High Court: Foot Locker loses claim to reduce rent payments based on ‘partial frustration’ of Grafton Street lease

Foot Locker

3 December 2021

Delivering judgment in the case, Mr Justice Brian O’Moore stated that the concept of partial frustration did not exist in Irish law. Further, the court held that the doctrine of frustration would be “torn from its moorings” if the court were to allow the claim.

Background

In March 2020, Foot Locker was required to close its premises in Ireland due to the onset of the Covid-19 pandemic. It maintained a shop on Grafton Street, Dublin and was legally unable to reopen its premises until 8 June 2020.

On 8 June 2020, Foot Locker wrote to its landlord, Percy Nominees Limited, noting that it could not trade during the preceding three months and was likely to be operating at reduced capacity into the future. As such, Foot Locker argued that it had no liability to pay rent from March to June, stating that the lease was “entirely frustrated.” It was also said that the lease would continue to be frustrated into the future.

In response, Percy Nominees served a 21-day notice for seeking payment for all arrears in rent for the relevant period. When this was not paid, an application was brought to wind up Foot Locker.

In September 2020, Foot Locker instituted proceedings seeking a declaration that the common intention of the parties under the lease had been completely frustrated. However, at trial, Foot Locker submitted that the lease had been partially frustrated and that it had no liability to pay the rent for the period that the shop was closed.

It was submitted by Foot Locker that, under the lease, the tenant was covenanted to use the premises and that the premises must be kept open during normal trading hours. As such, it was said that the lease was frustrated because Foot Locker could not keep the premises open during normal hours.

Foot Locker accepted that there was no direct authority which provided for a partial frustration of a lease. However, it was argued that the Irish authorities were distinguishable based on the terms of the lease (Ringsend Property Ltd. v. Donatex Ltd. & Anor. [2009] IEHC 568Oysters Shuckers Ltd. v. Architecture Manufacture Support (EU) Ltd. [2020] IEHC 527). The plaintiff also relied on English authorities to say that, in principle, there was no reason why a lease could not be subject to partial frustration.

In response, Percy Nominees argued that the concept of partial frustration was unknown in law and simply did not exist.

High Court

The court began by outlining the classic understanding of the doctrine of frustration. The court stated that a frustrated contract was treated as being at an end, with both parties freed from their obligations from one another. As such, no party had any entitlement to receive any further benefit from the other.

The court noted that Foot Locker’s case was that it did not have to pay rent but was entitled to continue to occupy the Grafton Street premises. This proposition did violence to the fundamental aspects of the doctrine, the court said.

The court said it was unsurprisingly that Foot Locker could not provide any direct authority for this “extraordinary conclusion.” In fact, the court held that the authorities were “uniformly against the case made by Foot Locker.”

The court quoted from National Carriers v. Panalpina Ltd. [1981] A.C. 675, which stated that frustration occurred where a supervening event caused a fundamental change of circumstances for the parties. This change of circumstances must be sufficiently serious to allow a court to say: “this was not the bargain which these parties made.” The court noted that this view was upheld in Neville & Sons Ltd. v. Guardian Builders [1995] 1 ILRM 1.

The court held that, while the Panalpina case provided for the “new application” of frustration to leases, the court said that it did not involve the “radical reshaping which Foot Locker’s case necessarily requires.”

Further, the court considered the Donatex case, in which Mr Justice Peter Kelly held that Irish law did not provide for a partial or temporary frustration of a contract. Mr Justice Kelly stated that the concept of partial discharge in English law was restricted to obligations which were severable from the contract.

The court held that the obligation to pay rent under the lease was not a severable obligation and was central to the contract. It was held that the courts were “consistent and principled” in holding that there was no such thing as partial frustration in Irish law (see Oysters Shuckers Ltd).

The court also held that the English authorities did not assist Foot Locker. It was said that the concept of partial frustration was “at odds with the doctrine of frustration itself” because frustration required a contract to be at an end. However, partial frustration required the contract to “remain alive”.

Conclusion

The court concluded that the concept of partial frustration did not exist in Irish law. For the avoidance of doubt, the court also stated that it would not have found the contract to have been partially frustrated in any event.

The court noted that the lease required the tenant would comply with “any and every enactment”, in relation to operating the premises, which would have included emergency measures such as the Covid-19 restrictions. The court held that the imposition of emergency closures under primary legislation would have been considered by the parties when the lease was created in 1990, with the court citing the example of bombings due to the Troubles. In those circumstances, the court dismissed the proceedings.

If you would like an assessment of a claim, you can use the online form available here without obligation or alternatively you can use the automatic claim calculator.

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