Supreme Court of Ireland Decisions

1. On 21 March 1987 the plaintiff/appellant and the defendant/respondent (to whom I shall refer respectively as Neville and Guardian) entered into a written agreement the essence of which was that Guardian gave Neville a licence to enter on a plot of land, owned by Guardian, known as ‘The Gables’ situate in Stillorgan, Co. Dublin, for the purpose of building houses on it. The agreement (to which I will hereinafter refer as ‘the licence agreement’) was subject to planning permission being obtained for the erection of not less than 44 houses on the plot (to which I shall refer as the ‘licence plot’) and it contained the normal provision that on Guardian executing assignments of houses to purchasers Neville would pay specified site fines. On the signing of the licence agreement Neville paid a deposit of £87,550.

2. The access to the licence plot was to be over a road opening on to the Stillorgan Road. This access road is the cause of the litigation between the parties.

3. Between the licence plot and the Stillorgan Road there was firstly, another plot, situate in the borough of Dun Laoghaire, and also owned by Guardian, and secondly, a small strip of land about 150 sq. metres in area and owned by Dublin County Council. The access road had to pass over this strip of land in order to join the Stillorgan Road.

4. Prior to entering into the licence agreement Guardian had already applied to Dublin County Council for planning permission for the erection of 49 houses on the licence plot. This application was refused by Dublin County Council but on appeal An Bord Pleanála on 5 May 1988 granted planning permission for the erection of not more than 46 houses on the licence plot. In the permission, the board stated that it was satisfied that Guardian could provide adequate access from Stillorgan Road to the licence plot.

5. It had been anticipated by Guardian as far back as 1981 that the access road could also serve the rear lands of what was then the South County Hotel and is now Parkes Hotel and the hotel in December 1983 obtained a planning permission for a car park at the rear of the hotel with an exit on to the access road. The position of this exit interfered with the planning permission for the development of the licence plot but the county council insisted that it should not be changed without the consent of the hotel as they feared that, if it were, they might have to pay additional compensation to the hotel, and they were not prepared to sell to Guardian the 150 sq. metre strip which it needed for the construction of the access road unless the position of the exit was left unchanged. As a result the implementation of the licence agreement was held up.

6. On 23 August 1988 Neville’s solicitors wrote to Guardian’s solicitors complaining of the delay and stating that unless the project commenced within seven days their client would institute proceedings for specific performance and damages. Guardian’s solicitors responded by stating that their client would in the circumstances accept the notice of rescission of the licence agreement which Neville had served on 29 July 1987, approximately one year previously. This allegation that the licence agreement was at an end because it was rescinded by Neville was not pursued.

7. The present proceedings were then instituted by Neville on 7 October 1988 seeking specific performance and damages, and in the alternative damages for fraudulent misrepresentation together with certain declarations, rectification of the licence agreement and further and other relief. Guardian in its defence entered a series of defences both dealing with the claim for specific performance and the additional alternative claims, and pleaded, inter alia, that the performance of the contract had been frustrated.

8. The learned trial judge in the course of his judgment dismissed Neville’s claim for alternative remedies on various grounds and dismissed its claim for specific performance on the express finding that the defence that the performance of the contract had been frustrated had been successfully made out.

9. Neville served a notice of appeal against the order of the learned trial judge in which it challenged not only the learned trial judge’s decision that the performance of the contract had been rendered impossible by frustration but also a number of his other decisions in particular those dismissing Neville’s alternative claims.

10. Guardian served a notice of cross-appeal confined to so much of the order of the learned trial judge as awarded to it, Guardian, against Neville only half of the costs incurred in the action.

11. At the hearing of this appeal, counsel on behalf of Neville withdrew all grounds of appeal other than those directed either to the findings of fact or of law supporting the learned trial judge’s conclusion that the performance of the contract had been rendered impossible by frustration.

12. This therefore became the sole issue for determination on the hearing of this appeal, the cross-appeal by Guardian in regard to costs necessarily falling to be debated at a later stage depending upon the result of the appeal made by Neville.

13. In order to determine if the performance of the licence agreement was frustrated it is necessary first to see what was Guardian’s obligation under the agreement since essentially it is the performance of its obligation that is alleged to have been frustrated and in order to do this it is necessary to construe the agreement.

14. The principal question that arises in construing the agreement is whether under its terms there was an obligation on Guardian to give Neville access to the licence plot or, in other words, whether Guardian had undertaken as part of the agreement that it would give Neville access to the plot over the access road which was to be constructed from the Stillorgan Road.

15. On behalf of Guardian it was submitted that it had not undertaken to do this. It was contended that the licence agreement was silent on this point; that in the licence agreement Guardian did not offer title to the small strip owned by the county council, and that Neville knew that Guardian did not have title to it. In regard to this latter point, particular reliance was placed on a letter of 13 March 1987 written by Guardian’s solicitor to Neville’s solicitor, before the execution of the licence agreement, in which reference was made to a map which showed that the 150 sq. metre strip between Guardian’s property and the Stillorgan Road was in the ownership of the county council.

16. I have no hesitation in rejecting Guardian’s contentions on this issue. It seems to me to be quite clear that while Guardian did not at the time own the small strip over which the access road had to go, it nonetheless agreed to give access to Neville over it, no doubt being satisfied that it would be able to acquire title from the county council to enable it to do this, since it had in March 1984 agreed terms with the county council for the acquisition of the strip in question.

17. The licence agreement begins with the following two recitals:-

18. In clause (1) of the agreement ‘development’ is defined as meaning ‘the land delineated in red on the plan annexed hereto together with the benefit of the right of way coloured yellow and green. The tenure to the said lands is as described in the second schedule hereto.’ What was coloured yellow and green on the plan was both the access road and the entire of the road throughout the proposed housing estate on the licence plot. Under clause 6 of the agreement, and clause 1 of the addendum to the agreement, both the access road and the entire of the road throughout the licence plot was to be constructed by Guardian.

19. Clause 2(1) of the licence agreement then provides as follows:-

20. The licensor hereby grants to the licensee licence and authority during the licence period to enter upon the development for the purpose of erecting buildings and carrying out works as hereinafter mentioned.

21. In my opinion the clear meaning of this is that Guardian would give Neville access to the licence plot during the licence period which was for the period of 18 months commencing 14 days after the granting of planning permission, and since access could only be obtained by getting title to the 150 sq. metre strip from the county council, it meant that it necessarily undertook an obligation to do this. When pressed on this point in the course of the hearing, Mr. Salafia SC, on behalf of Guardian, initially submitted that this clause should be construed as meaning that what Guardian was doing was agreeing to give access ‘in so far as it lay within its power’ but later he reverted to saying that he had to submit that it meant that Guardian did not undertake to give access. I am satisfied that this is not correct and accordingly that the question of whether or not the performance of the licence agreement was frustrated must be looked at in the light of this basic obligation resting on Guardian. Apart from paying the deposit of £87,550 , which it did, Neville’s principal obligation under the licence agreement was to ‘erect and complete fit for immediate occupation upon each of the sites a dwelling-house and all necessary works thereto appertaining in accordance with plans and specifications drawn by the licensor’ s architect and approved by the local authority before the operative date.’ (See clause 4(2)). Clearly Neville had no obligation to comply with this clause until given access to the licence plot by Guardian. So the essential question is whether the learned trial judge was correct in holding that the performance by Guardian of its obligation to give access to the site was frustrated and the licence agreement thereby brought to an end.

22. I now turn to that issue. Detailed written and oral submissions were made on behalf of both Neville and Guardian concerning the legal principles applicable to the question of the frustration of contracts and to the question of the application of those principles to the facts which were largely not in controversy arising from the oral and documentary evidence adduced in the case.

23. It is necessary first, therefore, to determine what are the principles which should be applied in relation to the doctrine of the frustration of contracts.

24. I am satisfied that this issue in effect falls into two separate sub-questions. The first being the necessity to define the circumstances in which frustration takes place and the second being to determine the basis on which, if those circumstances do occur, the court has power to declare that the contract is at an end.

25. The circumstances in which frustration takes place were defined as follows by Lord Simon in his speech in National Carriers Ltd v. Panalpina (Northern) Ltd [1981] AC 675 at p. 700F:-

26. Frustration of a contract takes place when there supervenes an event (without default of either party and for which the contract makes no sufficient provision) which so significantly changes the nature (not merely the expense or onerousness) of the outstanding contractual rights and/or obligations from what the parties could reasonably have contemplated at the time of its execution that it would be unjust to hold them to the literal sense of its stipulations in the new circumstances; in such case the law declares both parties to be discharged from further performance.

27. In the same case Lord Roskill in his speech analysed the circumstances in which frustration occurs in terms which I am satisfied are virtually identical in their effect where at p. 7 17D he stated as follows:-

28. There must have been by reason of some supervening event some such fundamental change of circumstances as to enable the court to say; ‘this was not the bargain which these parties made and their bargain must be treated as at an end’ – a view which Lord Radcliffe himself tersely summarised in a quotation of five words from the Aeneid: non haec infoedera veni.

29. I am satisfied that these two quotations from the decision of the House of Lords represent a correct statement of the principles of law applicable to frustration in our law and I am prepared to adopt them as being a correct statement of principle.

30. With regard to the basis on which in the circumstances in which frustration occurs the court has power to declare that the contract is at an end I find again in the case of National Carriers Ltd v. Panalpina (Northern) Ltd and this time in the speech of Lord Wilberforce, what I am satisfied is a correct statement of the principles on this issue where at p. 693-694G he states as follows:-

31. Various theories have been expressed as to its justification in law [i.e. the doctrine of frustration]: as a device by which the rules as to absolute contracts are reconciled with a special exception which justice demands, as an implied term, as a matter of construction of the contract, as related to removal of the foundation of the contract, as a total failure of consideration. It is not necessary to attempt selection of any one of these as the true basis: my own view would be that they shade into one another and that a choice between them is a choice of what is most appropriate to the particular contract under consideration. One could see, in relation to the present contract, that it could provisionally be said to be appropriate to refer to an implied term, in view of the grant of the right of way, or to removal of the foundation of the contract – viz, use as a warehouse. In any event, the doctrine can now be stated generally as part of the law of contract; as all judicially evolved doctrines it is, and ought to be, flexible and capable of new applications.

32. What has to be determined is whether there were in the present case circumstances such as those outlined in the speeches of Lord Simon and Lord Roskill in the case of National Carriers Ltd v. Panalpina (Northern) Ltd. Did an event supervene which so significantly changed the nature of the outstanding obligations of Guardian from what the parties could reasonably have contemplated at the time the licence agreement was entered into? Or was there by some supervening event some such fundamental change of circumstances that the court could say, ‘this is not the bargain that these parties made and their bargain must be treated as at an end’? In my opinion the answer to both these questions is no.

33. As far back as 1984 Guardian had reached agreement with the county council for the acquisition of the 150 sq. metre strip. The terms of the agreement are set out in a letter of 12 March 1984 from Dublin County Council to Guardian. One of the terms in the agreement was as follows:-

34. Clause 6 of the terms provided that they were subject to the following conditions:

35. Condition (b) was complied with on 16 September 1986 when Guardian, on appeal to the planning board obtained planning permission from Dun Laoghaire Borough for the erection of two three-storey office developments. One of the conditions to which this planning permission was subject was as follows:-

36. On 25 August 1987 Guardian’s solicitor wrote to the county council with a view to having the terms set out in the county council’s letter of 12 March 1984 put into effect. After some further correspondence and discussions between Guardian’s solicitor and the county council, the county council wrote on 4 December 1987 saying that they were not prepared to proceed in accordance with the terms set out in their letter of 12 March 1984 as Guardian ‘did not construct the road referred to at item 3’, i.e. the access road.

37. Further meetings and correspondence then took place between Guardian and its solicitor on the one hand and the county council on the other with a view to coming to a new agreement. A problem had emerged in regard to the position of the exit from the Parkes Hotel car park on to the access road. In a planning permission XA 1181 which the hotel had obtained from the county council on 5 December 1983, the exit was shown in the middle of the car park. Its position there interfered with the planning permission in respect of the licence plot and Guardian wished to have it moved closer to the Stillorgan Road. Parkes Hotel was not agreeable to this and the county council were not prepared to permit any change in the position without the hotel’s consent in case it could result in their having to pay additional compensation to the hotel. Under an interim award by an arbitrator the county council had paid compensation to the hotel for the compulsory acquisition of the car park formerly in front of the hotel which had been acquired for the widening of the road.

38. New terms which are set out in a letter from the county council dated 8 September 1988 were then agreed upon. They provided for the acquisition of the 150 sq. metre strip by Guardian in consideration of the payment of £37,500. In addition Guardian had to ‘construct, at its own expense, a new junction and access road leading from the carriageway of the Stillorgan Road to the development site via the proposed car park entrance as per planning permission Reg. Ref. XA1181’.

39. The terms also included the following:-

40. These terms were accepted by Guardian in a letter of 13 September 1988 and on 26 October 1988 Mr. Loftus the law agent for the county council wrote Guardian’s solicitor stating that he was preparing a draft contract. In the meantime these proceedings had been commenced by Neville by a plenary summons which was served on 11 October 1988, and Guardian did not go ahead with the agreement. If it had done so, it would have been in a position to construct the access road and so comply with its obligation to give Neville access to the licence plot.

41. Before completing this narrative of the relevant facts, there is one further letter I should refer to as it pinpoints the cause of the problem in regard to the access road. It is a letter of 26 July 1988 from Guardian’s solicitor, Mr. Owens, to Mr. Loftus and is as follows:-

42. Re: Our client: Guardian Builders Ltd

43. Your client: Dublin County Council

44. Re: Access to the Gables Site, Stillorgan Road.

45. I refer to our telephone conversation today and to the agreement reached between our respective clients in 1984 in respect of the above. As you are aware, your client pointed out that the one outstanding matter in the 1984 agreement was the location of the access to Parkes Hotel which we discussed with both yourself and Mr. Fallon at our last meeting in your office. I now set out hereunder the wording to get over this difficulty which we agreed this morning:-

46. The owners of Parkes Hotel acknowledge that the access as proposed in paragraph 1 above will not give rise to a claim by it against the county council as a result of the change in its location from that proposed in planning permission reference XA1181 already obtained.

47. We will now endeavour to get its agreement to the inclusion of such a paragraph as the above in an agreement with our client. Failing reaching such an agreement with it, our client may have to revert back to the old access as proposed by Parkes Hotel in planning permission reference XA1 181 as a result of the views you expressed at our last meeting in your office.

48. As agreed on the telephone such an agreement (if reached) will be signed on behalf of Parkes Hotel by its manager and on behalf of Guardian Builders Ltd by its principal.

49. I trust the above is in order.

50. Yours sincerely

51. When one looks at these facts it is in my opinion impossible to say that the performance of this contract was frustrated. No event supervened which significantly changed the nature of Guardian’s obligation to provide access to the licence plot which involved constructing the access road. When Guardian entered into the licence agreement, it had the informal agreement of 10 March 1984 with the county council which, if implemented, would have enabled it to construct the road. And in fact, under the terms of the agreement, it had an obligation to do so since it was a condition of the agreement that it would construct the road within twelve months of obtaining planning permission for its office development from the Dun Laoghaire Borough, and this had been obtained on 16 September 1986. And when this agreement went off, the county council showed its willingness to enter into a new agreement in September 1988. Furthermore, it is quite clear from the evidence of the county council’s witnesses that the county council wanted this access road built. The only unexpected problem that Guardian had was the county council insisting that the position of the exit from the Parkes Hotel car park to the access road should not be altered, but this could not by any means be termed a supervening event which significantly changed the nature of Guardian’s obligation under the licence agreement. It made it more onerous, but that was all.

52. I am satisfied, therefore, that the defence of frustration fails, and that having been the only defence which was raised against Neville’s claim for specific performance, I would allow this appeal and direct specific performance of the licence agreement. And the court will hear counsel on the question of damages, if any.