Lidl GmbH v Bilo Property Holdings & Others

• Jurisdiction: Ireland
• Judge: Mr. Justice Barr
• Judgment Date: 06 September 2019
• Neutral Citation: [2019] IEHC 638
• Docket Number: [2019 No. 3544 P.]
• Court: High Court
• Date: 06 September 2019

BETWEEN

LIDL IRELAND GMBH

PLAINTIFF

AND

BILO PROPERTY HOLDINGS LTD, CENTZ STORE 7 LTD

&

CENTZ STORE 9 LTD

DEFENDANTS

[2019] IEHC 638

Barr

[2019 No. 3544 P.]

THE HIGH COURT

Discovery – Injunction – Restrictive covenant – Defendants seeking discovery – Whether the categories of documents sought were relevant and necessary to the defendants’ defence of the action

Facts: The plaintiff, Lidl GmbH, was the owner of a shop unit at Martyr's Road, Nenagh, Co. Tipperary (the old Lidl store). The first defendant Bilo Property Holdings Ltd, was the owner of a site nearby at McDonagh Street (the new Lidl store). The first defendant agreed to sell the new Lidl store to the plaintiff. The plaintiff agreed to sell the old Lidl store to the first defendant. In the contracts agreed between the plaintiff and the first defendant and in the subsequent Deeds of Transfer, the first defendant agreed to a restrictive covenant in favour of the plaintiff. The plaintiff sought a permanent injunction restraining the defendants from selling, or permitting the sale of food products from the old Lidl store in breach of the restrictive covenant. The second and third defendants, Centz Store 7 Ltd & Centz Store 9 Ltd, applied to the High Court seeking discovery of two broad categories of documents, which they said were relevant and necessary to their defence of the action. In particular, they argued that the documentation sought was relevant to their plea that the term "food retail" in the restrictive covenant did not cover the sale by them of very limited food products, such as chocolate bars, mineral water and some dried food products. The second and third defendants maintained that as they were strangers to the contracts entered into between the plaintiff and the first defendant, and to the negotiations leading up to those contracts, they were entitled to see any documentation from the pre-contract stage which touched upon the meaning of the restrictive covenant and/or the meaning of the term "food retail".

Held by Barr J that the range of documents sought in paragraphs A, B and C in the Notice of Motion were far too broad and encompassed categories of documents that go beyond what is permissible. Barr J was satisfied that the second and third defendants were entitled to have sight of any document or series of documents that would establish what was the agreement or understanding reached between the parties as to the scope of the restrictive covenant in relation to the selling of food products at the old Lidl store. Accordingly, Barr J directed that the plaintiff was to make discovery of the following: any document, note or memorandum, either in hard copy or in electronic format, which records any agreement between the plaintiff, its servants or agents, and the first defendant, its servants or agents, as to the meaning or extent of the term "food retail". In relation to paragraph E, Barr J was not satisfied that this category of documents was relevant to the issues that arose having regard to the state of the pleadings and in particular, to the fact that the plaintiff had abandoned the claim for damages, save in the event that the Court should decide that there was a breach of covenant, but that an injunction was not the appropriate remedy and proposed to award damages instead. In relation to paragraph F, Barr J held that this category of documents was not relevant to any issue that may arise at the trial of the action; what practices the plaintiff may have engaged in in other markets in other parts of the country were not relevant to the question of whether the agreeing of the restrictive covenant with the first defendant was a practice or agreement contrary to s. 4 of the Competition Act 2002. In relation to the discovery sought at paragraphs G and H, Barr J held that the subjective views of the plaintiff, through its board of directors or other servants or agents, could not affect the legality of the plaintiff's action from a competition law point of view. The agreement was either in breach of s. 4 of the 2002 Act having regard to the market in question, the plaintiff's share of that market and the geographical extent of the market, or it was not.

Barr J directed that the plaintiff make discovery in the terms outlined above, and also in the terms of paragraph D, which category was agreed between the parties.

Discovery granted in part.

JUDGMENT of Mr. Justice Barr delivered on 6 ^th day of September, 2019

Introduction

1 In this application, the second and third defendants are seeking discovery of documents from the plaintiff. The action arose in the following way: the plaintiff was the owner of a shop unit at Martyr's Road, Nenagh, Co. Tipperary (hereinafter “the old Lidl store”). The first defendant was the owner of a site nearby at McDonagh Street, Nenagh, Co. Tipperary (hereinafter “the new Lidl store”). The first defendant agreed to sell the new Lidl store to the plaintiff. The plaintiff agreed to sell the old Lidl store to the first defendant.

2 In the contracts agreed between the plaintiff and the first defendant and in the subsequent Deeds of Transfer, the first defendant agreed to a restrictive covenant in favour of the plaintiff. Under this covenant the first defendant was prohibited from carrying out any “restricted use” in the old Lidl store. “Restricted use” was defined as meaning “food retail and/or off–licence and/or any illegal or immoral use or noisy, noxious or offensive trade including but not limited to sex shop, methadone clinic, cattle market or abattoir”.

3 On 2 ^nd May, 2019 the second and third defendants became tenants to the first defendant of the old Lidl store. The plaintiff has alleged that the second and third defendants openly engaged in the sale of food at this premises. They alleged that there were multiple and assorted food items for sale at the premises, including confectionery, pasta, multiple sauces, rice, stir fry pastes, condiments, biscuits, snacks, tinned soups, crisps, cereals, soft drinks, ready meals and crackers.

4 The plaintiff claimed that these activities constituted a breach of the restrictive covenant in the contracts. They sought interim relief against all three defendants. On the second day of the hearing of that application, the parties reached a compromise whereby, without prejudice, the second and third defendants agreed to stop selling any food products at the premises pending the trial of the action. In the substantive action, the plaintiffs are seeking a permanent injunction restraining the defendants from selling, or permitting the sale of food products from the old Lidl store in breach of the restrictive covenant.

The Defences of the First, Second and Third Defendants

5 In its defence, the first defendant has pleaded by way of preliminary objection, that it has now caused the third defendant to sign a lease which contains the necessary restrictive use provisions to the satisfaction of the plaintiff. Accordingly, it has pleaded that save for the issue of damages and costs, the plaintiff's action is now moot.

6 The first defendant admitted that it purchased the old Lidl store subject to the restrictive covenant set out in the third schedule of the Deed of Transfer and Conveyance dated 12 ^th March, 2019.

7 The first defendant disputes the plaintiff's interpretation of the covenant, or its interpretation of the scope thereof. In particular, the first defendant has pleaded that the natural and ordinary meaning of the words “for the use as a food retail and/or off-licence” means that the premises as a whole cannot be used for food retail and/or off-licence. It pleads that the wording of the covenant does not restrict the sale of food on part of the premises, provided the premises as a whole does not constitute a food retailer. It is admitted and accepted that the restrictive covenant excludes the plaintiff, or his successors in title, using the premises as a supermarket and/or off-licence.

8 The first defendant pleads that the intention of the parties in using the words “use as a food retail and/or off-licence” was to ensure that a competitive supermarket could not be set up in proximity to the new Lidl store. It further pleads that the restriction contained in the restrictive covenant was to ensure that a competitive supermarket could not set up in proximity to the plaintiff on the new Lidl store and was not for the purposes of excluding the sale of any item of food on the old Lidl store, provided the sale of such items of food did not amount to a food retailer.

9 The first defendant further pleaded that it had made the second and third defendants aware of the restrictive covenant prior to them entering into the lease. It has been pleaded that it was represented to the first defendant by the second and third defendants that a minimal range of chocolate bars would be sold at its premises, together with a minimal number of units of bottled water. The first defendant pleaded that it permitted the second and third defendants to enter into occupation of the premises on foot of this representation. The first defendant also denied that the sale of such items constituted a breach of the restrictive covenant.

10 In their defence, the second and third defendants pleaded that they are a mixed retail store and while retailing in confectionery, dried foods, soft drink and non-alcoholic beverages and tobacco, those items did not form the predominant offering of the defendants at their store.

11 The second and third defendants further pleaded that the restrictive covenant was not a valid restrictive covenant in circumstances where the covenant had not taken effect when the second and third defendants entered into a contractual agreement to enter into the lands. They pleaded that it amounted to a Restraint of Trade clause and was in breach of the Competition Act 2002 and did not provide for a dominant and servient tenement....