Canary Wharf (BP4) T1 Limited and others v European Medicines Agency is the first major property dispute with Brexit at its heart and is currently being determined by the High Court. Depending on its outcome, the case may result in a flurry of Brexit-related litigation in the months to come. These are likely to involve much wider sectors such as banking, finance and trade and not be confined to the property market. The ramifications for the wider economy would be significant.
Background and facts
In 2011, the European Medicines Agency (the EMA) entered into an agreement for lease for a 25 year term in respect of Churchill Place – a newly-constructed 10 floor building in Canary Wharf. The lease was entered into in 2014, however it crucially did not contain a break right allowing for early termination.
Following the result of the 2017 referendum on the United Kingdom’s (the UK’s) membership of the European Union (the EU), the EMA decided to relocate to Amsterdam. In June 2018, the EMA’s landlord, Canary Wharf Group, issued a claim in the High Court for a declaration that Brexit (currently scheduled for 29 March 2019) and the relocation of the EMA will not frustrate the Lease – so that the EMA remains liable to meet all of its financial obligations under the lease for the duration of the term.
Legal principle of Frustration
The Courts can order that a contract (in this case a lease) is frustrated when an unforeseeable event (at the time of entering into the contract) happens after completion which makes it impossible (a) to fulfil the contract or (b) for the party to perform its obligations, as they have been radically changed. The principle is extremely difficult to argue in the courts and rare in its application.
The EMA is arguing that Brexit will amount to an event of frustration in relation to the lease. As an agency of the EU, the EMA’s headquarters must be within an EU Member State. The EMA is therefore claiming that Brexit will amount to an event which would render the EMA’s future performance of the lease impossible.
Canary Wharf Group’s claim
The Canary Wharf Group brought the case in an attempt to pre-empt the EMA’s claim for frustration. They are claiming that Brexit was reasonably foreseeable as:
- The legal and political process for leaving the EU is enshrined in EU law under Article 50 and has therefore always been a possibility; and
- The Conservative Party manifesto for the 2010 general election (1 year before the parties entered into the agreement for lease) contained a pledge to hold a referendum on the UK’s membership of the EU.
The key question for the High Court is whether Brexit constitutes a frustrating event for the purpose of the lease. To help determine this, it is necessary to know what the parties may have been expecting when entering into the agreement for lease. Mr Justice Marcus Smith has therefore allowed each party to call an expert in modern British history and political science to give expert evidence on this issue.
The Canary Wharf Group will be aiming for a ruling which avoids the EMA escaping its liabilities for the remainder of the term of the lease; however it is quite likely that the losing party will seek an expedited appeal to the Court of Appeal and possibly a leapfrog to the Supreme Court. The judgment of the High Court is expected to be published promptly and well before the 29 March 2019 withdrawal date as currently scheduled.
The case is very significant as it is not just the UK property industry who is following it closely. If the judgment is in favour of the EMA, its ramifications could be widespread and may be applicable to a number of contracts and industries where European markets are at the heart of performance. To take a couple of examples, UK financial institutions who perform EU based obligations, UK exporters delivering to EU markets; even UK courier companies who deliver parcels to the EU may want to use the judgment to terminate or vary their existing contractual obligations.
More generally, unless Brexit is avoided it is likely we can expect a marked increase in certain types of property disputes in 2019, notably:
- More break options being exercised by tenants;
- More cases where landlords challenge the validity of breaks; and
- More attempts by parties to renege on contractual obligations which are no longer attractive in light of Brexit.