Brexit … not so frustrating!

3 April, 2019

After not so long a wait, the High Court has ruled, in the case of Canary Wharf (BP4) T1 Limited and others (“CW”) v The European Medicines Agency (“the EMA”) that the EMA’s lease has not been frustrated as a result of Brexit.

Background

The EMA had a lease of commercial premises in Canary Wharf on a 25 year lease which commenced in 2014.  After the United Kingdom voted to leave the European Union, the EU passed a regulation providing that the EMA had to relocate its headquarters to Amsterdam.  On 2 August 2017, the EMA wrote to CW and informed them that it would be treating Brexit as a frustrating event in relation to the lease.  CW then sought a declaration from the court that the UK’s withdrawal from the EU would not cause the lease to be frustrated.  The decision clearly needed to be made before 29 March 2019, so the hearing was expedited and a judgment was handed down on 20 February 2019.

Defendant’s arguments

Supervening illegality:

The EMA’s primary argument was that of “supervening illegality”.  It argued that Brexit would bring about a supervening incapacity to perform its obligations under the lease, including those of paying the rent and dealing with assigning the lease.  In addition, the EMA argued that it was not legally possible for it to have its headquarters in the UK after Brexit as the UK would become a third country.

Frustration by common purpose:

Alternatively, the EMA argued that there was frustration by common purpose.  The common purpose between the EMA and CW at the commencement of the lease was that the EMA would use the premises as its headquarters.  The EMA put forward that as it could not now use the premises as its headquarters, the common purpose was defeated.

Findings

Supervening illegality:

The court found that while the EMA’s protections and immunities under the relevant EU regulations would be substantially degraded, it would still have capacity to deal with immovable property in a third country outside of the EU.  This meant that the EMA would be able to continue to perform its obligations under the lease after the UK withdrew from the EU.  The court also considered whether it was illegal for an EU body to have their headquarters in a third country.  They found that there were no public international laws against this so, whilst inconvenient, there were not legal restraints on the defendant having its headquarters in the UK after Brexit.

Frustration by common purpose:

The court dismissed this argument.  Whilst it found that Brexit could not have been reasonably foreseeable at the time of entering into the lease, there had been no mutual contemplation that the purpose of the lease was to provide the EMA with headquarters for 25 years.  This was mainly due to the existence of the alienation provisions in the lease, meaning that there was in the contemplation of both parties when entering into the lease, that the EMA may not remain there for the entirety of the term.

Consequences

The court’s judgment in this case is a reminder of the high bar a party must meet when claiming frustration of their contract, and offers some clarity on the effect of Brexit on pre-existing contractual relationships.  While this decision does not open up the floodgates to this sort of claim, it does not mean that a different case with different facts might not succeed.

What next?

Frustratingly, it seems that this is not over.  The EMA has been granted permission to appeal the High Court’s decision on all grounds.  This is subject to a condition that the EMA continues to comply with its lease obligations pending any appeal, but without prejudice to its argument that the lease will be frustrated by Brexit.