Andrew O’Mahoney, FE1 Candidate, MCL Graduate, University College Dublin
Andrew O’Mahoney has recently completed the second year of the Master of Common Law at University College Dublin. He previously completed a degree in Business at Munster Technological University. Andrew is currently preparing to sit the FE-1 examinations this coming October and intends to pursue qualification as a solicitor. His legal interests include Property Law, Contract Law and Company Law.
Abstract
Andrew’s case note examines the Court of Appeal’s decision in Foot Locker Retail Ireland Limited v Percy Nominees Limited [2024] IECA 65 and its treatment of frustration in Irish contract law. The note considers whether COVID-19 restrictions could justify suspending rent obligations under a lease. It explains the Court’s rejection of “partial frustration”, reaffirming that frustration remains a narrow doctrine which generally brings a contract to an end rather than suspending selected obligations and argues that the Court missed an opportunity to develop a more flexible approach to contractual hardship.
Introduction
Foot Locker Retail Ireland Limited v Percy Nominees Limited[1] clarifies the rejection of partial frustration in Irish contract law. McDermott describes frustration as occurring when ‘contractual obligations can no longer be performed as a result of unforeseen circumstances which are beyond the control of either party’.[2] Is Barniville P’s outright rejection of partial frustration justified, or is there a way to incorporate partial frustration, or does it truly ‘[do] violence to the fundamentals of the principle’?[3] This case note argues that while the decision was correctly decided, Barniville P. could have used the opportunity to develop the doctrine such as to allow a form of partial frustration. This case has garnered attention beyond legal circles, underscoring its significance for commercial tenants impacted by COVID-19 restrictions, and gives further clarity as to when a lease can be frustrated.[4] The decision reaffirms the limited scope of the doctrine of frustration and the strict approach adopted by the courts.
Facts
The Appellant, Foot Locker, a premises under a lease with an annual rent of €750,000 that was due to expire in March 2025. Between March 2020 and May 2021, COVID-19 restrictions forced Foot Locker to be closed for 253 days. During this period, the Appellant sought to suspend their rent obligations, arguing that the government restrictions rendered performance impossible. The landlord Respondent, Percy Nominees, refused and demanded arrears. The Appellant initially sought to rely on the doctrine of frustration to bring the lease to an end and escape future liability for rent, but later argued partial frustration in order to excuse the failure to pay rent for the closing period while also maintaining the lease.
On appeal, Foot Locker sought a reassessment of the lease covenants. Their claim was that the obligation in the lease to stay open had become impossible to comply with, due to government restrictions. They argued that the pandemic was a sufficiently unprecedented and unforeseen event to warrant the recognition of partial frustration in Irish law.
Analysis
Frustration in Irish Contract Law
Frustration occurs when contractual obligations can no longer be performed as a result of unforeseen circumstances beyond the control of either party.[5] McGuill[6] is the modern Irish authority on frustration, which allowed the court to lay out the principles governing where it may occur. The principles state inter aliathat the contract must be impossible to perform, frustration cannot arise from a party’s act, all circumstances around the contract should be scrutinised, and reliance on the doctrine is excluded where the event was foreseeable. Furthermore, in Donatex,[7] Kelly J said that the doctrine is:
‘one of limited application and narrowness. It arises in circumstances where performance of a contract in the manner envisaged by the parties is rendered impossible because of some supervening event not within the contemplation of the parties’[8]
A key effect of frustration is that it ends the contract and discharges both parties automatically.[9] Given the significant consequences that come with frustration, courts have traditionally confined the doctrines to exceptional circumstances in order to preserve contractual certainty. As Rix LJ noted in The Sea Angel, the doctrine is ‘not to be lightly invoked.’[10]
In Footlocker, the basis of the lease was rent for possession, not continuous trading. The obligations imposed on the lease, such as the “keep open” covenant, were qualified by being open at reasonable hours and in line with the locality and did not infer that the premises had to be open through restrictions.[11] Nothing about the situation made it impossible for the Appellants to maintain possession of the premises. Accordingly, the learned judge concluded that the covenants of the lease were still respected and rent was owed as agreed as it is integral to the contract. Therefore, following which the principles set out in McGuill[12], the court held that the lease was not frustrated.
Barniville P.’s judgment condemned the principle of partial frustration, namely the idea that particular contractual obligations may be suspended or discharged without bringing the contract as a whole to an end.[13]
Rejection of Partial Frustration
Barniville P. rejected the idea of partial frustration, affirming that frustration operates as a complete discharge of contractual obligations, and the concept of partial or temporary frustration is incompatible with the established doctrine and the fundamental principles underpinning the law of frustration. He stressed, citing The Sea Angel[14] case that the consequences of the frustration have to be measured with the “demands of justice” using a multifaceted approach.[15] A proportionality test from National Carriers,[16] was applied in Footlocker weighing the disruption’s length against the remaining term to determine if performance had become fundamentally unfair.[17] In other words, the court asks whether the closure period, viewed against the overall length of the lease and the time left to run afterwards, was so substantial that insisting on continued performance would be unjust because the bargain had been fundamentally altered. In this case, the disruption relative to a 35-year lease with only one remaining year of the lease was not a sufficiently substantial event that it altered the nature of the agreement for frustration to be appropriate. Thus, even if the doctrine of partial frustration was recognised, it would not have applied.
Donatex[18] and Oyster Shuckers[19] were cited as Irish cases that previously considered and rejected the doctrine of partial frustration. However, the multifaceted approach to frustration is central to the rejection of partial frustration because it assesses whether the contract as a whole has been fundamentally altered rather than whether individual obligations have become impossible or more burdensome. Barniville P. indicated this position by noting that recognising partial frustration would entitle the Appellant to remain in possession without paying rent, an outcome “[t]hat would not…be consistent with the interests of justice”.[20] Such a result would circumvent the core bargain of rent in exchange for possession to the detriment of the respondent.
Other Jurisdiction Perspectives
Irish authorities overwhelmingly reject partial frustration.[21] Other jurisdictions adopted flexible approaches that are different to the ‘all or nothing’ approach as described in the Footlocker judgment.[22] In Germany, the doctrine of Wegfall der Geschäftsgrundlage (loss of the basis of the transaction) applies where performance becomes excessively difficult rather than strictly impossible or has a change of basis. While it shares similarities with the doctrine of frustration, it allows courts not only to discharge a contract but also to modify its terms, preserving contractual continuity when needed.[23]
Spain has the doctrine of rebus sic stantibus (the situation thus remaining).[24] This doctrine provides that in situations where the contract does not expressly allocate risk and all other remedies have been exhausted, the court will assess whether the severity of the hardship justifies invoking the doctrine.[25] Again, this is extremely similar to common law frustration in how it operates but allows alternatives where contractual performance becomes ‘excessively burdensome’.[26]
Other jurisdictions outside of the common law appear to have doctrines comparable to frustration, that Irish law would see as a partial frustration, however unlike Irish law, they allow some form of intervention.
A Missed Opportunity?
An all-or-nothing approach towards frustration may not be the best approach despite the emphasis on fairness in the ‘multifaceted’ approach adopted in the Sea Angel.[27] In Footlocker, Barniville P. made reference to this principle that whether a claim of frustration succeeds is ultimately determined by what is just and that outcome has to bear this in mind.[28] Is it outside of the realm of possibility that the just outcome would be the recognition of a form of partial frustration?
Other legal systems have used a version of partial frustration as demonstrated above with Germany and Spain allowing alteration of a contract in extreme hardship. This is persuasive in justifying that a rigid approach to frustration is not the only way to achieve justice. While these doctrines arise in civil law systems and therefore operate within a different legal framework, they nevertheless demonstrate that contractual adjustment is a viable alternative to a complete discharge of the contract.
This has been considered by commentators noting that regarding strict adherence to the Sea Angel[29] case and only considering impossibility rather than hardship could leave the doctrine ill-equipped to deal with modern crises such as COVID-19.[30]
Should The Court Have Made New Law?
The court’s affirmation of the High Court judgment in not finding frustration in the Appellant’s specific case, as the threshold wasn’t met for frustration, is difficult to dispute.[31] However, Barniville P.’s decision adheres to the established principles of frustration. The judgment maintained that creating a new law is a matter for the Oireachtas and it is not up to the judiciary to create new law.[32] However, the modern doctrine of frustration itself was established in Taylor v Caldwell.[33] Frustration started as an implied term and later developed as its own doctrine. Frustration evolved entirely within common law without legislative intervention. The courts have a precedent for developing this area and their refusal to do so is not necessarily constitutionally constrained as Barnville P is suggesting, but is a conscious effort to preserve the rigid nature of the doctrine. This could be out of a desire to preserve the certainty the frustration doctrine provides in its current form.
As mentioned above, judicial development of doctrines addressing contractual hardship is not uncommon in other jurisdictions. The doctrines share features and uses but allow modification to where performance becomes burdensome, albeit not impossible.
The courts desire to hold onto legal certainty is desirable. Legislation passed through the Oireachtas would allow legislators enough time to debate any possible unforeseen consequences to the development of the doctrine. However, that shouldn’t necessarily prevent judicial development of the doctrine, especially in circumstances of crises such as COVID-19 which would provide a justified occasion for the courts to adapt the doctrine in a controlled way.
Conclusion
Barniville P.’s decision correctly applied the existing Irish law of frustration, reinforcing the narrow and strict application of the doctrine. However, the outright rejection of partial frustration may represent a missed opportunity to evolve the doctrine in a more suitable way that reflects modern realities such as COVID-19 and other truly unprecedented world events.
The examples of Germany and Spain demonstrate that viable alternatives to the all-or-nothing approach exist that allow partial frustration without undermining contractual certainty and the necessary ‘meeting of the minds’.
While legislative action may be ideal, the courts should not shy away from incremental reform, given that the doctrine of frustration itself is a judge-made doctrine.[34] A rigid adherence to established principles should not get in the way of judicial innovation where justice and fairness demand it.
[1] Foot Locker Retail Ireland Ltd v Percy Nominees Ltd [2024] IECA 65.
[2] Paul A McDermott and James McDermott, Contract Law (Bloomsbury Publishing 2018) [21.01].
[3] Foot Locker Retail Ireland Ltd v Percy Nominees Ltd [2021] IEHC 749 [31].
[4] ‘Foot Locker Claim over Grafton Street Rent during Covid Lockdown Rejected by Appeal Court’ The Irish Times (22 March 2024) <https://www.irishtimes.com/business/2024/03/22/appeal-court-dismisses-foot-locker-claim-over-grafton-street-rent-during-covid-lockdown/>.
[5] McDermott and McDermott (n 2) [21.01].
[6] McGuill v Aer Lingus [1984] WJSC 1427 (HC).
[7] Ringsend Property Ltd v Donatex Ltd [2009] IEHC 568.
[8] ibid 13.
[9] Constantine Steamships Line v Imperial Smelting Corp [1942] AC 154.
[10] Edwinton Commercial Corporation v Tsavliriss Russ (Worldwide Salvage Towage) Ltd; The Sea Angel [2007] EWCA Civ 547 [111] – [112].
[11] ibid 95.
[12] McGuill v Aer Lingus [1984] WJSC 1427 (HC) (n 6).
[13] Foot Locker Retail Ireland Ltd v Percy Nominees Ltd (n 1) [89].
[14] Edwinton Commercial Corporation v Tsavliriss Russ (Worldwide Salvage Towage) Ltd; The Sea Angel (n 10).
[15] Foot Locker Retail Ireland Ltd v Percy Nominees Ltd (n 1) [120].
[16] National Carriers Ltd v Panalpina (Northern) Ltd [1980] J1211-1 (UKHL).
[17] Foot Locker Retail Ireland Ltd v Percy Nominees Ltd (n 1) [125].
[18] Ringsend Property Ltd v. Donatex Ltd (n 7).
[19] Oysters Shuckers Ltd T/A Klaw v Architecture Manufacture Support (EU) Ltd [2020] IEHC 527.
[20] Foot Locker Retail Ireland Ltd v Percy Nominees Ltd (n 1) [160].
[21] Kenneth Treacy v Lee James Menswear Limited and James O’Regan [2022] IEHC 600 [15].
[22] Foot Locker Retail Ireland Ltd v Percy Nominees Ltd (n 1) [22].
[23] Basil S Markesinis, Hannes Unberath and Angus C Johnston, The German Law of Contract: A Comparative Treatise (Bloomsbury Publishing Plc 2006), 336.
[24] Aaron Fellmeth and Maurice Horwitz, Guide to Latin in International Law (University Press USA 2009), 55.
[25] Lauren Harris, ‘Frustration In Crisis: How The Spanish Doctrine Of Rebus Sic Stantibus Can Inform A Post-Pandemic Reexamination Of English Contract Law’s Approach to Hardship’ (2023) 26 TCLR 39.
[26] ibid 40.
[27] Edwinton Commercial Corporation v Tsavliriss Russ (Worldwide Salvage Towage) Ltd; The Sea Angel (n 10).
[28] Foot Locker Retail Ireland Ltd v Percy Nominees Ltd (n 1) [117].
[29] Edwinton Commercial Corporation v Tsavliriss Russ (Worldwide Salvage Towage) Ltd; The Sea Angel (n 10).
[30] Harris (n 25).
[31] Foot Locker Retail Ireland Ltd v Percy Nominees Ltd (n 1) [162].
[32] ibid 161.
[33] Taylor v Caldwell (1863) 3 B & S 826.
[34] McDermott and McDermott (n 2) [21.01].
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