A recent Scots decision shows that keep-open covenants north of the border are enforceable by injunction, write Guy Fetherstonhaugh QC and Imogen Dodds.
In May 1995, the leasehold owners of the Safeway supermarket in the Hillsborough Shopping Centre in Sheffield decided to close the store because it was losing money. In July 2020, Marks & Spencer decided to close its leasehold store in the East Kilbride Shopping Centre in Glasgow, following a long-term strategic desire to rationalise its operations in the Glasgow area.
In each case, the closure was a breach of a covenant in the relevant lease, which contained positive obligations to keep the premises open for retail trade during the usual hours of business. Since the stores were important, effectively forming anchor units in each shopping centre, the landlord in each case took proceedings seeking an injunction requiring the tenants to keep open for trade.
In the Court of Appeal in the Safeway case, an injunction was duly made. Following a successful appeal to the House of Lords, the order was discharged, leaving the landlord to its remedy in damages: Co-Operative Insurance Society Ltd v Argyll Stores (Holdings) Ltd [1997] 1 EGLR 52.
In the M&S case, by contrast, the judge had no hesitation in July 2020 in granting an interim injunction requiring the store to keep open: Sapphire 16 SARL v Marks and Spencer plc [2021] CSOH 103.
This different treatment of a keep-open covenant in Scotland may prompt a rethink of the attitude the judges of England and Wales take to the enforcement of such covenants. Equally, however, the further stage in the Scots proceedings that then occurred usefully illustrates both the possible problems with enforcement, and the possible remedies to them.
Policing compliance
It is a fundamental tenet of English law that an injunction will not be granted requiring a person to carry on a business, especially where it is a losing concern. Over and above that, however, it is axiomatic that, when asked to exercise its coercive power to order a party to do something, the court will not do so unless the object can be described with precision and clarity. The reason is obvious: it must be clear what is to be done, not least in order to ascertain compliance with the order. Thus, an order merely to open a shop or to operate a particular business is not specific as to what is to be done.
There is a further reason: an order to stay open where a business is loss-making will often be disproportionate to the damage the landlord will suffer through the closure. Employing the turn of phrase for which he was famous, Lord Hoffmann said in the Co-Op case that 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.
Open for business?
In the M&S case, the problems foreseen in the English authorities duly surfaced: the store did remain open following the injunction, but not using all entrance doors (including one leading on to the shopping centre belonging to the claimant, which remained closed), and traded as an outlet store (that is, a store which sells clearance products, usually at a reduced price), with blacked-out mall windows and limited staff and stock. This evident lack of commercial intent, which must have had a deadening effect on other traders in the shopping mall, bore out the arguments of Safeway in the English decision, that it would often be possible for a defendant to evade the spirit of such an order, while obeying its letter. As the judge said in that case, the court cannot dictate the quality or scale of the business. The defendant can trade on a limited scale, economically, unenthusiastically or unattractively, thus doing the claimant little good and making a mockery of (while nonetheless obeying) the court order.
The landlord nevertheless applied to commit M&S for contempt of court, for breaching the keep-open order. It complained that the trader’s failure to reopen the mall entrances to the store (coupled with the continuing black-out of the windows); and also the reduction in both staff numbers and the level of stock within the store were stark examples of breach.
The dean of faculty, for Marks & Spencer, submitted in reply that the order could not require it to do more than it was obliged to do by the lease; and that it had done all that was required of it by both the order and the lease, in that it had kept the store open and was trading from it. There was nothing in either the order or the lease which required any particular doors to be open, provided that the trader allowed access to the store, as it was doing. The manner of operation was a matter for the trader, and it could not be held to be in breach of the order by dint of not trading very well.
Ultimately, although he acknowledged that M&S was entitled to sell outlet products if it wished, the judge held that M&S was doing the bare minimum which it considered it need do in order to comply with its obligations. He held that the phrase “keep [the store] open for business”, read in conjunction with the further requirement in the lease to keep the store “sufficiently staffed, stocked, furnished and otherwise equipped” carried with it a necessary implication that the order required M&S to trade in good faith, and not to carry on business half-heartedly. He therefore held that M&S had breached the order, although not so deliberately or badly as to constitute a contempt of court. The case will now proceed to a further stage, to determine what will constitute proper compliance. It is at that stage that the court may have to decide whether there should continue to be a divergence in the approach of the courts in the two jurisdictions.
Guy Fetherstonhaugh QC and Imogen Dodds are barristers at Falcon Chambers
