Dispute Settlement under the “Future Arrangements”

12 Jun 2018 | by Peter Oliver

General

In April, I wrote a post (here) describing the dispute settlement mechanisms (DSMs) in the draft Withdrawal Agreement (here) as they relate to the transitional period, which is set to run from the day after Brexit day (30 March 2019) until the end of December 2020. Last month, this was followed by another post, which concerned the provisions in that draft relating to the period commencing on 1 January 2021 (here).

In contrast, as promised, this post concerns the DSMs which might be enshrined in the “future arrangements” (i.e. the treaty or treaties governing the longer term) between the EU and the UK.

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 (here).

Even though according to Article 50(2) TEU the Withdrawal Agreement must “take account of the framework” of the “future relationship” between the parties, 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).

As was pointed out in my two previous posts, we are still in the dark as to precisely what the DSMs in the draft Withdrawal Agreement will look like – or whether the negotiations on that agreement will even come to fruition. Still less can anyone have a clear idea of what the substance of these “future arrangements”, including the DSMs, is likely to be.

Accordingly, what follows in highly speculative – all the more so because, as explained below, the Court is set to rule in the coming months on the extent to which disputes can be settled by arbitration.

Nevertheless, some points are relatively clear.

First, in keeping with the EU’s practice the “future arrangements” will no doubt provide for a Joint Committee of the parties, one of whose functions will be to resolve differences of view between them. However, the EU is most unlikely be content with that purely political body but will insist that a court or at the very least a tribunal of arbitration be established to decide disputes which cannot be resolved amicably.

Second, the “future arrangements” are likely to provide for a range of different mechanisms depending on the subject matter and the identity of the parties.

Third, in view of Opinion 1/91 (here), 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.

Fourth, whatever precise form the DSMs take, one can expect a clear shift away from the EU law model in which (as in domestic law) 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 cases most obviously suited to being heard by courts are those relating to citizens’ rights. But in any case, as explained in my previous post, the UK has accepted Article 151 of the draft, which would empower the UK courts to make references for preliminary rulings to Luxembourg until the end of 2028.

All the rest is a matter for speculation.

Courts

The first major question is: assuming that it wishes some matters to be heard by courts at all, to what extent will the EU continue to insist that jurisdiction be conferred on its Court of Justice? In its resolution of 14 March 2018 (here), the European Parliament declared that there must be “a binding role for the CJEU in the interpretation of Union law” (paragraph 12). The Government will be loath to accept this.

In its report of 3 May entitled “Dispute settlement mechanisms after Brexit” (here), the House of Lords Select Committee on the EU paid considerable attention to this issue. The Select Committee 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” (paragraph 84 of the report). Despite this, 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).

Crucially, however, the 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.

If that approach is followed, there would seem to be little room for the mechanism laid down in the EU’s mixed Agreement with the Ukraine (here). Under this Agreement, certain types of case are to be decided by arbitration but, in the event of a dispute as to the interpretation of a relevant provision of EU law, the panel will be required to refer the matter for a preliminary ruling to the Court of Justice, whose judgment will be binding on the arbitrators (Article 322(2)).

An alternative possibility might be to confer jurisdiction over certain categories of proceedings on the EFTA Court. Even though that body would be seen as more neutral than the Court of Justice, it is by no means clear that the Government would accept it; and the EEA-EFTA States (Norway, Iceland and Liechtenstein) would also have to consent. On this website, the reader will find a link (here) to the written evidence which Carl Baudenbacher, Michael Bowsher QC and I gave a few days ago to the House of Commons EU Scrutiny Committee for its current enquiry on the same subject. This evidence relates to the provisions in the draft Withdrawal Agreement concerning the immediate aftermath of the transitional period, but it is fully relevant here.

Of course, the third option would be to create a “bespoke” court specifically for the “future arrangements”, but that would raise considerable practical problems.

Arbitration

The second major question is: to what extent can disputes be settled by arbitration?

Needless to say, arbitration can take several forms: for instance, it can be used for “interstate” disputes (including those between a State and an international organisation), investor-State dispute settlement (ISDS) or disputes between commercial entities.

In its ground-breaking Opinion 2/15 on the Agreement with Singapore (here), the Court held that an ISDS mechanism which “removes disputes from the jurisdiction of the courts of the Member States” could not be regarded as “purely ancillary” to matters within the competence of the EU, so that the Agreement could not be ratified by the EU alone (paragraph 292). Like other Free Trade Agreements negotiated recently by the EU (e.g. those with Canada (CETA) and Vietnam), this agreement contains a provision stating expressly that its provisions lack direct effect – thereby excluding in the clearest possible terms recourse to the courts of the Member States and thus indirectly to the Court of Justice. In any case, the Court did not rule on the compatibility of such a mechanism with the EU Treaties.

That is precisely what the Court is called upon to decide in answer to Belgium’s request for a Opinion on the highly contentious DSMs enshrined in the Comprehensive Economic and Trade Agreement (CETA) between Canada on the one hand and the EU and its Member States on the other (here). As just mentioned, the provisions of CETA are expressly stated not to have direct effect. The hearing in that case has been scheduled for 26 June.

To what extent the recent judgment in Achmea (here) can be seen as a guide to the outcome of those proceedings is a matter of debate. There the Court held that provisions in an treaty between two Member States which established an ISDS mechanism were repugnant to the EU Treaties because they excluded the jurisdiction of the national courts and thus indirectly precluded the Court of Justice from delivering preliminary rulings. In CETA, the Court might distinguish Achmea on the grounds that it concerned an agreement between Member States.

Conclusion

In short, in this bizarre chess game, which could drag on for many years, some of the key rules have yet to be laid down by the Court. And then there is the politics.

Many thanks to Carl Baudenbacher and Panos Koutrakos for their helpful comments on an earlier draft of this post.

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