Could Brexit be a force majeure event?

Uncertainty surrounding Brexit has made contractual rights and obligations increasingly complex – for instance, being bound to a contract when the framework of the contract is significantly altered can be disastrous for business. One area of concern – Brexit and force majeure clauses – has become prominent with the recent dispute surrounding the European Medicines Agency’s (EMA) London lease.

A force majeure clause is often incorporated into a contract to allow one or both parties relief from performing their contractual obligations if something occurs which is out of their control and renders the contract impossible to perform. So could Brexit be considered a force majeure event?

Courts in England and Wales will consider the clause’s scope and the facts of the case, then look at whether the contractual obligations could have been met if the event had not occurred. If the obligation could not have been met for several reasons, Brexit (in this case) being just one or the least significant of those, the court is unlikely to find in favour of the party seeking to rely on a force majeure clause.

It is important to note that the court will not consider loss of profits, increase in expenses or other such anticipated Brexit consequences as qualifying events – more expensive does not equate to impossible.

In the EMA dispute, the EMA lease at Canary Wharf did not contain a break clause. When the referendum made Brexit a reality, the EMA announced plans to relocate from London to Amsterdam. However, it had some 20 years remaining on its current tenancy.

Arguably, the consequences of Brexit do not impact on the EMA’s contractual obligation to continue as a tenant under their contract or to sub-let the property, although it plainly may have significant impact on their ability to conduct their day to day business. The EMA could argue that Brexit radically alters the contract in a way that could not have been foreseen when the contract was originally signed. The dispute is likely to be determined by the Court in May.

Increasingly the legal sector has turned to Brexit clauses, outlining a Brexit-related trigger which will alter the rights and obligations of the parties on the occurrence of the specified event.

The use of such a clause could offer protection mitigating against some of the uncertainties of Brexit, particularly where businesses rely upon movement of goods or supply of commodities within the EU at a particular cost or subject to particular laws. Careful drafting is required to ensure that the clause takes effect on the triggering event as opposed to when the UK finally departs from the EU.

Our advice is to revisit current contracts through the lens of Brexit to ensure that they are robust, specific to Brexit and contain adequate protection to ensure that, if litigation arises, you and your business are prepared. In the current climate of uncertainty, it is likely that the court will rely on the specific wording of the contract and the facts of the case to decide whether or not Brexit can qualify as a force majeure event.

Crucially, remember that force majeure clauses can offer the other party relief from their obligations to you without liability – so it is important to consider the consequences for your business should this occur. If force majeure cannot offer relief, consider the common law doctrine of frustration or material adverse change clauses which may apply.

For further information contact Richard Morgan, Head of Dispute Resolution at [email protected] or on 07890 304469.