The court would enforce a covenant in a lease to "keep open" retail premises where damages were an inadequate remedy for breach of the covenant.
The Court of Appeal (Lord Justice Millett dissenting) allowed an appeal by the plaintiff, Co-operative Insurance, from Judge Maddocks QC's refusal to order specific performance against the defendant, Argyll Stores, requiring it to keep open one of its supermarkets for the remainder term of its lease.
The plaintiff let the key area of a shopping centre to Argyll for use as a Safeway supermarket for a term of 35 years from 1979. The lease contained a covenant requiring the tenant to "keep the demised premises open for retail trade during the usual hours of business . . ." It traded until May 1995 when Argyll decided to sell it as it made a loss. The plaintiff was anxious about the effect of the closure on the whole centre and requested that the supermarket be kept open at a concessionary rent until an assignee for the lease was found. Argyll did not respond and instead stripped out the shop. It would cost pounds 1m to reinstate.
The plaintiff applied for judgment against Argyll. The judge, referring to the general practice that damages rather than specific performance was the appropriate remedy for any breach of a keep open covenant, concluded that damages were the appropriate remedy.
Peter W Smith QC and Paul Chaisty (BKJ Lewis) for the plaintiff; Jonathan Gaunt QC and Martin Seaward (T.H.B. Bamford & Co, Hayes) for Argyll.
Lord Justice Leggatt said that the so-called rule that contracts involving the continuous performance of services would not be specifically enforced was plainly not absolute and without exception. Even if Argyll might have been advised when it entered into the lease that if it found it unprofitable it could disregard its promise to keep the shop open on payment of damages, it should have been advised also that the making of an order was discretionary and an order to keep open might be made if the court considered that to be the appropriate remedy.
This was a proper case in which to grant specific performance. It would do the court no credit if in those circumstances the court refrained from granting an injunction on the ground that it had become the practice not to do so. The result would be that the common form of words of the covenant would hardly ever, if ever, be construed as meaning what they said. If the parties wanted to contract that a failure to keep open would sound only in damages, they were at liberty to do so.
The plaintiff would have very considerable difficulty in trying to prove its loss. An award of damages would be unlikely to compensate it fully; and the losses of the other tenants of the shopping centre would be irrecoverable. Argyll had acted with unmitigated commercial cynicism, preferring to resist a claim for damages rather than keep an unambiguous promise. The order of specific performance should be granted.
Lord Justice Roch, concurring, said that the basic issue was whether damages were an adequate remedy. It was not helpful to ask whether a covenant in a lease sounded only in damages. Nor was it consistent with respect for the law to say that a clear undertaking freely entered into could be disregarded when that suited the covenantor on the payment of money.
Damages were not an adequate remedy. Specific performance would require Argyll to operate a supermarket at the premises until 2014 or when an asssignee was obtained. The obligation to carry on business was defined with sufficient certainty. Argyll had acted wantonly and unreasonably.
Lord Justice Millett, dissenting, said that the existence of the court's practice to decline to require a defendant to re-open a business was beyond dispute. To compel a defendant for an indefinite period to carry on a business which he considered was not viable was oppressive. An award of damages reflected normal commercial expectations. Consistent practice made the law. The equitable jurisdiction should not be exercised to defeat the commercial expectations of the parties at the time when they entered into their contractual obligations.
Ying Hui Tan, BarristerReuse content