#6680 - Cooperative Insurance Society V. Argyll Stores - Commercial Remedies BCL

Cooperative Insurance Society v. Argyll Stores

Facts

The appellant defendants, Argyll Stores (Holdings) Ltd. ('Argyll'), decided in May 1995 to close their Safeway supermarket in the Hillsborough Shopping Centre in Sheffield because it was losing money. This was a breach of a covenant in their lease, which contained in clause 4(19) a positive obligation 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, Co-operative Insurance Society Ltd. ('C.I.S.') consented to an order for damages to be assessed. But the Court of Appeal [1996] Ch. 286, reversing the trial judge, ordered that the covenant be specifically performed. It made a final injunction ordering Argyll to trade on the premises during the remainder of the term (which will expire on 3 August 2014) or until an earlier subletting or assignment. The Court of Appeal suspended its order for three months to allow time for Argyll to complete an assignment which by that time had been agreed.

Clause 4(19) was the positive covenant enforced in this case:

“To keep the demised premises open for retail trade during the usual hours of business in the locality and the display windows properly dressed in a suitable manner in keeping with a good class parade of shops.”

Competition in the supermarket business is fierce and in 1994 Argyll undertook a major review of its business and decided to reduce the scale of its operations. The management was to be reorganised, 27 loss-making or less profitable supermarkets closed and thousands of employees made redundant. Hillsborough, which according to Argyll's management accounts had made a loss of about 70,000 in the previous year, was on the list for closure.

On 22 May 1995 C.I.S. issued a writ claiming specific performance of the covenant to keep open and damages.

Holding

Lord Hoffmann

Conventional View

There is no dispute about the existence of the settled practice to which the judge referred. It sufficient for this purpose to refer to Braddon Towers Ltd. v. International Stores Ltd. [1987] 1 E.G.L.R. 209, 213, where Slade J. said:

“Whether or not this may be properly described as a rule of law, I do not doubt that for many years practitioners have advised their clients that it is the settled and invariable practice of this court never to grant mandatory injunctions requiring persons to carry on business.”

The practice of not ordering a defendant to carry on a business is not entirely dependent upon damages being an adequate remedy. In Dowty Boulton Paul Ltd. v. Wolverhampton Corporation [1971] 1 W.L.R. 204, Sir John Pennycuick V.-C. refused to order the corporation to maintain an airfield as a going concern because: 'It is very well established that the court will not order specific performance of an obligation to carry on a business:' see p. 211. He added: 'It is unnecessary in the circumstances to discuss whether damages would be an adequate remedy to the company:' see p. 212. Thus the reasons which underlie the established practice may justify a refusal of specific performance even when damages are not an adequate remedy.

The most frequent reason given in the cases for declining to order someone to carry on a business is that it would require constant supervision by the court. In J. C. Williamson Ltd. v. Lukey and Mulholland (1931) 45 C.L.R. 282, 297-298, Dixon J. said flatly: 'Specific performance is inapplicable when the continued supervision of the court is necessary in order to ensure the fulfilment of the contract.'

Continued Supervision Objection

There has, I think, been some misunderstanding about what is meant by continued superintendence. It may at first sight suggest that the judge (or some other officer of the court) would literally have to supervise the execution of the order. In C.H. Giles & Co. Ltd. v. Morris [1972] 1 W.L.R. 307, 318 Megarry J. said that 'difficulties of constant superintendence' were a 'narrow consideration' because:

'there is normally no question of the court having to send its officers to supervise the performance of the order . . . Performance . . . is normally secured by the realisation of the person enjoined that he is liable to be punished for contempt if evidence of his disobedience to the order is put before the court; . . .'

Indefinite Series of Rulings Reasoning

This is, of course, true but does not really meet the point. The judges who have said that the need for constant supervision was an objection to such orders were no doubt well aware that supervision would in practice take the form of rulings by the court, on applications made by the parties, as to whether there had been a breach of the order. 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 regarded as undesirable.

Heavy-handed nature of the enforcement mechanism

Why should this be so? A principal reason is that, as Megarry J. pointed out in the passage to which I have referred, the only means available to the court to enforce its order is the quasi-criminal procedure of punishment for contempt. This is a powerful weapon; so powerful, in fact, as often to be unsuitable as an instrument for adjudicating upon the disputes which may arise over whether a business is being run in accordance with the terms of the court's order. The heavy-handed nature of the enforcement mechanism is a consideration which may go to the exercise of the court's discretion in other cases as well, but its use to compel the running of a business is perhaps the paradigm case of its disadvantages and it is in this context that I shall discuss them.

The prospect of committal or even a fine, with the damage to commercial reputation which will be caused by a finding of contempt of court, is likely to have at least two undesirable consequences. First, the defendant, who ex hypothesi did not think that it was in his economic interest to run the business at all, now has to make decisions under a sword of Damocles which may descend if the way the business is run does not conform to the terms of the order. This is, as one might say, no way to run a business.

Secondly, the seriousness of a finding of contempt for the defendant means that any application to enforce the order is likely to be a heavy and expensive piece of litigation. The possibility of repeated applications over a period of time means that, in comparison with a once-and-for-all inquiry as to damages, the enforcement of the remedy is likely to be expensive in terms of cost to the parties and the resources of the judicial system.

Distinction between orders to carry out activities and orders to achieve results

This is a convenient point at which to distinguish between orders which require a defendant to carry on an activity, such as running a business over or more or less extended period of time, and orders which require him to achieve a result. The possibility of repeated applications for rulings on compliance with the order which arises in the former case does not exist to anything like the same extent in the latter. Even if the achievement of the result is a complicated matter which will take some time, the court, if called upon to rule, only has to examine the finished work and say whether it complies with the order.

This distinction between orders to carry on activities and orders to achieve results explains why the courts have in appropriate circumstances ordered specific performance of building contracts and repairing covenants: see Wolverhampton Corporation v. Emmons [1901] 1 K.B. 515 (building contract) and Jeune v. Queens Cross Properties Ltd. [1974] Ch....