England and Wales Court of Appeal (Civil Division) Decisions

IN THE SUPREME COURT OF JUDICATURE
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT
CARDIFF DISTRICT REGISTRY
(His Honour Judge Moseley QC)

		Royal Courts of Justice Strand London, WC2
		15 June 2004

1. THE VICE-CHANCELLOR: This is an appeal of the defendant, Mr Kiley, brought with the permission of the judge from paragraph 2 of the order of His Honour Judge Moseley QC, sitting as a Deputy Judge of the High Court, made on 19 December 2003. By paragraph 1 of that order the judge enjoined Mr Kiley from using, or permitting the use of, Nos 6 or 8 Parkway, Sketty, Swansea for the purpose of -

(a) any trade other than that of a grocer and general store; or

(b) the trade or business of a sugar confectioner or tobacconist.

By paragraph 2 the judge declared what would constitute a breach of that injunction by reference to the area of the retail display, namely, a display in excess of -

(a) a confectionery display stand 1 metre in width and 2 metres in height; or

(b) either a Gallagher counter top unit for tobacco or equivalent shelf space.

2. In the event, no complaint is made about the judge's order relating to confectionery. The appeal has centred on the restriction on the display of tobacco products to the unit described in paragraph (b) which, in effect, restricts display to 1.74 metres of shelving. Counsel for Mr Kiley submits that such restriction is excessive and arbitrary.
3. In 1962 the Swansea City Council developed its property at Parkway, Sketty, Swansea by the construction of a parade of five retail shops which it let off on 99 year leases in largely common form but with individual user covenants. Mr Kiley is the owner of a chain of supermarkets, one of which operates from Nos 6-8 Parkway under the terms of a lease dated 6 November 1963. The claimants, Mr and Mrs Williams, own a CTN business - that is a business of confectioners, newsagents and tobacconists - which they carry on from No 4 Parkway under a lease dated 6 January 1964.
4. On 13 January 2000 the Williamses instituted proceedings in the High Court in Cardiff against Mr Kiley, claiming that his sales of tobacco and confectionery constituted a breach of the user covenants affecting Nos 6-8, namely those contained in clause 3 (14) (b) and (c) of the lease relating to No 8. Covenants so far as material are in the following terms:

"The Lessee hereby covenants with the lessor as follows:

.....

(14) (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 grocery and general stores (which term shall not include a footwear repair service and collection centre Dry Cleaning and Laundry service Ladies Hairdressing Meat Purveyor Pharmaceutical Chemist or Newsagents Sugar Confectioner Tobacconist or Post Office) and for this purpose (1) to display the goods applicable to such business in the shop window (ii) not to obscure the plate glass window in any way either by painting or otherwise .....

(c) not to use or permit the use of the demised premises or any other part thereof for any other purpose than aforesaid."

5. The Williamses claimed that they were entitled to enforce that covenant because it was negative in nature and the development of the parade and the leases of the various shops constituted a building scheme. This contention, tried as a preliminary issue, was upheld by Judge Moseley on 27 June 2001 and on appeal from him by the Court of Appeal on 21 November 2002.
6. On 28 January 2002 Judge Moseley held in relation to a further preliminary issue he had ordered to be tried that Mr Kiley was in breach of the relevant covenant. In his judgment he described the business of Mr Kiley in the following terms:

"7 Mr Kiley operates a supermarket at the 2 shops without much regard for the covenant not to use them other than as a grocery and general store. He sells a range of products which are normally sold nowadays by supermarkets. These include not only grocery items but also tobacco and cigarettes and stationery items. The proportion of his turnover attributable to these items was not given in evidence, but they account for 12% of his display area. The documents provided to me concerning turnover were not analysed by the 2 experts who gave evidence but ..... counsel for the claimants undertook the exercise and gave me the figures in his skeleton argument without objection by [counsel for the defendants]. Those figures show for the 3 years ending 30 April 1999, 2000, 2001, that his turnover in tobacco sales greatly exceeds that of the claimants' CTN business next door and in the years 2000 and 2001 has been over double the turnover of the claimants. In the years ending 30 April 2000 and 2001 his confectionery sales turnover has also been substantially in excess of the turnover of the claimants. He has a display stand for tobacco and cigarettes which is about 8 feet long by 2 feet wide with 7 shelves and is 50% greater than the claimants' display. His confectionery display area, which is larger than normal in a supermarket, varies in size with the seasons but is at least 5 or possibly 6 metres long and contains 5 or possibly 6 shelves. Two pillars are also used to display confectionery items and there are also bins and displays at the checkout containing confectionery."

7. The judge recorded that it was common ground between the parties that the meaning of the relevant covenant had to be ascertained as of November 1963. He upheld that submission and concluded that Mr Kiley was in breach of the covenant so construed. His conclusions are expressed in paragraphs 10 and 12 from which I now quote:

"10 ..... 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."

At paragraph 12 he added:

"In my judgment the evidence shows that in addition to using the premises as a grocery and general store Mr Kiley has been using them also as a tobacconist and confectioners and is therefore in breach of the second leg of the covenant. That seems to me amply proved by the evidence I 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 store selling as part of that business some tobacco and confectionery."

Having handed down his judgment on liability, the judge then considered how it should be implemented. Having heard further argument, he directed the parties to try to agree a single joint expert to report on (a) the terms of the injunction and (b) the quantum of damage.

8. On 21 November 2002 the Court of Appeal (Simon Brown, Buxton and Carnwath LJJ) upheld the judge in respect of both the letting scheme and Mr Kiley's breach. They recorded in paragraph 31 that it was not in dispute that the character of the nominated uses had to be judged as they would have been at the commencement of the leases. At paragraph 37 Lord Justice Carnwath, with whom the other members of the Court agreed, said:

"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."

While the Court of Appeal agreed with the judge as to those two points, they disagreed with him in relation to the appointment of a joint expert. By paragraph 3 of the order of the Court of Appeal they directed that -

"The case management directions in paragraphs 3 to 5 of the order made on the 28 January 2002 be set aside and the matter of future case management be referred to a judge for further directions as to the determination of the issue as to 'What is the defendant's permitted quantity or manner of sales of tobacco and confectionery?'"

9. On 4 September 2003 at a directions hearing before His Honour Judge Moseley he directed that an agreed letter of instructions to a joint expert, Mr Hugh Gregory of Robson Rhodes, be sent, and ordered the trial of a preliminary issue as to the terms of the injunction to be granted. The letter of instruction set out the history of the matter and concluded:

"8 It is common ground between the parties that the effect of the covenants contained in the lease is not to impose an absolute prohibition on the sale of any confectionery or tobacco products by Mr Kiley. Rather, the covenant precludes the operation of a confectioner or tobacconist business. It was accepted by His Honour Judge Moseley at the hearing on 28 January 2002 that some level of tobacco and confectionery sales by Mr Kiley is permissible as being ancillary to his principal business activity. There is therefore a practical difficulty in determining at what point the level of sales of confectionery and tobacco products by Mr Kiley are prohibited by the covenant. This is an issue which will ultimately have to be determined by the court.

At the hearing on 4 September 2003 His Honour Judge Hywel Moseley QC directed that a single joint expert be appointed to prepare a report as to the terms of any injunction.

The judge has, following representations from the parties, decided that the terms of the injunction should be decided first and that quantum of any loss suffered by the claimants should be decided later.

You are asked to prepare a report stating:

1) At what point sales of (a) tobacco and (b) confectionery would amount to the use of the premises for a trade other than the trade or business of a grocery and general store;

2) What physical restraint on trade would need to be imposed to ensure that sales do not exceed such limit.

The parties have suggested that the following physical restraints may be appropriate. These are not necessarily exhaustive and you may wish to suggest others."

10. The letter goes on to set out under two headings - Confectionery Sales and Tobacco Sales - the suggestions of the parties as to what restriction might be appropriate. In relation to tobacco sales, the second of the claimants' suggestions was that ultimately adopted by His Honour Judge Moseley and enshrined in the paragraph of the order now under appeal.
11. Mr Gregory reported in a 17-page report dated 13 November 2003. He dealt at some length with the nature of the business of the Williamses and Mr Kiley. He considered the market place and the nature of the trade. He turned, in chapter 5, to "The points I am asked to consider". In paragraph 5.4 he said:

"In my opinion the likely parameters of whether there is a separate trade must take into account:

(a) the facing space offered;

(b) the absolute value of the particular sales; and

(c) the ratio of the sales in question to the total.

The evidence indicates that the CK Supermarket has the facility for greater facings to the customer for tobacco but when I visited was using part of the tobacco facings for medicines. The absolute values of sales shows the CK Supermarkets sales of tobacco and confectionery are at similar levels to the Williams' takings. Though the CK Supermarkets sales as a ratio to total sales are below the 'norm' or range for a convenience store they do reflect a significant percentage of total sales, being for tobacco (15.5%-16.1%) and confectionery (4%-4.4%), between 19.5% and 20.5% at the present time. Taken together, in my opinion they are a separate trade. In isolation only the tobacco is probably large enough to be a separate trade category, if measured just in sales values. Confectionery is always going to be low because of the unit price. In my opinion the point at which there would be a cut off is about £12,500 per month or about 10% of sales for tobacco and if confectionery is above about 40% of this or £5,000 per month of this then that would be the value of a separate trade."

12. Mr Gregory's conclusion in relation to question (1) was, in substance, £12,500 per month or 10% of sales for tobacco, and £5,000 per month or 4% of sales for confectionery. In relation to question 2, Mr Gregory was not able to be so precise. His conclusions, as expressed in paragraph 5.9, were as follows:

" ..... A percentage of that display area could be allowed for within the CK Supermarket store at Sketty Park. I suggest that that could be as follows:

.....

Tobacco

(a) either a counter top unit on each of the tills allowing in total for approximately 70% of the facings currently in Mr and Mrs Williams' shop; or

(b) in the alternative a smaller eg one metre wide unit with six shelves for tobacco and ancillary products, at the one till."

13. There followed correspondence between Mr Gregory and the solicitors for the Williamses. This correspondence elicited two important facts. First, the cut off point referred to by Mr Gregory in his report was not the cut off point as at November 1963, but, in his opinion, would not be significantly "awry" and, second, that he could not predict the effect on turnover of the proposed reduction in display area.
14. The third preliminary issue was tried by Judge Moseley on 19 December 2003. He referred to the previous history of the matter and, in particular, paragraph 10 of his judgment given on 28 January 2002. He pointed to the difficulty of translating his conclusion into workable injunctions. He referred to the report of Mr Gregory and expressed the view that he was not bound by it, and that it was not all that helpful anyway. He expressed his agreement with both parties that a restriction on shelf space was more sensible than a limitation by reference to turnover. His conclusions are contained in paragraphs 23-30 of the notes prepared by counsel for the defendant from which I quote:

"23 The evidence is in my previous judgment at paragraph 10. From that evidence I surmise that the displays which would have been used on this part of the trade in 1963 would have been small. It is defined in imprecise terms in that judgment. But my view is that Mr Gregory's opinion is too generous to Mr Kiley. We must look at his figures with more restricted shelves in mind.

24 Mr Gregory suggests at his page 82:

'The claimants' suggestions are for much reduced display facings with reduction of between 70% and 80% of the existing display area for confectionery and a significantly reduced Gallagher rather than Imperial tobacco dispenser. One of the tobacco dispensers is for a portable dispenser which has significantly reduced display area and the other is for a significantly smaller desk-top dispenser being 0.6 of a metre wide and only having three shelves. The portable dispenser does not appear practical from a security aspect. The third alternative put forward to the claimants is for a vending machine. In my opinion a vending machine is probably impracticable as a method of selling cigarettes within a supermarket or convenience store.'

25 He refers to Mr and Mrs Williams' shop. It may [have] been relevant to look at the Williams' shop but the covenants are for Kiley's shop. The purpose was to restrict competition between the shops. So one can look at Mr Williams' shop.

26 Mr Davey put forward a more restricted proposal. He proposes:

(a) a 1 metre wide by 2 metre high confectionery display stand, and

(b) a 10-brand tobacco vending machine/Gallagher counter-top unit/Gallagher mini merchandiser.

27 He illustrates this by some photographs which I have seen.

28 I should not want to be as precise as this for the tobacco. There seems to me to be no requirement of a counter-top vending machine.

29 I will define shelf space as in one of these units; I think the unit will [be the] 10-brand tobacco vending machine. I will not limit it to 10 brands.

30 Subject to this, in the light of the previous evidence and Mr Gregory's report, I think Mr Davey's plan should be adopted."

It was based on that that the judgment was formulated in the terms it was, and the judge expressed some doubt as to whether there had been an accurate transcription in relation to the description of the vending machine, but nothing, I think, turns on it.

15. The case for Mr Kiley is as follows. Counsel points out that the restriction in respect of sales of tobacco imposed by the judge by reference to shelf-space was, he submits, excessive and unjustified by the evidence. The Gallagher counter top unit has total shelving of 3 x 580 mm, and that is 1.74 metres. The present shelving in use for tobacco sales is some 14 metres. Accordingly, he submits, the restriction gives rise to a reduction of 87% of shelf space, leaving tobacco sales as only 2% of turnover from 0.125% of available shelf space.
16. He complains that the judge failed to answer the question posed by the Court of Appeal in the passage from which I have quoted as to the permitted quantity or manner of tobacco and/ or confectionery sales. He submits that the judge was not entitled to reject the report of Mr Gregory in favour of his own, possibly imperfect, recollection of the evidence from the earlier hearing.
17. By contrast, the case for Mr Williams is that the Court of Appeal did not purport to lay down questions to be answered, merely to require the judge to make further directions so that it might be answered in due course. He submits that the judge was not obliged to accept the evidence of Mr Gregory but was entitled, indeed bound, to reject it because it did not focus on permissible sales of tobacco in November 1963 and could not translate a reduction in turnover into a reduction in shelf space. He submits that the judge was entitled to reach the conclusion he did on what was essentially a question of fact which this court should not disturb.
18. For my part, I would accept the submissions of counsel for the claimants. It is clear from the decision of the Court of Appeal in this case (see paragraph 37 which I quoted) that the line that Mr Kiley might not cross is related to the character of the business of a general store as understood in November 1963. Such character permitted sales of tobacco to some extent but not to such an extent as to amount to a separate trade. Thus the relevant line is that drawn in 1963 between the sale of tobacco products as ancillary to the trade of a general store and the sale of tobacco products to such an extent as to amount to a separate trade.
19. Where to draw that line is essentially a question of fact. Evidence in relation to it was adduced before the judge at the hearing of the second preliminary issue. The judge expressed his view on it in paragraphs 10 and 12 of his judgment on that issue, which I have already quoted. It is an unfortunate fact that while Mr Gregory's report may well serve as the starting point for an assessment of damages, it did not focus on the essential point in relation to the injunction. It was not Mr Gregory's fault that his instructions were not directed to the time material to the consideration of the terms of the injunction. He answered the questions put to him as best he could, but he did not provide an answer to the essential question - what was the maximum permissible limit of sale of tobacco products ancillary to the business of a general store in November 1963?
20. On the judge's previous findings it was, as the judge concluded, apparent that Mr Gregory was being unduly generous to Mr Kiley. Accordingly it was not surprising that the judge's actual conclusion, when judged against the report of Mr Gregory, appears, as counsel for Mr Kiley submitted, to be unduly restrictive of Mr Kiley. Moreover it is apparent that the suggested restriction on display put forward by Mr Gregory could not be related to the cut off point by reference to turnover from which he started.
21. The parties had asked the judge to insert into his order some guidance as to the permitted sales of tobacco products by reference to display. Such guidance is essentially a question of fact. The judge had, on the one hand, the evidence adduced before him at the trial of the second preliminary issue and his findings thereon and, on the other hand, the report of Mr Gregory. He preferred the former, and based his decision on it. In my view he was right to do so. That evidence and conclusion, unlike the report of Mr Gregory, was directed to the level of permissible sale of tobacco products in November 1963. As the decision of the Court of Appeal demonstrates, that is the correct point of time.
22. The judge's approach cannot, in my view, be faulted on any principled ground, nor, in my view, can it be justifiably criticised as being too broad-brushed. He did his best on the material available to provide the guidance to the parties which both of them had invited him to do.
23. I would dismiss this appeal.
24. LORD JUSTIFCE CLARKE: I agree.
25. LORD JUSTICE DYSON: I also agree.
26. MR DARCY: Before I deal with costs, your Lordship did mention that it may be said that Mr Gregory's report is the starting point for damages. I am concerned that that should not be misconstrued as describing that Mr Gregory's report is where we look for the damages to start off with.
27. THE VICE-CHANCELLOR: I said it "may" be the starting point for the assessment.
28. MR DARCY: As I understand it, your Lordships have not decided that that report is a matter .....
29. THE VICE-CHANCELLOR: I have said what I have said, and I used the word "may" advisedly.

(Counsel addressed the court on costs)

R U L I N G

30. THE VICE-CHANCELLOR: The appeal is dismissed with costs. In the nature of matters, it is a case in which plainly we ought summarily to assess those costs. We have been provided with a skeleton statement by the solicitors for the respondents which comes to grand total of £6,679.89. Objection is taken to two items: attendances on others 3.4 hours, £527; work on on documents 3.5 hours at the same rate, £542.50. On inquiry, it turns out that the "others" is counsel and the documents are, effectively, counsel's brief. It seems to us it is not right that both those items should be allowed.
31. In the circumstances we disallow the item "attendances on others" - £527 odd - but will summarily assess the costs in the total sum claimed, less the amount of £527, less the proportionate amount of VAT in relation to it. That will come to a sum fractionally in excess of £6,000, which we would invite counsel to agree. And the order will be for costs to be summarily assessed in that amount to be paid within 14 days from today.
Order: Appeal dismissed with the costs summarily assessed

Paragraphs 26-29 are included for your information, reference paragraph 19