26 February 2019 - Post by:Oliver Rule
Nearly three years after the referendum, Britain still hasn’t decided what sort of Brexit it wants. For the European Medicines Agency, however, the prospect of Brexit has already meant a departure from its shiny new headquarters in London, its relocation to Amsterdam even being written into EU law in 2018. Just as Britain has struggled to untangle itself from the EU, so too has the EMA found a “clean break” from Britain elusive.
In Canary Wharf v EMA, the EMA argued that the 25 year lease it had agreed over its Canary Wharf premises would be torn up – frustrated – by Brexit.
- First, it would be illegal under EU law for the EMA to use the premises, or even to sublet them, as Britain would no longer be an EU Member State and the EMA would lack the relevant legal capacity.
- Secondly, Brexit would defeat the common purpose of the lease – a bespoke premises for the EMA for the next 25 years – rendering the lease so “radically different” from what the parties had agreed to that it would be unjust to hold the EMA to its bargain.
The judge rejected the supervening illegality argument. Whilst EU law may be relevant to the EMA’s capacity to enter into the lease, it was only English law which was relevant to the consequences of a lack of capacity: ie whether the subsequent illegality would cause the lease to be frustrated. Further, even if EU law were relevant, the EMA had capacity as a matter of EU law – it could deal with immovable property in a state outside the EU and so could continue to perform its obligations under the lease. Finally, even if it were “illegal” for the EMA to continue to perform, this was “self-induced frustration” as the EU itself had enacted the legislation creating the illegality.
The judge also found that there was no common purpose which could be frustrated here. The lease was a product of a negotiation between commercial parties with different purposes. Moreover, Brexit had not rendered the lease so “radically different” that it had been frustrated. While Brexit per se was an unforeseen event at the time the parties entered into their agreement, the prospect of the EMA leaving the premises wasn’t: in particular it was contemplated by specific alienation provisions in the lease itself.
The court’s decision (which may well be appealed) is not surprising. In most cases it is going to be an uphill struggle for a party to argue that Brexit will frustrate its contract, rather than merely leaving it with a bad bargain. The fact that the EMA, an EU institution that owed its presence in London entirely to the UK’s EU membership, could not do so, serves to underline this difficulty.