Canary Wharf (BP4) T1 Ltd & Ors v European Medicines Agency

The doctrine of frustration applies only where a supervening event, without default by either party, makes performance radically different from the bargain undertaken. Its application requires a multi-factorial assessment of the contract, its context, objectively shared assumptions and expectations, the supervening event, and the possibilities of future performance. A long-term lease is not frustrated merely because a tenant’s commercial purpose or need for premises has changed, particularly where the lease provides for assignment or subletting. Supervening incapacity under the law governing a party’s constitution does not ordinarily frustrate a contract governed by English law. A party cannot rely on frustration where the relevant consequences could have been avoided or ameliorated by its own constitutional or institutional acts.

The claimants, landlords and estate managers, sought declarations concerning the effect of the United Kingdom’s withdrawal from the European Union on the defendant agency’s 25-year underlease of premises at Canary Wharf. The European Medicines Agency contended that the Lease would be frustrated because Brexit would affect its privileges and immunities, legal capacity, ability to occupy or dispose of the premises, and ability to fund rent while relocating its headquarters to Amsterdam. It also advanced a separate European Union law argument that continued performance would be ultra vires.

The court considered the position under a no-deal withdrawal scenario and under the proposed Withdrawal Agreement. The central issues were whether the alleged legal consequences amounted to supervening illegality or frustrated a common purpose, and whether the EMA had a freestanding remedy outside the English law of frustration.

1. The Lease was not frustrated. The court rejected both frustration by supervening illegality and frustration of common purpose. The EMA remained obliged to perform its obligations under the Lease.
2. Under the test in Davis Contractors Ltd v Fareham UDC [1956] 1 AC 696, frustration requires performance to have become radically different from that undertaken. The multi-factorial approach in Edwinton Commercial Corporation v Tsavliris Russ (Worldwide Salvage and Towage) Ltd, The “Sea Angel” [2007] EWCA Civ 547 was adopted. The relevant factors included the contractual terms, context, objectively ascertainable expectations and assumptions as to risk, the nature of the event and the possibilities of performance in the new circumstances.
3. The EMA retained capacity under Article 71 of the Regulation (EC) No 726/2004 to deal with immovable property in a third country, including by assignment or subletting. The European Union also had capacity under Article 341 TFEU to locate an agency outside the territory of its Member States. The EMA therefore retained capacity to pay rent and perform the Lease.
4. Even assuming that European Union law deprived the EMA of capacity, that was not relevant to frustration under English law. The Lease was governed by English law, and the law governing the constitution of a corporation had to be distinguished from the law governing the consequences for contractual obligations already assumed.
5. The Lease’s alienation provisions expressly contemplated the EMA leaving the premises during the term and provided for assignment or subletting. The parties’ common purpose did not extend beyond the purpose apparent from the Lease. The EMA’s relocation and the resulting financial burden did not make performance radically different.
6. Any frustration based on the EMA’s inability to use the premises would in any event have been self-induced. The European Union’s relocation arrangements could have made fuller provision for winding down the London presence, and the EMA could not rely on consequences arising from the institutional decisions that caused its relocation.
7. The proposed Withdrawal Agreement would preserve the relevant European Union law protections during the transition period and provide for orderly relocation. It therefore could not frustrate the Lease.
8. The separate self-standing European Union law argument failed. No additional European Union remedy existed which discharged the EMA from an English law contract merely because continued performance was said to be ultra vires. The court declined to frame the final declarations in the judgment, leaving the precise order to be determined after submissions.