Is Brexit a Frustrating Event?

27th February 2019

‘Is Brexit frustrating?’ may sound like a trick question, but it was actually an important legal matter recently settled in the High Court.

Anyone following the news closely may be surprised to hear that the verdict handed down by Mr Justice Marcus Smith in the case of Canary Wharf (BP4) T1 Limited and ors v. European Medicines Agency [2019] EWHC 335 (Ch) was that Brexit isn’t a ‘frustrating event’.

The background

In 2014, the European Medicines Agency (EMA) signed a 25-year lease on a property in Canary Wharf, which complied with an EU desire for the body to be located in an EU country. However, given the UK’s imminent departure from the EU, the EMA wanted to relocate to Amsterdam.

The argument put to the court by the EMA was that Brexit had frustrated the lease they had signed, and they should be able to terminate it without facing any further costs.

What is frustration?

The concept of frustration was first recognised in the case of Taylor v. Caldwell in 1863. In this case, two parties had agreed on the hire of a music hall venue in which concerts could be performed, only for the venue to burn down after the contract had been signed but before the concerts took place.

The judge found that the burning down of the music hall meant it was impossible for the contract to be fulfilled and the defendant was released from their obligation to meet the terms originally set out.

Two other landmark frustration judgements hinged upon King Edward VII, when in 1903 his coronation and subsequent planned celebrations were cancelled due to his ill health.

In Krell v. Henry the defendant had rented a Pall Mall flat from the claimant, planning to watch the procession from there. The court found that the cancellation of the coronation and procession meant that the contract had been frustrated and the rental fee was no longer due to be paid.

In Herne Bay Steamboat Co v. Hutton, the defendant had rented a boat from the claimant to take paying passengers to watch a Naval Review organised as part of the coronation celebrations. This time however, the court decided the coronation hadn’t been at the foundation of the contract and it couldn’t be considered to have been frustrated by the cancellation.

In reality for a finding of frustration the relevant event must:

  • Have occurred after the contract is formed
  • Be fundamental to the core of the contract
  • Is not due to the fault of either party
  • Renders performance impossible, illegal or radically different

The judgement

The contrasting judgements in the two similar cases demonstrate the degree to which any judgement on an issue of frustration is down to the discretion of the judge and their personal interpretation of the details of each contract.

It was for this reason that the judgement on the EMA case was so eagerly awaited. If the Judge had found in favour of the EMA, it might have opened the floodgates for claims from tenants arguing that changes precipitated by Brexit had frustrated the basis upon which they originally signed any contract.

The fact that the court found against the EMA means the contract obligations hold true and they must continue to make rental, service charge and insurance payments as well as carrying out repairs to the premises, for its duration.

Whilst it was recognised the EU might prefer the EMA to be headquartered in a Member State following Brexit, there was no EU Law rendering the payment of rent in a non-EU country illegal. It was also decided, that even if basing the EMA in the UK became illegal under EU law, this would not carry any force in UK law.

The close study of the lease centred upon the question of whether the EMA and the CWG had originally shared a common purpose which would be rendered obsolete by Brexit.

It was found that the lease, which included the right for the EMA to assign or sub-let the premises, allowed for large scale relocation.

The lack of a break clause was taken to imply the EMA had assessed and accepted the risk of change over the course of a 25-year contract, and decided that this risk was worth taking, given the wider incentive package provided by the CWG.

The judgement shows that long term leases need to be extremely carefully drafted and possibly include a specific Brexit clause, which might include reductions in the rent paid if tariffs are introduced, for example.

Looking to the immediate future, there’s a strong possibility that we haven’t heard the last of this case, since Mr Justice Smith extended the usual 21-day appeal period to the current Brexit date, 29th March 2019.

If you are considering a review of your lease or other contracts with Brexit in mind, please get in touch today and we’ll help clear away the uncertainty. Call Martin de Ridder on 01543 431186.