The Draft Withdrawal Agreement: dispute resolution

Posted in The Withdrawal Agreement International arbitration

Ever since the Prime Minister identified the jurisdiction of the Court of Justice of the European Union (CJEU) as one of her “red lines”, the mechanism to resolve disputes between the UK and the EU has emerged as an unlikely focal point in the Brexit negotiations.

It is therefore significant that in the draft Withdrawal Agreement published on 14 November 2018, the UK and EU have agreed to refer disputes first to a jointly appointed committee, and ultimately to arbitration at the Permanent Court of Arbitration.

The arbitration provisions of the draft Withdrawal Agreement signify a return to a more traditional forum for resolving state to state disputes, especially in contrast to the existing arrangements between Member States of the EU. Seen in that light, it is significant that the draft Withdrawal Agreement focuses on political, rather than legal, settlement of disputes.

Arbitration under the draft Withdrawal Agreement

Should a dispute arise under the draft Withdrawal Agreement, its provisions contain a comprehensive regime for the resolution of disputes. The draft Withdrawal Agreement expressly states that these provisions are the exclusive mechanism for resolving disputes between the parties, ruling out references to other bodies such as the International Court of Justice.

The first step is reference to a Joint Committee of representatives of the EU and UK. The parties agree to enter into “consultations in the Joint Committee in good faith, with the aim of reaching a mutually agreed solution”.

If, after three months of consultations, no joint solution is found, either party can request the establishment of an arbitration panel.

The draft Withdrawal Agreement contemplates the appointment of the panel of arbitrators from a pre-appointed list of 25. Each of the EU and UK will nominate 10 appointees to the list, with five potential chairs jointly appointed. From that list of 25, each of the EU and UK will appoint two members and those members will then jointly appoint a chair. The panel is then mandated to render a binding ruling on the dispute.

Questions of EU law

The significant exception to this regime is that where a dispute raises a question of EU law, that question that must first be referred to the CJEU for a preliminary ruling. The arbitration panel will then be bound by the CJEU’s decision.

This is a departure from the usual approach to resolving international disputes between states – it is unusual for such disputes to be referred to the domestic courts of one or the other state.

However, this is unsurprising given the CJEU’s position that it has exclusive jurisdiction over questions of EU law (and its willingness to strike down international agreements which it thought undermined that jurisdiction, such as the Safe Harbor Framework for data sharing). It is also probably inevitable, given that the philosophy of the draft Withdrawal Agreement and the European Union (Withdrawal) Act 2018 is to preserve EU law in the UK as it stands at the moment before departure, because the judgments of the CJEU are part and parcel of EU law.

A political tool, rather than a legal one

Arbitration as a mechanism to resolve disputes between states has a distinguished history, and indeed was one of the earliest mechanisms for formally (and peacefully) resolving disputes on the international plane. Its use in the draft Withdrawal Agreement is therefore consistent with the UK stepping away from the EU’s institutional arrangements and returning to more traditional state to state relationships.

In many ways, the choice of international arbitration to resolve disputes also marks a reversion to political means of resolving disputes, rather than legal ones. Although the decision rendered by a tribunal under the draft Withdrawal Agreement will be binding as a matter of international law, if the UK or EU does not abide by the decision the ultimate consequences are likely to be political rather than legal. This is in stark contrast to the existing hard legalism within the EU order, where the CJEU’s rulings have direct effect.

That is not to say political consequences would be insignificant – the UK in particular expects to be on the lookout for international trading partners, and that will be all the harder if it does not comply with its international obligations.

The CJEU’s continuing role under the draft Withdrawal Agreement does muddy this analysis somewhat. It is unusual to have a domestic court ruling on international disputes, and it is obviously a legal rather than political institution.

However, it is significant that the CJEU does not retain direct jurisdiction to rule on disputes arising under the draft Withdrawal Agreement (which the EU had proposed in an earlier draft). Moreover, the parties have also published a Political Declaration as to the framework of a future trade deal between the UK and the EU, recording an intention to agree “an ambitious, broad, deep and flexible partnership across trade and economic cooperation, law enforcement and criminal justice, foreign policy, security and defence and wider areas of cooperation”. It remains to be seen what role EU law (and the CJEU) will play in that framework, and whether the relationship between the EU and UK moves further towards a traditional one between international actors.

Brexit: planning for the future as negotiations continue

We have created this Brexit blog to provide up to date analysis and legal commentary as the new Brexit landscape evolves, addressing key questions and topics of interest to our clients across the different industry sectors in which they operate.

Blog Network