26 April 2019 | Comment | Article by Robert Phillips

Brexit – frustrating enough to leave a contract?

Update as of 25 April 2019

The latest information is that permission to appeal in the EMA case has been granted. It therefore appears that the issue will receive further scrutiny from the Court of Appeal in the not too distant future.

 


Update as of 21 February 2019

Perhaps predictably the court has found that not even an event such as Brexit is in fact sufficient to result in the frustration of a lease! We will need to await the next “seismic event” whether that be metaphorical or physical to receive further guidance.

 


First published on 22 January 2019

There will certainly be those that consider the Brexit process to be frustrating! But is it an event which is capable of frustrating a lease pursuant to the doctrine of frustration? The courts will decide.

Ending a contract due to specific unforeseen circumstances

The doctrine of frustration recognises it is possible for an event to occur after a contract has been entered into which is so fundamental that the terms of the contract ought not to be enforced between the parties.

It is accepted law that this principle can apply to leases. What is far from clear, however, is what sort of event would be required before the doctrine of frustration can be relied on. It has recently been reported that the Canary Wharf Group is in litigation against the European Medicines Agency as to whether Brexit is such an event. The European Medicines Agency signed a lease before the referendum on leaving the European Union. It is a European Union organisation and is now moving to the Netherlands, leaving behind a lease of premises in Canary Wharf with reportedly circa £500m of remaining liability.

Lawyers are agreed that it is possible to imagine a set of circumstances where something happens after a lease has been granted, which makes it unjust to force parties to perform their obligations. However, they start to disagree immediately that a particular set of circumstances are suggested.

Take, for example, the hypothetical case of a lease of an area of land close to the edge of a cliff. The land is let for use as a caravan park. If the cliff were to collapse part way through the lease so that the caravan park no longer existed, would it be fair for the tenant to be required to continue to pay the rent for the remainder of the term?

Frustration not accepted when wartime regulations prohibit building on land

From reading the case of Cricklewood Property and Investment Co v Leightons Investment Trust, in 1945, you may be tempted to think that the tenant in such circumstances could have its lease terminated by the principle of frustration. After all, in this case, the judge said that for frustration to occur it might require “a vast convulsion of nature”. Surely, the collapse of a cliff is a “vast convulsion of nature”? But what if the tenant knew at the date it entered into the lease that a cliff face collapse was a risk? Cliff collapses are certainly not uncommon. Is it not simply a commercial risk, which the tenant took on, in full knowledge of the facts?

The Cricklewood Property case itself was actually not about a “vast convulsion of nature”. It concerned the imposition of temporary wartime regulations. These regulations prohibited building on land and the circumstances did not amount to frustration.

Closed single road property access

The case of National Carriers Ltd v Panalpina (Northern) Ltd, in 1981, found that actually frustration is possible in the case of a lease. This case involved a 10 year lease of a warehouse. The only way to access the warehouse was along a single road. The road was closed by the local highways authority for a 20 month period, during which the property was inaccessible. The tenant argued that its inability to access the property resulted in the lease being frustrated. The court concluded that it was possible for a lease to end by frustration, but the road closure in this instance was not sufficient to amount to an act of frustration. Once again, the principle of frustration is accepted, but yet there is still no concrete example of it in operation.

Remain or Leave the contract?

It is against this context that the European Medicines Agency are reportedly seeking to argue that Brexit means their lease of premises in London’s Canary Wharf is at an end. Reports suggest that the litigation has in fact been instigated by the Canary Wharf Group, seeking a declaration from the court that the lease is not frustrated in these circumstances. Perhaps Brexit can yet bring some certainty – if only to offer a concrete example of the doctrine of frustration in practice!

For more information on this topic or to speak to our Property Dispute Resolution team please contact 029 2267 5560.

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