In one of the most anticipated judgments of the year so far, Marcus Smith J has held that Brexit will not frustrate the European Medicines Agency’s lease at Canary Wharf, in a wide-ranging judgment of interest to property and commercial litigators.
In a decision that will reassure the property market and provide some clarity for businesses in the lead-up to Brexit, the judge held that both the EMA’s frustration arguments (frustration of a common purpose and frustration by supervening illegality) failed.
Marcus Smith J concluded: “This is neither a case of frustration by supervening illegality nor one of frustration of common purpose. The lease will not be discharged by frustration on the UK’s transition from member state of the EU to third country nor does the EMA’s shift of headquarters from London to Amsterdam constitute a frustrating event.”
The judge also confirmed that the EU (Withdrawal) Act 2018 deems the UK to be a member state after Brexit in order to incorporate EU legislation into English law (para 133), although with the effect that there are two bodies of EU law after Brexit (EU law in the member states and EU law incorporated into English law) (para 106[1][b]) and those laws will diverge for various reasons, because not all EU law is incorporated and ministers have power to amend retained EU law (para 106[1][c]).
The judgment also contains significant areas of legal analysis: a restatement of the law on frustration, including its different analytical bases; a significant assessment of the circumstances in which foreseeability will be relevant to frustration; how the test for self-induced frustration should be applied; and the extent to which a change in a legal person’s capacity and vires affect its liability under an English law contract as a matter of conflicts of laws.
This decision keeps the doctrine of frustration within a narrow compass and ensures that parties will be held to their bargains.
It ought to provide reassurance that English law respects the contractual allocation of risk between parties and mere increase in the cost of performance or change of circumstances rendering a contractual asset less valuable does not allow a party to escape its liability.
There has still been no reported English case in which a lease has been frustrated.
There will be a consequentials hearing to follow at a date to be determined.
Joanne Wicks QC and Jonathan Chew are barristers at Wilberforce Chambers and represented Canary Wharf in the case
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