Despite comment to the contrary, the enforceability of keep open clauses in Scotland is still very much a live issue.  The Scottish Courts remain willing to force tenants to continue trading against their will.

The House of Lords tackled English law on this subject in the case of Co-operative Insurance Society Limited v Argyll Stores (Holdings) Limited [1997] 3 All ER 297. The House of Lords overturned an order requiring Safeway, the anchor tenant in a shopping centre, to carry on trading in terms of its lease. 

The House of Lords held that a keep open clause was not, other than in exceptional circumstances, specifically enforceable, since it was the settled practice of the Court not to make an order requiring a person to carry on a business.  That practice, the Court reasoned, was based on sound sense, as such an order required constant supervision, was only enforceable by the quasi-criminal procedure of punishment for contempt and might cause injustice by allowing the plaintiff to enrich himself at the defendant's expense if the defendant was forced to run a business at a loss.

The highest authority on where Scots law stands can be found in a decision of the Inner House, in Highland & Universal Properties Limited v Safeway Properties Limited 2000 SLT 414.  The Inner House confirmed the view of the judge at first instance, and upheld the keep open order requiring Safeway to continue to trade from its store in Wester Hailes, Edinburgh.  The Court made it clear that keep open orders would be enforced if the obligation to trade was specifically precise, as the obligation was in that case.

The Inner House held that, unlike the position in England, in Scotland a party to a contract was generally entitled to enforce its obligations by decree for specific implement, subject to the residual discretion of the Court.  The English rule was based on a fundamentally different approach. 

The Court's discretion to award an order of specific implement fell to be exercised only in exceptional circumstances, where very cogent reasons existed to grant it and, in particular, where to refuse an order of specific implement would be inconvenient and unjust, or cause exceptional hardship.

The Court's discretion on whether to refuse an order for specific implement was considered by Lord Drummond Young in Oak Mall Greenock v McDonald's Restaurants Ltd, CSOH, 9 May 2003.  McDonald's had closed a loss-making restaurant, which they leased from Oak Mall. At the time the restaurant closed, the lease had over 20 years still to run.  When Oak Mall sought an order for specific implement of the "keep open" clause in the lease, McDonald's argued that the order should be refused on equitable grounds.  The principal factors McDonald's relied on were their trading losses (which they anticipated would continue until expiry of the lease) and the expense (estimated at £75,000) that would be incurred in re-opening the premises. Lord Drummond Young was not sufficiently moved by McDonald's plight.  In his opinion, the mere fact that McDonald's were trading at a loss, even if it appeared that that loss was likely to continue for the remainder of the lease, was "quite insufficient to satisfy the test" set out in the Highland and Universal Properties case. Lord Drummond pointed out that McDonald's were a large organisation, and it had not been suggested that they were incapable of surviving losses on the scale that they had suffered in the premises, or that the cost of re-equipping and staffing the premises would place an intolerable burden on them.

The difference in the position between Scotland and England is striking, but this is not entirely surprising.  Scots and English law have traditionally taken a completely different approach to orders for specific implement/ performance.  It is interesting to note that, in the House of Lords case, no Scottish cases were discussed, despite the fact that in Scotland there has been a number of keep open litigations. 

It appears that in Scotland it is likely that "keep open" orders are here to stay.  It is possible that the Scottish authorities could be over-ruled either by a five-Judge Scottish bench or by a Scottish House of Lords case.   However, with this in mind, the Inner House in the Wester Hailes case made a clear statement that it had arrived at its decision based on the relevant principles of Scottish law which are different from those of other jurisdictions.

In the case of Retail Parks Investments Limited v The Royal Bank of Scotland plc (No.2) 1196 SLT 669 which was the leading Scottish authority on "keep open" orders prior to the Safeway case, the Inner House offered some thoughts on the precision required of a keep open obligation to make it enforceable.  The Court accepted that it would be right to look carefully at obligations requiring acts extending over a long period, but the notion was rejected that every single particular of what a defender required to do had to be spelled out.  It was recognised that the clauses themselves were often drafted with a degree of flexibility to benefit both parties and that such flexibility could reasonably be retained in an order for specific implement which specified the end to be achieved but left open the precise means whereby it was to be achieved.  The Court will take commercial realities into account.

Douglas Shelf Seven Ltd v Co-operative Wholesale Society Limited and Kwik Save Group plc 2007 CSOH 53 was the first Scottish case in which damages were awarded for breach of a keep open clause.  Lord Reed's judgement contains a number of important observations on assessment of damages in such circumstances.  Lord Reed also considered obiter, and rejected, an argument that, by consenting to a sub lease, the landlord had freed the tenant from its keep open obligations.  The damages aspect of the decision is considered in detail in "Damages for breach of a Keep-Open Clause: Douglas Shelf Seven Ltd v Co-operative Wholesale Society Ltd", M Hogg, (2007) 11 Edinburgh Law Review 416-421 (copy available from MZD).

Contact

For further information, please contact:

Kenneth McLaren
Associate
0141 303 2338
kenneth.mclaren@mms.co.uk

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