James is a Partner and Head of the Dispute Resolution team and primarily handles commercial…View Profile View all
The High Court has just decided that Brexit is not frustrating!
Frustration is a legal concept whereby a contract may be discharged when something occurs after the formation of the contract that renders it physically or commercially impossible to fulfil or makes the obligations under the contract so radically different from those which were to be undertaken when the contract was made.
The European Medicines Agency has a 25 year lease of premises in Canary Wharf and it argued before the High Court that the UK leaving the EU would frustrate the Lease by way of supervening illegality. Its case was that it would no longer be lawful for it to pay the rent after the UK leaves the EU, because it would put it in breach of its own rules and obligations under EU law. The Judge found that while the protections provided to the EMA by the relevant EU Regulations would be reduced as a result of the UK leaving the EU, the EMA still had capacity to deal with immovable property in a non-EU state, and therefore had capacity to continue carrying out its obligations under the lease. There was no frustration by supervening illegality, and the obligation to pay rent continued, even though it was acknowledged that under the appropriate EU Regulations, the EMA was obliged to move its headquarters to Amsterdam.
As a second line of attack, the EMA argued that the lease would come to an end due to frustration of a common purpose. The court refused that argument as well, because it held that the common purpose would have to be one going beyond the agreement, and there was no common purpose between the landlord and the EMA outside of the lease. The Judge said that the parties had divergent purposes, the landlord wanted long term cashflow at the highest rate and as a consequence had allowed the EMA to have a significant input into the building’s configuration, and the EMA’s purpose was for bespoke premises, flexibility on terms and paying the lowest rent.
So, despite what everyone else thinks, the official line is that Brexit is not frustrating!
If you have any concerns about how Brexit may affect your organisation, speak to one of our lawyers on 01274 306 000.