Damages Awarded In Lieu Of Specific Performance For Breach Of Tenant's Covenants

In Zinc Cobham 1 Ltd and others v Adda Hotels and others [2018] EWHC 1025 (Ch), the High Court considered whether specific performance should be ordered requiring a tenant of hotel premises to trade, operate and maintain their hotels in accordance with specific brand standards.

Background

The appellants, which were part of the Zinc Hotels Group ("Zinc"), owned ten hotels which were each leased to the Respondents ("Adda") and operated under the 'Hilton Hotels' brand.

Each of the leases contained express covenants which essentially required Adda to maintain active trade in the hotels in accordance with the Hilton Hotels Brand Standards and to keep the hotels in the standard of repair and decoration consistent with their use as first class hotels and as required by the Hilton Hotels Brand Standards.

Following their inspection of the hotels in 2015, Zinc served various schedules upon Adda setting out their alleged breaches of the Hilton Hotels Brand Standards. The schedules identified specific remedial works which were said to be required to each of the hotels.

Adda failed to undertake the remedial works (which would have cost over £100 million) and so Zinc issued a claim for an order requiring specific performance of Adda's obligations under the leases to trade operate and maintain each of the hotels in a manner consistent with the Hilton Hotels Brand Standards, by remedying the various breaches. In the alternative, they sought damages for breach of covenant.

Upon Adda's application, the Deputy Master struck out Zinc's claim insofar as it sought the remedy of specific performance.

The decision

Zinc appealed the Deputy Master's decision. The High Court Judge concluded that the Deputy Master's reasoning was correct and dismissed the appeal for the following reasons:

  1. The Deputy Master was right to conclude that Zinc had no real prospects of obtaining an order for specific performance at trial and the Particulars of Claim disclosed no reasonable grounds for seeking such relief.

  2. Zinc's claim for specific performance had an "air of unreality and fictionality about it" because:

    1. they had not established that they had any legitimate interest which went beyond monetary compensation and so specific performance should not, in principle, be granted;

    2. the difficulties which Zinc alleged it would have in valuing its loss were "more imagined than real" particularly where Zinc accepted that the performance of the works would make no difference to the...

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