26 February 2016

Claimants ask CAT to check out Tesco’s restrictive covenant via fast-track procedure

The Consumer Rights Act 2015 (the CRA) has made changes to the competition private damages actions regime, notably extending the scope of s.47A of the Competition Act 1998 (the Act) to allow damages actions to be brought on a stand-alone basis, as opposed to only being allowed on a follow-on basis.  This revision is currently being made use of by the owners of a plot of land, who are bringing a claim in the Competition Appeal Tribunal (CAT) for damages and an injunction against Tesco Stores Limited (Tesco), as confirmed in a notice of claim published on 18 February 2016.  The claimants allege that following their sale of land to Tesco in 1997, a restrictive covenant, imposed under the terms of the transfer agreement and burdening land retained by the claimants, is in breach of Chapter I and/or Chapter II of the Competition Act 1998 (the Act) as well as the common law doctrine of restraint of trade.  The restrictive covenant prevents the claimants’ burdened land from being used for the sale of food, convenience goods or pharmacy products.

The claimants have brought their action for damages on several grounds.  Firstly, they allege that either or both of the transfer agreement and restrictive covenant constitute an agreement or concerted practice, having the object or effect of preventing, restricting and/or distorting competition on the relevant market within the UK, contrary to the prohibition under Chapter I of the Act.  The claimants also allege that the restrictive covenant adversely affects trade within the UK, as it hinders the claimants’ ability to develop and lease the retained land and/or it hinders the sale of grocery and pharmacy goods within the relevant geographic market, further contrary to the Chapter I prohibition.

Insofar as the prohibition under Chapter II of the Act is concerned, the claimants allege that the covenant protects Tesco’s dominance in the markets for particular goods, the sale of which is prohibited by the covenant, thereby preventing, restricting and distorting competition.  Further, or in the alternative, the claimants allege that the restrictive covenant offends the common law doctrine of restraint of trade.  The claimants argue that the covenant is greater in scope and duration than would have been necessary to protect any legitimate interest of Tesco existing at the time of the transfer.

In addition to damages and interest, the claimants are also requesting an injunction preventing Tesco and any of its associated companies from enforcing the restrictive covenant.

As well as being only the second instance of a stand-alone damages action being brought in the CAT pursuant to the revised s.47A of the Act, the first having been settled prior to trial , the case is also of particular interest for other reasons.  The claimants have requested that the proceedings be designated under the new fast track procedure, recently introduced as an extension to the CAT Rules following the enactment of the Consumer Rights Act 2015, providing a new, streamlined option for claims arising under s.47A.  Further, this claim is the first of its kind in privately challenging Tesco’s use of a restrictive covenant to prevent rival operators from selling the categories of goods specified in the covenant. It should be noted that, in 2013, Martin Retail Group Limited (Martin) successfully challenged a decision of Crawley Borough Council (the Council) to refuse to extend its permitted use so that it could sell groceries. In that case, the court found that the use restrictions imposed by the Council on Martin's lease could have an anti-competitive effect.

It is also notable that following a market investigation by the Competition Commission into the supply of groceries in the UK, the industry found itself subject to the Groceries Market Investigation (Controlled Land) Order 2010.  This Order contains remedies designed to limit the ability of large grocery retailers to prevent land from being used by their competitors for grocery retailing in the future, including obligations to lift specified restrictive covenants and not to enter into new ones that may restrict grocery retailing.  Following the making of this order, the Commission ordered Tesco to remove restrictive covenants over four UK sites.  The restrictive covenant in question clearly fell outside the scope of the order.

Tesco and others in the grocery and real estate industries will await the outcome of this case with interest as it could set a precedent for the overturning of similar covenants burdening land across the UK.

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