Co-operative Insurance Soc Ltd v Argyll Stores (Holdings) Ltd [1998] AC 1

KEY POINTS

• The primary purpose of the law of contract is not to punish wrongdoing but to fulfill the expectations of the party entitled to performance. Contract law aims to satisfy the parties' legitimate contractual expectations rather than imposing punitive measures for breach.

• Citing Dowty Boulton Paul Ltd. v. Wolverhampton Corporation [1971] 1 W.L.R. 204, "It is very well established that the court will not order specific performance of an obligation to carry on a business."

FACTS

• Hillsborough Shopping Centre consists of around 25 shops with Safeway being the largest and most significant attraction. The lease for Safeway contained both negative and positive covenants.

• Argyll, the parent company of Safeway, decided to close down several supermarkets, including the one in the Hillsborough Shopping Centre, due to financial challenges and reorganization efforts. This decision prompted a legal dispute with Co-Operative Insurance Society (CIS), which protested against the closure and claimed that the positive covenant to keep the store open should be enforced.

• CIS sent a letter to Safeway's management expressing dismay at the short notice of closure and invoking the covenant to keep the store open. However, this letter went unanswered due to managerial changes and miscommunication. Safeway closed the store and began removing its fixtures.

• Subsequently, CIS filed a lawsuit seeking specific performance of the covenant to keep the store open and damages. The case involved the interpretation of the lease covenants and the application of equitable principles.

JUDGEMENT

• Appeal allowed.

COMMENTARY

• This case provides significant legal commentary on the principles of specific performance in contract law and the discretionary nature of equitable remedies.

• This case underscores the importance of considering the unique circumstances of each case when determining whether to grant specific performance as a remedy.

ORIGINAL ANALYSIS

• A leased the largest unit in its shopping centre to C for 35 years, with a requirement that C keep the store open during usual office hours. C started to make a loss and stopped operating the unit, stripped it out and ceased trading. As the largest unit and largest attraction of the store it was likely to have a massive impact on the business of the shopping centre. 

• HL denied a claim for specific action. HL refused to accept CA’s claim that damages were inadequate due to difficulty of proving what loss had been caused by A’s departure and denied the relevance of C’s cynical nature.

• Instead:

  1. HL said that there was a general rule of not ordering specific performance where it would involve the carrying on of a duty rather than one single act. 

  2. It also said that it was oppressive to force C to run a business under threat of imprisonment from contempt of court. 

  3. Thirdly it would require constant supervision which is a waste of resources; 

  4. Fourthly the contract itself was fairly uncertain so it is hard to tell what C should do (e.g. requirement to maintain a good-quality shop window display); 

  5. Fifthly it would force C to accept enormous losses. Seems to put the balance too far in favour of the contract breaker.