Brexit: dispute resolution between the EU and the UK, under the withdrawal agreement and in the event that there is “no deal”

At a critical time in the Brexit negotiations, in the latest podcast on the Herbert Smith Freehills Podcast channel, Andrew Cannon and Hannah Ambrose discuss dispute resolution between the UK and the EU. They look at the way in which the withdrawal agreement may be enforced, including the possible role of the CJEU, as well as considering how disputes may be resolved in the event of “no deal”.

Andrew and Hannah consider both the common ground and the important gaps between the EU’s and the UK’s proposals for dispute resolution. In particular, they consider the possibility of seeking political resolution before a joint committee, and discuss the limited but apparently agreed role of the CJEU in enforcing the financial settlement. They also address the proposals for mitigation of harm in the event that one side breaches the withdrawal agreement, including financial penalties and suspension of treaty rights and obligations.

Andrew and Hannah also reflect on other state to state dispute resolution procedures which may be palatable to both sides, including the use of arbitration and EFTA docking, as well as explaining why the International Court of Justice is not the right body to enforce the withdrawal agreement.

Moving on to a possible no-deal scenario, Andrew and Hannah contemplate the possibility of disputes about how much the UK is obliged to pay and when. They look at the role of the WTO dispute resolution framework in determining trade disputes, pointing out its restricted remit in the broader context of EU/UK relations, and consider whether individual Member States may have a role in seeking to enforce the UK’s international law obligations.

The podcast can be accessed here: https://soundcloud.com/herbert-smith-freehills/brexit-ep5

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For further information, please contact Andrew Cannon, Partner, Hannah Ambrose, Senior Associate, or your usual Herbert Smith Freehills contact.

Andrew Cannon
Andrew Cannon
Partner
+44 20 7466 2784
Hannah Ambrose
Hannah Ambrose
Senior Associate
+44 20 7466 7585

State to state dispute resolution in the UK Government’s White Paper: arbitration with a potential role for the CJEU

The White Paper published yesterday, “The Future Relationship between the United Kingdom and the European Union”, includes the UK Government’s proposal for the resolution of disputes between the UK and the EU under what the UK Government views as an “Association Agreement”. This Association Agreement would form the institutional framework for the relationship, with a number of separate agreements (the majority falling within this institutional framework), each covering different elements of economic, security and cross-cutting cooperation.

Under the institutional framework there would be a UK-EU Governing Body, and under that Governing Body and answerable to it, a Joint Committee which would be responsible for the effective and efficient administration of the agreements. The Joint Committee, “through regular and structured dialogue”, would seek to prevent disputes arising, or otherwise play a role in resolving them.

The White Paper emphasises the potential for resolution of disputes through dialogue and non-formal means. However, it also outlines a potential dispute resolution process to ensure that the obligations contained in the institutional framework and agreements can be enforced if needed.

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State-to-State Dispute Settlement under the EU’s latest draft of the Withdrawal Agreement: CJEU jurisdiction remains

On 15 March 2018 the European Commission published a revised version of the draft Withdrawal Agreement between the EU and the UK previously published on 28 February 2018 following consultation with the Member States and the European Parliament. The revised document has been transmitted to the UK for negotiation. A comparison between the two drafts is available on our Brexit notes blog here.

In terms of State-to-State dispute settlement, little has changed since our blog post on 2 March 2018.

As was seen in the previous draft, under Part Six, Title III (“Dispute Settlement”), the Withdrawal Agreement proposes that a Joint Committee (co-chaired by representatives from each of the UK and the EU) be established to resolve disputes regarding the interpretation or application of the Withdrawal Agreement. In the event that the dispute cannot be resolved, then the Joint Committee itself, or either one of the UK or the EU, can refer the dispute to the CJEU under Article 162 (para. 1). The ruling from the CJEU is binding, and non-compliance with that ruling may result in the CJEU issuing a “lump sum or penalty payment”.

However, there is a slight change in when the rights of the EU or the UK arise to suspend rights and obligations in the event of such a dispute. Article 162 (para. 2) now states that, in the event that the dispute is not referred to the CJEU under paragraph 1 of that provision, then the EU or the UK may suspend aspects of the Withdrawal Agreement (other than those related to citizens’ rights) or any agreement between them “proportionate” to the gravity of the breach. In a further addition, paragraph 2 now states the EU or the UK, as the case may be, shall inform the other Party of its intention to suspend and allow the other Party, within 20 days, to remedy the situation. Any suspension shall take effect no earlier than 20 days after its notification to the other Party.

In view of the sensitivities over CJEU jurisdiction discussed in our earlier blog post, it will be interesting to see how the UK responds.

For further information, please contact Andrew Cannon, Partner, Vanessa Naish, Professional Support Consultant, Hannah Ambrose, Professional Support Consultant or your usual Herbert Smith Freehills contact.

Andrew Cannon
Andrew Cannon
Partner
+33 15 357 6552
Vanessa Naish
Vanessa Naish
Professional Support Consultant
+44 20 7466 2112
Hannah Ambrose
Hannah Ambrose
Professional Support Consultant
+44 20 7466 7585

Enforcement and dispute resolution under the Withdrawal Agreement and any future relationship agreement: no role for the CJEU….or is there?

On its face, the thrust of the UK Government’s Future Partnership Paper on Enforcement and Dispute Resolution (the Paper), published on 23 August, is to rule out the jurisdiction of the Court of Justice of the European Union (CJEU) to determine the enforcement of rights and obligations by individuals and businesses derived under the Withdrawal Agreement (and any future relationship agreement) and disputes between the EU and the UK.  Since the Paper was published, the Prime Minister has again reiterated the Government’s position that “the UK will be able to make its own laws – Parliament will make our laws – it is British judges that will interpret those laws, and it will be the British Supreme Court that will be the ultimate arbiter of those laws.”

However, as discussed below, whilst perhaps consistent with the stage of negotiations, the Paper is drafted to leave considerable room for manoeuvre, and it leaves many questions unanswered regarding enforcement of rights and obligations under the Withdrawal Agreement and any future relationship agreements and dispute resolution between the UK and the EU after Brexit.

The Paper follows the publication on 22 August of the UK Government’s Future Partnership Paper on Providing a Cross-border Civil Judicial Cooperation Framework, considered in our blog post here, which presented the UK’s position on the extent to which current EU rules on choice of law, jurisdiction and enforcement of judgments should continue to apply as between the UK and the EU Member States post-Brexit. Continue reading

Advocate General issues opinion that the EU does not have exclusive competence to conclude the EU-Singapore Free Trade Agreement

In an opinion issued on 21 December 2016, EU Advocate General Eleanor Sharpston QC has concluded that the EU-Singapore Free Trade Agreement (EUSFTA) will need to be finalised by the European Union and the Member States acting jointly, i.e. entered into by the EU and all of its Member States (as a so-called "mixed agreement"), not just by the EU alone. Although the opinion does not bind the CJEU, the court tends to follow the approach adopted by the Advocate General. The CJEU is expected to issue its own judgment in 2017.

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Arbitration and intra-EU BITs – German Bundesgerichtshof weighs in on the discussion

In its decision of 3 March 2016 (I ZB 2/15), published on 11 May 2016, the German Federal Court of Justice ("BGH") announced that it would request the Court of Justice of the European Union ("CJEU") to make a preliminary ruling on the validity of arbitration agreements concluded under intra-EU bilateral investment treaties pursuant to Art. 267 TFEU. While this decision takes the underlying investor state dispute to yet another level, the BGH's request for preliminary ruling by the CJEU bears the potential of becoming a turning point in the history of investor state dispute settlement in that it forces the CJEU to rule on the relationship between EU law and international investment law.

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