr Patel) who extended the business to include sale of newspapers and magazines, and later a video hire business. Hoffmann J said this:- "… Construing the covenant requires one to ask whether Mr Patel can be said to be carrying on only the trade of grocer and provision merchant or some other composite trade, or differing trades in addition. This must be a matter of degree. For example, a grocer's shop which sells a few electrical plugs and batteries might well be said to be a shop which is a grocer but happens conveniently to sell some electrical goods rather than a shop which carries on both grocery and electrical trades. On the other hand, if non-grocery products are sold in sufficient quantity they will constitute the carrying on of a separate trade, and even if a wide variety of non-grocery items are sold in quantities each of which would not in themselves amount to a separate trade, the cumulative effect may be to make it inappropriate to describe the premises as a grocery and provision merchant rather than a general store or some other composite description." (p 42 F-G) On Mr Patel's evidence, one out of four units in the shop was used for newspapers and other non-grocery goods, and they accounted for about half the turnover of the shop. Hoffmann J concluded:- "On that evidence I do not think that it is possible to say that the premises are being used only for the purposes of a grocery and provision merchant. One might say that, in addition, Mr Patel was, at the very least, also carrying on the business of a newsagent and a hirer of video films, or one might say that the business was that of a general store. I do not think it matters which, because in either case it goes further than the covenant allows." (p 42 J-K) "… Construing the covenant requires one to ask whether Mr Patel can be said to be carrying on only the trade of grocer and provision merchant or some other composite trade, or differing trades in addition. This must be a matter of degree. For example, a grocer's shop which sells a few electrical plugs and batteries might well be said to be a shop which is a grocer but happens conveniently to sell some electrical goods rather than a shop which carries on both grocery and electrical trades. On the other hand, if non-grocery products are sold in sufficient quantity they will constitute the carrying on of a separate trade, and even if a wide variety of non-grocery items are sold in quantities each of which would not in themselves amount to a separate trade, the cumulative effect may be to make it inappropriate to describe the premises as a grocery and provision merchant rather than a general store or some other composite description." (p 42 F-G) On Mr Patel's evidence, one out of four units in the shop was used for newspapers and other non-grocery goods, and they accounted for about half the turnover of the shop. Hoffmann J concluded:- "On that evidence I do not think that it is possible to say that the premises are being used only for the purposes of a grocery and provision merchant. One might say that, in addition, Mr Patel was, at the very least, also carrying on the business of a newsagent and a hirer of video films, or one might say that the business was that of a general store. I do not think it matters which, because in either case it goes further than the covenant allows." (p 42 J-K)[33]The Judge in the present case adopted a similar approach. He analysed the evidence of Mr Kiley's sales of "tobacco and cigarettes, confectionery and stationery items". Those items accounted for 12% of his display area. Their turnover of tobacco sales in the last two years had been over double that of the claimants. Confectionery sales had been "substantially in excess" of the claimants' turnover. Their display stand for tobacco and cigarettes was about 8 feet long and 2 feet wide, with 7 shelves, and was 50% greater than the claimant's equivalent display. Their confectionery display area, which was "larger than is normal in a supermarket", was 5 to 6 metres long, with 5 to 6 shelves..[34]Taking account of that evidence,

the Judge found a breach in respect of use as a tobacconist and sugar confectioner:

"In my judgment the evidence shows that in addition to using the premises as a grocery and general store Mr Kiley has been using it also as a tobacconist and confectioners and is therefore in breach of the second leg of the covenant. That seems to be amply proved by the evidence I have heard concerning the size of the two sales areas and the volume of turnover in both confectionery and tobacco products. Mr Kiley's business in my view goes well beyond that of a grocery and general stores selling as part of that business some tobacco and confectionery."
However, he rejected the contention that the premises were being used "as a newsagent". He regarded the evidence of sales of stationery, greeting cards and similar items as vague and imprecise:
"In my view, the evidence did not establish that he is using the premises as a newsagent. He is merely selling some products which are also sold by newsagents." "
In my judgment the evidence shows that in addition to using the premises as a grocery and general store Mr Kiley has been using it also as a tobacconist and confectioners and is therefore in breach of the second leg of the covenant. That seems to be amply proved by the evidence I have heard concerning the size of the two sales areas and the volume of turnover in both confectionery and tobacco products. Mr Kiley's business in my view goes well beyond that of a grocery and general stores selling as part of that business some tobacco and confectionery." However, he rejected the contention that the premises were being used "as a newsagent". He regarded the evidence of sales of stationery, greeting cards and similar items as vague and imprecise:
"In my view, the evidence did not establish that he is using the premises as a newsagent. He is merely selling some products which are also sold by newsagents."
[35]Mr Blackett-Ord says that the true question, which the Judge failed to answer, was whether the sale of the disputed items had come to "dominate" the business of a grocery or general store, so that it could properly be described as a separate business or trade. He does not in principle criticise the Judge's reliance on the Marylebone Property case. However, he submits that the Judge gave insufficient weight to the differences in the covenants in that case, and the nature of the evidence. He points out that, in that case, the term "general store" was accepted as a valid description of activities which were in some respects similar to those of the defendant in this case.[36]In particular, Mr Blackett-Ord says, the Judge in this case failed to give adequate weight to the following points: i) The Defendant's shop has three times the total display area of that of the Claimants; ii) The Claimants' shop was a newsagent as well as a confectioner and tobacconist, so not all of its stock was confectionery and tobacco; iii) Tobacco, confectionery and stationery comprised only 12% of the display area of the Defendant; iv) The Claimants adduced no evidence as to what proportion of the turnover of either shop was these disputed products. i) The Defendant's shop has three times the total display area of that of the Claimants; ii) The Claimants' shop was a newsagent as well as a confectioner and tobacconist, so not all of its stock was confectionery and tobacco; iii) Tobacco, confectionery and stationery comprised only 12% of the display area of the Defendant; iv) The Claimants adduced no evidence as to what proportion of the turnover of either shop was these disputed products.[37]In my view, the Judge applied the correct test. He considered the character of use as a general store, as understood in 1963, and concluded that the Defendant was not precluded from selling some confectionery and tobacco, so long as it was not sufficient in scale to amount to a distinct trade or business. If it crossed that line, then the fact that the shop might still qualify as a "general store", in the sense understood in the St Marylebone case, would not help the defendant, in view of the specific prohibition of the trades of tobacconist or confectioner.[38]As I read the covenant, it does not require that the excluded trades should become "dominant" before a breach is established, nor does the St Marylebone case support such an approach. Although the evidence of turnover was clearer in that case, the decision rested, not on the "dominance" of the offending uses, but on whether they were sufficient to constitute a distinct trade. This view is also supported by the evident purpose of the restrictions, which is to protect the claimants from having to compete with an identical trade on adjacent premises. The fact that it is not "dominant" in relation to the other trades on those adjacent premises does nothing to reduce its impact on the claimants.[39]For the same reason, the particular points relied on by Mr Blackett-Ord do not undermine the Judge's conclusion. The Judge was clearly aware of the relative sizes of the two shops. It might have been helpful to have clearer information in relation to turnover, as was available to Hoffmann J. However, there was ample evidence in my view to support the Judge's conclusion that the tobacco and confectionery trades were sufficient, both in themselves, and in relation to the Claimants' activities, to amount to a breach of the covenant.[40]Accordingly, I would uphold the judgment on the second preliminary issue also. The Judge's Order The Judge's Order[41]There was also an appeal on the form of the Judge's order in relation to the instruction of a joint expert. As appears from his skeleton argument, Mr Blackett-Ord criticises this part of the order on two grounds: first, that it envisages the appointment of an expert, without any clear definition of the test he or she is to apply; secondly, that it is wrong in principle to refer to an expert questions of quantum and the terms of the injunction, which should be decided by a Judge.[42]The parties agreed that we should not deal with this issue, until we had reached a conclusion on the two preliminary issues. Accordingly, we have not heard detailed argument. Some brief comment may, however, be helpful at this stage. The Judge's order needs to be seen in the context it was given. From the transcript of the discussion before him, he made clear that the suggestion of a joint expert was "in the interests of proportionality and economy", but that he would be prepared to "think again" if agreement proved impossible. Furthermore, he did not envisage the expert proceeding in a vacuum. He acceded to Mr Blackett-Ord's proposal that the parties should exchange draft instructions to the expert, with a view to agreeing their form. So far as concerns the certainty of the test, it has to be accepted that the covenant does not lay down a precise criterion. The question as to whether the potentially offending activities amount to a separate trade has to be one of judgment, for the expert and ultimately the court.[43]I would only add this. As has been seen, the covenant envisaged that disputes between lessees as to "the articles or commodities which may be sold" should be referred for decision to the Council's "Estate Agent". It has not been suggested that this provision would have extended to the issues of principle, which have been argued before us. Indeed, we understand that the Council declined to become involved in this dispute. However, now that the issues of principle have been settled, what remains is a much more limited exercise. Drawing the lines of demarcation, in the light of our judgment, might well be considered an appropriate matter for the Estate Agent (or the present equivalent officer within the Council). Without having heard argument, I would be inclined to construe the proviso widely, as extending not just to the identities of "articles or commodities" but also as to relative quantities, where they are relevant to a dispute under the covenants. This might represent a cheaper and more practical means of settling the matter, than further recourse to the court. However, I emphasise that this is purely by way of suggestion, and is without prejudice to the appeal on the procedural point, if it is pursued, or to subsequent consideration by the Judge.[44]In conclusion, I would dismiss the appeal on both the preliminary points. Lord Justice Buxton:

Lord Justice Buxton:

[45]I agree with my Lord that the appeal should be dismissed in respect of both of the preliminary issues. I venture, perhaps unusually, to add a few words in respect of a matter that was not ventilated before us, and which does not therefore affect the outcome of the appeal. I do so because this case raises some particular questions that may however be of importance in other cases.[46]The present case was unusual, as a building or letting scheme, because the agreements seek to regulate the commercial activities to be carried out on the respective plots. The regulation is imposed, not for the usual reason of preventing activities that harm the general amenity of the neighbourhood; but rather to limit each lessee to the trade that he had undertaken, and to protect him from competition in that trade from fellow lessees. The landlord's interest in such regulation is not far to seek. As a local authority he would wish to make a range of trades available for local residents, and it is no doubt the case that, as in a commercial shopping centre, lessees are much more likely to be willing to take the leases and in so doing provide that service if they have the assurance of a protected trade within the centre. However, although we were not shown any other examples in English law of a letting scheme being found in commercial circumstances, the principles underlying building schemes can plainly be extended to such a case, and researches conducted by my Lord and referred to in §8 of his judgment revealed several Canadian cases in which shopping centres have been found to be at least potentially subject to a letting scheme.[47]In perhaps the most important of these cases, Russo v Field (1970) 12 DLR 3d 665, Laskin JA (as he then was) pointed out the element of mutuality between tenants that characterised such a centre, but at the same time warned that that assumption could not prevail in order to make the mutuality coercive in the absence of precise language in the respective leases that spelled out the desired protection against competition. I would respectfully adopt that warning. In a case such as the present, the private, local law that constitutes the letting scheme is imposed in the commercial interests of the tenants, and restricts what would otherwise be entirely permissible, indeed desirable, activities. It is therefore very necessary to ensure that the scheme was fully agreed by everyone, and in clear terms. For the reasons given by my Lord, and set out in §§ 14-17 and 21 of his judgment, I am satisfied that those requirements are fulfilled in this case. Other, differently drafted or administered, schemes might not pass that test.[48]There is however another aspect of the appeal that I feel obliged to mention briefly. As I have pointed out, and as Laskin JA emphasised in Russo , the object of a letting scheme in a commercial context is to protect the tenants from competition from each other. The competition regime then operative in Canada does not appear to have extended to such a case. However, under the rules of English competition law that operated during the currency of the letting scheme now before the court, as contained in the Restrictive Trade Practices Act 1976 [the 1976 Act], agreements or (non-contractual) arrangements imposing restrictions on two or more parties had to be notified, by the furnishing of particulars, to the Director-General of Fair Trading. If not so notified, the restrictions were rendered void by section 35 of the 1976 Act. And the restrictions appear to remain void even after the repeal of the 1976 Act, by virtue of section 2(4) of, and the transitional provisions contained in paragraph 20(1)(a) of Schedule 13 to, the Competition Act 1998.[49]The potential significance of all this is as follows. Non-competition covenants such as those accepted by the tenants in this case prima facie impose restrictions under the 1976 Act. Although we made no enquiries on the point, it is almost inconceivable that covenants taken in the course of a modest and orthodox commercial activity such as the present will have been notified to the Director. Had the covenants been notified, it is equally inconceivable that the Director would have seen anything objectionable in the existence of such covenants in a small shopping estate such as the present: but under the 1976 Act, as least at the notification stage, form and not substance was all.[50]In the case of non-competition covenants in the context of an agreement with the landlord it was held by Mocatta P in Re Ravenseft [1978] 1 QB 52 that a restriction in terms of the 1976 Act was not thereby accepted: because the tenant, in taking the lease, did not restrict a pre-existing freedom to trade on the demised premises, but rather obtained a new, but limited, freedom to trade there. Some reserve has been expressed about some aspects of Ravenseft , but the decision has stood unchallenged for a quarter of a century, and it is too late now to call it into question.[51]That, however, does not necessarily conclude the question over the "horizontal" arrangement between the tenants. This is indeed, in 1976 Act terms, an arrangement, and not a contractual obligation: see for instance Simonds J in Lawrence v South County Freeholds [1939] Ch 656 at p682. That equity or arrangement arises because as, Lord Macnaghten put it in Spicer v Martin (1888) 14 App Cas 12 at p 25, "Community of interest necessarily requires and imports reciprocity of obligation". The issue, therefore, is whether the implied arrangement between the tenants that they will take and observe leases on the terms, restrictive of competition, imposed by the landlord can be saved by analogy with Ravenseft . It will be appreciated that it is analogy that is required: Ravenseft cannot be applied directly, since the tenants do not grant to each other any new right to be on and trade from the premises, and therefore the obligations that they undertake to each other cannot be characterised as the contractual acceptance of a limited right, but rather as a non-contractual understanding that they should observe the limits imposed by the landlord on the right granted by him.[52]This question does not appear to be addressed in works on leases or covenants, but it has attracted the attention of competition lawyers. The leading authorities, the learned editors of Chapter 40 of the 27 th edition (1994) of Chitty on Contracts , comment, at § 40-058: "[ Revenseft ] will be particularly relevant where there is a building scheme imposing restrictive covenants and two or more of the lessees for the time being carry on business in the supply of goods or services. If the reasoning in the Ravenseft decision is correct, such schemes should generally fall outside the RTPA 1976; but in cases where such a conclusion depends on the correctness of the reasoning Ravenseft , particulars should still be furnished ex abundanti cautela. The caution is thus exercised in respect of Ravenseft itself, rather than in respect of the extension of that jurisprudence from the vertical to the horizontal aspects of the building scheme: a caution that I have ventured to suggest may not now be justified. "[ Revenseft ] will be particularly relevant where there is a building scheme imposing restrictive covenants and two or more of the lessees for the time being carry on business in the supply of goods or services. If the reasoning in the Ravenseft decision is correct, such schemes should generally fall outside the RTPA 1976; but in cases where such a conclusion depends on the correctness of the reasoning Ravenseft , particulars should still be furnished ex abundanti cautela. The caution is thus exercised in respect of Ravenseft itself, rather than in respect of the extension of that jurisprudence from the vertical to the horizontal aspects of the building scheme: a caution that I have ventured to suggest may not now be justified.[53]These questions were not raised before us and, the issue not being one of illegality, the court was not under an obligation to pursue it of its own motion. I venture to mention the matter only because this appears to be the first English case in which a building scheme has been enforced in a commercial context that imposes limitations on competition, and it should perhaps be recorded that the court has not heard argument on the specifically competition law aspects of that arrangement. Lord Justice Simon Brown Lord Justice Simon Brown[54]For the reasons given by Carnwath LJ, I too would dismiss this appeal.