The High Court has held that the European Medicines Agency’s (EMA) 25-year lease of premises in Canary Wharf will not be frustrated on the UK’s departure from the EU.
The EMA’s existence and functionality is governed by various EU regulations, one of which designates its headquarters in London.
A contract may be discharged on the ground of frustration when something occurs after the formation of the contract that renders it physically or commercially impossible to fulfil the contract, or transforms the obligation to perform into a radically different obligation from that undertaken at the moment of entry into the contract.
The EMA’s primary argument was that the UK’s departure from the EU would frustrate its lease by reason of supervening illegality. It argued that it would no longer be lawful for it to pay the rent after the UK leaves the EU because this would be ultra vires. Mr Justice Marcus Smith rejected this on the basis that while the protections conferred on the EMA by the relevant EU regulations would be reduced as a result of the UK’s departure, the EMA would still have capacity to deal with immovable property in a non-EU country and, therefore, have capacity to continue performing its obligations under the lease. As such, there was no frustration by supervening illegality. This was despite the court acknowledging that the EMA was obliged by a 2018 EU regulation to move its headquarters to Amsterdam, and that there were strong political reasons for the EMA not to remain in the UK after Brexit.
The EMA’s alternative argument was that the lease should be discharged due to frustration of a common purpose. That purpose must be one that goes beyond the agreement. The court rejected this because in the first place, there was no common purpose outside the lease. In fact, the parties had divergent purposes; the landlord’s purpose was long-term cash flow at the highest rate and a preparedness to allow the EMA to have a say in the building’s configuration provided that this was not adverse to the landlord’s interests, while the EMA’s purpose was for bespoke premises, flexibility on the term and paying the lowest possible rent.