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

Argyll closed their Safeway supermarket in breach of a lease covenant requiring them to keep premises open for retail trade. CIS sought specific performance to compel continued trading. The House of Lords refused, holding that courts will not normally order specific performance requiring a defendant to carry on a business, as damages were the appropriate remedy.

Facts

Argyll Stores operated a Safeway supermarket in the Hillsborough Shopping Centre under a 35-year lease from CIS. Clause 4(19) of the lease contained a positive covenant to keep the premises open for retail trade during usual business hours. In May 1995, as part of a restructuring following losses, Argyll closed the supermarket and stripped out its fittings. CIS sought specific performance of the covenant requiring Argyll to continue trading.

Issues

The central issue was whether the court should grant specific performance of a covenant requiring a tenant to carry on a business, or whether damages constituted an adequate remedy. The House of Lords examined the settled practice against ordering defendants to run businesses and the principles underlying this practice.

Judgment

The House of Lords unanimously allowed Argyll’s appeal, restoring the trial judge’s refusal to order specific performance. Lord Hoffmann delivered the leading judgment, examining the reasons behind the settled practice against ordering specific performance of obligations to carry on business activities.

Difficulty of Supervision

Lord Hoffmann explained that orders requiring defendants to carry on activities over extended periods create difficulties because the court may need to give indefinite rulings on compliance. The enforcement mechanism of contempt proceedings is heavy-handed and unsuitable for resolving disputes about business operations.

Imprecision of the Covenant

The covenant to keep premises open for retail trade was insufficiently precise for specific performance. It specified nothing about the level of trade, area of premises to be used, or precise nature of trade required, providing ample scope for argument over compliance.

Risk of Injustice

Specific performance could cause injustice by allowing the plaintiff to enrich himself at the defendant’s expense, as the defendant’s loss from compliance might far exceed the plaintiff’s loss from breach. This would place the defendant at the plaintiff’s mercy in settlement negotiations.

Public Interest

Lord Hoffmann observed that requiring someone to carry on business at a loss wastes resources and prolongs hostile litigation, whereas damages bring proceedings to a conclusion.

Implications

This case authoritatively confirms the settled practice that courts will not ordinarily order specific performance of obligations to carry on business activities. The decision establishes that while equitable remedies remain discretionary, there are sound practical principles justifying refusal of specific performance in such cases. The judgment distinguishes between orders to carry on activities (which face these objections) and orders to achieve specific results (such as building works), where supervision difficulties are less acute. The case provides important guidance for commercial landlords and tenants regarding the likely remedies available for breach of keep-open covenants in leases.

Verdict: Appeal allowed. The House of Lords restored the trial judge's order refusing specific performance. Argyll was not required to continue trading; CIS was limited to claiming damages for breach of covenant.

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