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Law Report: Safeway could not be compelled to trade

Co-operative Insurance Society Ltd v Argyll Stores (Holdings) Ltd; House of Lords (Lord Browne-Wilkinson, Lord Slynn of Hadley, Lord Hoffman, Lord Hope of Craighead and Lord Clyde) 21 May 1997

An order for specific performance of a covenant in a lease, which effectively obliged the tenant to carry on his business, should not have been made.

The House of Lords reversed the decision of the Court of Appeal ordering specific performance by Argyll (Holdings) Ltd of a covenant in a lease of supermarket premises in the Hillsborough Shopping Centre in Sheffield.

Argyll had decided in August 1995 to close their Safeway supermarket in the shopping centre because it was losing money. That was a breach of a covenant in the lease, which positively obliged them to keep the premises open for retail trade during the usual hours of business.

Argyll admitted the breach and in an action by the landlord, the Co-operative Insurance Society Ltd, consented to an order for damages to be assessed. The Court of Appeal, reversing the trial judge, ordered that the covenant be specifically performed.

Jonathan Gaunt QC and Martin Searward (Titmus Sainer Dechert) for Argyll; Peter W. Smith QC and Paul Chaisty (B.K.J. Lewis, Manchester) for CIS.

Lord Hoffman said that the trial judge had refused to order specific performance. He had said that there was, on the authorities, a settled practice that orders which would require a defendant to run a business would not be made.

There was no dispute about the existence of the practice to which the judge had referred: see Braddon Towers Ltd v International Stores Ltd [1987] 1 EGLR 209. The most frequent reason given for declining to make such an order was that it would require constant supervision by the court.

There had been some misunderstanding about what that meant. Supervision would, in practice, take the form of rulings by the court as to whether there had been a breach of the order. It was the possibility of the court having to give an indefinite series of such rulings in order to ensure the execution of the order which had been regarded as undesirable.

The only means available to the court to enforce its order was the quasi- criminal procedure of punishment for contempt. The prospect of committal or even a fine, with the damage to commercial reputation which would be caused by a finding of contempt was likely to have undesirable consequences.

The Court of Appeal had regarded the practice followed by the judge as outmoded, and had treated Lord Wilberforce's remarks about relief against foreiture in Shiloh Spinners Ltd v Harding [1973] AC 691, at 724, as justifying a rejection of the arguments based on the need for constant supervision. However, Lord Wilberforce's remarks did not support that proposition in relation to specific performance of an obligation to carry on an activity, and the arguments based on difficulty of supervision remained powerful.

The Court of Appeal had said that it was enough if the contract defined the tenant's obligation with sufficient precision to enable him to know what was necessary to comply with the order. Even assuming that to be right, his Lordship did not think that the obligation in the present case could possibly be regarded as sufficiently precise to be capable of specific performance.

The Court of Appeal had also thought that, once Argyll had been ordered to comply with the covenant, it was "inconceivable that they would not operate the business efficiently", but it was wrong for the courts to speculate about whether Argyll might voluntarily carry on business in a way which would relieve the court form having to construe its order. The question of certainty must be decided on the assumption that the court might have to enforce the order according to its terms.

All three judges in the Court of Appeal had taken a very poor view of Argyll's conduct. Although any breach of covenant was regrettable, however, the exercise of the discretion whether or not to grant specific performance started from the fact that the covenant had been broken. The interests of both parties in the present case were purely financial: there was no element of personal breach of faith.

No criticism could be made of the way the judge had exercised his discretion. The Court of Appeal should not have interfered.