The draft withdrawal treaty – a focus on dispute settlement

Posted in International arbitration UK and EU legal framework

One contentious aspect of the EU’s draft withdrawal treaty is the EU’s proposals with regards to the settlement of disputes between the EU and the UK post-Brexit.

Under Article 162 of the draft, disputes between the EU and the UK will first be referred to a Joint Committee which is co-chaired by representatives from the EU and the UK. In the likely event that the Joint Committee is unable to resolve such disputes within three months from the date of referral, either party may refer such disputes to the Court of Justice of the European Union (CJEU), whose decisions will be final and binding on both parties.  Article 163 also allows the CJEU to impose fines on the UK for failing to comply with its rulings and to determine whether any suspension by the parties of parts of the Withdrawal Agreement is proportionate.

In preparing the draft withdrawal treaty, the EU has chosen to ignore the UK Government’s Future Partnership Paper on enforcement and dispute resolution published on 23 August 2017.  That paper made clear that the UK does not expect the withdrawal agreement or any other agreements concerning its future relationship with the EU to be under the jurisdiction of the CJEU.  As the Future Partnership Paper notes, “one common feature of most international agreements, including all agreements between the EU and a third country, is that the courts of one party are not given direct jurisdiction over the other in order to resolve disputes between them.  Such an arrangement would be incompatible with the principle of having a fair and neutral means of resolving disputes, as well as with the principle of mutual respect for the sovereignty and legal autonomy of the parties to the agreement.” The point was repeated by Theresa May in her recent speech.

Although the UK did not propose any particular mechanisms for resolving disputes between EU and the UK, it set out a number of possible models and approaches in its Future Partnership Paper based on other international agreements. These included arbitration, which has been adopted in the EU-Canada Comprehensive Economic and Trade Agreement and the EU-Singapore Free Trade Agreement, and judicial or quasi-judicial bodies such as the European Free Trade Area Court, which can interpret concepts of EU law under the European Economic Area Agreement without binding the EU or its institutions.

The draft withdrawal treaty makes no reference to these alternative options for resolving disputes and expressly excludes this possibility by including an exclusivity clause at Article 161. Given the political sensitivity surrounding the continued jurisdiction of the CJEU once the UK has left the EU, it is likely that the EU’s current proposals will be resisted by the UK Government in favour of one of the alternative approaches mentioned in the Future Partnership Paper. Whether agreement can be reached, however, remains to be seen.

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