Formation Of Contracts, Part Performance And Equitable Estoppel

Introduction

In a significant decision of the Irish Supreme Court delivered on 18 February 2026 (ACE Autobody Limited -v- Motorpark Limited, Brecol Limited and JDM Automotive Limited [2026] IESC 9), the court considered in considerable detail significant issues concerning the formation of contracts, the doctrine of part performance and the role of equitable estoppel in commercial transactions. The Court extensively reviewed jurisprudence in Ireland and England on these issues in a judgment which runs to 124 pages.

Background

The facts, briefly, were as follows: the plaintiff commenced discussions with the defendant in August 2016 for the grant of a lease of a premises by the defendant to the plaintiff. A Term sheet was exchanged between the parties which included details as to the terms of the lease and the rent. That document was headed "Term Sheet Discussion document only". At a subsequent meeting between the parties, it was orally agreed that the Term Sheet set out the agreement of the parties and that the parties' respective solicitors be instructed to put what had been orally agreed into legal documentation. The parties shook hands on that oral agreement. In November 2016, the defendant's solicitor corresponded with the plaintiff's solicitor indicating that he was finalising the terms of the draft lease with his client and would be in a position to send the draft lease and title later that week. That correspondence was marked "Subject to Lease/Licence". In December, the plaintiff's solicitor wrote to the defendant's solicitor, in a letter marked "Subject to Lease/Lease denied" raising a number of queries. That letter also included the following statement:

Concurrent with this exchange of correspondence, the parties had direct exchanges relating to the handover of the premises to the plaintiff. The parties agreed that the finalisation of the lease was not something that should delay the plaintiff moving in. The parties exchanged correspondence directly on proposed completion dates for the transaction. Ultimately, there was no completion and no lease was ever executed. Nevertheless, the plaintiff entered into occupation of the premises in January 2017. The plaintiff took over and rebranded the business being operated from the premisses. It took over the employment contracts of 4 employees previously employed by the defendant. Substantial expenditure was incurred by the plaintiff in connection with the move. In October 2017, the defendant sent an invoice to the plaintiff for rent. This invoice was discharged by the plaintiff. The defendant subsequently decided not to proceed with the lease to the Plaintiff and the plaintiff thereafter issued proceedings seeking specific performance of the agreement.

The High Court

In the High Court, the Judge concluded that the common intention of the parties was that the plaintiff be a contractual tenant in a tenancy from year to year (the presumption being that, in the absence of any concluded agreement, the plaintiff had been given possession in return for the periodic payment of rent and that a periodic tenancy arose).

The plaintiff disagreed with the judgment of the High Court and appealed to the Court of Appeal.

The Court of Appeal

The judgment of the Court of Appeal was that it was evident that there was a concluded agreement in place from the point in September where the principals on each side shook hands. The court determined that the use of the term "subject to lease" was to cover a limited time and a limited purpose only to the extent of putting the agreement into formal shape and was this only a temporary hiatus. The court held that this moniker (subject to lease) was introduced ex post facto by the solicitors and had not been part of the agreement of the parties. The Court of Appeal held that the High Court had failed to consider and attach appropriate weight to the distinct acts of part performance undertaken by the plaintiff. The court also held that evidence of the plaintiff's reliance on the assurances repeatedly and expressly made by the defendant was overwhelming and that the plaintiff had incurred significant expenditure. Thus, it said, it would be unconscionable to allow the defendant to escape its agreement with the plaintiff for the grant of a 10 year lease of the premises. The judgment of the High Court was overturned.

The defendant sought leave to appeal the judgment and order of the Court of Appeal to the Supreme Court. The Supreme Court determined, in granting leave, that the issues arising out of the phrase "subject to lease" were commercially important and likely to arise in other cases and that this area of the law would benefit from further consideration by the Supreme Court – particularly in light of the differences between the analysis of the High Court at first instance and that of the Court of Appeal on appeal.

The Supreme Court

The Supreme Court disagreed with the judgment and order of the Court of Appeal and concluded:

1. The parties were substantial commercial entities with access to expert legal advice. The parties agreed that there would be no binding or enforceable agreement for a lease unless and until a written agreement was executed by them both. No such agreement was ever signed. It is the parties, and not the court, who are the "masters of their contractual fate". The fact that the plaintiff entered into possession in the expectation that such an agreement would be finalised does not give rise to a concluded contract where there was none. The High Court was correct to hold that there was never a concluded agreement.
2. The parties were never ad idem as to the terms of an agreement for lease.
3. The parties were involved in the negotiation of a complex and substantial commercial transaction on the agreed understanding that neither party would be bound unless and until a written agreement for lease was executed. That was a stipulation that both parties, through their solicitors, insisted upon. Although the plaintiff had acted to its detriment in undertaking the investment that it did in the premises and taking on certain employees of the defendant, it failed to establish any equity that the court should protect. The Court thus rejected the plaintiff's claim in proprietary estoppel.

Conclusion

The judgment of the Supreme Court, which extensively reviewed authorities on both sides of the Irish sea, provides very welcome clarity on the extent to which the conduct of parties can upset a clear agreement that no contract shall come into existence until formal contracts are signed. The circumstances in which that conduct may upset such a clear agreement are rare.

This judgment will have widespread application to a whole host of commercial dealings that affect organisations of all sorts in Ireland on a daily basis.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.