Back To The Future? Does Recent Case On Common Law Restraint Of Trade Foreshadow How UK Competition Law Might Evolve?

• Published date: 07 January 2021
• Subject Matter: nti-trust/Competition Law, Antitrust, EU Competition
• Law Firm: Bristows
• Author: Ms Pat Treacy and James Batsford

In August 2020, the Supreme Court handed down its ruling in Peninsula Securities Ltd v Dunnes Stores (Bangor) Ltd. This judgment is important in its own right, taking a new approach to common law restraint of trade and is a fairly rare example of the Supreme Court reversing a previous Supreme Court/House of Lords judgment. However, the judgment also invites consideration of the influence it may have on how, in a post-Brexit world, the English courts may interpret restraints on competition in other contexts.

Background

The case concerned a restrictive covenant in a lease granted initially by the developer of a shopping centre, and later by the respondent (Peninsula), to the appellant and anchor tenant (Dunnes) over part of that shopping centre. The covenant prevented Peninsula from leasing any part of the shopping centre to a business that would compete with Dunnes. Peninsula challenged the covenant as being unenforceable owing to the common law restraint of trade doctrine. Following precedent from the late 1960s, the High Court of Northern Ireland dismissed the claim, holding that the original developer had surrendered a 'pre-existing freedom' to use the land when it assigned the land to Peninsula, and that the doctrine of restraint of trade was therefore not engaged.¹ The Court of Appeal disagreed, holding that the restraint of trade doctrine could apply and thus potentially exposing Dunnes to competition as the covenant would fall away if it were held to be unreasonable.² Dunnes appealed to the Supreme Court.

Decision

The Supreme Court reassessed the 'pre-existing freedom' test. It concluded, on logic and public policy grounds, that the question of whether or not a pre-existing freedom has been surrendered is not the appropriate threshold test for the application of the restraint of trade doctrine. The Supreme Court instead favoured the 'trading society test', which had previously been proposed by Lord Wilberforce in a dissenting opinion in the leading case. Under that test a covenant to restrain the use of land is not an unenforceable restraint of trade at common law if the covenant is of a type which has "passed into the accepted and normal currency of commercial or contractual conveyancing relations" and which therefore has "assumed a form which satisfies the test of public policy". In other words, has the type of transaction been found to be generally 'acceptable and necessary' as part of the appropriate 'trading society'?

Having decided that the...