My colleague David Williams has previously written about the High Court's decision in a claim between the European Medical Agency (EMA) and Canary Wharf Group, where the EMA sought to cancel its £500m long term office lease in London because it had been "frustrated" by the UK's impending departure from the EU. Whilst the case related specifically to a lease and was complicated by the fact that the EMA is an EU agency, the principles discussed by the High Court are relevant to all commercial contracts.
The legal doctrine of frustration is rarely invoked successfully, and for good reason. It allows a contract to be discharged when something occurs after the formation of the contract which renders it physically or commercially impossible to fulfil, or transforms the contractual obligations under that contract into something "radically different" than they were at the start. In such circumstances, the contract is automatically discharged and the parties are no longer bound to perform their contractual obligations under it.
The case is a useful reminder that the threshold for demonstrating frustration is extremely high and if a party therefore wants to ensure that it is appropriately protected from certain supervening events occurring after it has entered into a contract (particularly where the contract is high-value and long term) it should take care to draft provisions which provide it with the appropriate relief, rather than seeking to rely on the doctrine of frustration to escape any liability for a failure to perform its contractual obligations.
In the short term, what is clear from this case is that companies shouldn't rely on Brexit to let them out of a contract on the grounds of frustration. So if the UK's departure from the EU could disrupt your ability to meet your contractual responsibilities to a supplier or customer, I would encourage you to get in touch and we can look at ways to help.
The judge has ruled that Brexit does not amount to an event of frustration of the EMA’s lease and this result will be welcome news in the property and legal market, bringing greater certainty as to the impact of Brexit on contracts