This time last year, the enforceability of ‘keep open’ clauses was considered by the High Court in an interlocutory application by a landlord seeking to compel an anchor tenant to continue trading (at an ongoing loss) in accordance with the terms of their Lease. Hedigan J delivered a practical and commercially astute judgment provided welcome clarity as regards the Irish position in relation to keep open clauses:

Thomas Thompson Holding Limited (“Thompsons”), Montaya Developments Limited (“Montaya”) and Carlow Centre Management Limited (the “Management Company”) –v- Musgrave Group Plc, Musgrave Retail Partners Ireland Limited and Musgrave Operating Partners Ireland Limited (“Musgraves”), unreported, 22 January 2016.

The facts of the case, briefly, were that the plaintiff, Thompsons and Montaya were the landlords in a Lease dated the 13th September 1994 (the “Lease”) of the anchor unit in Carlow Shopping Centre. The Management Company was a party to the proceedings primarily because it was a party to the Lease in respect of covenants and the management of the centre. Musgraves, the defendant entities, owned and operated the Supervalu grocery store which had been trading from the anchor unit since circa 2011. Supervalu had taken over a lease of the unit by assignment of the original Lease which was to Superquinn. Thompsons and Montaya (together the “Landlord”) asked the Court to compel Musgraves to keep the centre open until the action came for full hearing. Musgraves, in response, said that if they were forced to keep the centre open until the expiry date of the Lease in September 2018, they would continue to suffer trading losses.

The judgment of the court revisited existing caselaw on this subject and, in particular, the judgment of Clarke J. in Okunade –v- Minister for Justice (2012 3IR152). In that case, eight headings summarising the criteria to be considered in deciding whether to enforce a keep open clause were usefully set out as follows:

  1. Is there a fair or bona fide question to be tried or a strong likelihood of success at trial depending on the nature of the Order sought.
  2. If so, would damages be an adequate remedy and is it likely that defendants could pay damages.
  3. If not, will the plaintiffs’ undertaking as to damages adequately compensate the defendant if he is successful at trial.
  4. If so, will the plaintiff be in a position to meet his undertaking if it is called in.
  5. If damages would not adequately compensate either party, then the Court must consider where the balance of convenience lies. It should ask itself where will the least harm be done. It should compare the consequence of deciding either way.
  6. If all matters are equally balanced, the Court should attempt to preserve the status quo.
  7. It should attempt to minimise the risk of injustice.
  8. The risk of injustice from not acting must be greater than that of acting in order to justify the Court’s departing from the status quo.

The court considered these criteria in turn, focussing initially on the nature of the order sought. As set out in Maha Lingham v HSE [2006] 17 ELR 137 at 140, where a prohibitory order is sought, the court must ask whether the plaintiff raises a ‘fair serious or bona fide question’ (a relatively low hurdle) but where a mandatory order is sought the plaintiff must establish the higher standard of ‘a strong case that is likely to succeed at the hearing’. In Thompson, the order sought was described in the proceedings as constituting a prohibitory order but on the facts, the court determined that it was in fact a mandatory order – one which would require the shop owners to continue operating contrary to their interest – and that accordingly, the more stringent test applied

In this context, the court went on to consider whether it could issue an order which would require the carrying on of a business which was a losing concern. Detailed reference was made by the court to the House of Lords case of Co-Operative Insurance v Argyll Stores Holdings [1998] A.C. 1. In that case, Hoffman J. stated that “no authority has been quoted to show that an injunction will be granted enjoining a person to carry on a business, nor can I think that one ever would be, certainly not where the business is a losing concern”. He also noted that “compelling specific performance of a contract as opposed to a right to damage is an exceptional remedy rather than the norm”. From a wider public policy perspective he commented that as a general principle where somebody is entitled to damages this was a better remedy than compelling somebody to keep a business open where it was loss making.

An Irish case also referenced by the court which turned on different facts was considered to fall within the Argyll test of exceptionality. Namely, Wanze Properties –v- Five Star Supermarket (unreported High Court 24th October 1997 Costello P.), wherein a keep open close in a lease was successfully invoked in circumstances where the defendant were not trading at a loss and yet sought to close one store and re-open another a mere 400 yards away.

In support of this position, the court referred to the textbook of Buckley Conroy & O’Neill, 2012, where it is stated in relation to specific performance that “one must regard the jurisdiction to enforce the covenants as exceedingly limited in the absence of any reserved judgment at plenary stage clearly departing from Argyll”.

Ultimately, the court determined that based on a review of existing caselaw, this was not a case that could realistically be considered as a strong case likely to succeed at trial and therefore, did not pass the test required for the court to issue a mandatory order. It was also found in respect of the criteria set out at the outset, that there was no reason why damages would not ultimately be an adequate remedy, there was no evidence to suggest that the defendants would not be in a position to pay such damages and furthermore, that damages could be assessed on business criteria as determined by experts on financial loss. In relation to an undertaking to pay damages, the plaintiff was not in a position to give an assurance that, in the event it lost the case, it could meet a counterclaim for damages by the party proposing to close the supermarket.

On considering the balance of convenience, the Court considered the “least harm principle”. The Court took a practical view in relation to this criterion, considering that the shop would close in 2018 in any event and that if required to stay open in the interim contrary to its interests, there would be ongoing uncertainty around the venture whereas immediate closure might require the landlord to source a new anchor tenant and move on.

In considering the terms of the Lease it was noted that, whilst it provided an obligation to keep the store open, it also contemplated damages as a remedy for breach of covenant.

Finally, the Court commented that “it would have grave doubts over the wisdom of forcing companies that are trading at a loss to continue to do so”.

Conclusion

This judgment corresponds with the general thrust of the Court in commercial dealings not to seek to impose something on the parties other than what was set out in their agreement.

In light of the jurisprudence / case law around the issue of keep open clauses, they must be assessed on a case by case basis. The remedy of specific performance is not readily available in forcing a tenant to keep open a loss making venture. In the bulk of cases, the most likely remedy is that the plaintiff / landlord in such actions will rely on their contractual rights under the Lease to sue a defaulting tenant who decides to close a unit for the financial loss which primarily relates to the loss of rent.

The negotiation of “keep open” clauses is determined by the strength of the parties when they are negotiating agreements at the outset. If a tenant is to secure an anchor unit in a prime location, they are likely to accede to more onerous keep open clauses which will extend to specified hours and days per week etc. In a busy retail centre this could well extend to seven day opening from 9 a.m. to 9 p.m. daily. Such keep open clauses are also usually mirrored for key occupants, for example retail pharmacies or other units which would attract footfall to the commercial centre.

Except in exceptional cases, the strong likelihood is that a Court will rely on the entitlement to damages as the most appropriate remedy for a plaintiff seeking to enforce a keep open clause on a defaulting tenant.

As stated at the outset, this judgment provides welcome clarity in respect of the enforceability of keep open clauses in relation to losing concerns, in particular.