The Government today has published its position paper on the “Enforcement and dispute resolution“, in which it sets out its vision for its future partnership with the EU. A copy of the DEXEU paper can be found here.

Since her Lancaster House in January 2017 speech, the Prime Minister has been insistent on her redline that the UK will leave the jurisdiction of the European Court of Justice and that “taking back control” means that individual rights and obligations will be determined ultimately by the Supreme Court alone¹.

Whether that is a realistic proposition will have far reaching consequences, not just for the outcome of the imminent negotiations which are due to resume next week but also for the future UK legal system in terms of providing effective relief and legal certainty for citizens and businesses here and abroad. It is also critical for ensuring equal treatment and a level playing field for cross border business and trade.

Dispute resolution will be a key aspect of the negotiating process since there may be inter-state trade disputes if state measures are perceived to act as a barrier to trade or disputes regarding the correct interpretation of the terms of the Withdrawal Agreement or Future Relationship Agreement. There will need to be some international mechanism for overseeing those arrangements and resolving those disputes efficiently. If that mechanism is not agreed in good time between the UK and the EU, nothing else will be agreed and the UK could be forced to leave without a deal.

Importantly, unlike most international agreements, it is envisaged that the Withdrawal Agreement will provide for ongoing protection of individual rights. Those rights will continue to be protected under the terms of any transitional arrangements, possibly until 2022 or beyond if individual rights are also covered by the Future Relationship Agreement. There may be private disputes, brought by individual citizens or affected companies, challenging the compatibility of state measures with the terms of the new arrangements or enforcing such rights against the UK Government, other EU States or private operators within the EU. Those disputes may, in large part, be resolved within the domestic judicial system in the UK or other EU-27 States.

However, to the extent that the Withdrawal Agreement, Future Relationship Agreement and UK law (courtesy of the Withdrawal Act) “cut and paste” concepts of EU law into the domestic statute book, there will be ongoing disputes about the proper interpretation of those terms. This raises three immediate issues:

The DEXEU paper is not so much a “position” paper but a preliminary discussion paper of the various options available. It poses a series of possible dispute resolution models in briefest outline but does not present their various strengths and weaknesses nor does it commit to any particular solution. However there are four striking concessions, which appear to “colourwash” the Government’s “no CJEU” red line:

In essence, this means that although the Government is intent on leaving the direct jurisdiction of the Court of Justice, there will be considerable scope for it to have an indirect role. The UK will certainly not be leaving the influence of the Court of Justice’s jurisprudence, even in the brave new world under the Future Relationship Agreement.

These developments are to be welcomed as a pragmatic solution to the Brexit conundrum of securing exit whilst ensuring legal certainty and effective judicial protection for UK businesses and individuals. They reflect input provided by the Bar Council in its “Brexit Papers” which emphasised the need for a clear statutory indication of the extent to which national judges should be required to have regard to CJEU case law (and other EU measures) regardless of whether they pre-date or post-date Brexit day. As Lady Hale and Lord Neuberger have stressed, the status of EU decisions cannot be left purely to judicial discretion. It would put individual judges in an untenable position if they are called upon to flesh out the meaning of obscure concepts of EU-derived law (in the very same way as the CJEU has been criticised for entering into policy arena). The workload of justifying every occasion on which they might or might not have regard to EU rulings in individual cases and ensuring consistency would be a heavy judicial burden. The resulting legal uncertainty and inconsistency between individual cases would lead to a proliferation of appeals risking sclerosis of the legal system. Further, it would create disparity in legal protection as UK citizens abroad would be able to commence proceedings before the French courts and have certainty of consistent interpretation and/or the ultimate protection of CJEU preliminary rulings whereas UK or EU citizens in the UK would not. Could the English Courts be criticised for following or ignoring the ruling of the CJEU in a preliminary ruling from France on exactly the same provision in the Future Relationship Agreement? In cross-border sectors or those subject to common regulatory frameworks, such as e-commerce, aviation, telecoms, pharmaceuticals, any resulting divergence and legal uncertainty will lead to an uneven playing field, distorting competition between companies in the UK and those in the wider EEA.

In terms of dispute resolution, the Bar Council Brexit Papers make three main recommendations:

The Brexit Papers have been written by members of the Brexit Working Group set up by the Bar Council to examine the range of complex issues arising from Brexit and to help the Government identify the legal and constitutional priorities.　Led by Hugh Mercer QC, the group has drawn on the combined expertise and experience of the profession across a wide range of practice areas.

Anneli Howard of Monckton Chambers has assisted in the development of the following recent papers:

Brexit Paper 9: CJEU Jurisprudence

Brexit Paper 10: Dispute Resolution and Enforcement Mechanisms post-Brexit

Brexit paper 17: Competition Law.

Thomas Sebastian has assisted with Brexit Paper 21 on WTO law.

Click here to access these and the other 22 Papers which form the third edition and latest edition of the papers released in June 2017.

¹ In Scotland, the Court of Session or High Court of Justiciary.

The European Union (Withdrawal) Bill, published last week, is the most significant piece of constitutional legislation for decades.  What are its implications for VAT practitioners?

The Bill has two central aims.

The first is achieved in short order by clause 1: repeal of the European Communities Act 1972 (“ECA”).  That clause, to adopt the metaphor used in the Miller case [2017] UKSC 5, blocks the conduit by which EU law becomes part of domestic law.

The second, rather complex, aim is to convert EU law applicable in the UK the day before the UK leaves the EU into domestic law so that the substantive law remains, generally, unchanged on exit day.

In order to achieve that aim, the Bill:

• provides that all subordinate legislation made under the ECA will carry on having effect notwithstanding the repeal of the ECA; and
• provides that EU Regulations (which have direct effect without any domestic implementing legislation) continue to have effect as law.

One of the most controversial aspects of the Bill is clause 7, which would give Ministers very extensive powers to make secondary legislation to remedy “deficiencies” in EU law.

In the world of VAT, none of those provisions is of immediate relevance. The domestic legislation providing for VAT is independent of the ECA (the VAT Act 1994 (“VATA”) and subordinate legislation made under that Act and various Finance Acts).  And EU VAT law is contained in the Principal VAT Directive (“PVD”), which is already transposed into UK law by VATA and subordinate legislation made under it.

But, as we all know, the legislative bones of VATA and domestic VAT Regulations are clothed in the flesh of EU principles, including general principles and the principle that that legislation is so far as possible to be construed in accordance with the PVD, and case-law of the Court of Justice of the EU (“ECJ”).  So what is to happen to that flesh on exit day?

The answer is to be found in clauses 4 to 6, as well as Schedule 1.  These are certain to be the subject of considerable litigation over the years following Brexit.

Clause 4(1) preserves all “rights, powers, liabilities, obligations, restrictions, remedies and procedures” that were imported into domestic law by section 2(1) of the ECA.  According to §88 of the Explanatory Notes to the Bill, that clause preserves all directly effective rights created by the EU Treaties.

However, clause 4(2) provides for a qualification to that principle which is very important to VAT: it states that clause 4(1) “does not apply to any rights, powers, liabilities, obligations, restrictions, remedies or procedures so far as they … (b) arise under an EU directive”.  That means that the principle of direct effect of the PVD is abolished as from exit day (a reading supported by §92 of the Explanatory Notes).  From exit day, therefore, it will no longer be possible to base a tax claim on the PVD itself, inviting the court to disapply any inconsistent domestic legislation.

Instead, at best, the court will be invited to construe the domestic provision so as to be consistent with the PVD.  Here, the relevant provision is clause 5.  Clause 5(2) states that “the principle of supremacy of EU law” continues to apply after exit day “so far as relevant to the interpretation, disapplication or quashing of any enactment or rule of law passed or made before exit day”.  According to §§96 and 97 of the Explanatory Notes, the effect of that provision is to retain the rule that any domestic law passed before exit day must continue to be interpreted, as far as possible, in the light of relevant directives.  However, under clause 5(1), the principle of supremacy of EU law will not apply to any legislation made after exit day, which is to be construed entirely in accordance with domestic rules of construction and therefore without reference to the PVD.

What about ECJ case-law and general principles?  There are four important points here.

First, any ECJ case-law handed down after exit day will not bind the UK courts, though they may have regard to such case law (clause 6(2)).   This provision decides, as a number of senior judges requested that Parliament decide, the question of whether UK courts can look at post-Brexit ECJ case-law in order to assist them on the interpretation of domestic law passed before Brexit and in order to implement EU obligations.

Second, under clause 6(1)(b), no UK court will have power after exit day to make a reference to the ECJ (though that restriction will presumably depend on the success of the UK in maintaining the Prime Minister’s famous “red line” on the role of the ECJ).

Third, under clause 6(4), the Supreme Court is to have power to depart from case-law of the ECJ (applying the same approach as it applies in deciding whether to depart from its own case-law).

Finally, Schedule 1 to the Bill provides, in paragraph 3, that (1) “there [will be] no right of action in domestic law on or after exit day based on failure to comply with any of the general principles of EU law” and (2) that “no court or tribunal … may, on or after exit day, disapply or quash any enactment or other rule of law, or … quash any conduct or decide that it was unlawful, because it is incompatible with general principles of EU law.”   Under that provision, therefore, UK courts will not be able to disapply provisions of pre-exit VAT legislation on the basis that they were contrary to general principles of EU law, such as the principles of equal treatment or of fiscal neutrality.  The most that can be done will be to argue that such legislation needs to be interpreted, so far as possible, to be compatible with such general principles.

One effect of the approach taken by the Bill would appear to be that, where a post-Brexit claim is made in relation to a piece of pre-Brexit legislation that continued to have effect after Brexit, it will be possible to claim in relation to the pre-Brexit period that that legislation should be disapplied as contrary to the PVD or general principles of EU law, but that such a claim will not be possible in relation to the period after Brexit.  In effect, therefore, the previously “dis-applied” domestic provision will be “re-applied” on Brexit day.  That is a somewhat odd result.

What is certain is that there will be much work for advisers in helping clients through, and ultimately litigating, the numerous issues that will arise under this Bill.  Whatever its effects elsewhere, in this area Brexit will prove good for business.

The Government has today published the first draft of the most significant piece of UK legislation for 40 years: the European Union (Withdrawal) Bill, formerly known as the Repeal Bill.

This is by no means the end of the story.  One MP has forecast that the Bill will end up looking “like a Christmas tree because of the number of amendments that will be hung on it”.  It won’t all be over by Christmas either – Parliament will still be debating it well into next year.

But starting points are important and the draft Bill is of profound interest to anyone concerned with Brexit.

In extremely broad terms the Bill is in line with what was expected, given the White Paper published in March. However, the details matter hugely given the significance of the legal consequences that will flow from them – and there are a lot of details to consider in a Bill of 66 pages.

The Government’s proposed approach throws up numerous interesting questions that will no doubt form the subject of future blog posts, including in relation to devolution issues, implementation of the UK’s withdrawal agreement and the extent to which people will be able to challenge the validity of EU-derived laws after Brexit. But some of the more general, headline points are as follows.

• Clause 1 states that the European Communities Act 1972 will be repealed on exit day.
• Clause 2 provides that EU-derived domestic legislation, i.e. primary and secondary legislation passed to implement EU law in the UK, should continue to have effect after Brexit.
• Under clause 3 directly effective EU legislation, i.e. regulations and decisions etc., will also continue to form part of domestic law after exit.
• Clause 4 states that rights and liabilities flowing from directly effective EU Treaty provisions will continue to be recognised and enforceable under domestic law even after Brexit.

Clauses 5 and 6, discussed further below, set out how these pieces of ‘retained EU law’ are to be interpreted.

Clause 7 and legal uncertainty

The most controversial provision, however, is likely to be clause 7, which would empower the Government to use secondary legislation to adjust UK laws they consider would not work properly after Brexit.  Clause 7(1) states:

“(1) A Minister of the Crown may by regulations make such provision as the Minister considers appropriate to prevent, remedy or mitigate —

(a) any failure of retained EU law to operate effectively, or

(b) any other deficiency in retained EU law,

arising from the withdrawal of the United Kingdom from the EU”.

The scope of these powers is both incredibly broad and poorly defined.  Clause 7(2) sets out a non-exhaustive list of deficiencies including where legislation refers to European Commission activities relating to the UK or reciprocal cooperation between UK and EU institutions that will no longer take place after Brexit.

But there is going to be massive scope for argument as to whether after Brexit retained EU laws would, without amendment, be deficient or not operate effectively – and upon such arguments will hang the Government’s ability to pass hundreds of pieces of secondary legislation.

To take one example, section 60 of the Competition Act 1998 provides that our domestic competition rules should be interpreted so far as is possible consistently with the approach under EU competition law.  UK courts could continue to apply section 60 after Brexit – there would be no technical difficulty in doing so.  But many may think that after Brexit it will no longer be appropriate for UK law to be tethered to EU law in this way.

Under these circumstances, will the Government have the power under clause 7 of the Bill to amend section 60?  After spending several minutes pouring over the wording of clause 7 you find yourself, in F.E. Smith’s famous phrase, better informed but none the wiser.  Such uncertainties will arise in virtually every area touched by EU law.

If that were not bad enough, there are at least two additional problems.

First, as the Bill will spend several months being debated in Parliament, the final wording of clause 7 – and therefore the scope of the Government’s powers under it – is unlikely to be known until the second half of next year, at the earliest.  By then, Brexit will be only a few months away.

Second, as and when the Government does bring forward regulations under clause 7, it could find itself beset by legal challenges. While most challenges to secondary legislation take place after the provision has come into effect, it is possible to bring applications for judicial review in respect of draft statutory instruments.

While courts could reject such challenges as premature, there may be sound reasons for hearing them: if a piece of Brexit-related legislation is unlawful, it may be better for all concerned to find that out before rather than after Brexit.  If such challenges are not heard, numerous laws covering huge swathes of legal and economic activity could come into effect on exit day only to be immediately challenged in the courts.

Clause 7 and political controversy

As well as being uncertain in scope, clause 7 would confer executive powers on the Government to bring about major legal and institutional changes that would normally be the subject of detailed parliamentary debate and scrutiny.

These are so-called Henry VIII powers: as confirmed by the express statement that when making regulations under clause 7 the Government will be able to do anything that could be done through an Act of Parliament – including repealing or amending existing pieces of primary legislation.

Almost as if to highlight this, clause 7(5) expressly notes that the Government will be able to create new domestic regulatory bodies to take over any functions previously carried out by EU entities or public authorities in other Member States – “including making an instrument of a legislative character”.

In other words, the Government will be able to pass a regulation creating a new domestic body which is itself empowered to create new UK laws. No doubt some Government department has suggested this is necessary in order to prevent the emergence of a regulatory vacuum emerging after Brexit.  But in constitutional terms it is pretty extraordinary.

The Bill suggests that certain types of regulation made under clause 7 – including those which establish a new public authority or create powers to legislate – should be subject to the affirmative resolution procedure (requiring the approval of both Houses of Parliament), with other regulations subject to the negative resolution procedure (under which they become law unless vetoed by one of the Houses). Parliament is unlikely to consider that an adequate level of scrutiny, so concessions will probably be required if the Bill is to pass.

The interpretation of retained EU laws

While clause 7 will be the most politically contentious provision, clauses 5 and 6 are of considerable interest to lawyers – for they set out how retained EU laws will be interpreted after Brexit.

It will not surprise anyone that clause 5(1) provides that the principle of the supremacy of EU law will not apply to any new laws made after the date of Brexit.   But the principle of supremacy will, according to clause 5(2), continue to apply after Brexit – for the purpose of interpreting any enactment or rule of law passed before exit day.  Arch Eurosceptics may be displeased, but that is consistent with the Government’s stated goal of ensuring that, so far as practicable, the law should be the same the day after Brexit as it was the day before.

Arguably inconsistent with that goal, though, is the statement in clause 5(4) that “The Charter of Fundamental Rights is not part of domestic law on or after exit day”.  Leaving to one side whether it would be preferable for the Charter to remain part of our law as a matter of legal policy, the technical difficulty with this is that up until the date of Brexit all EU rules fell to be interpreted in the light of the Charter (given the need for consistency with it).

When you are applying EU-derived rules after Brexit, do you therefore need to ask whether their pre-Brexit meaning was influenced by the Charter, and if it was work out what the rule would have meant absent the Charter?  This is exactly the sort of legal rabbit hole that the Government says it wants to avoid.

Last (for now) but not least, clause 6 provides that retained EU laws that have not been modified by regulations made under clause 7 should be interpreted in line with pre-Brexit judgments of the EU courts. The only general exception is that the UK Supreme Court is not so bound, thereby effectively conferring Supreme Court status on all pre-Brexit EU judgments.

But there is an obvious flaw with this, which I wrote about in March when the White Paper was published.  According to the Government, the rationale for its approach is to ensure that “for as long as EU-derived law remains on the UK statute book, it is essential that there is common understanding of what that law means”.

But what happens when EU law develops from the state it was in at the date of Brexit?  In that situation there is little point in UK courts continuing to be bound by (outdated) pre-Brexit judgments, and the Supreme Court will not have the capacity to hear appeals in every case where that has happened. One possible solution might be to provide that UK courts should not be bound by pre-Brexit judgments where EU law has subsequently developed, although that would raise issues about what constituted a sufficiently material development for that purpose.

The interpretive obligation does not apply, however, where a retained EU law has been modified by a regulation made under clause 7.  One civil servant recently told me that they thought the vast majority of EU derived law would need some form of modification.  That might have the happy consequence of reducing the scope of these interpretative difficulties, but it also emphasises the scale of the task ahead.

Over the last weekend, there has been considerable discussion of Euratom, and of the Government’s position that the United Kingdom will be leaving the Euratom Treaty along with the EU.

There is great concern that exit from Euratom will cause substantial problems for the UK nuclear industry.  Those concerns are set out, for example here. It is also worth reading a useful background briefing from the Nuclear Industry Association (NIA), which makes recommendations as to action that the UK Government should take.

What are the legal issues?

The Euratom Treaty

The Euratom Treaty is a separate Treaty from those of the European Union, reflecting its origins as a separate treaty from that establishing the European Economic Community.  It sets up a system for the regulation of the nuclear industry across the Member States.

The Euratom Treaty simply adopts the institutions set up by the EU Treaties (the Commission, the Councils and the Court of Justice.  It does this, now, in Article 106a(1), which simply states that a long list of provisions of the EU Treaties (including those provisions that set up the institutions and confer powers on them) “shall apply to this Treaty”.

Article 50 TFEU and Euratom

One of the list of provisions “imported” by Article 106a(1) Euratom is Article 50 TEU – the famous withdrawal provision.  Further, in contrast to the EEA Agreement (which has its own separate withdrawal mechanism in Article 127), the Euratom Treaty has no withdrawal mechanism of its own.

That would appear to suggest that, if a Member State gives notice of withdrawal from the EU under Article 50 TEU, that amounts to notice of withdrawal from Euratom.  That consideration is strengthened by the fact that, not only is no provision made for any State to be a member of Euratom but not the EU, but that it is hard to see how the institutional arrangements common to both the EU Treaties and the Euratom Treaty could work in such a scenario. (How would elections to the European Parliament or membership of the Council operate for a Member State that was in Euratom but not the EU?)

An alternative view might be that the effect of importing Article 50 TEU into Euratom is simply that there is a separate, but procedurally identical, process for leaving Euratom (rather than that any invocation of Article 50 TEU necessarily carries over into Euratom).  However, such an interpretation would be difficult to reconcile with the points made in the previous paragraph.

The Government’s public position

The Government first set out its position in the Explanatory Notes to the EU (Notification of Withdrawal) Bill.  Paragraph 18 said that:

The power that is provided by clause 1(1) applies to withdrawal from the EU. This includes the European Atomic Energy Community (‘Euratom’), as the European Union (Amendment) Act 2008 sets out that the term “EU” includes (as the context permits or requires) Euratom (section 3(2)).

That, in itself, was no more than a statement that the Government considered that the wording of the Bill gave it power to withdraw from Euratom (because, in UK statutes, “EU” is taken to include Euratom).  It said nothing about whether, as a matter of EU / Euratom and international law, withdrawal from the EU but not Euratom was an option.

In her Article 50 letter, the Prime Minister said this, immediately after referring to withdrawal under Article 50:

In addition, in accordance with the same Article 50(2) as applied by Article 106a of the [Euratom Treaty], I hereby notify the European Council of the United Kingdom’s intention to withdraw from the European Atomic Energy Community. References in this letter to the European Union should therefore be taken to include a reference to [Euratom].

That drafting is interesting.  Given that the Prime Minister had, in the previous sentence, already notified under Article 50, the words “I hereby notify” in this sentence must refer to a separate act of notification.  But if that is so, then it would seem to follow that the Prime Minister was proceeding on the basis that her Article 50 notification would not, on its own and without these additional words, count as a notification of the withdrawal from the Euratom Treaty, and that she considered that a further notification was needed.

Finally, in evidence to the House of Lords Select Committee on Science and Technology in February 2017, the Energy Minister (Jesse Norman MP) said this:

37. Let me talk about the Euratom side … As the Committee will be aware, as a Government, we have taken an extremely proactive forward-leaning stance as regards Euratom. It will be a regrettable necessity, from our point of view, that notification has to be filed at the same time as Article 50. We remain very engaged with European partners in the EU and among nation states on Euratom. We are actively working up alternative arrangements. (emphasis added)

That language appears to indicate that a separate notification act was required (“filed at the same time as [the] Article 50 [notification].”  But it also suggests that the Government saw that as a “regrettable necessity”.

Analysis of the Government’s position

As I said above, the position under the Treaties seems to be that a Member State withdrawing from the EU has no choice but to withdraw from Euratom.

That, though, raises the question of why the Government has not said so in clear terms.  As we saw above, the Article 50 letter presented the decision to withdraw from Euratom as a separate decision.  And even the phrase “regrettable necessity” is ambiguous: the phrase is entirely consistent with a political, as opposed to a legal, necessity (such as a political “necessity” to avoid any post-Brexit contact with the CJEU).

One possible answer is that the Government did not wish to expose itself to judicial review.  After all, when a decision maker states that she is taking a decision because she has no legal alternative, she exposes herself to judicial review on the basis of error of law: if in law she does have an alternative legally open to her, her decision is likely to be quashed.  And, as will be apparent, the legal position is not entirely clear.

Moreover, the issue is a new question of pure EU/Euratom law on which only the Court of Justice of the EU could give a definitive ruling.  So the argument for any such judicial review application to be referred to the CJEU for a preliminary ruling would have been a strong one.  One suspects that a reference to the CJEU of that issue would not be entirely welcome to the Government.

That position does however leave the Government in a political difficulty.  If it wants to maintain that it could have avoided notifying withdrawal from Euratom, it has to explain why it did do so.  And, as Jesse Norman’s language indicates, it is not finding that easy to explain. That may be why, according to an article in The Guardian yesterday, it was told by an unnamed “senior Whitehall source” that “the government … included that line [in the Article 50 letter] because of a belief that the UK had no choice. [The source] said that ‘both the UK government and the European [C]ommission thought it was a legal necessity’ to leave Euratom as part of Brexit.”

How to keep the UK in Euratom

Assuming that it is not possible under the existing treaties to withdraw from the EU and stay in Euratom, what should the Government do?  After all, if that assumption is right, the Government would achieve nothing by unilaterally revoking its notice of withdrawal from Euratom, as long as the Article 50 notification in relation to the EU remains in place.

EEA membership (even if it were acceptable to the Government for other reasons) does not assist here.  The EEA Agreement does not include Euratom.  Though Norway has various technical agreements with Euratom and participates in some of its programmes, it is not otherwise part of Euratom.  The same applies to Switzerland (not in the EEA but with partial access to the internal market) – although Switzerland has an association agreement with Euratom enabling it to take part in various research programmes.  Neither the Norwegian nor the Swiss arrangements with Euratom will deal with the urgent regulatory issues that have to be resolved if a disastrous gap in regulation in March 2019 is to be avoided. Those difficulties centre on the enormous practical difficulties in getting a domestic regulatory regime that meets strict international standards up and running in time: in particular, as the NIA paper points out at §3.10:

If the UK has not replaced the Euratom safeguards regime with its own system by the time it left Euratom, normal business could be disrupted right across the nuclear industry. It is currently unclear the extent to which transitional arrangements could operate to ensure the UK remains compliant with its obligations under international nuclear law. It is vital therefore that a replacement Voluntary Offer Agreement is agreed with the [International Atomic Energy Authority] and that a new safeguards regime, compliant with IAEA requirements, is in place by the time the UK leaves Euratom.

It seems to me that the best that can be achieved is the negotiation, first, in the withdrawal agreement of continued membership of Euratom for a period (though the UK would lose its vote in decision-making) and, second, a further treaty between the EU and the UK giving the UK some form of associate member status so as not to lose the co-operation and scientific benefits of involvement in Euratom (probably covering far more ground than the Swiss agreement).

It will be apparent that this is one area where “no deal” is simply not an option, for the reasons explained above.  Moreover, any arrangement under Euratom will necessarily mean accepting the jurisdiction of the Euratom institutions – the European Commission and the Court of Justice of the EU.  That is why Euratom is a test case for the Government’s “red line” on the jurisdiction of the CJEU. However, though this is a critical sector, its sudden prominence in the debate is largely due to the historical accident that the nuclear industry is subject to a separate Treaty, thus raising the legal issue discussed in this blog and causing it to have special attention in the Article 50 letter.  In fact, the legal and policy issues – how to reconcile Brexit with remaining closely involved in EU regulatory regimes which there is little or no UK interest in trying to duplicate and with which there is an overwhelming interest in remaining harmonised, while also honouring the “red line” of ECJ jurisdiction – are very similar to those raised by other sectors such as pharmaceuticals (as to which see my recent blog post).

A recent letter to the Financial Times from the Secretaries of State for Health and Business (Jeremy Hunt and Greg Clark), and the reply from the Shadow Brexit and Health Secretaries (Sir Keir Starmer QC and John Ashworth), drew attention to the importance of pharmaceutical regulation after Brexit.

As Mr Hunt and Mr Clark accept, there are many reasons why the UK, and the UK pharmaceutical industry in particular, will want to maintain deep co-ordination with the EU/EEA regulatory regime (much of which was originally based on UK law).  An obvious reason is that the additional costs of submitting drugs for authorisation under two separate regimes rather than one are very high.  Another reason is that, as the European Medicines Agency (EMA) has pointed out, the EU requires that pharma companies maintain key operations and staff (such as QPPVs – officials responsible for regulatory compliance) within the EEA – these are things the UK will not want to lose.  A less obvious, but potentially life-and-death, reason is that there is some evidence that new drugs arrive later in smaller regulatory regimes such as Canada, as pharmaceutical companies focus first on getting approval in the big regimes (the EU and US).

Medicines regulation raises complex legal as well as scientific issues. So, even if scientific and administrative cooperation remains deep, as Mr Hunt and Mr Clark propose, any arrangement with the EU that keeps the UK sufficiently connected to the EU regime to allow the EU to treat the UK as being in the regime for regulatory purposes, thereby avoiding double regulation, will require that the UK continue to apply, and also be recognised by the EU as applying, EU law. Much of that law is found in complex and developing ECJ jurisprudence: it is no accident that the UK courts have, in this area, frequently used the preliminary ruling procedure under Article 267 TFEU to ask the Court of Justice of the EU (CJEU) to answer the very difficult legal questions that frequently arise (a recent case before Mrs Justice Whipple in the High Court, here, gives a flavour). Further, the Commission is able to take infraction proceedings before the CJEU under Article 258 TFEU if a Member State’s interpretation of the law differs from those of the EMA or other states.

So, even if the text of UK law in this area remains unchanged after Brexit, and even if there is intense scientific and administrative cooperation, there will need to be a robust legal mechanism, acceptable to the EU, to prevent UK courts from diverging from CJEU case-law.  Given the difficulty and complexity of this law, divergence is otherwise all too likely.

Mr Hunt and Mr Clark do not deal with this issue: but, as Sir Keir and Mr Ashworth point out, the CJEU “red line” apparently drawn by the Government is problematic here.  That is because it removes the existing legal mechanisms, set out above, that ensure continued consistency of interpretation.

What, then, is the answer?  One answer in theory would be some form of agreement by which the EU and UK would grant more or less automatic approval to drugs approved under the other’s regime and allow, for example, QPPVs for one side to be based in the other – a mutual recognition agreement (“MRA”).  An MRA would tolerate regulatory divergence.  But negotiation of any such MRA would be complicated by the fact that pharmaceutical regulation is both politically sensitive (with public memories of disasters such as Thalidomide) and commercially very important: and, moreover, it is not clear what the EU, as by far the bigger player, would gain from such an MRA with the UK.

That means that the only realistic approach for the foreseeable future is one that keeps the UK regime tied to that of the EU.  As explained above, that means a robust legal mechanism to keep the tie in place.

If the UK joined the EEA, there would be no difficulty: the EFTA Court plays the same role as the CJEU, following the CJEU case-law (and sometimes leading the way).  But, on the assumption that the EEA is off the table, my suggestion would be that the Government should, in order to maintain regulatory consistency, propose that in this area the UK courts would be able to refer legal questions to the EFTA Court, sitting with a UK judge.  An alternative mechanism would be for a new EU/UK court to have jurisdiction to give rulings in this area: but since the EFTA Court already exists, it would seem unnecessary to invent a further court just for this purpose.

Further, though the UK would not have a vote on legislative development of the EU regime, an arrangement of this type would be able to secure its continued ability to contribute to guidance (a very important aspect of the regime, as Whipple J’s judgment referred to above makes clear).

The approach sketched out here may well be appropriate for other regulatory regimes: but given the profound UK interests at stake, it would be particularly appropriate in pharmaceutical regulation.

When my post on dispute settlement (here) appeared in late March, few people realised that this issue was to be a key element in the negotiations between the EU and the UK.

No longer.

As explained below, the EU has made now it plain that, unless there is a meeting of minds on one or more dispute settlement mechanisms (DSMs), there can be no Withdrawal Agreement.

Hence the criticism by James Chapman, David Davis’ chief of staff until the election, of the Prime Minister’s “absolutist” refusal to accept the jurisdiction of the Court of Justice of the EU (CJEU) over the Withdrawal Agreement (here), which has catapulted the issue to the headlines. And since then Keir Starmer has been quoted in the FT as calling on her to abandon her “ideological and deeply unhelpful red line” about the CJEU, in order to retain access to key EU bodies.

Meanwhile, the EU institutions have published several key documents on the subject, and a number of posts have hit the blogsphere (see for instance here).

Given the plethora of EU documents and complex issues, this post does not purport to be exhaustive in any way.  Rather, I will concentrate on the salient points of dispute resolution in relation to the Withdrawal Agreement, as that is obviously much more immediate than the longer term “Free Trade Agreement” (no doubt a misnomer, as it will almost certainly cover many non-commercial matters), which can only be signed after Brexit Day.

On dispute resolution, the negotiating Guidelines adopted by the European Council at the end of April (here) are couched in very general terms.  Apart from confirming the need to preserve the autonomy of the CJEU, they do not tell us very much.

In consequence, on 22 May the Council of Ministers adopted a Decision giving the Commission a negotiating mandate (here and here).  This is also of a general nature, but it is accompanied by a much more detailed annex (here).  In particular, the annex states that the jurisdiction of the CJEU should be maintained for citizens’ rights (i.e. the rights of EU27 nationals resident in the UK to continue to live and work there, and vice versa), any sector in which it was decided that EU law should continue to apply on a transitional basis and the financial settlement.

Fleshing out these statements, the Commission’s “position paper” on governance (here), one of six such communications published by the Commission in late June, sets out the following points in particular:

(i) Unless otherwise provided in the Withdrawal Agreement, any reference to concepts or provisions of Union law must be interpreted in the light of case law of the CJEU delivered prior to Brexit Day.  Any subsequent case law must be taken into account.

(ii) The provisions of the Withdrawal Agreement on citizens’ rights and any other area of EU which continues to apply post-Brexit should have the same legal effects in the legal systems of all the Contracting Parties as they had before Brexit Day. The UK will be required to pass an Act of Parliament so as to ensure compliance by the administration and the judiciary with these provisions.

(iii) All rulings delivered by the CJEU pursuant to the Withdrawal Agreement are to be binding on the UK as well as the EU, and are to be enforceable under the conditions applicable within the Member States under Article 299 TFEU.

(iv) In any proceedings before the CJEU relating to the application and interpretation of the Withdrawal Agreement, the UK is to enjoy the same procedural rights as the Member States under the Court’s Statute and Rules of Procedure.

(v) The Withdrawal Agreement is to establish a Joint Committee whose role will be inter alia to settle “divergences of views” at a political level, wherever possible.

(vi) With respect to citizens’ rights and any other sector in which EU law continues to apply on a transitional basis, the Commission must retain full powers to bring infringement proceedings under Articles 258 and 260 TFEU, and the CJEU must also retain jurisdiction under those provisions as well as under Articles 263 to 268, 278 and 279 TFEU.

(vii) In relation to all other matters not mentioned, the Joint Committee would be empowered to adopt, where necessary, any appropriate measures to implement the solution agreed between the Contracting Parties – except in relation to the matters mentioned below.

(viii) Where the parties are unable to reach a solution within the Joint Committee under point (vii), the matter in issue can be referred to the CJEU either by a joint request of both parties at any time or by one party three months after the Joint Committee was first seized of the matter.

(ix) Finally, so as to ensure effective compliance with the judgments of the CJEU, provision must be made for “the complaining party” to apply to that court to request a lump sum or penalty payment (as under Article 260 TFEU) or “the suspension of certain parts of the Withdrawal Agreement other than citizens’ rights in order to ensure compliance with the ruling, after giving the other party the opportunity to express its position”.

As Philip Woolfe points out in his post (here), at this stage this “position paper” (and the other five) only represents the Commission’s view– except of course to the extent that it covers the same ground as the Council’s decision.

In any case, the EU has now set out its position in considerable detail.  And where does the UK stand now?  Nothing in the Government’s stance has changed since I wrote my previous post in late March. Even the Conservative Party manifesto is silent on the matter.  But, as mentioned at the outset, pressure on the Government to abandon its opposition to the continuing jurisdiction of the CJEU is mounting.

As to (v) and (vii), Joint Committees are standard features of international agreements concluded by the EU.  Unlike all the other mechanisms set out here, it is of a political nature and acts on the basis of consensus.  Accordingly, it would not constitute any form of constraint on the UK and it is hard to see how the Government could object.

On all the other points, the various documents issued by the Council of Ministers and the Commission all propose maintaining the jurisdiction of the CJEU and indeed, in point (ix) even enhancing it.  Perhaps it is not beyond the realms of possibility that the EU might soften its position on some of these points, especially point (iv). But the EU is constrained by the CJEU’s long-standing protection of its own autonomy – as in Opinion 1/91on the draft EEA Agreement (here) and Opinion 2/13 (here), where it declined to give its blessing to the draft Agreement of Accession to the European Convention on Human Rights

So it seems hard to see how there can be a Withdrawal Agreement at all unless the Government abandons its “absolutist” refusal to countenance the continued jurisdiction of the CJEU under that agreement.

But is there room for a compromise.

One idea, advocated last month by Sigmar Gabriel, the German Foreign Minister, is to establish a “joint court that is staffed by Europeans and Britons” (here).  However, this proposal overlooks both Opinion 1/91 (where precisely the CJEU held same mechanism to be repugnant to the autonomy of the EC’s legal system) and Opinion 2/13 (where the CJEU declined to give its blessing to the somewhat different draft Agreement of Accession to the European Convention on Human Rights on the same grounds).

Another idea which is being widely floated is for the UK to remain in the European Economic Area – or at least for the UK to subscribe to the jurisdiction of the EFTA Court.   Unlike Sigmar Gabriel’s suggestion, this option is legally viable, since in effect the EFTA Court follows the case law of the CJEU.  The President of the EFTA Court is known to be enthusiastic about extending the jurisdiction of his court in this way. In addition, the three EEA-EFTA States (Norway, Iceland and Liechtenstein) apparently agree to the idea of the UK joining their number.  But would they accept the UK remaining a party to the EEA Agreement only for certain limited purposes (e.g. just for the jurisdiction of the EFTA Court)?  And what if the UK were to propose to do so just for a transitional period?  Could the EEA-EFTA States accept such an upheaval for just (say) three years?

Finally, what if the UK leaves the EU without any Withdrawal Agreement at all?  This prospect cannot be ruled out by any means.  As I explained in my earlier post, in those grave circumstances, the EU and the UK would have to agree to submit disputes – of which there would be many! – to some international tribunal such as the Permanent Court of Arbitration; and disputes relating to the WTO would be decided by arbitration in accordance with that treaty, while the International Tribunal for the Law of the Sea has jurisdiction over those concerning the United Nations Convention on the Law of the Sea.

The European Commission has today published six position papers on key aspects of the Brexit transition covering: police and judicial cooperation, functioning of Union institutions, Governance, the fixing of the time when goods are placed on the market for the purposes of determining the applicable law, judicial cooperation in civil and commercial matters and ongoing EU judicial and administrative procedures. One key issue which these position papers address is the point in time when, in the Commission’s view, the switch is to be made in each of these areas from the application of EU law to the application of whatever legal arrangements take the place of EU law.

The position papers make interesting – and sometimes disturbing – reading for lawyers. For example:

• The position paper on judicial cooperation in civil and commercial matters contains the reassuring principle that the choice of applicable (substantive) law for a contract should be determined on the basis of the law in force at the time that the contract is made. Similarly jurisdiction should be determined on the basis of the EU law which was applicable at the date the proceedings were commenced. However, the Commission also considers that current EU law on the recognition and enforcement of judgments should apply only to judgments that are issued prior to the withdrawal date. If this approach is adopted, and no agreement is reached prior to the withdrawal date on replacement arrangements for the recognition and enforcement of judgment, then there is likely to be considerable pressure on claimants suing EU-domiciled defendants to reach judgment before the withdrawal date so as to take advantage of the established Brussels I mechanism. Equally defendants may have a strong incentive to delay trial and judgment specifically so as to render enforcement more difficult.
• The position paper on ongoing EU judicial and administrative procedures also envisages the EU Courts having a role in UK legal proceedings for many years to come, stating that “The Court of Justice is competent to adjudicate in preliminary references submitted by courts in the United Kingdom after the withdrawal date relating to facts that occurred before the withdrawal date, as well as for infringement procedures relating to such facts”. This is unsurprising, in that such proceedings will relate to settled legal rights and obligations between the parties and, to the extent that those legal rights and obligations are derived from EU law, one would expect the ECJ to be the ultimate authority on relevant points of law. Similarly, the position paper envisages that the Commission will remain able to take action against the UK or against UK nationals and UK companies in respect of infringements of EU law committed prior to withdrawal. In principle therefore one might envisage the Commission making a cartel infringement decision in a decade’s time which covers the territory of the UK, which may then be appealed to the General Court. Notably the position paper also considers that EU procedural rules should continue to apply to necessary investigations.
• The position paper on goods adopts the important principle that “a good which has been lawfully placed on the single market before the withdrawal date can continue to be made available on the market of the United Kingdom and on the single market after the withdrawal date”. This will however require the determination of the factually complex question of when precisely particular goods have been placed on the market. The definition adopted in the position paper itself is one derived from current EU legislation, namely “any supply of a product for distribution, consumption, or use on the […] market in the course of a commercial activity, whether in return for payment or free of charge”. It is evident, for example, that there may be considerable scope for debate as to when particular goods have been supplied for distribution.
• In respect of police and judicial cooperation in criminal matters, the position paper adopts a quite minimalist position that “the Withdrawal Agreement should allow for the orderly completion of ongoing procedures”, without going into detail as to the Commission’s views of what this means.
• Interestingly, the position paper on Governance – which deals with how the Withdrawal Agreement itself is to be supervised – does not appear to adopt a doctrinaire position that it must be subject to supervision by the ECJ. The position paper states “Disputes concerning the application or interpretation of the Withdrawal Agreement, including those concerning the application or interpretation of any concepts or provisions of Union law referred to in the Agreement, should be settled exclusively by the means foreseen in the Withdrawal Agreement” (emphasis added). However, the paper does go on to say that it must be the case that any “rulings [which are] given by the Court of Justice pursuant to the provisions of the Withdrawal Agreement are binding on the Union and the United Kingdom”.

The position papers are of course only a first cut of the EU’s position. They have been circulated to the EU 27 for consideration. Further the actual arrangements will be determined by whatever is actually agreed in the terms of the Withdrawal Agreement itself, and whatever may be agreed as regards the longer term relationship between the UK and EU. It is difficult – though unfortunately not impossible – to imagine, for example, that the UK and EU will not at some stage agree a framework for the mutual recognition of civil judgments. However, for lawyers advising their clients on the Brexit transition and businesses planning for transition risks, the position papers make for essential reading.

On 26 June 2017, the Home Secretary presented to Parliament a document entitled The United Kingdom’s Exit from the European Union – Safeguarding the Position of EU Citizens Living in the UK and UK Nationals Living in the EU (here)

This document is in response to the EU’s position on citizen’s rights (here).

The stated objective of the British position is ‘to ensure continuity in the immigration status of EU citizens and their family members resident in the UK before [the UK’s] departure from the EU (including their ability to access benefits and services)’ (par.15).

Rights not automatic: the introduction of a process

Following Brexit, the right of EU citizens to live, work and continue to enjoy economic and other rights in the UK would not be automatic. Instead, an application to stay would have to be made to the Home Office. This would centre on their residence status which would need to be established by means of a residence document.

Settled status

The main thrust of the British Government’s position is the conferment of settled status on EU citizens. This would be about indefinite leave to remain, and would grant its beneficiaries rights (to work, benefits, pensions, healthcare) that are identical to those of UK nationals.

Settled status would be lifelong and would qualify an EU citizen who has acquired it and has also lived in the UK for at least 6 years to apply for UK citizenship. Settled status, however, would be lost if the citizen lived outside the UK for more than two years. If, therefore, an EU citizen who was granted settled status left the UK after Brexit for more than two years and wished to return, she would be subject to the UK’s immigration rules applicable at the time.

Settled status would be conferred following an application, and subject to a residence requirement and an assessment that the applicant’s conduct would not pose a threat to the UK.

Who may apply for settled status?

Settled status would be conferred on EU citizens who have been resident in the UK for 5 years at a cut-off date. The latter has not been specified yet. The Government suggests that it would be no earlier than 29 March 2017, that is the date on which the Article 50 procedure was triggered, and no later than the Brexit date.

Citizens who have lived in the UK for less than 5 years would not be deported. Instead, a grace period would be provided, during which they would be able to continue to live and work in the UK. This grace period would enable EU citizens who have lived in the UK for less than 5 years to settle their residence status. They could do so by applying for either settled status (if they met the 5-year residence requirement during the grace period) or for temporary residence (if they did not meet the 5-year requirement during the grace period, in which case they might wish to stay in the UK until this requirement was met, hence enabling them subsequently to apply for settled status).

What about family members?

The above provisions apply to family members who are resident in the UK before Brexit. The term ‘family members’ would cover those currently covered by EU law, such as spouse, civil partner, direct descendants under 21 or dependent, direct dependents in the ascending line. It would also covers both EU and non-EU citizens.

Future family members who arrive in the UK after Brexit would not be eligible to apply for settled status. Instead, their status would be determined on the basis of the UK immigration rules applicable at the time.

Which rights?

Settled status would provide the right to stay, work, study, look for a job and have access to healthcare, benefits, pensions and social security rules as comparable UK nationals.

How does the British position differ from the existing rules?

The British position differs from the existing rules on rights enjoyed by EU citizens.

• The above rights are not automatic but subject to an application process. While the process is envisaged to be ‘as streamlined and user-friendly as possible’ (para. 35), its details  remain unclear: for how long would it last? What type of documentary evidence would be required? What fee would be charged? What would the ‘conduct and criminality’ test entail? Recent experience of EU citizens applying for permanent residence and the notorious 85-page application form they had to fill in may justify some scepticism. The Government suggests that this form would be abolished. Those EU citizens, however, who have already applied for permanent residence would have to apply again for settled status under the new arrangements.
• Residence documents would be introduced. EU citizens would need to have theirresidence status confirmed and to apply to the authorities accordingly. The Government’s position does not specify the type of residence document that would be required (the introduction of identity cards has not been ruled out).
• EU citizens would be deprived of their right to bring future family members in the UKunder the conditions that they enjoy currently. This is a significant change in their position, as rules imposing income tests and language requirements would apply.
• The British position excludes the jurisdiction of the European Court of Justice. Instead,the proposed arrangements would be supervised by domestic courts, hence removing a layer of judicial protection that is currently available to EU citizens. Under existing EU law, EU citizens may have recourse to domestic courts which are bound by EU law and which may, and in certain cases must, refer to the Court of Justice for the interpretation of EU rules. In fact, the Court has been instrumental in the development of the rights of EU citizens who benefit from free movement.
• The British position does not define the cut-off date on the basis of which settledstatus would be granted. Instead, it suggests that it would be a date between the triggering of the Article 50 procedure, that is 29 March 2017, and Brexit, that is either 30 March 2019 or any subsequent date, provided that an extension has been agreed upon by the European Council  unanimously in accordance with Article 50 TEU.
• There is lack of detail regarding various aspects of EU citizens’ rights (for instance,frontier workers and the rights of EU students who complete their degrees in the UK).
• It is worth recalling that the British position is subject to an overarching qualification,that is reciprocity. This suggests, however, that the rights of UK citizens living in the EU would also be affected along the above terms.

Does the British position give any ground?

There are certain issues over which the British position appears to abandon long-held opposition to certain aspects of EU citizens’ rights.

• The exportability of child benefit would be maintained, subject to on-goingentitlement. It is recalled that former Prime Minister David Cameron tried very hard to change the rules prior to the June 2016 referendum.
• The UK would maintain the current provisions about exporting and uprating the statepension within the EU.
• The current rules on mutual recognition of professional qualifications be maintainedand the UK would recognise the right of professionals whose qualifications have been recognised to practice on the basis of non-discrimination.
•  The requirement for comprehensive sickness insurance, necessary under EU law for economically non-active citizens, would no longer be relevant to the determination of  continuous residence.

Two broader issues

First, the British position envisages a deeply proceduralised mechanism. Checking and confirming the residence status of more than 3m people who would meet different conditions and whose circumstances would vary considerably would impose a heavy burden on the administrative machinery of the Government. This would be all the more so given the time constraints envisaged. There is concern that an unwieldy process might cause uncertainty, delays, and end up frustrating the rights of EU citizens.

Second, the crucial question is how the rights of EU citizens would be construed in practice. This applies not only to the right to reside but mainly to other rights, including work, healthcare and benefits. A case in point is our experience with Directive 2004/38 on the right of citizens of the Union and their family membersto move and reside freely within the territory of the Member States. The Court of Justice has been instrumental in the effectiveness of the rights laid down in EU law (and part of which the UK seeks to maintain). Put differently, the significance of the rights granted to EU citizens is directly linked to the interpretation and enforcement of these rights. This touches upon the fundamental difference between the UK’s and the EU’s approach as to the dispute settlement mechanism that would govern the withdrawal agreement.

What now?

The British position has not been received with unbridled enthusiasm. The Union’s Chief Negotiator, Michel Barnier tweeted: ‘More ambition, clarity and guarantees needed than in today’s UK position’ (here).

Negotiations between the UK and the EU have only just started. The British position on citizens’ rights is, therefore, a first step, in response to the Union’s earlier position. As the status of EU citizens in the UK is one of the issues on which ‘sufficient progress’ must be made for negotiations to proceed to the next phase, more detail should be expected to emerge before too long.