A High Court Master has considered the doctrine of frustration in the context of a claim by the landlords of commercial premises for payment of rent due since the outbreak of the COVID-19 pandemic and imposition of consequent restrictions in March 2020: Bank of New York Mellon (International) Ltd v Cine-UK Ltd  EWHC 1013 (QB).
Although set in a non-financial context, this decision will be of interest to financial institutions considering the ongoing impact of the COVID-19 pandemic, particularly as it is one of the few cases to date in which the courts have considered arguments of frustration in this context.
Frustration occurs where performance of a contract has become so “radically different” to what was contemplated at the time of contracting that it would be unjust for the contract to continue. The effect of frustration is to bring the contract to an end, so that it cannot then be revived.
In this case, the Master rejected a contention by the tenants that the leases had been “temporarily frustrated” during the periods in which the premises were forced to close, finding that there is no such thing as temporary frustration as a matter of law. While this conclusion is not surprising, the decision is also of interest for the Master’s comments as to why it was clear that the leases had not been frustrated altogether.
The decision demonstrates that the limits of frustration are narrow and the courts are consistent in their message that, while a lease can be frustrated, the bar has been set very high to establish frustration.
Of course, where parties wish to avoid the strictures of the doctrine of frustration, they can include a force majeure clause in their contract setting out what is to happen if unexpected events intervene – providing, for example, for obligations to be temporarily suspended if performance is prevented by specified types of occurrence.
For a more detailed discussion of the decision, please see our litigation blog post.
For further legal analysis and insights in relation to COVID-19, and how we expect the crisis to operate as a catalyst for change, please visit our Catalyst Hub.