• In the case of Co-Operative Insurance Society v Argyll Stores 1997 2 WLR 898, it was found that the court will not grant an order for specific performance of an obligation to carry on a business.

Facts of the Case

  • A tenant (A) of retail premises comprising the main unit in a shopping centre, closed its supermarket in breach of a “keep open” covenant in the lease because it was operating at a loss, C the landlord, sought specific performance of the covenant and or damages.
  • The judge made an order for damages btu refused to order specific performance on the grounds that it would be inappropriate and against settled practice.
  • His decision was overturned by the Court of Appeal and A subsequently appealed.

Issues in Co-Operative Insurance Society v Argyll Stores 1997 2 WLR 898

  • Could the Court order specific performance to carry on the business opening.

Held by House of Lords

  • Appeal allowed

Lord Hoffmann

  • It was held that there was a settled practice that mandator injunctions which required a defendant to carry on a business would not be granted.
  • There were difficulties in supervising this order if it was to be granted.
  • “The likelihood that the order would be effective only for a short time until an assignment is an equivocal argument. It would be burdensome to make Argyll resume business only to stop again after a short while if a short stoppage would not cause any substantial damage to the business of the shopping centre. On the other hand, what would happen if a suitable assignee could not be found? Would Argyll then have to carry on business until 2014? Mr. Smith Q.C. who appeared for the CIS, said that if the order became oppressive (for example, because Argyll were being driven into bankruptcy) or difficult to enforce, they could apply for it to be varied or discharged. But the order would be a final order and there is no case in this jurisdiction in which such an order has been varied or discharged, except when the injuncted activity has been legalised by statute. Even assuming that there was such a jurisdiction if circumstances were radically changed, I find it difficult to see how this could be made to apply. Difficulties of enforcement would not be a change of circumstances. They would have been entirely predictable when the order was made. And so would the fact that Argyll would suffer unquantifiable loss if it was obliged to continue trading. I do not think that such expedients are an answer to the difficulties on which the objections to such orders are based.  Finally, all three judges in the Court of Appeal took a very poor view of Argyll’s conduct. Leggatt L.J. said that they had acted “with gross commercial cynicism”; Roch L.J. began his judgment by saying that they had “behaved very badly” and Millett L.J. said that they had no merits. The principles of equity have always had a strong ethical content and nothing which I say is intended to diminish the influence of moral values in their application. I can envisage cases of gross breach of personal faith, or attempts to use the threat of non-performance as blackmail, in which the needs of justice will override all the considerations which support the settled practice. But although any breach of covenant is regrettable, the exercise of the discretion as to whether or not to grant specific performance starts from the fact that the covenant has been broken. Both landlord and tenant in this case are large sophisticated commercial organisations and I have no doubt that both were perfectly aware that the remedy for breach of the covenant was likely to be limited to an award of damages. The interests of both were purely financial: there was no element of personal breach of faith, as in the Victorian cases of railway companies which refused to honour obligations to build stations for landowners whose property they had taken: compare Greene v. West Cheshire Railway Co. (1871) L.R. 13 Eq. 44. No doubt there was an effect on the businesses of other traders in the Centre, but Argyll had made no promises to them and it is not suggested that CIS warranted to other tenants that Argyll would remain. Their departure, with or without the consent of CIS, was a commercial risk which the tenants were able to deploy in negotiations for the next rent review. On the scale of broken promises, I can think of worse cases, but the language of the Court of Appeal left them with few adjectives to spare.” At [5]

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