Will Brexit kill my contracts?

Josephine Mathew

Josephine Mathew is one of my colleagues at Wallace and a commercial litigator specialising in fraud and highly complex, multi-jurisdictional work. In this guest post she examines the effect of Brexit on your contracts.

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The fallout from Brexit continues. Can you rely upon Brexit to get out of your contracts? Can your customer or supplier? Well, the European Medicines Agency (EMA) went to court to run that argument but weren’t successful. My colleague Josephine Mathew looks at why.

The EMA argued in the High Court that the UK’s departure from the EU would “frustrate” their lease. Had they been successful, they could have walked away from their 25-year lease for their office in Canary Wharf, London.

The EMA had two arguments. First, that the UK’s departure from the EU constituted an event of “supervening illegality”. Because of Brexit, the UK would become a “third country” and the EMA had been ordered to move its office to Amsterdam.

The EMA’s fallback argument was that the “common purpose” of them and their landlord was for the premises to be used as the EMA’s permanent headquarters. Brexit “frustrated” this purpose. “Frustration” is a long-established but rarely-used doctrine. It allows parties to treat their contract as at an end where there is an unexpected event beyond the control of the parties which makes it physically or commercially impossible to fulfil the contract, illegal or renders the performance of the contract radically different to that which was envisaged at the time of entering into the contract.

The High Court ruled against the EMA. On the first point, the Court said the EMA could still deal with the office in a “third country”. The EU itself had the capacity to maintain the headquarters of its agencies in a non-EU country. Also, the English law of frustration did not recognise supervening illegality which arose under a foreign law.

On the second point, Brexit was not “relevantly” (meaning sufficiently) foreseeable in 2011 when the EMA took out the lease. Moreover, there was no common purpose, in fact, the parties wanted the opposite: the EMA wanted bespoke premises with a flexible term and the lowest rent possible. The landlord wanted long term cashflow and the highest rent possible. There was no break-clause but they had the right to sub-let the lease. So, the EMA couldn’t say this was not what they bargained for.

This is, no doubt, a welcome relief to many. But that relief may be short-lived as the EMA is appealing the decision. The High Court granted an expedited trial at first instance given Brexit was due to happen on 29 March 2019. It is possible the Court of Appeal will do the same before the new date of 31 October 2019.

What can you do about Brexit risks?

You should review your contracts. If you can show that your contract depended upon the UK staying in the EU, you might be able to argue that it has been frustrated. This would mean you might be able to treat the contract as at an end and walk away from it.

If you are negotiating a contract now, you should consider how Brexit may impact the contract. And then put an express term in the contract to deal with it.

Still have questions? Email me or Josephine

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