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You are here: BAILII >> Databases >> United Kingdom House of Lords Decisions >> Co-operative Insurance Society Ltd v. Argyll Stores [1997] UKHL 17; [1998] AC 1; [1997] All ER 297; [1997] 2 WLR 898 (21 May 1997)
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Cite as: [1997] CLC 1114, [1997] EG 81, [1997] UKHL 17, [1997] 23 EG 141, [1997] 1 EGLR 52, [1997] 2 WLR 898, [1997] All ER 297, [1997] 3 All ER 297, [1998] AC 1, [1997] NPC 79
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JISCBAILII_CASES_CONTRACT
JISCBAILII_CASES_PROPERTY
Co-operative Insurance Society Ltd v. Argyll Stores [1997] UKHL 17; [1998] AC 1; [1997] All ER 297; [1997] 2 WLR 898 (21st May, 1997)
(RESPONDENTS)
v.
(APPELLANTS)
LORD BROWNE-WILKINSON
My Lords,
I have read in draft the speech of my noble and learned friend Lord Hoffmann with which I agree. For the reasons which he gives I would allow this appeal.
LORD SLYNN OF HADLEY
My Lords,
I have had the advantage of reading in draft the speech prepared by my noble and learned friend Lord Hoffmann. For the reasons he gives I would allow this appeal.
LORD HOFFMANN
My Lords,
- 1. The Issue
- In 1955 Lord Goddard C.J. said:
- "No authority has been quoted to show that an injunction will be
granted enjoining a person to carry on a business, nor can I think that one
ever would be, certainly not where the business is a losing concern."
(Attorney-General v. Colchester
Corporation
A decree of specific performance is of course a
discretionary remedy and the question for your Lordships is whether the Court of
Appeal was entitled to set aside the exercise of the judge's discretion. There
are well established principles which govern the exercise of the discretion but
these, like all equitable principles, are flexible and adaptable to achieve the
ends of equity, which is, as Lord Selborne L.C. once remarked, to "do more
perfect and complete justice" than would be the result of leaving the parties to
their remedies at common law. (Wilson v. Northampton and
Banbury Junction Railway Co. (1874) L.R. 9 Ch.App. 279, 284). Much therefore
depends upon the facts of the particular case and I shall begin by describing
these in more detail.
The Hillsborough Shopping Centre consists of
about 25 shops. Safeway was by far the largest shop and the greatest attraction.
Its presence was a commercial benefit to the smaller shops nearby. The lease was
for a term of 35 years from 4 August 1979 with five-yearly rent reviews. Clause
4(12)(a) contained a negative covenant as to the user of the premises: Clause 4(19) was the positive covenant enforced in this case: 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. For
administrative reasons as well as to avoid the demoralising effect of successive
closure announcements, it was decided to close all the supermarkets at once and
try to negotiate the disposal of their sites as a package. In early April 1995
Argyll announced that Hillsborough and the other supermarkets would close on 6
May 1995. As soon as CIS heard of the impending closure,
it protested. On 12 April 1995 Mr. Wightman, the Regional Surveyor of the
Investment Department, wrote to Mr. Jefferies of Safeway: He drew attention to the covenant to keep open, invited Safeway to agree to
continue trading until a suitable assignee had been found, offered to negotiate
a temporary rent concession and asked for a reply by return of post. Unfortunately he received no answer. Mr.
Jefferies had himself fallen victim to the reorganisation; he had been made
redundant. No one else dealt with the letter. On Saturday 6 May 1995 the
supermarket closed and over the next two weeks its fittings were stripped out.
On 22 May 1995 CIS issued a writ claiming specific performance of the covenant
to keep open and damages.
CIS issued a summons for judgment under RSC Ord
14 but when the matter came before His Honour Judge Maddocks, sitting as a judge
of the High Court on 1 August 1995 it was agreed that, since the material facts
were not in dispute, the hearing should be treated as the trial of the action.
The learned judge was therefore invited by CIS to make a final order that the
covenant be performed for the remainder of the lease or until an earlier
assignment or subletting. By this time Argyll were already in serious
negotiation with another supermarket chain for an assignment but no contract had
yet been signed. The judge refused to order specific
performance. He 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. He
was not content, however, merely to follow authority. He gave reasons why he
thought that specific performance would be inappropriate. Two such reasons were
by way of justification for the general practice. An order to carry on a
business, as opposed to an order to perform a "single and well defined act," was
difficult to enforce by the sanction of committal. And where a business was
being run at a loss, specific relief would be "too far reaching and beyond the
scope of control which the court should seek to impose." The other two related
to the particular case. A resumption of business would be expensive (refitting
the shop was estimated to cost over £1 million) and although Argyll had
knowingly acted in breach of covenant, it had done so "in the light of the
settled practice of the court to award damages." Finally, while the assessment
of damages might be difficult, it was the kind of exercise which the courts had
done in the past.
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. But the practice has never, so far as I know, been examined by this House and
it is open to the respondents to say that it rests upon inadequate grounds or
that it has been too inflexibly applied. Specific performance is traditionally regarded
in English law as an exceptional remedy, as opposed to the common law damages to
which a successful plaintiff is entitled as of right. There may have been some
element of later rationalisation of an untidier history, but by the nineteenth
century it was orthodox doctrine that the power to decree specific performance
was part of the discretionary jurisdiction of the Court of Chancery to do
justice in cases in which the remedies available at common law were inadequate.
This is the basis of the general principle that specific performance will not be
ordered when damages are an adequate remedy. By contrast, in countries with
legal systems based on civil law, such as France, Germany and Scotland, the
plaintiff is prima facie entitled to specific performance. The cases in which he
is confined to a claim for damages are regarded as the exceptions. In practice,
however, there is less difference between common law and civilian systems than
these general statements might lead one to suppose. The principles upon which
English judges exercise the discretion to grant specific performance are
reasonably well settled and depend upon a number of considerations, mostly of a
practical nature, which are of very general application. I have made no
investigation of civilian systems, but a priori I would expect that judges take
much the same matters into account in deciding whether specific performance
would be inappropriate in a particular case. 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 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 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. v.
Morris 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 application 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. 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. In
this case the Court of Appeal made light of the point because it assumed that,
once the defendant had been ordered to run the business, self-interest and
compliance with the order would thereafter go hand in hand. But, as I shall
explain, this is not necessarily true. 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. 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 point was made in the context of relief
against forfeiture in Shiloh Spinners Ltd. v. Harding This distinction between orders to carry on activities and 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 One such objection, which applies to orders to
achieve a result and a fortiori to orders to carry on an activity, is
imprecision in the terms of the order. If the terms of the court's order,
reflecting the terms of the obligation, cannot be precisely drawn, the
possibility of wasteful litigation over compliance is increased. So is the
oppression caused by the defendant having to do things under threat of
proceedings for contempt. The less precise the order, the fewer the signposts to
the forensic minefield which he has to traverse. The fact that the terms of a
contractual obligation are sufficiently definite to escape being void for
uncertainty, or to found a claim for damages, or to permit compliance to be made
a condition of relief against forfeiture, does not necessarily mean that they
will be sufficiently precise to be capable of being specifically performed. So
in Wolverhampton Corporation v. Emmons Precision is of course a question of degree and the courts have shown
themselves willing to cope with a certain degree of imprecision in cases of
orders requiring the achievement of a result in which the plaintiff's merits
appeared strong; like all the reasons which I have been discussing, it is, taken
alone, merely a discretionary matter to be taken into account: see Spry on
Equitable Remedies (4th ed.) at p. 112. It is, however, a very important
one.
I should at this point draw attention to what
seems to me to have been a misreading of certain remarks of Lord Wilberforce in
Shiloh Spinners Ltd. v. Harding. This is plainly a remark about cases involving the achievement of a result,
such as doing repairs, and, within that class, about making compliance a
condition of relief against forfeiture. But in Tito v. Waddell (No.
2) There is a further objection to an order
requiring the defendant to carry on a business, which was emphasised by Millett
L.J. in the Court of Appeal. This is that it may cause injustice by allowing the
plaintiff to enrich himself at the defendant's expense. The loss which the
plaintiff may suffer through having to comply with the order (for example, by
running a business at a loss for an indefinite period) may be far greater than
the plaintiff would suffer from the contract being broken. As Professor R. J.
Sharpe explains (Specific Remedies for Contract Breach in Studies in
Contract Law (ed. Reiter and Swan) at p. 129): This was the reason given by Lord Westbury L.C. in Isenberg v. East India
House Estate Co. Ltd. It is true that the defendant has, by his own breach of contract, put himself
in such an unfortunate position. But the purpose of the law of contract is not
to punish wrongdoing but to satisfy the expectations of the party entitled to
performance. A remedy which enables him to secure, in money terms, more than the
performance due to him is unjust. From a wider perspective, it cannot be in the
public interest for the courts to require someone to carry on business at a loss
if there is any plausible alternative by which the other party can be given
compensation. It is not only a waste of resources but yokes the parties together
in a continuing hostile relationship. The order for specific performance
prolongs the battle. If the defendant is ordered to run a business, its conduct
becomes the subject of a flow of complaints, solicitors' letters and affidavits.
This is wasteful for both parties and the legal system. An award of damages, on
the other hand, brings the litigation to an end. The defendant pays damages, the
forensic link between them is severed, they go their separate ways and the
wounds of conflict can heal.
The cumulative effect of these various reasons,
none of which would necessarily be sufficient on its own, seems to me to show
that the settled practice is based upon sound sense. Of course the grant or
refusal of specific performance remains a matter for the judge's discretion.
There are no binding rules, but this does not mean that there cannot be settled
principles, founded upon practical considerations of the kind which I have
discussed, which do not have to be re-examined in every case, but which the
courts will apply in all but exceptional circumstances. As Slade J. said in the
passage which I have quoted from Braddon Towers Ltd. v. International Stores
Ltd. 5. The decision of the Court of Appeal I must now examine the grounds upon which the
majority of the Court of Appeal thought it right to reverse the judge. In the
first place, they regarded the practice which he followed as outmoded and
treated Lord Wilberforce's remarks about relief against forfeiture in Shiloh
Spinners Ltd. v. Harding The Court of Appeal 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 this
to be right, I do not think that the obligation in clause 4(19) can possibly be
regarded as sufficiently precise to be capable of specific performance. It is to
"keep the demised premises open for retail trade." It says nothing about the
level of trade, the area of the premises within which trade is to be conducted,
or even the kind of trade, although no doubt the tenant's choice would be
restricted by the need to comply with the negative covenant in clause 4(12)(a)
not to use the premises "other than as a retail store for the sale of food
groceries provisions and goods normally sold from time to time by a retail
grocer food supermarkets and food superstores." This language seems to me to
provide ample room for argument over whether the tenant is doing enough to
comply with the covenant.
The Court of Appeal thought that once Argyll
had been ordered to comply with the covenant, it was, as Roch L.J. said,
"inconceivable that they would not operate the business efficiently." Leggatt
L.J. said that the requirement "was quite intelligible to the defendants, while
they were carrying on business there. . . . If the premises are to be run as a
business, it cannot be in the defendants' interest to run it half-heartedly or
inefficiently. . ." This treats the way the tenant previously conducted business
as measuring the extent of his obligation to do so. In my view this is a non
sequitur: the obligation depends upon the language of the covenant and not upon
what the tenant has previously chosen to do. No doubt it is true that it would
not be in the interests of the tenant to run the business inefficiently. But
running the business efficiently does not necessarily mean running in the way it
was run before. Argyll had decided that, from its point of view, the most
efficient thing to do was to close the business altogether and concentrate its
resources on achieving better returns elsewhere. If ordered to keep the business
open, it might well decide that the next best strategy was to reduce its costs
as far as was consistent with compliance with its obligations, in the
expectation that a lower level of return would be more than compensated by
higher returns from additional expenditure on more profitable shops. It is in my
view wrong for the courts to speculate about whether Argyll might voluntarily
carry on business in a way which would relieve the court from 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.
The respondent argued that the court should not
be concerned about future difficulties which might arise in connection with the
enforcement of the order. It should simply make the order and see what happened.
In practice Argyll would be likely to find a suitable assignee (as it in fact
did) or conduct the business so as to keep well clear of any possible
enforcement proceedings or otherwise come to terms with the CIS. This may well
be true, but the likelihood of Argyll having to perform beyond the requirements
of its covenant or buy its way out of its obligation to incur losses seems to me
to be in principle an objection to such an order rather than to recommend it. I
think that it is normally undesirable for judges to make orders in terrorem,
carrying a threat of imprisonment, which work only if no one inquires too
closely into what they mean.
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. It was no doubt discourteous not to have
answered Mr. Wightman's letter. But to say, as Roch L.J. did, that they had
acted "wantonly and quite unreasonably" by removing their fixtures seems to me
an exaggeration. There was no question of stealing a march, or attempting to
present CIS with a fait accompli, because Argyll had no reason to believe that
CIS would have been able to obtain a mandatory injunction whether the fixtures
had been removed or not. They had made it perfectly clear that they were closing
the shop and given CIS ample time to apply for such an injunction if so advised.
6. Conclusion I think that no criticism can be made of the
way in which His Honour Judge Maddocks Q.C. exercised his discretion. All the
reasons which he gave were proper matters for him to take into account. In my
view the Court of Appeal should not have interfered and I would allow the appeal
and restore the order which he made.
LORD HOPE OF CRAIGHEAD
My Lords, I have had the benefit of reading in draft the
speech which has been prepared by my noble and learned friend, Lord Hoffmann. I
also agree that this appeal should be allowed and that the order by which the
judge refused to order specific performance should be restored.
LORD CLYDE
My Lords, I have had the opportunity of reading in draft
the speech of my noble and learned friend Lord Hoffmann. While I should wish to
reserve my opinion on the approach which might be adapted by civilian systems I
agree that the appeal should be allowed for the reasons which he has given.
2. The Facts
"Not to use or suffer to be used the demised premises other
than as a retail store for the sale of food groceries provisions and goods
normally sold from time to time by a retail grocer food supermarkets and food
superstores. . . ."
"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."
"Whilst obviously there is little point in trying to influence
your corporate decision with regard to the closure of this unit I am dismayed
at the short period of notice given which will undoubtedly have immediate
impact on the Centre and all the other tenants trading therein."
3. The Trial
4. The Settled Practice
"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."
"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; . . ."
"[W]hat the court has to do is to satisfy itself, ex post facto,
that the covenanted work has been done, and it has ample machinery, through
certificates, or by inquiry, to do precisely this."
"[T]he court must be careful to see that the defendant knows exactly
in fact what he has to do and this means not as a matter of law but as a
matter of fact, so that in carrying out an order he can give his contractors
the proper instructions."
"Where it is necessary, and, in my opinion, right, to move away from
some 19th century authorities, is to reject as a reason against granting
relief, the impossibility for the courts to supervise the doing of work."
"In such circumstances, a specific decree in favour of the plaintiff
will put him in a bargaining position vis a vis the defendant whereby the
measure of what he will receive will be the value to the defendant of being
released from performance. If the plaintiff bargains effectively, the amount
he will set will exceed the value to him of performance and will approach the
cost to the defendant to complete."
". . . I hold it . . . to be the duty of the court in such a case as
the present not, by granting a mandatory injunction, to deliver over the
defendants to the plaintiff bound hand and foot, in order to be made subject
to any extortionate demand that he may by possibility make, but to substitute
for such mandatory injunction an inquiry before itself, in order to ascertain
the measure of damage that has been actually sustained."