Brexit – Frustrating for some, but not all

Posted on Friday February 22, 2019

Corporate

Canary Wharf Group took the European Medicines Agency (EMA) to court seeking a declaration that Brexit will not Frustrate the EMA’s lease, worth approximately £500 million.

On 20 February 2019, a decision was made in the High Court in relation to whether a lease can be “Frustrated” due to Brexit. The judge ruled that Brexit does not amount to an event of Frustration of the EMA’s lease.

The doctrine of Frustration states that a contract may be discharged in the circumstance of a frustrating event which renders the contract physically or commercially impossible to fulfil, or transforms the obligation to one which is fundamentally different to that which was intended on execution of the contract.

EMA claimed that as an agency of the EU, its headquarters must stay within an EU Member state, which in the event of Brexit will not be the case.

The judgment considers details of political and legal constraints on the EMA as an EU agency and therefore not a particularly wide application of law. Additionally, the judgment includes application of the English law of Frustration to leases, which again narrows the judgment.

The judgment has an impact on leases with similar facts; however, other commercial contracts which will be affected by Brexit may be found to be Frustrated.

An example of a contract being Frustrated in the event of Brexit is:

Party A sell Champagne and they purchase Champagne from Party B; both Parties are English companies. Party B purchases the Champagne from Party C, in France.

In the circumstance of a Brexit, which forbids the export of Champagne to England, Party B will not be able to source any Champagne.

Party A will not receive their Champagne, contrary to the agreement they have with Party B, however, Party B will likely argue Frustration.

This circumstance, although affected by Brexit, does not have the same facts and legal considerations as the above case and therefore, the contract may be discharged. However, other factors may be considered; such as if the contract was entered into before Brexit was reasonably foreseeable.

To seek advice of contractual matters relating to your business, please contact our Corporate and Commercial Team.