Specific performance of a covenant to keep a business open (Co-operative Insurance v Argyll)
Brackley Retail Park Ltd let the largest unit on its retail park in England to Pulse Fitness Ltd for 25 years. The lease contains a covenant by Pulse "to keep the premises open as a gym during normal trading hours". The gym has been losing money and Pulse has closed it, in deliberate breach of covenant, while it looks for someone to take over the lease. Brackley says the closure is reducing visitor numbers to other shops on the park and seeks an order compelling Pulse to reopen and run the gym.
Which of the following best describes how the court is likely to respond?
Choose one answer to see the reasoning.
Worked answer
Correct answer B: It is likely to refuse the order and leave Brackley to damages, because courts will not normally compel a party to carry on a business.
THE RULE TO REMEMBER
Courts will not, save in exceptional circumstances, order specific performance of an obligation to carry on a business; the innocent party is normally left to damages.
Specific performance of a covenant to keep a business open (Co-operative Insurance v Argyll)
Specific performance is a discretionary remedy, generally refused where damages are adequate. In Co-operative Insurance Society Ltd v Argyll Stores (Holdings) Ltd the House of Lords restored a refusal to order a tenant to keep a loss-making supermarket open in breach of a keep-open covenant. Lord Hoffmann endorsed the settled practice of not ordering a person to carry on a business. Reasons included the need for constant supervision through repeated rulings backed by contempt proceedings, imprecision in what the order would require, and the injustice of making a defendant run a business at a loss. He said it cannot be in the public interest to require someone to carry on business at a loss if there is any plausible way to compensate the other party. Pulse's breach, though deliberate, is commercial. The court is likely to refuse the order and leave Brackley to damages.
Why A is wrong: In Argyll the tenant's breach was also deliberate, yet the House of Lords held this did not justify departing from the settled practice.
Why C is wrong: Difficulty in assessing damages did not outweigh the reasons against an order in Argyll; courts assess such damages routinely.
Why D is wrong: Specific performance is discretionary and never available as of right, whether or not the obligation is in a lease.
Why E is wrong: Some lease obligations, such as repairing covenants, can be specifically enforced; Argyll turned on the obligation to run a business.
A little more practice done.
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