Co-operative Insurance Society Ltd v Argyll Stores (Holdings) Ltd [1997] UKHL 17
Citation:Co-operative Insurance Society Ltd v Argyll Stores (Holdings) Ltd [1997] UKHL 17
Rule of thumb:Are stay-open clauses enforceable? As a general rule, yes, and will not only not be if they are grossly excessive.
Background facts:
The basic facts of this case were that there was a stay-open clause for an excessive period.
Judgment:
The Court affirmed that this length of stay-open clause without any damages being payable for breaching it was too lengthy and unconscionable, and it was a violation of freedom of contract. In making this Judgment the Court considered the underlying purpose of contract which was to satisfy expectations in the future. In short, the specific performance/injunction that the Co-Op sought for Argyll to force them to follow the stay-open clause was not upheld by the Court as it was deemed to be unconscionable bargain.
Ratio-decidendi:
‘The purpose of the law of contract is not to punish wrongdoing but to satisfy the expectations of the party entitled to performance… 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… No doubt there was an effect on the businesses of other traders in the Centre, but Argyll had made no promises to them and it is not suggested that CIS warranted to other tenants that Argyll would remain. Their departure, with or without the consent of CIS, was a commercial risk which the tenants were able to deploy in preparation for the next rent review...’ Lord Hoffmann
Warning: This is not professional legal advice. This is not professional legal education advice. Please obtain professional guidance before embarking on any legal course of action. This is just an interpretation of a Judgment by persons of legal insight & varying levels of legal specialism, experience & expertise. Please read the Judgment yourself and form your own interpretation of it with professional assistance.