Dispute Settlement after Brexit, by Peter Oliver

The possible dispute settlement mechanisms (DSMs) following Brexit are as complex as they are numerous. What follows is a summary of three recent posts of mine which can be found on the website of Monckton Chambers here, here and here and of written evidence submitted by Carl Baudenbacher, Michael Bowsher QC and myself to the House of Commons EU Scrutiny Committee ; and none of those documents can make any claim to be exhaustive either.

As is well known, in the referendum held on 23 June 2016 approximately 52% of the population of the United Kingdom voted to leave the EU but it was not until 29 March 2017 that the Government lodged its formal notification of its intention of doing so in conformity with Article 50 TEU. In accordance with that provision, Brexit will therefore take place on 29 March 2019 unless either that deadline is extended by unanimous decision of the EU27 and the UK, or the Article 50 notification is formally withdrawn – neither of which is at all likely.

For those readers who have the good fortune not to have follow British politics closely, I should explain that the Conservative Government have spent more time arguing amongst themselves about whether to opt for a “hard” or a “soft” Brexit than in negotiating with the EU. It should also be understood that the hard-line Brexiteers believe that it is preferable to leave the EU without any Withdrawal Agreement than with a deal on which the UK makes any significant concessions. The same group is especially hostile to the Court of Justice of the EU (CJEU) and to the Charter of Fundamental Rights.

At all events, on 19 March 2018, the Commission published a draft Withdrawal Agreement (DWA). The draft, which had been prepared by the Commission, consists of green, yellow and white passages. The passages highlighted in green are those on which the EU and the UK have reached a consensus, subject only to improvements in the drafting. With respect to the provisions marked in yellow the negotiators have reached an agreement on the policy objectives. Finally, the UK has not yet agreed to any of the text which has been left white (so much less frightening than red which, rumour has it, was used initially for these passages !).

The DWA provides for a transitional period lasting from the first day after the UK leaves (30 March 2019) until 31 December 2020. During this period, although the UK will be outside the EU, EU law will continue to apply for almost all purposes. One exception is enshrined in Article 6: according to this provision, the UK will no longer participate in the EU institutions, which will then operate without UK members; and the British judges and Advocate-General will leave CJEU on Brexit day. (This provision does not apply to the civil servants of the EU institutions.)

As is usual in Agreements concluded by the EU, the DWA provides for the establishment of a Joint Committee of the parties, and one of its roles will be to settle differences of opinion between parties. Understandably, however, the EU does not regard this purely diplomatic forum as sufficient.

Regrettably, no progress has been made in the negotiations since 19 March. The major stumbling blocks are some outstanding issues relating to the DSMs as well the extremely delicate problem of the Irish border and the status of Northern Ireland (that problem is the subject of a draft protocol to the DWA).

As a result, there is no prospect of the DWA being agreed between the parties at the EU summit to be held at the end of this month. The EU has made it plain that, unless the text is finalised by the time of the October summit, it will be impossible for the Agreement to be ratified by the EU (and the UK) in good time before 29 March next year. Consequently, there is a serious risk that the UK will “crash out” of the EU without any agreement at all.

At this stage, it is appropriate to consider the three relevant phases in turn: the transitional period, the immediate aftermath of the transitional period and the longer term “future arrangements” between the EU and the UK.

The Transitional Period

The DWA envisages that during this period EU law would continue to apply in the courts of the UK, and (subject to Article 6, which is discussed above) the UK and its nationals would continue to be treated by the EU and the EU27 as though the UK had not yet left the EU. Similarly, the CJEU would continue to enjoy jurisdiction over the UK; the Commission could even lodge new infringement proceedings against the UK before the CJEU. What is more, the courts in the UK could still make references for preliminary rulings to the CJEU.

The UK has agreed to these provisions of the DWA.

In its report of 3 May entitled “Dispute settlement mechanisms after Brexit”, the highly respected House of Lords Select Committee on the EU expressed concern at the prospect of the court of one of the parties having jurisdiction over disputes involving the other party or its citizens, since “justice must not only be done, but should manifestly and undoubtedly be seen to be done”. Nevertheless, it saw the wisdom of maintaining the present system during the transitional period (30 March 2018 to 31 December 2020), because the period is relatively short and it would be “too burdensome and time-consuming” to set up another system at this late stage (indeed, it seems scarcely possible to envisage how this could be done at all).

However, in the current parliamentary debates on the European Union (Withdrawal) Bill the Government is opposed to allowing the UK courts to apply the Charter as well as to the full application of the general principles of EU law and the rule in Francovich. That position is incompatible with Articles 2 and 4 of the DWA.

No-one is likely to be surprised that the Government is continuing to balk at Article 165 DWA, which would empower the EU to suspend “certain benefits deriving for the United Kingdom from participation in the internal market”, should it fail to comply with a judgment in infringement proceedings or an interim order delivered by the Court. For a start, the UK would not be able to take similar measures against the EU.

The Immediate Aftermath of the Transitional Period

Although the DWA is primarily concerned with the transitional period, it contains certain provisions which would apply after the end of that period.

In particular, Part II of the DWA contains elaborate provisions on the rights of EU27 nationals resident in the UK and of UK nationals residing in the EU27. These citizens would be able to enforce these rights until the end of 2028, and national courts – including those in the UK – would be able to make references for preliminary rulings to the CJEU during that period and in some cases even after that. In view of the extreme sensitivity of this issue, one can only welcome the fact that the UK has agreed to these provisions.

In contrast, the UK has not agreed to the idea of conferring continued jurisdiction on the CJEU over other proceedings including (i) cases pending before it at the end of the transitional period (Article 82) and (ii) a range of other matters, including customs, VAT, intellectual property and judicial cooperation in criminal matters (Article 153).

In its report, the House of Lords Select Committee took the view that the jurisdiction of the Court of Justice should only be maintained for a short period after the end of the transitional period.

Finally, by virtue of Article 162, the Joint Committee either the EU or the UK could submit a dispute to the CJEU, whose judgment would be binding. If either party failed to abide by the judgment, sanctions could follow. The UK has not approved this mechanism.

The “Future Arrangements”

According to Article 50(2) TEU, the Withdrawal Agreement must “take account of the framework” of the “future relationship” between the parties. However, discussions between the EU and the UK about the nature of that relationship are only just beginning; and the EU has made it clear that there is no question of the treaty governing the “future arrangements” being signed, let alone ratified, until after Brexit day (29 March 2019).

These “arrangements” may take several years to negotiate and ratify. The fast-track procedure enshrined in Article 50 TEU will no longer be available. What is more, it is highly likely that the treaty or treaties will extend to matters within the powers of the Member States, in which case they will have to be mixed agreements requiring ratification by all the Member States as well as by the EU. Indeed, in a recent speech, Michel Barnier, the EU’s chief Brexit negotiator, said as much.

Whatever precise form the DSMs take, one can expect a clear shift away from the EU law model in which individuals and legal persons can enforce their own rights in the courts towards a range of mechanisms closer to traditional international law. This would suggest that less, if any, reliance will be placed on courts than under the draft Withdrawal Agreement.

The EU is currently trying to persuade Switzerland to accept the jurisdiction of the CJEU over its most important Agreements with the EU. Whatever the EU’s chance of success with the Swiss, there is practically no prospect of the UK accepting any such thing for the “future arrangements”.

Another possibility would be to confer jurisdiction over certain matters on the EFTA Court, even if the UK does not accede to the EEA; but it is by no means clear that the UK would accept that either, not to speak of Norway, Iceland and Liechtenstein.

As to arbitration, a great deal will depend on the Court’s forthcoming Opinion on the DSMs in CETA .

Concluding Remarks

At least one point is clear: in view of Opinion 1/91, it will not be possible for disputes to be decided by a body consisting of current members of the Court of Justice and representatives of the UK, as that would undermine the integrity of the Court of Justice.

All the rest is chaos, confusion and uncertainty.

Peter Oliver is Visiting Professor at the ULB, member of the Bars of England and Wales (Monckton Chambers) and Brussels