In a much anticipated judgment, the English High Court has this week ruled that the European Medicines Agency's (EMA) lease of 25-30 Churchill Place in Canary Wharf has not been frustrated by Brexit and the EMA's resultant relocation to Amsterdam. The implications of the judgment for the myriads of contracts which are likely to be affected by Brexit to a greater or lesser extent are important.
The English law concept of frustration deals with unforeseeable events which render contractual performance impossible through no fault of the contracting parties. It includes events like the subject matter of the contract being destroyed or performance becoming illegal. Frustration has the effect of killing the contract and discharging the parties from future liabilities. The Courts apply the test strictly and claims (or defences) that a contract has been frustrated rarely succeed.
The backdrop to the EMA case is rather well known. The EMA (and its predecessor) has been based in London since 1993. Following the UK's notification of withdrawal from the European Union (EU), EU27 ministers declared that the EMA would be moving to Amsterdam. The EMA notified its Canary Wharf landlord that it would treat Brexit as a frustrating event of its 25 year lease for the premises it occupied from 2014.
While the Court found that Brexit was indeed an unforeseeable event, it also held that it was foreseeable that over a period of 25 years, there might be some development that would require the EMA involuntarily to have to leave the premises due to circumstances beyond its control. Such a possibility was catered for in the lease by the existence of an alienation clause which permitted the EMA to sublet or assign the lease. This the EMA could still do even after Brexit. The Court also placed significance to the fact that the EMA consciously entered into the lease without a break clause and received a significant inducement package in return.
This is no doubt an important judgment in an environment of growing uncertainty surrounding Brexit. However, it remains to be seen exactly how wide-reaching its implications will be:
- On the one hand, the inescapable headline point is that not even the EMA can claim frustration. The EMA is an EU agency operating within certain political and legal constraints and it is rather inconceivable that it could continue to be based in a non-EU Member State. It is not a pure commercial operator downscaling its London operations to follow its business and customers in the EU.
- On the other hand, this is a case where the parties negotiated but did not incorporate a break clause into their agreement; however they did include an alienation clause. The EMA can still perform the contract without occupying the premises by subletting or assigning the lease and the strict English law requirements of the doctrine of frustration were therefore found not to be met. The Court may have reached a different conclusion had the lease not included an alienation clause.
While certainly any future claim of Brexit-related frustration (that is, of course, in the legal sense of the term) faces an uphill struggle, it is not necessarily dead in the water either. And this week's judgment is unlikely to be the last word on the EMA case. Given the sums in dispute (with future liabilities under the lease of approximately £500 million), the EMA is almost certainly to appeal. It has been given an extended deadline to Brexit day (29 March 2019) to seek permission to do so.
The case may even go further than that. At first instance, the EMA also sought a preliminary reference to the Court of Justice of the EU on the basis that post-Brexit, the EMA would lack capacity to hold property outside the EU or act as a commercial landlord (by subletting the premises) – thus defeating the important alienation clause. The Court found that that was not in fact the case and declined the reference. The EMA is unlikely to give up this battle too.
Canary Wharf (BP4) T1 Limited and others v European Medicines Agency [2019] EWHC 335 (Ch)
