Judge forces EU agency to pay London lease despite Brexit move

The European Medicines Agency must comply with the lease on its London headquarters despite the UK’s exit from the EU, a judge ruled on Wednesday in a closely watched case dealing with the validity of contracts after Brexit.

The judge, Marcus Smith, handed down a victory for Canary Wharf Group, the EMA’s London landlord, which had refused to accept that Brexit would invalidate the sector regulator’s 25-year lease and an associated £500m of costs.

Mr Justice Smith said: “I conclude that the lease will not be frustrated on the withdrawal of the UK from the EU . . . The EU remains obliged to perform its obligations under the lease.” 

The regulator, an agency of the EU, is in the process of relocating to Amsterdam, following a decision made by the remaining 27 member states, so that it can remain within the union after Brexit.

It will therefore vacate its London headquarters in the 25-30 Churchill Place building in Canary Wharf, which is leased until 2039.

Canary Wharf Group, the developer of the London Docklands financial district, lodged the High Court case, asking the court to enforce the contract after the EMA argued that Brexit would “frustrate” the lease.

Frustration is an English legal term meaning an unexpected event has made a contract impossible to fulfil, or has drastically changed the original reason for signing it.

The judge sped up the case to ensure a ruling before the UK’s scheduled departure from the EU on March 29, but said on Wednesday that the questions of costs and permission to appeal would be adjourned until another hearing.

Sir George Iacobescu, chairman and chief executive of Canary Wharf Group, welcomed the decision.

“We have always firmly believed that Brexit did not amount to a frustration of EMA’s lease,” he said. “If EMA had been successful it could have undermined fundamental principles of English law and set an unfortunate precedent.”

The EMA said it “respectfully takes note” of the judgment and would “take some time to carefully study this judgment, its implications and the most appropriate way forward”.

But it suggested the case should be referred to the European Court of Justice. “In the agency’s view, a preliminary reference to the Court of Justice of the European Union in order to receive an authoritative interpretation on those issues would have been, and still is, the most appropriate way forward,” the agency said.

Alison Hardy, partner in dispute resolution at Ashurst, said she expected the EMA to appeal.

“Given the amount of money in dispute . . . I’d be amazed if the EMA didn’t appeal. The next question is whether the appeal will go straight from the High Court to the Supreme Court,” she said.

“Given the importance of this case, I think there is every chance that it will.”

While the situation of the EMA as an EU agency is relatively unusual, lawyers had suggested any ruling in the EMA’s favour might open the floodgates to businesses seeking to invalidate other leases or contracts.

Matthew Baker, head of property disputes at Pinsent Masons, said: “If the EMA had been successful, hundreds of lucrative contracts would have been called into question, sending shockwaves across the property community.”

He added: “But the reality is that the argument of frustration has been talked about for years but rarely applied because the threshold is very high.”

The EMA still has the option of subletting the office space.