Open and Shut Case: Dunnes Stores’ closure of store doors amounts to breach of lease covenants
On 2 March 2017, Mr Justice Max Barrett delivered his judgment on the case of Camiveo Limited v Dunnes Stores  3 JIC 0209, relating to the closure of the main doors of the Dunnes Stores anchor unit at Edward Square Shopping Centre in Galway (the Proceedings). Justice Barrett ruled in favour of Camiveo Limited (Camiveo), holding that Dunnes Stores (Dunnes) was in breach of several terms of its leases by closing the doors and that Camiveo was entitled to damages because the closure of the doors was a deliberate attempt by Dunnes to cause loss to its landlord. A&L Goodbody acted for Camiveo in the Proceedings.
The genesis of the Proceedings can be traced back to 2013 when Camiveo acquired the landlord's interest in Edward Square. Following that acquisition, Dunnes ceased paying both rent and service charge. Camiveo brought summary judgment proceedings against Dunnes to secure payment of the sums due and owing to it, and the High Court gave judgment in favour of Camiveo for an amount in excess of €1.1 million in July 2014. Dunnes appealed this decision to the Supreme Court, which ultimately also delivered judgment in favour of Camiveo in May 2015.
The Proceedings were issued by Camiveo when Dunnes closed the main doors to the anchor unit at Edward Square on 16 June 2015 in apparent retaliation for the service by Camiveo on Dunnes of copies of the High Court and Supreme Court Orders with penal endorsements (the penal endorsements mean that the parties on whom the Orders were served may be liable to imprisonment or sequestration against their property if the Orders were not complied with). On 9 September 2015, Camiveo obtained an interim injunction requiring Dunnes to reopen its doors pending the outcome of the trial of the Proceedings.
Camiveo argued that the closure of the doors was in breach of several covenants of Dunnes' leases. In addition to seeking orders requiring Dunnes to keep the main doors open, Camiveo sought orders requiring Dunnes to make payments due under the leases as they fall due and asked the Court to award aggravated and exemplary damages in favour of Camiveo because the closure of the doors was done with the intention of reducing the value of Camiveo's investment in Edward Square and thus causing harm to its economic interests.
The Court considered a number of alleged breaches of its lease contract by Dunnes, as follows:
The question considered by the Court in relation to planning was whether, in closing the main external doors to its store, Dunnes was in breach of the relevant planning permission - if this were the case, Dunnes would also be in breach of the covenant to comply with planning in its leases. In addressing this issue, the Court considered several prior authorities with regard to the interpretation of planning permissions and, in particular, whether a term can be implied into a planning permission. In the case in question, much turned on the fact that the doors which had been shut provided not only access to the Dunnes unit but also a pedestrian linkage between the William Street / Shop Street retail area of Galway and Eyre Square Shopping Centre which is immediately adjacent to Edward Square, although separately owned. Ultimately, the Court reached the conclusion that a condition in the planning permission to keep the doors in question open could be implied into the planning permission based on the nature of the dealings between the developer and the local authority and, in particular, the plans lodged with the local authority in respect of the development. The Court further considered that the absence of a specific condition requiring the doors to be kept open was readily explainable by the fact that (i) the pedestrian linkages were provided by the developer at the behest of the local authority and the local authority was not, therefore, likely to seek what it had already been given and (ii) it was understandable that the local authority would not anticipate that they would need to direct a retailer to keep its own doors open. Accordingly the Court held that both the planning permission and the planning covenant in the lease had been breached by Dunnes.
The Court also considered whether the closure of the doors amounted to a breach of the covenant to comply with fire safety measures. In this regard the Court held that there was a breach of fire safety requirements as the escape strategy on the basis of which the fire safety certificate had been granted was, following closure of the doors, no longer operable as envisaged and that the clause in the leases to comply with fire safety recommendations had accordingly been breached. In this regard the Court commented that Dunnes did not have the right to assess the reasonableness or otherwise of the recommendations of the chief fire officer – such recommendations relate to a public safety matter and must be followed unless "completely contrary to any semblance of sense".
The Dunnes leases contained standard commercial lease provisions to the effect that the tenant will not do anything that will cause the landlord's insurance to become void or voidable. The Court held, following evidence that Camiveo's insurers had asserted that if a claim was made as a result of the doors being closed then they would refuse to indemnify, that Dunnes was in breach of this insurance covenant.
The Court also held that the closure of the doors amounted to a non-structural alteration in respect of which Dunnes should have sought landlord's consent and that, in the absence of such consent, the alterations covenant had been breached.
In response to Camiveo's claim that Dunnes was in breach of its covenant not to do anything to obstruct the common areas of Edward Square, Dunnes argued that there was alternative access through the adjacent shopping centre. However, the Court held that Dunnes had breached this covenant of the lease by cutting off the direct access to Edward Square and that it was irrelevant that indirect access might otherwise be gained by a separately-owned and entirely inconvenient route.
"To Open" Clause
The lease of the Dunnes anchor unit contained a commitment on the part of Dunnes to open the store once fit-out was complete, but no subsequent obligation to keep the unit open for trade and, in fact, the "to open" clause contained a proviso that "nothing in this lease or otherwise shall oblige Dunnes to keep the Demised Premises or any part thereof open for trade or business". Dunnes argued that the doors in question were part of the Demised Premises and they were therefore entitled to close the doors under this proviso. Dunnes argued that requiring them to open the Doors was tantamount to imposing a "keep open" clause in their lease. However, the Court held that the "to open" clause was "an irrelevance" and agreed with Camiveo's contention that the intention of the clause is that, when Dunnes is open for trade, it is required to keep the doors open.
Dunnes argued the principle of non-derogation from grant in response to this line of argument, on the basis that they were being required to keep the premises open notwithstanding the text of the proviso in the "to open" clause. However the Court disagreed and held that all that the landlord was doing in this case was requiring the tenant to comply with the terms of the lease.
In addition to the issue of breach of contract, the Court also considered whether Dunnes had committed the tort of causing loss by unlawful means. In so doing, the Court drew a distinction with negligent torts, highlighting that, in the case of intentional torts, wrongfulness turns on the subjective mind of the wrongdoer, which must include a level of intention as to the harm suffered by the victim. The fact that there was harm caused to Camiveo in this case (namely loss of rent, damage to commercial relationships and the incurring of legal costs) as a result of unlawful means (in the case breach of contract) constituted, in the mind of the Court, a commission of the tort by Dunnes.
The question of aggravated damages
The Court considered the losses suffered by Camiveo under two headings, namely diminution in value and other consequential losses - loss of rent from other tenants (both actual and threatened), the breakdown of commercial relationships with other tenants, the loss of use of its rent roll and legal costs.
The Court was of the view that these issues were aggravated by the following actions by Dunnes:
- Ceasing to pay rent and service charge without explanation or legal justification;
- Refusing to comply in a timely manner with High Court and Supreme Court orders requiring it to pay the outstanding rent and service charge monies to Camiveo; and
- Having, according the evidence presented, seemingly closed the external doors to its unit as a retaliatory measure - as part of the discovery, an email had been produced showing a director and shareholder of Dunnes had ordered the closure of the doors within an hour of service of the service by Camiveo on Dunnes of copies of the High Court and Supreme Court orders with penal endorsements for unpaid rent and service charge.
The Court took a particularly dim view of the fact that this retaliatory measure "was done after High Court and Supreme Court proceedings in which Camiveo's right to the sums sought therein was completely vindicated and thus appears to seek to punish Camiveo for accessing the courts or to dissuade it from doing so in the future. This is something which no court of law operating a system grounded on the rule of law can tolerate and is a matter that fails to be reflected in damages […]".
Consequently the Court, in addition to compensatory damages, ordered the payment of aggravated and exemplary damages for the breaches of contract and the commission of the tort of causing loss by unlawful means.
The Court granted orders requiring Dunnes to keep the main doors open during its ordinary business hours and requiring Dunnes to pay its rent and service charges as they fall due. The Court held the issue of the quantum of damages over to another day, with the parties to give evidence subsequently in relation to the damage caused by Dunnes to Camiveo.
For further information please contact Aoife Smyth.
Date published: 25 April 2017