Co-operative Insurance Society Ltd v. Argyll Stores [1997] UKHL 17

Argyll Stores prematurely closed a supermarket, breaching a 'keep open' covenant in its lease. The landlord sought specific performance. The House of Lords refused the order, confirming that courts will not compel a business to continue trading due to constant supervision difficulties.

Facts

The plaintiff, Co-operative Insurance Society Ltd (CIS), was the landlord of the Hillsborough Shopping Centre in Sheffield. In 1979, CIS leased the largest unit, the ‘anchor tenancy’, to the defendant, Argyll Stores, for a term of 35 years to operate a Safeway supermarket. A key clause in the lease, covenant 4(19), required Argyll ‘to keep the demised premises open for retail trade during the usual hours of business’. The supermarket was the main attraction for the shopping centre. In 1995, following a review of its operations, Argyll decided the store was no longer profitable and resolved to close it. Despite CIS’s objections and offer of a temporary rent reduction, Argyll closed the supermarket and stripped its fittings, thereby breaching the covenant.

Issues

The central legal issue before the House of Lords was whether a court should grant an order of specific performance to compel a tenant to continue operating a business in accordance with a ‘keep open’ covenant in a lease. The alternative was to limit the landlord’s remedy to an award of damages for the breach of contract.

Judgment

The House of Lords unanimously allowed Argyll’s appeal, setting aside the Court of Appeal’s order for specific performance. Lord Hoffmann delivered the leading speech, holding that specific performance should not be granted. The appropriate remedy was damages.

Reasoning of the Court

Lord Hoffmann systematically analysed the established legal practice of refusing to grant mandatory injunctions or orders of specific performance that require a party to carry on a business. He articulated several fundamental reasons for this position:

• Constant Supervision: An order to carry on a business would require the court’s constant supervision to ensure compliance. This is an impractical and undesirable burden for the judiciary. The enforcement mechanism of contempt of court was deemed a ‘heavy-handed’ and inappropriate tool for managing ongoing commercial activities. Lord Hoffmann stated:
  

  ‘It is the possibility of the court having to give an indefinite series of such rulings in order to ensure the execution of the order which has been distinguished by the formula ‘constant supervision by the court’. . . . The heavy-handed nature of the enforcement mechanism of contempt of court is a reason why the courts have been reluctant to make orders which would require constant supervision.’

• Imprecision and Uncertainty: It is difficult to frame an order to ‘carry on a business’ with the necessary precision to be enforceable. Such an order would be a recipe for further litigation, as the parties could endlessly dispute whether the tenant was genuinely complying with the spirit of the order (e.g., regarding staffing levels, stock, or marketing).
• Oppression and Injustice: Forcing a defendant to trade at a significant and mounting loss is potentially unjust and oppressive. The harm to the defendant could be far greater than the plaintiff’s actual loss, which could be adequately quantified and compensated by damages. Such an order would give the plaintiff an unfair bargaining position to extract a sum for releasing the defendant that far exceeds the actual damage suffered.
• Public Interest: Lord Hoffmann noted that it was not in the public interest to require a business to be carried on at a loss if the only commercial reason for doing so was to avoid the threat of contempt of court proceedings.

Distinction from Other Orders

The court distinguished ‘keep open’ covenants from orders to achieve a specific result, such as completing a building. In the latter, the court can easily assess whether the finished product complies with the contractual specification. Running a business is an ongoing activity with no final ‘result’ that can be similarly judged.

Implications

This landmark decision powerfully reaffirms the traditional judicial reluctance to award specific performance for covenants requiring a party to trade. It establishes that damages are the default and primary remedy for a breach of a ‘keep open’ covenant. The judgment provides significant commercial certainty, particularly for tenants, by clarifying that they will not typically be forced by a court to continue an unprofitable business. The case solidifies the principle that specific performance is an exceptional equitable remedy, to be granted only where damages are inadequate and the terms of the order are precise, enforceable without constant supervision, and would not cause undue hardship or oppression to the defendant.

Verdict: The appeal was allowed. The order of the Court of Appeal for specific performance was set aside, and the plaintiff (Co-operative Insurance Society Ltd) was held to be entitled to damages for the breach of covenant, to be assessed.

Source: Co-operative Insurance Society Ltd v. Argyll Stores [1997] UKHL 17