Dunnes Stores (Ilac Centre) Ltd v Irish Life Assurance Plc and O'Reilly

• Jurisdiction: Ireland
• Judge: Mr. Justice Clarke
• Judgment Date: 23 April 2008
• Neutral Citation: [2008] IEHC 114
• Docket Number: [2007 No. 5367
• Court: High Court
• Date: 23 April 2008

Dunnes Stores (Ilac Centre) Ltd v Irish Life Assurance Plc & O'Reilly

BETWEEN

DUNNES STORES (ILAC CENTRE) LIMITED

PLAINTIFF

AND

IRISH LIFE ASSURANCE PLC AND JOSEPH O'REILLY

DEFENDANTS

[2008] IEHC 114

No. 5367 P/2007

[No. 101 COM/2007]

THE HIGH COURT

COMMERCIAL

LANDLORD AND TENANT

Lease

Change of use clause - Application for change of use from supermarket to high quality food hall - Inconsistent with existing user clause in lease - Proper construction of clause - Mandated obligations on landlord for consideration in change of use application - Purpose of refusal - Whether consent of landlord unreasonably withheld - True motive for refusal of consent - Whether improper factors taken into account - Whether refusal means for exerting leverage - Whether proffered reason incompatible with text of clause - Justification - Bona fide reasons - Whether refusal contrary to terms of lease - Bromley Park Garden Estates Ltd v Moss [1982] 1 WLR 1019 and Design Progression Ltd v Thurloe Properties Ltd [2004] EWHC 324 (Ch) [2005] 1 WLR 1 considered - Declarations granted (2007/5367P & 2007/101COM - Clarke J - 23/4/2008) [2008] IEHC 114

Dunnes Stores (Ilac Centre) Ltd v Irish Life Assurance plc & O'Reilly

BROMLEY PARK GARDEN ESTATES LTD v MOSS 1982 1 WLR 1019

DESIGN PROGRESSION LTD v THURLOE PROPERTIES LTD 2005 1 WLR 1

1. Introduction

2 2 1.1 The Ilac Centre was one of the first of its kind in Ireland. The centre was developed over 25 years ago as one of the first city centre shopping facilities in the country. It would be fair to say that it is common case between the parties that the centre had, by the early years of this century, become somewhat "tired". The ownership of the landlords' interest in the shopping centre passed through many hands over the years but is now in the possession of the defendants. The Ilac Centre is, therefore, owned as to 50% each by the first named defendant ("Irish Life") and the second named defendant ("Mr. O'Reilly") (collectively "the landlords"). Though only relevant in a marginal way, I should also note that the interest of Mr. O'Reilly was, until approximately 2005 owned by British Land Group ("British Land"), the major land holding company, with interests in both the UK and Ireland. The interest of British Land was disposed of, in 2005, to Mr. O'Reilly.

3 3 1.2 The plaintiffs ("Dunnes") are, of course, an extremely well known and established retailing company. Dunnes operate many stores throughout the country and have done so with a significant degree of success over a number of decades. Dunnes has, from time to time, had various interests in properties in and near the Ilac Centre. The particular focus of these proceedings is a unit which is known as Dunnes 1, which has been in the possession of Dunnes since the early stages of the development of the Ilac Centre. The way in which Dunnes holds its interest in Dunnes 1 is by means of a long lease at a nominal rent which was purchased for a significant capital sum. It is obvious that the reason why a lease of that type, rather than an outright freehold purchase, was put in place at the relevant time was so that both Dunnes, the developers of the Ilac Centre and their respective successors in title would be bound by the various covenants contained within the lease designed for the benefit of the centre as a whole. Thus Dunnes, while in commercial terms "purchasing" the property, are nonetheless subject to the terms of the lease which are, doubtless, in terms not dissimilar to those on which the other tenants for the time being in the Ilac Centre hold their properties, save that such tenants are likely to hold their properties on more normal leasehold terms as to rent.

4 4 1.3 The dispute which has arisen between the parties concerns a desire on the part of Dunnes to change the use of Dunnes 1 (or, at least, a portion of it), to what is described as a "high quality food hall" use. It is common case that such a use is inconsistent with the existing user clause in the lease. It is also common case that Dunnes are entitled, under the terms of the lease, to apply for a change of use and that the landlords for the time being are not entitled to unreasonably withhold any such consent. This case is, therefore, concerned with the issue as to whether the consent of the landlords has been unreasonably withheld in relation to Dunnes request for that change of use.

5 5 1.4 There are some facts of significant controversy between the parties to which it will be necessary to turn in due course. However, many of the underlying and background facts are not in dispute and it is to those that I first turn.

2. The Uncontested Facts

2 2 2.1 Irish Life developed the Ilac Centre in the late 1970's in conjunction with Dublin Corporation with the shopping centre opening in November, 1981. In February, 1997 Irish Life bought out Dublin Corporation's interest in much of the shopping centre (i.e. the entirety of the shopping centre devoted to retail). In July, 2001 Irish Life sold a 50% share in the centre to British Land, who in turn sold their interest to Mr. O'Reilly in August, 2005.

3 3 2.2 It would appear that subsequent to Irish Life buying out the interest of Dublin Corporation in 1997, an application was made for planning permission in 1998 for significant re-development works within the centre. A revised planning permission was obtained in July, 2003. A number of different projects were brought to completion over the next number of years including a significant re-development which was launched in February, 2005, and completed in October, 2006. It is also important to note that a particularly significant additional development involved Dunnes Stores in an independent arrangement with the landlords. A so called "framework agreement" was entered into in November, 2003 between Dunnes and Irish Life/British Land which provided for an exchange by Dunnes of a unit known as Department Store 2 ("Dunnes 2") for certain units on the central plaza of the Ilac Centre. Those units backed onto a site on which Dunnes intended to build a re- developed Henry Street store, which has become known as Dunnes 3. The units within the Ilac Centre which Dunnes acquired back onto this store, so giving the store access onto the central Ilac Centre mall, as well as directly out onto Henry Street. Therefore, the rear portion of Dunnes 3 is within the Ilac Centre properly so called, whereas the front portion is, strictly speaking, an entirely separate Dunnes development fronting onto Henry Street.

4 4 2.3 It is common case that Dunnes wrote to Irish Life on 28 ^th November, 2006, seeking consent to the change of use with which I am concerned. The possibility of such an application had been broached informally some weeks earlier. It will be necessary to turn to the internal consideration given to that matter by and between Irish Life and Mr. O'Reilly and his officials in due course, as this is the subject of some controversy. However, in that context it should be noted that it is clear that Mr. O'Reilly and his officials acted as asset managers of the Ilac Centre and, on any view, had a more significant role in practice in any relevant decision making than Irish Life.

5 5 2.4 It should be noted in passing that the user clause relevant to Dunnes 3 was different to that which had been in place in respect of Dunnes 2 for which, of course, Dunnes 3, was, in a sense, a partial "swop". Unlike Dunnes 2, the user clause for Dunnes 3 permitted food use. It should, however, be noted that there was no obligation on Dunnes to provide food use in Dunnes 3. Rather such use was permitted. It was stated by witnesses on behalf of both Irish Life and Mr. O'Reilly that it had been their assumption or understanding that Dunnes intended opening a food facility in the Dunnes 3 store. In that context it was said that the landlords were surprised when the November letter was received which intimated a desire to change the use of part of Dunnes 1 to a high quality food hall. It became clear at that time that Dunnes no longer intended to operate a food use in Dunnes 3.

6 6 2.5 It should also be noted by way of background that permission had been given for Dunnes to operate a food business out of Dunnes 2 on a temporary basis during the period when the revamped Dunnes 3 was under construction. The framework agreement provided, of course, that Dunnes 2 was to be handed back to the landlords as soon as Dunnes 3 was operational.

7 7 2.6 In any event, having engaged in various meetings and consultations including some consideration of additional information supplied by Dunnes (on request by the landlords), a letter issued on behalf of the landlords on 2 ^nd March, 2007 which informed Dunnes that the landlords refused consent for the change of use sought. It is in respect of that decision that these proceedings are maintained.

8 8 2.7 It should, in addition, however, be noted that certain further information was provided subsequent to the refusal in an attempt by Dunnes to persuade the landlords to change their position. That attempt was unsuccessful.

9 9 2.8 On 14 ^th March, solicitors acting on behalf of Dunnes wrote to Frank Martin, head of Asset Management within J.F.M. Property Services Limited (which I understand to be a vehicle of Mr. O'Reilly's and which was involved in asset management on behalf of the landlords in respect of the Ilac Centre) referring to the refusal. The original letter of refusal of 2 ^nd March, 2007 had stated that the reason was "on the grounds of good estate management". The letter of 14 ^th March indicated that that reason was not understood and sought an explanation as to what was meant by "good estate management" in the circumstances of the case. This letter does not appear to have been...