Could Brexit allow parties to avoid their contractual obligations? The outcome of the recent dispute between the European Medicines Agency and Canary Wharf suggests that the courts may be reluctant to accept such arguments. But what if the parties have included force majeure or material adverse change clauses in their contracts – could Brexit be sufficient to trigger such provisions?
The Canary Wharf case
In February 2019, the High Court ruled that the European Medicines Agency (EMA) could not use Brexit (which had resulted in its headquarters needing to be moved to Amsterdam) as a reason for getting out of its lease of office space at Canary Wharf. Among other things, the court ruled that the "common purpose" of the lease had not been frustrated by Brexit; on the contrary, the court took the view that the EMA had assumed the risk of having to leave the premises in circumstances beyond its control and the terms of the lease included a number of mitigants to reflect this. For more detail, see this briefing from our Real Estate Department. The Canary Wharf case provides some interesting pointers as to how the courts might view force majeure and material adverse change clauses in the context of Brexit.
Force majeure clauses
As the Canary Wharf case demonstrates, the courts are often reluctant to allow frustration to be invoked, even where the parties have made provision for the occurrence of potential frustrating events in their contract. As a parallel to this, many commercial contracts contain force majeure clauses, which seek to relieve a party of its obligations upon the occurrence of certain events which are beyond its control. So how likely is it that Brexit or any of its consequences could be a trigger event for a force majeure clause under a commercial contract?
How the courts approach force majeure clauses
- The courts are generally reluctant to allow a party to be relieved of its obligations and tend to construe force majeure clauses narrowly.
- Standard “boilerplate” force majeure clauses typically contain examples of “trigger events” which have a strong flavour of frustration about them. As the Canary Wharf case shows, it may not be easy to persuade a court that Brexit-induced difficulties fall into this category.
- But if a force majeure clause has been drafted with difficulties in mind which clearly correspond to expected Brexit-related problems (such as serious delays/disruption in the supply chain), then the courts are more likely to be receptive to relieving the affected party of its obligations.