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

The European Medicines Agency (the “EMA” (Footnote: ¹)) is an agency of the European Union. It holds an underlease dated 21 October 2014 (the “Lease”) of part of 25-30 Churchill Place, Canary Wharf (the “Property”) for a term of 25 years (the “Term”). The Claimants – collectively “CW” – are the landlords of the Lease and the management company for the Canary Wharf estate. It is unnecessary to differentiate between the Claimants for the purposes of this judgment. I shall refer to the property leased to the EMA pursuant to the Lease as the “Premises”.

By a letter dated 2 August 2017, the EMA wrote to CW stating that:

“Having considered the position under English law, we have decided to inform you that if and when Brexit occurs, we will be treating that event as a frustration of the Lease.”

These proceedings (the “Proceedings”) were commenced because CW took the view that the commercial uncertainty created for CW and their lenders by this contention required early resolution. For its part, the EMA did not dissent from the importance of an early resolution of the Proceedings. By an order dated 2 August 2018, Mann J ordered that – so far as practicable – these proceedings should be heard, and preferably judgment delivered, by 29 March 2019.

The Proceedings were commenced under CPR Part 8. The relevant part of the CPR Part 8 Claim Form states that CW are seeking:

“…a declaration that the withdrawal of the United Kingdom from the European Union and/or the relocation of the [EMA] (whether inside or outside of the United Kingdom) will not cause [the Lease] to be frustrated and that the [EMA] will continue to be bound by all of its covenants and obligations in the Lease and all related documents including (but not limited to) payment of the full rents under the Lease throughout the Term of the Lease unless released by law upon a lawful assignment of the Lease properly made in accordance with its terms…”

It will be necessary to set out precisely why the EMA contends that the Lease will be frustrated. The reference to the relocation of the EMA in the Part 8 Claim Form is a reference to the EMA’s contention that one consequence of the United Kingdom’s withdrawal from the European Union is the need for the EMA to re-locate away from the United Kingdom, with the corollary that its (present) London headquarters would no longer be needed. The EMA’s letter of 2 August 2017 put the point thus:

“It would be unprecedented and incongruous for an EU body such as the [EMA] to be located in the UK and continue to pursue its mission in London after the UK has left the EU. Such circumstances were simply not contemplatable at the time of entering into the Lease.”

By his order of 2 August 2018, Mann J ordered that the EMA file and serve points of claim providing particulars of the EMA’s case on frustration in response to CW’s claim for a declaration. Such points of claim – together with a counterclaim for declarations of its own – were duly served by the EMA (the “Points of Claim”). (Footnote: ²) CW responded by way of “Points of Response”. (Footnote: ³)

Issues between the parties

The EMA contends that the Lease is frustrated for the following reasons (which are relied upon by the EMA individually and collectively):

CW disputed that the Frustrating Grounds could frustrate the Lease, on grounds articulated in the Points of Response and in CW’s written opening submissions. The dispute between the parties operated on two levels. First, CW did not accept the correctness of many of the specific points founding Grounds 1 to 5. (Footnote: ¹⁰) This, however, was

In addition to the Frustrating Grounds, a further point emerged in the EMA’s written opening submissions. (Footnote: ¹²) Section J – which section is entitled “Separate Argument: Performance of the Lease would be ultra vires and domestic law must provide a remedy” – states in paragraph 195:

“Further, if, as the EMA contends, it will lack power to maintain its obligations under the Lease or make effective and profitable use of it after Brexit, then the EMA respectfully submits that the Court is bound by EU law to fashion a remedy to give effect to that lack of power. The Court cannot and should not hold the EMA to a lease in which it has no power to continue. This part of the EMA’s case applies regardless of whether the English law doctrine of frustration is or is not engaged: the EMA’s contention is simply that it cannot and should not be held to a contract the performance of which is ultra vires.”

I shall refer to this contention as the “EMA’s Self-Standing Point”, so called because it stands independently of English contract law and the law of frustration and is based in essence on European Union law. The essence of the EMA’s Self-Standing Point is that if the Lease is not frustrated, then there is a self-standing rule of European Union law that serves to absolve the EMA of its obligations under the Lease.

Mr de la Mare, QC, who advanced the EMA’s contentions in so far as they rested on European Union law, accepted that the Frustrating Grounds were really five faces of one overarching point, which was that the withdrawal of the United Kingdom from the European Union would cause the Lease to be frustrated because the United Kingdom’s withdrawal would trigger a number of legal changes relating to the EMA’s legal capacity to continue with the Lease.

There is also a considerable overlap between the Frustrating Grounds and the EMA’s Self-Standing Point.

It will be necessary, in due course, to determine the law applicable to these issues. It will also be necessary to consider the inter-relationship of this law with the law applicable to questions of the performance and frustration of leases.

The event said to frustrate the Lease lies in the future

The event said to frustrate the Lease lies in the future: the United Kingdom has yet to withdraw from the European Union and remains at the time of the judgment a “Member State”. The EMA did not contend – and has not at any point sought to contend – that either the outcome of the referendum on 23 June 2016 (held pursuant to the European Union Referendum Act 2015) or the giving of notice by the United Kingdom pursuant to Article 50 TEU were either individually or in combination events capable of frustrating the Lease. It was the actual withdrawal of the United Kingdom from the European Union that was, pace the EMA, the reason the Lease would be frustrated. (Footnote: ¹³)

The legal position regarding the withdrawal of the United Kingdom from the European Union is as follows:

At the time of writing this judgment, matters are in a state of flux and it is impossible to say – and certainly not for a judge to speculate – what will be the position on 29 March 2019. There are, as it seems to me, five possible cases that might pertain:

In an ideal world, I would consider the question of frustration of the Lease after it was clear which scenario pertained. But – for entirely understandable reasons – the parties seek clarity before 29 March 2019, and an expedited trial has been ordered on that basis. I cannot “wait and see”. On this basis, it seems to me that I must, in the first instance at least, determine the question of frustration on the basis of Scenario 1. That is not because of any assessment of the probabilities between the various scenarios (on which I have no authority to speak and about which I say nothing) but because this is most likely to produce an answer that will be helpful to the parties on the question of frustration generally. Scenario 1 is the case where the consequences of the United Kingdom’s withdrawal from the European Union are at their most stark: those consequences will not, in the case of Scenario 1, be ameliorated in any way by the Withdrawal Agreement or, indeed, by any other agreement. If, on this basis, I conclude (contrary to the EMA’s submissions) that the Lease has not been frustrated, then that conclusion will likely (Footnote: ²²) be determinative in relation to Scenarios 2, 3 and 4 – because these are all less stark versions of Scenario 1. Scenario 5, of course, does not involve any question of frustration at all because (in that case) the United Kingdom would continue to be a Member State of the European Union.

On the other hand, if I were to conclude (contrary to CW’s submissions) that the effect of Scenario 1 was to frustrate the Lease, it would be necessary to consider the other scenarios to see if, were they to pertain, the outcome would be different. It is possible, at the outset, to identify which of these possible scenarios are going to be pertinent for the purposes of this Judgment:

I shall, therefore, proceed to consider in the first instance whether Scenario 1 causes the Lease to be frustrated. I shall then, in light of my conclusions, re-visit those conclusions on the assumption that Scenario 3 pertains. I shall not consider Scenarios 2 or 5 any further because Scenario 2 is in all material respects the same as Scenario 1 and because Scenario 5 does not actually require me to determine any question at all. Since there is as at the time of this judgment no alternative withdrawal agreement to consider, Scenario 4 is (for the reason I have given) not one that I can consider. Accordingly, I propose to consider the effect of the Frustrating Grounds in relation to Scenario 1 and Scenario 3 only.

I shall take the same approach in relation to the EMA’s Self-Standing Point.

Structure of this Judgment

In light of this introduction, this Judgment considers the following matters in the following order:

The doctrine of frustration operates to bring a contract prospectively to an end because of the effect of a supervening event.

In Davis Contractors Ltd v. Fareham UDC, (Footnote: ²⁶) Lord Radcliffe framed the following general test for frustration, which has stood the test of time:

“…frustration occurs whenever the law recognises that without default of either party a contractual obligation has become incapable of being performed because the circumstances in which performance is called for would render it a thing radically different from that which was undertaken by the contract. Non haec in foedera veni. It was not this that I promised to do.”

Another formulation that has stood the test of time is that of Lord Simon in National

In J Lauritzen AS v. Wijsmuller BV, The “Super Servant Two”, (Footnote: ²⁸) Bingham LJ identified five propositions, established by the highest authority, which he considered were not open to question. I set them out here, substantially quoting from Bingham LJ, but omitting the authorities cited by him:

The juridical basis for the doctrine of frustration

It is difficult to differentiate between subsequent events that do not, and subsequent events that do, cause a contract to be frustrated. Whilst it is clear that the object of the doctrine is to do justice as between the parties, where injustice would result from the literal enforcement of the contract, what is “just” and what is “unjust” is coloured by the nature of the doctrine and the juridical basis upon which it operates.

A number of juridical bases have been articulated:

As I have noted, certainly since Panalpina, the prevailing wisdom is that the fifth approach that I have described best encapsulates the essence of the doctrine of frustration. Whether a contract is frustrated depends upon a consideration of the nature of the bargain of the parties when considered in the light of the supervening event said to frustrate that bargain. Only if the supervening event renders the performance of the bargain “radically different”, when compared to the considerations in play at the conclusion of the contract, will the contract be frustrated.

“It was not this that I promised to do”

In one sense, that which a party has promised to do arises out of the contract he or she has made and is defined by the construction of that contract. Although there have been many cases dealing with construction of contracts since Investors Compensation Scheme

See National Carriers v. Panalpina Ltd, [1981] 1 AC 675 at 688 (per Lord Hailsham LC), 702 (per Lord Simon), 717 (per Lord Roskill).

See National Carriers v. Panalpina Ltd, [1981] 1 AC 675 at 688 (per Lord Hailsham LC), 717 (per Lord Roskill).

See National Carriers v. Panalpina Ltd, [1981] 1 AC 675 at 688 (per Lord Hailsham LC), 717 (per Lord Roskill).

At 717.

In some cases – the vast majority, for frustration is a doctrine not easily invoked – the construction of the contract will resolve the issue between the parties, including whether a subsequent “unforeseen” event has allocated a risk to one party (by requiring that party

CW contended for an approach to the doctrine of frustration which equated “common purpose” with contractual construction. In other words, CW contended for the construction of the contract theory described in paragraph 26(4) above. That, as I have noted, is not the approach that has found most favour since (at least) Panalpina. Moreover, I do not consider that it is an approach that is open to me to take (even if I were inclined to do so). In Edwinton Commercial Corporation v. Tsavliris Russ (Worldwide Salvage and Towage) Ltd, The “Sea Angel”, (Footnote: ³⁸) Rix LJ said this:

“In my judgment, the application of the doctrine of frustration requires a multi-factorial approach. Among the factors which have to be considered are the terms of the contract itself, its matrix orcontext, the parties’ knowledge, expectations, assumptions and contemplations, in particular asto risk, as at the time of the contract, at any rate so far as these can be ascribed mutually andobjectively, and then the nature of the supervening event, and the parties’ reasonable and objectively ascertainable calculations as to the possibilities of future performance in the new circumstances.”

Rix LJ identified various factors relevant to be taken into account when considering circumstances as at the time of the contract. These were:

The first two factors can readily be mapped to a constructionist or interpretative approach: the first factor refers to the terms of the contract, the second to the matrix of fact. Both factors are therefore consistent with the construction of contract theory of frustration. The third factor, however, does not fit within the maxims of construction and is not consistent with the construction theory of frustration. For example, mutual expectations/assumptions/contemplations might very well arise out of the previous negotiations of the parties and their declarations of subjective intent, matters which are not to be taken into account when interpreting a contract. (Footnote: ³⁹) Yet they are, pace Rix LJ, relevant in the case of frustration.

Although I am conscious that one should not read the dicta of judges – however eminent

Although the EMA based its argument on frustration principally on subsequent illegality (defining, for present purposes, “illegality” as including ultra vires acts (Footnote: ⁴⁰)), it also relied upon the frustration of a common purpose. (Footnote: ⁴¹) It is, therefore, necessary to consider what, exactly, is meant by this and how, exactly, common purpose differs from the outcome dictated by the construction of the contract.

Treitel says this about frustration of purpose: (Footnote: ⁴²)

“Frustration of purpose is, in a sense, the mirror-image of impracticability. The typical contract is an arrangement under which one party agrees to supply a thing or a service or some other facility to the other, and the latter agrees to pay a sum of money for it. In cases of impossibility, the contract is discharged because the supervening event has made it impossible for the former party to supply the thing, service or facility. In cases of alleged impracticability there is no such impossibility, but the normal position is that the supplier argues that the cost of providing the thing, service or facility has risen, or that other difficulties of so doing have increased, to such an extent that he should be discharged. In cases of alleged frustration of purpose it is normally the recipient of the thing, service or facility who argues that the contract should be discharged. His own obligation, merely being one to pay money, cannot have become impossible, nor has any impossibility affected the obligation of the supplier, which can still be performed. But the recipient’s case is that the contract should be discharged because the supplier’s performance is not longer of any use to the recipient for the purpose for which both parties had intended it to be used.”

Treitel rightly identifies the “coronation” cases as illustrations of frustration of purpose. The “coronation” cases – essentially, two decisions of the Court of Appeal, Krell v. Henry (Footnote: ⁴³) and Herne Bay Steam Boat Company v. Hutton (Footnote: ⁴⁴) – both arose when the coronation of King Edward VII was postponed because of the illness of the King. As Treitel has noted, (Footnote: ⁴⁵) “[m]any contracts had been made in anticipation of the coronation, e.g. for the hire of rooms, or of seats on stands, from which the hirers or ticket-holders expected to be able to watch the processions which had been planned. Performance of these contracts did not, by reason of the supervening events, become impossible or even impracticable. It remained possible for the owners to provide the rooms or seats, and for the hirers or ticket-holders to occupy them and to look out on an ordinary day’s London traffic; but this would, for them, have been a pointless exercise. They therefore claimed that the contracts were discharged on the ground of frustration of purpose, i.e. because the facilities to be provided by the owners were no longer of any use for the contractually (Footnote: ⁴⁶) contemplated purpose”.

The “coronation” cases shed a valuable light on Lord Radcliffe’s test and on his epithet “It was not this that I promised to do”. The “this”, as I have suggested, is rooted in the contractual agreement reached by the parties (including the matrix of fact) and in something altogether more fundamental and general, which I have termed the common purpose, and sought to describe above. The coronation cases provide a concrete illustration of what does, and what does not, amount to a common purpose:

The coronation cases show that where the supervening event causes one party to appreciate – with the benefit of hindsight – that he or she has made a bad bargain, there will be no frustration of a common purpose. If the only effect of the supervening event is to cause the price for the bargain to appear – in hindsight – to be too high, the contract will not be frustrated. (By “price” I should stress that I mean more than simply the consideration agreed to be paid, but all of the terms that go to define the benefit one party to the contract confers on the other.) That was the position both in the case of Vaughan

A multi-factorial approach

In Edwinton Commercial Corporation v. Tsavliris Russ (Worldwide Salvage and Towage) Ltd, The “Sea Angel”, (Footnote: ⁵¹) Rix LJ took as his starting point the two dicta cited in paragraphs 22 and 23 above, before going on to say:

“110.

In the course of the parties’ submissions we heard much to the effect that such and such a factor “excluded” or “precluded” the doctrine of frustration, or made it “inapplicable”;

or, on the other side, that such and such a factor was critical or at least amounted to a prima facie rule. I am not much attracted by that approach, for I do not believe that it is supported by a fair reading of the authorities as a whole. Of course, the doctrine needs an overall test, such as that provided by Lord Radcliffe, if it is not to descend into a morass of quasi-discretionary decisions. Moreover, in any particular case, it may be possible to detect one, or perhaps more, particular factors which have driven the result there. However, the cases demonstrate to my mind that their circumstances can be so various as to defy rule-making.

111.

In my judgment, the application of the doctrine of frustration requires a multi-factorial approach. Among the factors which have to be considered are the terms of the contract itself, its matrix or context, the parties’ knowledge, expectations, assumptions and contemplations, in particular as to risk, as at the time of the contract, at any rate so far as these can be ascribed mutually and objectively, and then the nature of the supervening event, and the parties’ reasonable and objectively ascertainable calculations as to the possibilities of future performance in the new circumstances. Since the subject matter of the doctrine of frustration is contract, and contracts are about the allocation of risk, and since the allocation and assumption of risk is not simply a matter of express or implied provision but may also depend on less easily defined matters such as “the contemplation of the parties”, the application of the doctrine can often be a difficult one. In such circumstances, the test of “radically different” is important: it tells us that the doctrine is not to be lightly invoked; that the mere incidence of expense or delay or onerousness is not sufficient; and that there has to be as it were a break in identity between the contract as provided for and contemplated and its performance in the new circumstances.

112.

What the “radically different” test, however, does not in itself tell us is that the doctrine is one of justice, as has been repeatedly affirmed on the highest authority. Ultimately the application of the test cannot safely be performed without the consequences of the decision, one way or the other, being measured against the demands of justice. Part of that calculation is the consideration that the frustration of a contract may well mean that the contractual allocation of risk is reversed. A time charter is a good example. Under such a charter, the risk of delay, subject to express provision for the cessation of hire under an off-hire clause, is absolutely on the charterer. If, however, a charter is frustrated by delay, then the risk of delay is wholly reversed: the delay now falls on the owner. If the provisions of a contract in their literal sense are to make way for the absolving effect of frustration, then that must, in my judgment, be in the interests of justice and not against those interests. Since the purpose of the doctrine is to do justice, then its application cannot be divorced from considerations of justice. Those considerations are among the most important of the factors which a tribunal has to bear in mind.

113.

Mr Hamblen submitted that whereas the demands of justice play an underlying role, they should not be overstated. He referred the court to Chitty on Contracts (29^th edn, 2004) vol 1 pp1315-1316 (para 23-008) (“But this appeal to the demands of justice should not be taken to suggest that the court has a broad absolving power whenever a change of circumstances causes hardship to one of the contracting parties…Such a test is too wide, and gives too much discretion to the court”). I respectfully agree. Mr Hamblen also referred to Treitel Frustration and Force Majeure (2^nd edn, 2004) p645 (para 16-009)

(“The “theory” does not, in other words, supersede the rules which determine the circumstances in which the doctrine of frustration operates”). I would again respectfully agree, as long as it is not thought to apply those rules as though they are expected to lead one automatically, and without an exercise of judgment, to a determined answer without consideration of the demands of justice.”

I consider that these paragraphs correctly state the approach that I must take.

Types of frustrating event

There is no numerus clausus, no limited class of frustrating event. Of the various classes that have been recognised, (Footnote: ⁵²) two are relied upon by the EMA:

I shall refer to the EMA’s two types of frustration as “frustration by supervening illegality” and “frustration of common purpose”.

Self-induced frustration

Of the five propositions identified by Bingham LJ in The Super Servant Two as not open to question, (Footnote: ⁶¹)two might be said to relate to self-induced frustration:

Whether frustration is self-induced does not turn on technical questions of duty of care or fault. (Footnote: ⁶²) Bingham LJ cited the following dictum of Griffiths LJ with approval: (Footnote: ⁶³)

“The essence of frustration is that it is caused by some unforeseen supervening event over which the parties to the contract have no control and for which they are therefore not responsible. To say that the supervening event occurs without the default or blame or responsibility of the parties is, in the context of frustration, but another way of saying it is a supervening event over which they had no control. The doctrine has no application and cannot be invoked by a contracting party when the frustrating event was at all times within his control; still less can it apply in a situation in which the parties owed a contractual duty to one another to prevent the frustrating event occurring.”

In the case of The Super Servant Two, the defendant had agreed to carry the claimant’s drilling rig from A to B using the “transportation unit”, which referred to one of two barges, TheSuper Servant One and TheSuper Servant Two. The Super Servant Two was allocated to this job, and TheSuper Servant One was allocated to other contracts. The Super Servant Two sank, and the defendant contended that it could not perform the contract due to frustration. The Court of Appeal held that this was a case of self-induced frustration: the defendant could have used The Super Servant One to perform the contract, although that would probably have involved the defendant breaching other contracts.

Clearly, in this case, the defendant could not, in any real way, be criticised or said to be at fault. It is obviously not unreasonable conduct on the part of the defendant to seek to ensure that both barges were fully utilised. The Court of Appeal appears to have considered that because the defendant had two barges, it could have ensured some redundancy or spare capacity in the event that unforeseen circumstances put one barge out of action. The defendant chose not to do that, and this election prevented the case from being one of frustration. A similar case is that of Maritime National Fish Ltd v. Ocean Trawlers Ltd, (Footnote: ⁶⁴) where it was contended that a contract was frustrated because a trawler (the St Cuthbert) could not leave harbour with an otter trawl unless it had a licence. In this case, although the trawler had no licence, the defendants – who owned five trawlers – had been offered three licences and were given the choice of which vessels in their fleet should be licenced. The defendant elected not to licence the St Cuthbert, and the Privy Council held that this amounted to self-induced frustration: (Footnote: ⁶⁵)

“…it was the act and election of the appellants which prevented the St Cuthbert from being licensed for fishing with an otter trawl. It is clear that the appellants were free to select any three of the five trawlers they were operating and could, had they willed, have selected the St Cuthbert as one, in which event a licence would have been granted to her. It is immaterial to speculate why they preferred to put forward for licences the three trawlers which they actually selected. Nor is it material, as between the appellants and respondents, that the appellants were operating other trawlers to three of which they gave preference. What matters is that they could have got a licence for the St Cuthbert if they had so minded.”

Again, there were no doubt perfectly good reasons why the defendant allocated the limited licences it received in the way that it did. But the defendant was not entitled to rely upon the manner in which it chose to conduct its business in support of a frustration argument.

This claim began as a claim under CPR Part 8. There was a dispute between the parties as to whether the claim was appropriately so made. By an order made at a case management conference on 26 September 2018, I reclassified the claim as a CPR Part 7 Claim, ordering it to continue as if commenced under CPR Part 7. The reality, however, is that the claim lies somewhere on the spectrum between CPR Part 8 and CPR Part 7. As a result, there was limited disclosure (Footnote: ⁶⁶) and limited cross-examination of the factual witnesses. (Footnote: ⁶⁷) Most of the facts were uncontentious.

All of the witnesses before me were remarkably capable in their fields and gave evidence clearly, precisely and with transparent honesty. In the order in which they were called, I heard from:

There were, additionally, three witnesses whose evidence was admitted without crossexamination. These witnesses all gave evidence on behalf of the EMA. They were:

Some of the witnesses – notably Mr Wathion – gave evidence on what might be said to be points of law. Thus, by way of example, Mr Wathion emphasised the importance of Protocol 7 to the EMA (Footnote: ⁶⁹) and the implications of the United Kingdom’s withdrawal from the European Union on the EMA’s Protocol 7 protections.⁷⁶ As legal propositions, these points were controversial between the parties. The evidence of Mr Wathion and witnesses similarly expressing opinion on points of law was admitted on the basis that, whilst the views they expressed were genuinely held by them, and informed the EMA’s conduct, points of law were for me and that disputes on points of law did not have to be put to the factual witnesses.

I received expert evidence from two experts in the field of Modern British Political History and Political Science: Professor Tim Bale on behalf of the EMA and Professor Will Jennings on behalf of CW. The evidence was directed to the question of the foreseeability of the withdrawal of the United Kingdom from the European Union as that issue was viewed prior to 6 August 2011. As I have explained, some factors relevant to the question of frustration have to be considered as at the date of contracting. For the purposes of this case, this date is 6 August 2011. (Footnote: ⁷⁰)

By paragraph 4.2 of my order of 26 September 2018, the content of the experts’ reports “shall be limited to the collation of relevant information in the public domain and the provision of a narrative of the facts in context (but not the expression of an opinion) in relation to the issue of the possibility of the UK leaving the EU, as that issue was viewed prior to 6 August 2011”.

The purpose of the experts’ reports was not to express an opinion on the foreseeability, as at 6 August 2011, of the United Kingdom withdrawing from the European Union. That, as both parties accepted, was a question of fact for me. Rather, the purpose of the reports was to remind me of the nature of discourse regarding the United Kingdom’s withdrawal as it stood some eight years ago and to assist me in putting to one side the voluminous and near constant stream of discussion and reporting within the media regarding the United Kingdom’s withdrawal from the European Union that has been a feature since the referendum in June 2016.

To this end, three reports were adduced:

Given the purpose of these reports, the experts were not called to give evidence. Paragraph 2 of my order of 3 December 2018 provided that the expert reports should stand “as narratives and no further expert evidence shall be permitted…Any further points in relation to the expert reports will be addressed by way of counsel’s submissions.”

The nature of the Property and the manner in which the Property and the Premises came to be procured

CW (Footnote: ⁷¹) are the registered proprietors of the leasehold interest in the Property. The Property is a high-quality commercial office building at basement, promenade level and ground level with 20 floors above.⁷⁹ The Property had not been constructed when discussions first commenced between CW and the EMA regarding the leasing of space in the (future) Property. Without a firm commitment from a prospective tenant prepared to lease a significant part of the Property, so as to assure future cash-flow, I find that the Property would not have been built. Obtaining the commitment of the EMA to lease a substantial part of the Property was, thus, very important to CW. (Footnote: ⁷²) The advantage to the EMA – which was looking for new headquarters (Footnote: ⁷³) – of a pre-let was that it could have real input into the building, which could be bespoke to its requirements. (Footnote: ⁷⁴)

The process by which the pre-let was secured was as follows:

There was an issue between the parties as to the extent to which the Property – as opposed to the Premises – was bespoke. The Premises plainly were bespoke, in that the Tenant’s Category B works were intended to create a working environment designed for the EMA. In particular, this involved a conference centre on levels 2 and 3, containing various meeting rooms (the largest accommodating over 135 people) providing for a “UN-style” seating environment for delegates, (Footnote: ⁸⁰) and an unusually large restaurant/kitchen facility on level 4. (Footnote: ⁸¹) Mr Hargreaves asserted that these requirements were unusual for an occupier

The unusual features on levels 2, 3 and 4 might well render it more difficult or – at any rate – more expensive to assign or sub-let the Premises. Mr Hargreaves explained his efforts (since the last quarter of 2017) to dispose of the Premises on behalf of the EMA. (Footnote: ⁸²) He considered that levels 2, 3 and 4 might deter potential assignees or sub-lessees from taking the Premises without a different fit out. (Footnote: ⁸³)

More controversial as between the parties was whether the EMA’s requirements affected the shell and core of the Property. To an extent, I find that they did. Thus, the EMA wanted two entrances to the Property, so that one entrance could be dedicated solely for the EMA’s use and the other used for CW’s other tenants. (Footnote: ⁸⁴) Also, the EMA wanted – for some levels at least – higher than usual ceilings. More fundamentally, the EMA was allowed to choose the configuration for the Property, although (as Mr Archer testified) that configuration was in line with his own recommendation for building configuration.

I find that the Premises were purpose built to the EMA’s specification and that the Property itself was to an extent bespoke or purpose built. However, whilst CW permitted the EMA to have input into matters affecting the Property’s shell and core, I consider that it did so because what the EMA was proposing was in line with (or, at least, not out of line with) what CW itself considered was necessary to render the Property attractive to persons other than the EMA. In other words, the EMA’s proposals were broadly consistent with what CW considered sensible in its own interests. The point did not arise, but I anticipate that CW would have been rather less accommodating had the EMA made proposals affecting the shell and core that would have rendered the Property less marketable to persons other than the EMA.

The nature of the EMA

It will be evident, from the arguments set out above, that the political and legal constraints within which the EMA operates are highly material in this case. A number of these constraints will have to be considered more specifically, but the following serves as a general introduction.

Establishment

The EMA’s predecessor (Footnote: ⁸⁵) was established by Article 49 of Council Regulation (EEC) No 2309/93 of 22 July 1993 (the “1993 Regulation”). The EMA itself was established by Article 55 of Regulation (EC) No 726/2004 of the European Parliament and of the Council of 31 March 2004 (the “2004 Regulation”). (Footnote: ⁸⁶) The second paragraph of Article 55 of the 2004 Regulation provides:

“The [EMA] shall be responsible for coordinating the existing scientific resources put at its disposal by Member States for the evaluation, supervision and pharmacovigilance of medicinal products.”

Personality

Article 47 TEU provides:

“The Union shall have legal personality.”

Article 71 of the 2004 Regulation provides:

“The [EMA] shall have legal personality. In all Member States it shall enjoy the most extensive legal capacity accorded to legal persons under their laws. It may in particular acquire or dispose of moveable and immovable property and may be a party to legal proceedings.”

Capacity

Whereas Article 47 TEU was concerned with the legal personality of the European Union in general, and in particular with its legal personality in international law, (Footnote: ⁸⁷) Article 335 TFEU is concerned with capacity. It provides:

“In each of the Member States, the Union shall enjoy the most extensive legal capacity accorded to legal persons under their laws; it may, in particular, acquire or dispose of moveable and immovable property and may be a party to legal proceedings. To this end, the Union shall be represented by the Commission. However, the Union shall be represented by each of the institutions, by virtue of their administrative autonomy, in matters relating to their respective operation.”

The equivalent provision as regards the EMA is Article 71 of the 2004 Regulation, set out at paragraph 65 above. Its wording draws from both Article 47 TEU and Article 335 TFEU.

An intra-Union function

As well as establishing the EMA’s predecessor, the 1993 Regulation laid down European Union (Footnote: ⁸⁸) procedures for the authorisation and supervision of medicinal products for human and veterinary use. The 1993 Regulation explicitly focussed on medicinal products within the territory of the European Union. Thus, Article 3(1) provided that “[n]o medicinal product…may be placed on the market within the [European Union] unless a marketing authorisation has been granted by the [European Union]” in accordance with the 1993 Regulation. (Footnote: ⁸⁹) Equally, Article 2 provided that “[t]he person responsible for placing medicinal products covered by this Regulation on the market must be established in the [European Union]”. The EMA contended, and I accept, that the 1993 Regulation was in no way “outward looking”. The EMA was not engaged in matters going beyond the territory of the European Union. Its function was “inward looking”.

Essentially, the same is true of the 2004 Regulation, although one outward looking function was pointed out to me, namely the EMA’s obligation to “collaborate with the World Health Organisation in matters of pharmacovigilance”. (Footnote: ⁹⁰) The World Health Organisation is based in Geneva – outside the territory of the European Union – but it was not suggested, by either party, that this competence would require the EMA to have an office outside the territory of the European Union.

Funding and expenditure

The EMA is funded by a contribution from the European Union and from the fees paid by undertakings for obtaining and maintaining a European Union marketing authorisation and for other services provided by the EMA. (Footnote: ⁹¹) The fees chargeable by the EMA are not set by it, but by other entities of the European Union. (Footnote: ⁹²) They are set with a high degree of specificity, and the EMA has a very limited discretion in terms of varying these set fees. (Footnote: ⁹³)

The EMA’s expenditure “shall include staff remuneration, administrative and infrastructure costs, and operating expenses as well as expenses resulting from contracts entered into with third parties”. (Footnote: ⁹⁴)

The EMA’s revenue and expenditure must be in balance. (Footnote: ⁹⁵)

The EMA is subject to the budgetary control of other entities of the European Union. (Footnote: ⁹⁶) The precise detail of this control is not material for present purposes, but the strictness of the regime is. The regulatory regime is described by Mr Steikunas: (Footnote: ⁹⁷)

“9.

In order for the EMA to fulfil its tasks (operational and organisational) in accordance with [the 2004 Regulation], the legislator has established that its revenue “…shall consist of a contribution from the EU and fees paid by undertakings for obtaining and maintaining EU marketing authorisations and for other services provided by the [EMA]… (2004 Regulation, Article 67(3)). As to these two components:

9.1

The maximum level of EU contribution for the EMA is set out in the multiannual financial framework, adopted by the Council (see the last multi-annual financial framework 2013-2020, Council Regulation (EU, Euratom) 1311/2013 of 2 December 2013).

9.2

The EMA’s fees are governed by “general” fee regulation (Council Regulation (EC) No 297/95) and the “pharmacovigilance fee regulation” (Regulation (EU) No 658/2014).

10.

The EMA’s revenues are therefore finite. Any unforeseen or additional expenditure isnot covered by either the EU contribution or additional fee income from thepharmaceutical industry: it has to be funded by cutting the EMA’s other expenditure. With the exception of contributions for orphan medicines for rare diseases, which are governed by specific legislation, according to the financial regulations of the EMA, the EU contribution is a balancing contribution to finance operations of the [EMA] mandated by legislation which are not sufficiently covered by fees. In that regard, the EMA’s financial and budgetary activity is monitored and approved on an annual basis in accordance with the procedure described in paragraphs (5)-(10) of Article 67 of the 2004 Regulation, which read as follows:

“5.

The expenditure of the [EMA] shall include staff remuneration, administrative and infrastructure costs, and operating expenses as well as expenses resulting from contracts entered into with third parties.

6.

Each year the Management Board, on the basis of a draft drawn up by the Executive Director, shall produce an estimate of revenue and expenditure for the Agency for the following financial year. This estimate, which shall include a draft establishment plan, shall be forwarded by the Management Board to the Commission by 31 March at the latest.

7.

The estimate shall be forwarded by the Commission to the budgetary authority together with the preliminary draft general budget of the European Union.

8.

On the basis of the estimate, the Commission shall enter in the preliminary draft general budget of the European Union the estimates it deems necessary for the establishment plan and the amount of the subsidy to be charged to the general budget, which it shall place before the budgetary authority in accordance with Article 272 of the Treaty.

9.

The budgetary authority shall authorise the appropriations for the subsidy to the [EMA]. The budgetary authority shall adopt the establishment plan for the [EMA].

10.

The budget shall be adopted by the Management Board. It shall become final following adoption of the general budget of the European Union. Where appropriate, it shall be adjusted accordingly…”

11.

Based on the foregoing procedure, the preparation, content and formalities of the EMA’s budget are required to be aligned with the [“EMA’s Financial Regulation”], (Footnote: ⁹⁸) which is in turn based upon the Commission Delegated Regulation on the framework financial regulation for the bodies referred to in Article 208 of Council Regulation (EU, Euratom) No 966/2012 (Article 1 of the EMA’s Financial Regulation). Article 5 of the EMA’s Financial Regulation requires that:

“The budget of the Agency shall be established and implemented in accordance with the principles of unity, budgetary accuracy, annuality, equilibrium, unit of account, universality, specification, sound financial management which requires effective and efficient internal control, and transparency as set out in this Regulation.”

12.

As per Article 6 of the EMA’s Financial Regulation, every year the budget shall comprise:

“(a)

own revenue consisting of all fees and charges which the [EMA] is authorised to collect by virtue of the tasks entrusted to it, and any other revenue;

(b)

revenue made up of any financial contributions of the host Member States;

(c)

a contribution granted by the Union;

(d)

revenue assigned to specific items of expenditure in accordance with Article 23(1);

(e)

the expenditure of the EMA, including administrative expenditure.

2.

Revenue consisting of fees and charges shall only be assigned in exceptional and duly justified cases provided for in the constituent act.

3.

When one or several constituent acts provide that clearly defined tasks are financed separately or when the [EMA] implements tasks entrusted to it by a delegation agreement, it shall hold separate accounts, on the revenue and expenditure operations. The Agency shall clearly identify each group of tasks in its human resource programming including in the annual and multiannual programming document referred to in Article 32.”

13.

As referred to above, the preparation and implementation of the budget is a very stringent procedure from which the EMA cannot deviate. For this reason, Article 67(12) of the 2004 Regulation requires that “the Management Board shall, as soon as possible, notify the budgetary authority of its intention to implement any project which may have significant financial implications for the funding of its budget, in particular any projects relating to property such as the rental or purchase of buildings. It shall inform the Commission thereof.”

14.

This legal obligation makes it imperative prior to any commitments being made for the rental or purchase by the EMA of premises that may have a significant impact on its budget, the EU budgetary authority shall be informed and approve such activity. The EMA may sign a lease agreement or authorise expenditure with a landlord only following a favourable opinion of the budgetary authority (jointly, the Council of the EU and the European Parliament) and based on the terms approved by them. No deviation from these terms can be subsequently agreed.”

With the exception of one value judgment (the underlined text in the above quotation), which is a matter of law at issue in these proceedings, I accept this as an accurate statement of the European Union budgetary process as it applies to the EMA.

It is worth noting that – with the exception of the EMA’s Financial Regulation (which came into force after the Agreements on 5 August 2011, but before the Lease – which was concluded on 21 October 2014) – all of the significant budgetary provisions governing the EMA’s budget and referred to by Mr Steikunas were in force at the time

The EMA’s notification to the Budgetary Authority dated 18 April 2011 (the “EMA’s Notification”)made clear that the proposed lease was for a term of 25 years, with no break clause. (Footnote: ¹⁰⁰) These facts – along with many others – were considered by the European Union (if I can use that general reference to embrace all of the entities, apart from the EMA, involved in that process). The length of the lease and the absence of a break clause were specifically queried and looked into.

Liability of the EMA

Article 72 of the 2004 Regulation provides (so far as material) as follows:

“(1)

The contractual liability of the [EMA] shall be governed by the law applicable to the contract in question. The [CJEU] shall have jurisdiction pursuant to any arbitration clause contained in a contract concluded by the Agency.

(2)

In the case of non-contractual liability, the [EMA] shall, in accordance with the general principles common to the laws of the Member States, make good any damage caused by it or by its servants in the performance of their duties.

The [CJEU] shall have jurisdiction in any dispute relating to compensation for any such damage.”

These provisions reflect similar provisions relating to the European Union contained in the TFEU. Thus:

Protocol 7

Protocol 7 applies to the EMA. (Footnote: ¹⁰¹) As noted in paragraph 7(1) above, Protocol 7 is a common protocol annexed to both the TEU and the TFEU. It constitutes a separate agreement between the “High Contracting Parties”, which (at the time it was concluded) included the United Kingdom. Protocol 7 is the latest of a series of protocols to similar effect.

Protocol 7 contains a series of immunities or protections conferred on the European Union. The most significant of these, for present purposes, are set out below:

“Article 1

The premises and buildings of the Union shall be inviolable. They shall be exempt from search, requisition, confiscation or expropriation. The property and assets of the Union shall not be the subject of any administrative or legal measure of constraint without the authorisation of the Court of Justice.

Article 2

The archives of the Union are inviolable.

…

Article 5

For their official communications and the transmission of all their documents, the institutions of the Union shall enjoy in the territory of each Member State the treatment accorded to that State to diplomatic missions.

Official correspondence and other official communications of the institutions of the Union shall not be subject to censorship.”

Even absent the provision in the 2004 Regulation (Article 74) making clear that Protocol 7 applies to the EMA, it would be evident from the terms of the Protocol itself that this was the case. Prior to the Lisbon reform, the European Union (as it now is) had not been provided with a legal personality. Article 47 TEU now provides that “[t]he Union shall have legal personality”. Prior to this, it was the Member States who actually formed the Union, with only certain institutions – notably the European Commission – enjoying legal personality. (Footnote: ¹⁰²) Given that the Union is (by Article 1 TEU) founded on the TEU and TFEU, and given that all EU institutions and agencies must derive their existence from a specific treaty competence, (Footnote: ¹⁰³) the concept of the “European Union” must embrace all other institutions and agencies including the EMA.

Protocol 7 is also directly effective in the UK pursuant to section 2(1) of the European Communities Act 1972. Section 2(1) provides:

“All such rights, powers, liabilities, obligations and restrictions from time to time created or arising by or under the Treaties, and all such remedies and procedures from time to time provided for by or under the Treaties, as in accordance with the Treaties are without further enactment to be given legal effect or used in the United Kingdom shall be recognised and available in law, and be enforced, allowed and followed accordingly; and the expression “enforceable EU right” and similar expressions shall be read as referring to one to which this subsection applies.”

“Treaties” includes the TEU and TFEU and Protocol 7. (Footnote: ¹⁰⁴)

Article 74 of the 2004 Regulation – itself directly effective in the United Kingdom – is thus really only for the avoidance of doubt. (Footnote: ¹⁰⁵)

The provisions of Protocol 7 are very similar to the sort of protections that are conferred on international organisations and the embassies of foreign states. In his statement, Mr Wathion emphasised the importance of these protections, which he explained were conferred in the public interest of the European Union and the EMA, so as to avoid any interference with the functioning and independence of the European Union and the EMA. (Footnote: ¹⁰⁶) Mr Wathion noted that “these protections guarantee the ability of the EMA and its officials or employees to go about the business of the EMA unhindered by interference from any Member State. All these protections are fundamental to the EMA’s independence and (thus) its proper functioning…”. (Footnote: ¹⁰⁷) I accept this evidence.

The fact that the protections conferred by Protocol 7 are in the public interest of the European Union and the EMA and exist only for that purpose is confirmed by the fact that these protections can be waived or lifted. It is important to understand how this occurs:

It was suggested by CW that the fact that no case could be identified where a judgment creditor was seeking to enforce a judgment against an institution of the European Union somehow meant that the Protocol 7 protections were unimportant. I do not accept this contention. It seems to me that the Protocol 7 protections are extremely important, and that the fact that there is no evidence of applications for them to be waived or lifted, save in the case of garnishee proceedings, (Footnote: ¹¹⁰) actually underlines their importance. The fact is that the European Union and its agencies are responsible bodies, subscribing to the rule of law: as institutions they will respect their proper obligations and honour their due debts. That is, no doubt, one reason explaining the absence of applications for the Protocol 7 protections to be waived or lifted. But I am equally confident that the European Union and its agencies will not subscribe to bogus claims, “try-ons” or claims that are abusive. In such cases, the Protocol 7 protections are significant and important, and the absence of applications for these protections to be waived or lifted is, to my mind, cogent evidence of their efficacy, rather than their unimportance.

Location of the EMA’s headquarters

Article 341 TFEU provides that: (Footnote: ¹¹¹)

“The seat of the institutions of the Union shall be determined by common accord of the governments of the Member States.”

There are many instances where such common accord is manifested. Thus, Protocol No. 6 to the Treaties (“Protocol 6”) records the seats of various European Union bodies. Indeed, Protocol 6 records a decision of 6 April 1965, which set out the provisional places of work of various Community institutions.

Neither the 1993 Regulation nor (until it was amended in 2018) the 2004 Regulation determined the location of the EMA’s headquarters. Article 74 of the 1993 Regulation provided:

“This Regulation shall enter into force on the day following the decision taken by the competent authorities on the headquarters of the Agency (Footnote: ¹¹²).”

The decision on headquarters was taken by Decision 93/C 323/01 entitled “Decision taken by common agreement between the representatives of the Governments of the Members States, meeting at Head of State and Government level, on the location of the seats of certain bodies and departments of the European Communities and Europol” (the “1993 Decision”). Article 1 of the 1993 Decision allocated the seats of various bodies to various cities or Member States. (Footnote: ¹¹³) Article 1(e) provided:

“The European Agency for the Evaluation of Medicinal Products shall have its seat at London.”

Regulation (EU) 2018/1718 of the European Parliament and of the Council of 14 November 2018 (the “2018 Regulation”) is expressed – by Article 2 – to enter into force on the day of its publication in the Official Journal of the European Union (which was

The provisions of the Lease

As has been described, the Lease was materially in the same terms as the Annex 15 Draft Lease. The Lease contained the following provisions: (Footnote: ¹¹⁴)

The Agreements and the Lease contained complex provisions regarding the adjustment of rent payable by the EMA as an inducement to enter into the Agreements and the Lease. It is unnecessary to consider these provisions in detail, but it is important to note that the EMA received a substantial inducement to enter into the Agreements (the inducement was in excess of £40 million). The inducement was, in this case, applied in discharge of the costs payable by the EMA in having the Premises fitted according to its requirements, although the inducement could have been received by the EMA in different ways. The fact that the inducement was received in discharge of payment obligations under the Construction Management Agreement makes clear the linkage between the Agreement for Lease and the Construction Management Agreement.

The EMA’s attempts to dispose of the Premises

In his witness statement, Mr Hargreaves briefly described the efforts that the EMA had made to dispose of the Premises: (Footnote: ¹³³)

“Since the last quarter of 2017, we have been instructed by the EMA to try to find a major tenant to take an assignment of the whole space occupied by the [EMA]. CW are fully aware of this and have offered to provide assistance as required on a number of occasions.”

In cross-examination, Mr Hargreaves accepted that the basis on which the EMA was seeking to dispose of the Premises involved a right to occupy the Premises after the presumed date of the withdrawal of the United Kingdom from the European Union. In short, the EMA was offering to dispose of the Premises after the date on which (on the EMA’s case) the Lease would be frustrated. Although CW sought to make a forensic point out of this – namely that the EMA was somehow acting inconsistently with its frustration argument – I do not see the EMA’s conduct in this way. The EMA and CW were simply seeking to remove an issue (namely, the fact that EMA could no longer use the Premises as its headquarters, by reason of the 2018 Regulation) in a commercial way, without litigation. Unfortunately, these efforts came to nothing: but I am certainly not going to criticise the parties for trying, still less regard the EMA’s case differently by reason of these efforts.

The EMA contends that the Lease is frustrated by reason of frustration of common purpose and frustration by supervening illegality. Given the conclusions I have reached in relation to the EMA’s capacity, the EMA’s case on supervening illegality must fail. I have concluded that the EMA has the capacity, post the withdrawal of the United Kingdom from the European Union, to continue to use and/or dispose of the Premises and that it continues to have the capacity to pay rent (and perform its other continuing obligations) under the Lease.

I propose to consider the question of frustration by supervening illegality on the assumption that the EMA’s contentions regarding its capacity are correct, contrary to my conclusions in Section D above. The EMA contended that supervening illegality by itself caused the contract to be frustrated, without the need to look at other factors. Alternatively, if this contention was incorrect, then it was one factor – and, according to the EMA, a very significant one – to be taken into account in the multi-factorial approach described by Rix LJ The Sea Angel. (Footnote: ²⁰³)

I consider frustration by supervening illegality first; and then frustration of common purpose.

Frustration by supervening illegality

Approach

As I have stated, I proceed on the basis that the EMA has made good its points on capacity.

It was contended by CW that the only sort of illegality capable of frustrating a contract was illegality on “public policy” grounds as considered in Patel v. Mirza. (Footnote: ²⁰⁴) I reject that contention. Chitty makes clear that “[i]n Patel v. Mirza the court was addressing illegality in the narrower sense identified above, viz contracts that somehow involve a legal wrong. The decision seems not to affect the enforceability of contracts that are contrary to public policy for other reasons…”. (Footnote: ²⁰⁵) Supervening illegality means more than simply Patel v. Mirza type illegality: it can arise where the performance of a contract becomes unlawful for one party by reason of a supervening change in law or by reason of a supervening change of circumstance rendering that which was previously lawful unlawful. (Footnote: ²⁰⁶)

It was the EMA’s case that the withdrawal of the United Kingdom from the European Union had changed the legal landscape in which the EMA operated, so as to render actions on the part of the EMA, which had previously been lawful, unlawful. Thus, the EMA’s case was based more on a subsequent change of circumstance rendering what was previously lawful unlawful than on a supervening change in law: but I do not consider that the position would be any different if this were a case of a supervening change in law (which could be said to arise by way of the 2018 Regulation).

It is necessary to consider three matters:

Supervening illegality in the cases

In Baily v. De Crespigny, (Footnote: ²⁰⁷) a lessor was not held liable for an alleged breach of his covenant that neither he nor his assigns would build on a piece of land adjoining the demised premises, when a railway company, under its powers derived from a subsequent statute, compulsorily acquired the land and erected a station on it. The lessor was sued for breaching his covenant not to build. Hannen J, delivering the judgment of the court (Cockburn CJ, Lush, Hannen and Hayes JJ) found that the lessor was not liable:

It seems clear from some of the language that this can be seen as an early frustration case. However, there are two points that may be peculiar to supervening illegality and must be noted:

In R v. Reilly, (Footnote: ²¹⁵) the appellant was appointed a member of a statutory board in Canada with a specified term of appointment and salary. During the tenure of the appointment, the office was abolished by the repeal of the statute establishing the board. By petition of right, the appellant claimed damages for breach of contract. Giving the opinion of the Privy Council, Lord Atkin held that the appellant was not entitled to damages. This had been the conclusion of the courts below, but they reached that conclusion on different grounds:

This case is – in terms of its facts – perhaps the closest to the EMA’s case. It seems to have been the conclusion of Lord Atkin that the executive simply could not continue to pay the office holder as a matter of law, nor could the office holder continue to exercise

The significance of the relevantly applicable law

Introduction

As I have described, (Footnote: ²¹⁹) the capacity of a corporation to exercise specific rights is determined – at least in the first instance – by the constitution of the corporation, which is itself governed by the law of the place of incorporation.

CW contended – basing itself on Dicey’s Rule 175 – that the question of capacity is, in fact, governed by two laws. Rule 175 provides as follows: (Footnote: ²²⁰)

“(1)

The capacity of a corporation to enter into any legal transaction is governed both by the constitution of the corporation and by the law of the country which governs thetransaction in question.

(2)

All matters concerning the constitution of a corporation are governed by the law of the place of incorporation.”

It was common ground that English law governed the Lease and (if different) the transaction in question: that is plain, both from the express choice of law clause in the Lease, (Footnote: ²²¹) from the fact that the Property and the Premises are located in England, and the fact that Article 71 of the 2004 Regulation makes clear that the EMA is bound by the applicable law so found.

CW contended that – according to English law, and specifically, by reason of the provisions of the Land Registration Act 2002 – even if the EMA lacked capacity to continue performance in relation to the Lease, that lack of capacity was made good by the provisions of the Land Registration Act 2002. In short, English law “trumped” the law of the place of incorporation and if the EMA had capacity under English law, it was irrelevant that it lacked capacity under European Union law.

I consider this point next. Thereafter, I consider the law that applies in relation to the consequences of a frustrating event.

Capacity conferred by English law

The EMA is – as was common ground – the registered proprietor of the Premises pursuant to the Lease. The relevant provisions of the Land Registration Act 2002 provide as follows:

“23 Owner’s powers

(1)

Owner’s powers in relation to a registered estate consist of –

(a)

power to make a disposition of any kind permitted by the general law in relation to an interest of that description, other than a mortgage by demise or sub-demise, and

(b)

power to charge the estate at law with the payment of money.

…

Dicey does not consider that the capacity of a foreign corporation could be enlarged by reference to the law governing the transaction. According to the commentary on Rule 175, (Footnote: ²²²) the capacity of a corporation is limited in a twofold way, first by reference to its constitution and secondly by reference to the law governing the transaction in question. Thus, by way of example, whilst the EMA might (and I speak entirely hypothetically) have the vires to act as an insurer according to its constitution, it would not have the capacity to enter into a contract of insurance where English law governed the transaction, because English law restricts who can act as an insurer. (Footnote: ²²³) Such a “double-lock” on capacity makes good sense, for it reflects the interests of both of the engaged laws in depriving a corporation of capacity.

CW contended that Dicey was right in suggesting that two laws were involved in determining a corporation’s capacity, but wrong in suggesting that the operation of these two laws could operate only to confine the capacity of a corporation. CW contended that the law of the country governing the transaction was capable of overriding the law of the place of incorporation and capable of furnishing on that corporation a capacity it did nototherwise have. Specifically, it was suggested that the provisions of the Land Registration Act 2002, cited above, provided to the EMA the capacity to deal with the Premises (by, for instance, disposing of them) irrespective of the limits to the capacity of the EMA imposed by European Union law.

I reject this contention:

Applicable law to the question of frustration and the English law approach to supervening illegality under the law of a different law district

Article 12 of the Rome I Regulation provides that the law applicable to a contract by virtue of the Regulation governs – amongst other things – the “performance” of the contract (Footnote: ²²⁴) and “the various ways of extinguishing obligations”. (Footnote: ²²⁵) As Chitty notes, it is possible that discharge by way of frustration may fall under either Article 12(1)(b) or Article 12(1)(d), but since the applicable law is the same, this does not matter. (Footnote: ²²⁶) The parties were agreed, in this case, that the applicable law was English law. Given the choice of law provision in the Lease and the situs of the Premises, this is clearly right.

This is a case where the supervening illegality arises under a foreign law that is not the applicable law. Generally speaking, the validity and enforceability of a contract governed by English law is not as a general rule affected by the question whether the contract would be regarded as valid or whether its performance would be lawful according to the

The question, then, is whether – assuming that the EMA is right as regards the points it makes on vires – these are relevant for the purpose of frustration by way of supervening illegality. The question is whether the English law of frustration, which has regard to questions of legality where the performance of the contract would be unlawful according to the law of the place of performance, should also have regard to the law of incorporation, at least where this affects the capacity of a party to continue to perform obligations under a transaction lawfully entered into by it.

In my judgment, the English law of frustration cannot be so extended:

Capable of frustrating the lease?

London and Northern Estates Company v. Schlesinger

I have concluded that:

In London and Northern Estates Company v. Schlesinger, (Footnote: ²³⁵) the plaintiffs had, before the outbreak of World War I, let to the defendant, an Austrian subject, a residential flat at Westcliffe-on-Sea for a term of three years. By the terms of the lease, the defendant was not to assign or underlet the premises without the lessor’s licence, such licence not to be unreasonably withheld. On war breaking out, the defendant became an alien enemy, and by an Order in Council, alien enemies were prohibited from residing within certain specified areas, including Westcliffe-on-Sea (although it was possible to obtain an exemption from this prohibition (Footnote: ²³⁶)). The plaintiffs sought to recover unpaid rent in respect of the flat; the defendant contended that the lease was frustrated.

On appeal, Avory and Lush JJ both rejected this contention, in two short judgments. According to Avory J: (Footnote: ²³⁷)

“It has been contended on his [the defendant’s] behalf…that the agreement between the two parties was that he should reside there; and that the Order has rendered the performance of that agreement impossible. I am content in answer to that argument to adopt the language of the Common Serjeant in giving judgment in this case; he says: “By the lease, the defendant had a right to the personal occupation of the premises, and the right to assign or sub-let them to another person in the absence of any reasonable ground for objection. This latter right was of value and might even enable the defendant to let the premises at a profit to himself, and this right was not affected by the Aliens Restriction Order. That Order and the statute under which it was made did not avoid the lease, or make it illegal for an alien enemy to hold a lease of land in a prohibited area. This being so the lease is not extinguished, nor is the defendant’s title as tenant under it put an end to although his personal enjoyment of the premises under it is prohibited”. I do not think I can usefully add anything to that statement. I entirely agree with it, and will only say this, that the right to sub-let is only one of the mode of enjoyment of the premises which are left to the tenant in the event of his being prevented from personally residing there. It is clear that if he had desired to lend the flat to any of his friends there was nothing in the Order to prevent him from doing so.”

Lush J agreed: (Footnote: ²³⁸)

“…here the consideration for which the appellant agreed to pay the rent was not confined to his right of personally residing in the flat; he obtained the right, subject to certain conditions, to assign or sub-let the premises to other persons. As the contract could be performed without his personal residence, the fact that his personal residence was prohibited by the Order did not make the performance of the contract impossible. But there is, I think, a further answer to the contention. It is not correct to speak of this tenancy agreement as a contract and nothing more. A term of years was created by it and vested in the appellant, and I can see no reason for saying that because this Order disqualified him from personally residing in the flat it affected the chattel interest which was vested in him by virtue of the agreement. In my opinion it continues vested in him still.”

It may be doubted whether Lush J’s second point – namely, that the defendant had acquired a property interest, in the form of a lease, which was unaffected by the supervening illegality – remains good or reliable law in light of Panalpina, where the House of Lords held that, at least in theory, a lease that continued to subsist as a property interest could nevertheless be frustrated.

However, the primary basis for the decisions of Avory and Lush JJ is illuminating: for supervening illegality to frustrate, it must remove all or substantially all of the benefit that one party receives from the contract. Thus, Avory and Lush JJ both stressed that not only did the lease continue, but also that the defendant was entitled to sub-let or indeed lend the flat to his friends. In short, the fact that the defendant was himself precluded from occupying the flat was not nearly enough to render the lease frustrated.

The present case

The approach of the court in Schlesinger explains why the EMA sought to close off all available options to it to use the Premises. Not only could the EMA not occupy the Premises itself, but it could not offer the premises to any other European Union agency, nor yet assign or sub-let the Premises to non-European Union entities. In short, the submission was that the EMA could derive no benefit from the Premises after the United Kingdom withdrew from the European Union.

I have rejected the EMA’s contentions regarding its capacity. On the assumption that the EMA is right in all respects regarding its capacity (and assuming that this incapacity is relevant for the purposes of frustration, which I have found it not to be), then it would follow that – given the inability to use the Premises at all post the United Kingdom’s withdrawal – the Lease would be frustrated. On this basis, it would, of course, be necessary to consider extremely carefully whether the EMA’s contentions as to capacity were in all respects correct as well as relevant to the issue at hand.

In paragraphs 97-100 above, I noted the EMA’s evolving – and perhaps inconsistent – position as regards its ability to pay rent. In paragraph 100, I considered that I should approach the EMA’s case on frustration on two bases:

It seems to me that on the second, alternative, case, the EMA’s frustration case holds good, given the assumptions I am making. By reason of the supervening illegality, the EMA is deprived of substantially all benefit from the Lease, but remains obliged to pay the rent. Performance of the Lease – in the sense of paying rent – is not on this basis unlawful, but any use of the Premises would be unlawful. Applying the reasoning in Schlesinger, the EMA would, in these circumstances, have been deprived not merely of some ways of using the Premises, but of all modes of enjoyment.

The primary case – where the payment of rent is itself unlawful – lies a fortiori.

Self-induced frustration

CW contended that even if the Lease were frustrated, this would be a case of self-induced frustration that would not be sufficient to cause the Lease to be discharged.

Self-induced frustration was considered in Section B(6) above. The point that the defendant in Schlesinger might have obtained an exemption from the prohibition on his residence in the flat has been adverted to: (Footnote: ²³⁹) it was not considered in either the judgment of Avory J or Lush J. It is, however, a good example of what might amount to selfinduced frustration. Had it been possible for the defendant to obtain an exemption, and he had failed to do so, could it be said that the lease was frustrated?

In my judgment, such a factor would be a major pointer away from frustration of the contract. Mr Seitler, QC, contended that matters occurring before the frustrating event could not be taken into account when considering whether the event in question was, indeed, frustrating of the contract. That, he contended, would invite an overly intensive factual analysis of events, causing frustration cases to become unduly factually complex.

I reject this contention. It seems to me, first, that the exercise is not a fact-intensive one at all. Rather, the court must have regard to all of the options open to the parties in response to the frustrating event. Generally speaking, of course, the frustrating event will strike the parties to the contract “out of the blue”, and the court will be left to consider what they could have done, post-alleged-frustrating event, in order to ameliorate its effects, in light of their agreement and expectations at the time of contracting. If one party could have done something to ameliorate matters, and failed to do so, that will (obviously) be relevant.

Secondly, Mr Seitler, QC’s contention that matters occurring before the frustrating event took place could not be taken into account was contradicted by the decisions in Maritime National Fish Ltd v. Ocean Trawlers Ltd (Footnote: ²⁴⁰) and The Super Servant Two. (Footnote: ²⁴¹) In both of these cases, the acts of the party claiming frustration preceded the frustrating event: in Ocean Trawlers, it was the decision to allocate the licences on offer to vessels other than the St Cuthbert; in The Super Servant Two, it was the election not to make the Super Servant One available, but that decision turned on the fact that the Super Servant One was already contractually committed to others.

As I have noted, (Footnote: ²⁴²) whether frustration is self-induced does not turn on technical questions of duty of care or fault. When considering whether there has been a frustrating event, it is quite clear that the courts consider the conduct of the party alleging frustration broadly and ask the broad question of whether the supervening event was something beyond that party’s control or within it. “Self-induced frustration” is something of a misnomer. It is simply a reference to post-contractual events and actions which indicate that certain options – that might have ameliorated the frustrating event – have been closed off by the acts or omissions of the party claiming frustration. In this case:

In conclusion if, contrary to my primary conclusions, this is a case where the Lease is frustrated, then that frustration I find to be self-induced on the part of the EMA (considering the EMA in its constitutional context within the European Union). Accordingly, the Lease is not frustrated or discharged for this reason also.

Conclusions

I find that the Lease has not been frustrated by reason of supervening illegality:

Frustration of common purpose

Approach

I adopt the approach described by Rix LJ in The Sea Angel: (Footnote: ²⁴⁶)

“…the application of the doctrine of frustration requires a multi-factorial approach. Among the factors which have to be considered are the terms of the contract itself, its matrix or context, the parties’ knowledge, expectations, assumptions and contemplations, in particular as to risk, as at the time of the contract, at any rate so far as these can be ascribed mutually and objectively, and then the nature of the supervening event, and the parties’ reasonable and objectively ascertainable calculations as to the possibilities of future performance in the new circumstances.” 210. Thus, I consider:

(1)

The matters relevant to the parties’ expectations as to risk as these stood at the time of the conclusion of the Agreements. Although the Lease was concluded on 21 October 2014, it was common ground between the parties that the relevant date was the date of the Agreements, 5 August 2011, because on that date both parties were committed, by the Agreements, to enter into the Lease.

(2)

The nature of the supervening event, and the parties’ reasonable and objectively ascertainable calculations as to the possibilities of future performance in the new circumstances.

(3)

Whether, the supervening event and the parties reasonable and objectively ascertainable calculations render the parties’ performance something “radically different” according to the test laid down in Panalpina.

Matters relevant to the parties’ expectations on 5 August 2011

Foreseeability of the United Kingdom’s withdrawal from the European Union

The foreseeability of the frustrating event is relevant only insofar as it informs the parties’ knowledge, expectations, assumptions and contemplations, in particular as to risk. If a future event is sufficiently foreseeable that it should have informed the manner in which the parties framed their agreement (particularly so far as the risk allocation provisions were concerned), then (to put it no higher than this) a court will be inclined to consider that the parties will have framed their agreement taking this factor into account. Foreseeability is, thus, no more than a factor to be taken into account. There will, no doubt, be many cases where something can be foreseen as a theoretical possibility, but where neither party can be criticised for failing to take it into account.

The court must also bEMAre of framing questions of foreseeability too closely to the exact, specific, nature of the supervening event that ultimately occurred. I remind myself

I shall return to this question in due course: my purpose in raising it now is simply to observe that foreseeability is something of a slippery concept, that needs careful handling.

For present purposes, however, it is simply necessary to note that the EMA contended that the frustrating event was the United Kingdom’s withdrawal from the European Union, and that for its part CW contended that this was foreseeable.

As at the relevant date, 5 August 2011, I conclude that the withdrawal of the United Kingdom from the European Union was foreseeable as a theoretical possibility, but that I can draw no inference from the parties’ failure to cater for this specific possibility in the Lease. These days, and for the last two or so years, parties to contracts have no doubt been considering with some care what their contracts should say as regards the United Kingdom’s withdrawal from the European Union. Thus, the failure of the parties to a contract, post-referendum, to consider the inclusion of a “Brexit clause”, might be considered relevant to the allocation of risk. But, as Ms Summerfield has pointed out, the first time the withdrawal of the United Kingdom was considered by DLA Piper in the context of real estate transactions was in 2016, and it was at about this time that “Brexit clauses” began to be considered.²⁵⁹ This is well after the Agreements.

I was greatly assisted by the reports of the experts. Bale 1, Jennings 1 and Bale 2 – as well as the voluminous materials appended to these reports – had the very beneficial effect of reminding me how matters stood when the Agreements came to be negotiated. They enabled me to distance myself from the present discourse. I conclude that the reports and materials provided by the experts supports and makes good the point made by Ms Summerfield, namely that it was only rather later than 2011 that the withdrawal of the United Kingdom from the European Union could be said to be relevantly foreseeable. (Footnote: ²⁴⁸) The most that CW could say was that as at August 2011:

The “bespoke” nature of the Property and the Premises

My conclusions regarding the bespoke nature of the Property and the Premises are at Section C(2) above. I have concluded that one of the advantages to the EMA of a pre-let was that the Premises could be sculpted in a such a way as to suit the EMA (and conceivably only the EMA). I also accept that CW saw this as a relevant factor in attracting the EMA to Canary Wharf to be the key-stone tenant. To this extent, there was a common purpose between the parties. But that common purpose never amounted to a mutual contemplation that one of the purposes of the Lease was to provide a permanent headquarters for the EMA for the next 25 years and that if that could not be achieved, the common purpose of the Lease had failed.

There are a number of reasons why I have reached this conclusion:

It is in this light that the alleged “common purpose” that the Premises would constitute the EMA’s headquarters must be seen. Common purpose is, in my judgment, a misnomer. The EMA wanted bespoke headquarters, and CW was prepared to supply these provided(i) it got a key-stone tenant and (ii) the bespoke elements of the build did not materially prejudice the continued user of the Property and/or the Premises. In other words, as I have found, CW was perfectly prepared to accommodate the EMA provided that CW’s long-term interests in the Property were not prejudiced – particularly if the EMA elected to leave.

Had the EMA proposed a design that was so at variance with CW’s long-term interests in the Property so as to materially prejudice them, and had CW acceded to that design request, then this might have been a matter of significance. In the event, that never occurred: the EMA’s proposals fitted in with CW’s own interests.

Protocol 7

The modification of the rights that CW would normally have had as a landlord, so as to reflect the EMA’s Protocol 7 protections, was the subject of careful negotiation between the parties. It is entirely fair to say that the solicitors acting for CW were very keen to delete references to Protocol 7 and that the solicitors acting for the EMA were equally insistent that the Protocol 7 protections be incorporated into the Lease. In the end, the EMA prevailed, and CW acceded.

Again, I do not consider that this is in any way indicative of a common purpose. Indeed, it would have been far more compelling had CW recognised at the outset that the EMA required these protections and – against its apparent commercial interests – acceded to this. As it is, the fact that CW only accepted these Protocol 7 references after the EMA made clear that this was a “deal breaker” demonstrates that the common purpose of the parties is indistinguishable from the terms of the Lease.

The length of term and the absence of a break clause

The Lease had a term of 25 years, running until 2039. It is trite to say that this is a long period of time, and that many things – foreseen and unforeseen – can come to pass over such a time-scale.

A term of 25 years undoubtedly qualifies the Lease as a long-lease. The EMA quite consciously entered into the Lease without a break clause. (Footnote: ²⁵⁰) It is unlikely that CW would have agreed to a break clause, and certainly not to an early one. Any break clause would significantly have affected the inducement package to the EMA. From this, it is clear that the EMA assumed the risk of change over a 25-year period. The manner in which such changes would be managed would, in the first instance, be in accordance with the provisions of the Lease and – clearly – the alienation provisions, defining as they do the circumstances in which the EMA could depart the Premises, would obviously be critical.

By this, I do not mean to say that the United Kingdom’s withdrawal from the European Union was in any way anticipated or in the contemplation of the parties, and that therefore the risk of the consequences of the United Kingdom’s withdrawal was to be allocated to the EMA. I have made clear my conclusions as to the relevant foreseeability of the withdrawal of the United Kingdom from the European Union in paragraphs 211ff above.

However, I do consider that it was foreseeable that over this long period of time, there might be some development that would require the EMA involuntarily to have to leave the Premises due to circumstances beyond its control. What is more, the parties appear to have catered for this possibility in the Lease: the Lease contemplated the EMA would be committed to the Premises subject only to the alienation provisions which I have described.

Insurance

Insurance can be a relevant factor, indicative of how the parties see and allocate risk. In this case, as I have described, (Footnote: ²⁵¹) CW did obtain insurance against non-payment of rent in the event that the EMA was entitled, pursuant to the terms of the Lease, to cease to pay rent that it would otherwise be obliged to pay. In short, insurance was obtained not to deal with an unforeseen risk, but to deal with an uncertain future contingency expressly contemplated and provided for in the Lease.

In these circumstances, I derive no assistance from the insurance CW was obliged to obtain.

The Allen & Overy opinion letter

Annex 17 to the Agreement for Lease contained an opinion letter from the Paris office of Allen & Overy LLP regarding the Agreements. The letter made clear that:

I appreciate that the letter explicitly did not advise on the potential for future changes. (Footnote: ²⁵⁴) However, it did consider the EMA’s ability to enter into and perform a 25-year lease governed by English law. Whilst I do not derive very much from the opinion letter, it does seem to me that, as a result of this letter:

The EMA’s budgetary process and the scrutiny of the financial implications of the Agreements (including the Annex 15 Draft Lease)

I described the control over the EMA’s budget and spending in Section C(3)(e) above. In his witness statement, Mr Steikunas put forward the view that the EMA did not have unlimited funds, and that if the EMA were required to pay for two premises – the “unneeded” Premises in London and the “needed” new premises in Amsterdam – then the savings it would have to make in order to pay this “double rent” would materially and detrimentally affect the EMA’s future effectiveness: (Footnote: ²⁵⁶)

“17.

As can be seen from the description at paragraphs 9-16 above, the EMA does not have access to unlimited funds. The EMA instead operates under a strict legislative and control framework which is imposed by the Parliament and Council. It is unlikely that the EMA will, under that strict legislative and control framework, be allocated funds (from either the EU contribution or by means of an increase in fees) to pay two full sets of rent for two headquarters buildings – one of which would be unoccupied in London – for the next 21 years.

18.

The expected running costs for the EMA’s new building in Amsterdam for the first full year in which it will be occupied by the EMA (2020) have been estimated at €13,627,720. These costs would be more than doubled, each and every year until 2039, if the EMA were compelled to go on paying under the Lease without any possibility of making any profitable use of the [Premises] for the reasons I have explained above.

19.

These are highly material sums of money as regards the future effectiveness of the EMA. Paying rent for two sets of headquarters despite only need, and occupying, one headquarters, would be highly detrimental to the EMA. The requirement to fund such an ongoing and unnecessary deficit until 2039 would necessarily and fundamentally impact upon the EMA’s institutional effectiveness. To illustrate the point, the EMA’s rent and service charges for the [Premises] in 2017 were €17,655,515, and in 2016 were €19,082,844. These figures are, very approximately, 14% and 17% of the entire staff budget of the EMA for those respective years. In other words, meeting the additional costs associated with the double rent would be akin to requiring the EMA to do without a substantial proportion of its current workforce.”

I do not accept Mr Steikunas’ assertion that the EMA will necessarily be required to fund out of its existing budget two sets of rent. It seems to me that the point that Mr Steikunas

Rather, to my mind, the significance of the budgetary process lies in how it was administered and applied at the time of the Agreements: clearly, as Mr Steikunas has shown, the obligations under the Lease that the EMA assumed would have been the subject of intense and careful scrutiny at the time the Agreements were concluded. The point that I derive from Mr Steikunas’ evidence is that at the time of entering into the Agreements, the financial commitments the Agreements entailed to the European Union over a 25-year period would have been the subject of the careful scrutiny Mr Steikunas describes in his statement.

Nature of the supervening event

The supervening event is the withdrawal of the United Kingdom from the European Union. The consequences of the withdrawal of the United Kingdom from the European Union that I find to exist are as follows:

“Radically different”

Application of the test

I turn to the question of whether – without default of either the EMA or CW – the Lease has become incapable of being performed because the circumstances in which performance is called for would render it a thing radically different from that which was undertaken by the Lease. (Footnote: ²⁶⁰)

Plainly, the changes described in paragraph 234(1) and (2) above – whilst adverse to the

The question is whether there can be said to be a common purpose as between the EMA and CW, at the time of the Agreements, going beyond what was agreed upon in the Lease, which has been rendered radically different by supervening events.

I approach this question in the following way:

The Lease

Looking at the terms of the Lease – or, for they are materially identical, the terms for the Annex 15 Draft Lease – the following points are clear:

The provisions of the Lease – or, rather, the provisions of the Annex 15 Draft Lease – were reviewed by Allen & Overy at the time of the Agreements, acting on the instructions of the EMA. Allen & Overy’s opinion letter considered the terms of the Annex 15 Draft Lease. Even though the Lease was a long one, Allen & Overy stated that the EMA could observe and perform all its obligations under the Annex 15 Draft Lease. (Footnote: ²⁶⁵)

I accept – as anyone would – that the withdrawal of the United Kingdom from the European Union is a seismic event, and I have found that it is not one that was in the contemplation of either party at the time the Agreements were concluded. However, the involuntary departure of the EMA from its headquarters in the Premises, due to circumstances beyond its (or, indeed, the European Union’s) control was something which – on the face of it – the Lease expressly provided for. I find that to be the true construction of the Lease, in particular, the alienation provisions of the Lease.

The EMA’s frustration case requires a distinction to be drawn between reasons for the EMA’s departure, and for that distinction either to be read into the Lease or to cause the doctrine of frustration to override the true meaning of the Lease. In other words, were the European Union to choose to cause the EMA to relocate (because, say, of the accession of another Member State, and nothing to do with withdrawal of the United Kingdom), that would be covered by the Lease; but an “involuntary” departure, caused by the United Kingdom’s withdrawal from the European Union, would not.

I find it impossible to read the alienation provisions in the Lease in this way. These provisions draw no distinction as between the reasons why the EMA might abandon its headquarters in the Premises. The provisions simply deal with the fact. That fact or eventuality has come to pass, and the Lease’s provisions must now do their job, unless there can be said to be an independent common purpose rendered radically different by the subsequent event of the United Kingdom’s withdrawal from the European Union. In short, I consider not only that the Lease contains provisions catering for the event that has occurred – the involuntary departure of the EMA from its headquarters due to the United Kingdom’s withdrawal from the European Union – but also that the operation of these provisions is consistent with the overall intention of the Lease and that there is in this case no need to mitigate the rigour of the common law’s insistence on literal performance of absolute promises. (Footnote: ²⁶⁶)

Was there a common purpose in this case?

I have held that it is possible – notwithstanding the true construction of a contract – for that contract nevertheless to be discharged if the common purpose of the bargain (which I have found to be something beyond the true construction of the contract) is frustrated. In this case, I find no common purpose beyond the purpose to be derived from a construction of the Lease. This is not a case like Krell v. Henry where the parties had a common purpose going beyond their agreement, which was thwarted. The parties approached the Agreements as counterparties, and they bargained hard – if amicably – to get what they wanted.

Outside the terms of the Lease, the parties’ purposes were not common, but divergent. The EMA was focussed on bespoke premises, with the greatest flexibility as to term, and the lowest rent. CW was focussed on long-term cash flow, at the highest rate, and was prepared to allow the EMA its say in the building’s configuration, provided that this was not adverse to CW’s interests. There was no common view or expectation between the parties that the risk of the consequences of the EMA abandoning its headquarters should be differently visited according to the reason for the EMA’s departure. I find that it was CW’s purpose that whatever the reason for the EMA’s intended departure, it should be protected: and, from the terms of the Lease, the EMA knew this. The divergent purposes of the parties can be seen from the arguments they had about the possibility of the break clause and the applicability of Protocol 7.

This is confirmed by the negative provision regarding user: the Lease contains no positive provision as to its use, but merely requires the EMA to abstain from using the building in breach of its permitted user. (Footnote: ²⁶⁷) This is in contrast to Krell v. Henry and the US “liquor prohibition” cases, where some “saloon” leases were very prescriptive about user. (Footnote: ²⁶⁸)

In short, I do not consider the present situation to come close to a case of frustration of common purpose. Considering the test articulated in paragraph 38 above, the fact is that hindsight has shown that the EMA has paid too high a price for the Premises it acquired, in that it failed to build into the lease the flexibility as to term that events have shown would have been in its commercial interests. But the fact is that such flexibility as to term would have been entirely inimical to CW’s interests.

In short, the supervening event, I find, is in reality the EMA’s involuntary departure from the Premises, due to circumstances beyond its control. I find that this involuntary departure was, in fact, not merely envisaged but expressly provided for in the Lease, and that there was no common purpose different to that contained in the Lease. The EMA cannot say this is not what it bargained for.

Relative justice

It follows that questions of relative justice in the context of a frustrating event do not really arise. There is, in this case, no frustrating event. However, because I was addressed on the point, I shall briefly consider it. Inevitably, my view is coloured by the risk allocation that I find was contained within the Lease:

I therefore conclude that, in the case of Scenario 1, the Lease has not been frustrated by reason of a failure of a common purpose.

The ratification of the Withdrawal Agreement would ameliorate the effects of the United Kingdom’s withdrawal from the European Union, but it would not alter the fact that the United Kingdom would cease to be a Member State and become a third country. In these circumstances, it cannot be said that the Lease is frustrated in the case of Scenario 3. During the operation of the Withdrawal Agreement, Protocol 7 would apply unimpaired, as would the continued application of European Union law generally. The jurisdiction of the CJEU would continue. Equally, the winding down of the EMA’s operations in the United Kingdom is provided for. (Footnote: ²⁶⁹)

In these circumstances, I find it impossible to conclude that the Lease has been frustrated in the case of Scenario 3.

The EMA suggested that the Withdrawal Agreement itself – albeit capable of extension – would at some point come to an end and that all the adverse consequences of the United Kingdom’s withdrawal would then be visited on the EMA at that point. But this is a false point, given the case that the EMA advanced. The EMA’s case was based upon the withdrawal of the United Kingdom from the European Union and the transition of the United Kingdom from being a Member State to becoming a third country. This occurs

So far as the EMA’s Self-Standing Point is concerned, paragraph 197 of the EMA’s written opening submissions provides:

“The question of whether the EMA has any given power – in particular to discharge future obligations under the Lease – is one of EU law. That the Lease is itself governed by English law (see clause 9.16) does not alter this position for two reasons:

(i)

First, the capacity of a foreign public body to enter an English law contract must be determined according to the relevant body of foreign public or administrative law, and if there is no such capacity then the contract is void…

(ii)

Secondly, EU law is not, at least presently, “foreign law” anyway: by reason of section 2 [of the European Communities Act 1972], any restrictions on the capacity of the EMA under EU law are part of English law: where EU law is engaged, it has always been erroneous to “speak or think of English law as something on its own”…”

The EMA’s first proposition (in paragraph 197(i) of its written opening submissions) is correct but beside the point. I accept that the capacity of a foreign corporation to enter into an English law contract is governed by the law of that body’s incorporation. (Footnote: ²⁷⁰) However, in this case, it is accepted that the EMA had the capacity to enter into the Lease. What is at issue is whether a supervening lack of capacity can frustrate the Lease. For the reasons I have given, I hold that it cannot.

The EMA’s second proposition (in paragraph 197(ii) of its written opening submissions) is predicated on the continued application of European Union law in the United Kingdom. In Scenario 1, as I have described, although large swathes of European Union law are incorporated into English law, that incorporation does not extend to new propositions of European Union law. (Footnote: ²⁷¹) The EMA’s Self-Standing Point undoubtedly constitutes new (European Union) law, as the EMA accepted. So far as Scenario 1 is concerned, the provisions of the European Union (Withdrawal) Act 2018 render the EMA’s SelfStanding Point unarguable. According to the express terms of the 2018 Act, new (postexit-day) propositions of European Union law are not incorporated into the law of the United Kingdom.

In the case of Scenario 3, as I have described, European Union law continues in force without such fetters on its application. The question is whether European Union law knows of a remedy going beyond that of frustration as applied by the English courts. Certainly, the EMA was unable to take me to any law suggesting the existence of such a remedy, and I find that – under European Union law – no such remedy exists:

I conclude that the Lease will not be frustrated on the withdrawal of the United Kingdom from the European Union. This is neither a case of frustration by supervening illegality nor one of frustration of common purpose. The Lease will not be discharged by frustration on the United Kingdom’s transition from Member State of the European Union to third country nor does the EMA’s shift of headquarters from London to Amsterdam constitute a frustrating event. The EMA remains obliged to perform its obligations under the Lease.

The precise form of order disposing of this claim and the EMA’s counterclaim is a matter that will need to be considered by counsel and, if necessary, determined by the court. I do not propose, in this judgment, to frame the appropriate declarations.