Thursday 16 August 2018

EU/UK Dispute resolution post-Brexit in the light of the White Paper

Catherine Barnard and Emilija Leinarte*

*Professor of EU law, University of Cambridge and PhD student, University of Cambridge. This research has received support from the ESRC’s UK in a Changing Europe programme.

The recent report published by UK in a Changing Europe discussed different governance structures that could potentially regulate UK-EU relations post-Brexit. The now published White Paper provides insight into the sort of institutional framework the UK will seek from the EU upon its withdrawal. Is there merit in the UK’s proposals? Are there alternatives? We look into the options for the dispute resolution mechanism post-Brexit.

Institutional arrangements

The White Paper suggests that the governance of the UK-UK relations could be laid down in an association agreement (AA). The agreement would provide an overarching institutional structure which would cover the majority of the individual agreements for different elements of economic, security and cross-cutting cooperation. The form of economic cooperation is likely to be concluded in the form of a mixed free trade agreement (FTA).

The White Paper suggests governance through two main institutions:

-          a Governing Body which would set the general direction for the future relationship and,

-          a Joint Committee which would be directed by the Governing Body and would manage the implementation of the relationship.

Member States will be given authority through the Governing Body, which would consist of the heads of states and the presidents of the EU institutions and would meet at least biannually. Ad hoc meetings at ministerial level would also be held. The Joint Committee would consist of officials from the EU and the UK. In addition, the UK Parliament and the European Parliament would maintain a regular and formal dialogue.

The overall structure proposed in the White Paper is hybrid (see p. 21 of the report) because Member States of the EU as well as EU institutions would have authority in the governance of the relationship. This is different to other EU association agreements where Member States do not have a direct role in the supervision and implementation of the agreement. For example, under both the EU-Ukraine AA and the EU-Moldova AA the Association Council plays a role similar to that of the Governing Body. The Association Council consists, on the EU’s part, of members of the Council of the European Union and members of the European Commission. The structure of the EU’s AAs is commonly supranational because representatives from the EU institutions rather than member states are given the task of overseeing the implementation of the agreements.

Dispute resolution

The White Paper also proposes a framework for dispute resolution between the parties to the AA. The suggested mechanism would cover binding commitments between the parties, such as trade obligations. Protection of private rights is not covered and so British individuals or companies who consider their rights under the AA to have been infringed would only be able to enforce their rights in the UK through the UK courts and in the EU by the EU courts (para. 33 of the White Paper). This is typical of the EU’s AAs. For example, Article 402 of the EU-Moldova AA also excludes private rights from dispute resolution. The Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), which replaced the Trans-Pacific Partnership (TPP) when the US withdrew from negotiations last year, also expressly excludes private action against the contracting parties (Article 28.22).

Private rights are also excluded from the dispute resolution mechanism under the Agreement on the European Economic Area (EEA Agreement) between the EU and members of the European Free Trade Area (EFTA) Norway, Liechtenstein and Iceland. To fill the gap, the European Commission, on the EU’s side, and the EFTA Surveillance, on the EFTA side, can receive complaints concerning the application of the EEA Agreement (Article 109(3) of the EEA Agreement) and may impose a fine on private persons if they breach the EEA Agreement (Article 110 of the EEA Agreement).

The EU’s recently concluded FTAs, such as the EU-Canada Comprehensive Economic and Trade Agreement (CETA), establishes a separate mechanism for investor claims and disputes arising in the financial services sector. Compensation awarded to investors is the primary remedy for such claims. The White Paper does not discuss this option. It is unclear whether the UK-EU FTA will contain an investment protection chapter.

Dispute resolution body

The White Paper says that disputes between the EU and the UK must be raised in the Joint Committee. Intermediation by an executive body is common to dispute resolution under the EU’s AAs. For example, under the EU-Moldova AA consultations are sought by sending a written request to the other party, copied to the Association Committee in Trade configuration (equivalent to a trade subcommittee of the Joint Committee). A similar arrangement for filing trade disputes is provided in the EU-Ukraine AA (Article 306).

If negotiations fail after a reasonable period of time, either of the parties may refer the dispute to an independent arbitration panel. Dispute resolution by independent arbitration panels is also typical in the EU’s AAs, including the EU-Moldova AA (Article 385) and the EU-Ukraine AA (Article 306). State-to-state dispute resolution under the EEA Agreement is different in this respect as it does not provide for the establishment of independent arbitration and instead gives the judicial function to an executive body (Article 111(2)).

The composition and process for appointment of an arbitration panel are not laid down in the White Paper, nor are the criteria for access to it, nor whether its findings will be published. All that is known so far is that the panel would include members from both parties. To this end, Article 28.9 of the CPTPP may serve as a template as it provides detailed rules on the composition of panels.


The White Paper provides that in case of non-compliance, a complaining party may take measures to mitigate harm caused by the breach. These measures may include financial penalties or suspension of specific obligations (i.e. retaliation). As is common with trade regimes such as the WTO and CETA, such measures must be temporary and proportionate. Compensation and suspension of obligations for violations of trade obligations is typical to the EU’s AAs and are provided in both the EU-Moldova AA (Article 393) and the EU-Ukraine AA (Article 315).

In relation to suspension of obligations, WTO law allows a complaining party to cross-retaliate against any economic sector of the non-compliant state. In case of non-compliance by the EU, the so-called ‘carousel’ principle applies – goods and member states which are targeted by cross-retaliation rotate so that consequences are not concentrated in one member state and with respect to one product. The White Paper does not consider whether the same principle should apply to the UK-EU relationship. It only notes that suspension of obligations should be localised to the extent possible to the area of the future relationship that the dispute concerned (para. 46 of the White Paper). This is likely to be interpreted as meaning that in case of breach of trade obligations, suspension of obligations should be limited to trade.

In sum, the dispute resolution mechanism outlined in the White Paper is a mix of common features found in other EU association agreements as well as some innovative features. The proposal is up for negotiation with the EU, but it is Westminster rather than Brussels that will likely subject the proposal to most intense scrutiny and criticism.

The role of the CJEU

The influence of the Court of Justice of the European Union (CJEU) over the judicial system of the United Kingdom was, according to the Prime Minister, one of the key reasons which led to the Brexit vote. The Government has repeated time and time again that leaving the EU means leaving the jurisdiction of the EU Court. This has been a government red line. Yet, both in her Florence speech delivered on 22 September 2017 as well as in her Mansion House speech of 2 March, Theresa May suggested that judgments of the CJEU could be taken into account by the UK courts to ensure consistent interpretation of relevant EU law. This particular red line has already shown a pinkish hue.

So what exactly does it mean to leave the jurisdiction of a court but take its judgments into account?

Perhaps intentionally, the White Paper does not provide a straightforward answer to such a fundamental question. The document does suggest that the CJEU could have a dual role post-Brexit: (1) in relation to the UK courts when enforcing private rights stemming from the future relationship, and (2) in relation to the state-to-state dispute resolution mechanism. This is different to the EU’s recently negotiated FTAs, such as CETA where the CJEU has no role whatsoever. It is, however, typical in the EU’s AAs, perhaps because the aim of AAs is to lead to membership in the EU (this is not the case for economic cooperation under the FTAs). What the White Paper does demonstrate is that the sloughing of the CJEU skin is considerably more difficult than many Brexiters liked to think.

Let us address the dual role of the CJEU suggested in the White Paper.

The role of the CJEU in domestic cases

An obligation for the UK courts to follow the CJEU’s case-law differs depending on whether the dispute concerns the ‘common rulebook’ or other binding commitments under the future agreements. A ‘common rulebook’ is a customs arrangement proposed in the White Paper which effectively means that the UK would maintain the same rules for trade in goods as those of the EU in order to maintain frictionless trade and avoid Ireland/Northern Ireland border. It is not clear whether the UK intends to update its rules in line with changes in EU law.

The White Paper also suggests that when the UK courts enforce private rights stemming from commitments other than those related to the common rulebook, they ‘could’ take into account the relevant case law of the CJEU. This broadly confirms the language of s.6(2) of the recently adopted EU (Withdrawal) Act 2018 which provides ‘a court or tribunal may have regard to anything done on or after exit day by the European Court … so far as it is relevant to any matter before the court or tribunal.’

In addition, the White Paper opens a backdoor to the CJEU’s case law. In case of ‘significant’ divergence between the interpretation of the agreements by the EU and UK courts, the Joint Committee (the governing body for the future relationship) ‘could be empowered to act to preserve the consistent interpretation’ (para. 34 of the White paper). The practicalities of indirectly giving such unprecedented power over domestic courts to an executive body are not detailed.

An obligation for the UK courts to follow the CJEU’s case-law is stronger in relation to the common rulebook: the UK ‘would’ commit to its courts paying due regard to the CJEU’s case law. This effectively means that the CJEU’s interpretation of rules governing trade in goods would be binding on UK courts. Neither the EU-Moldova, nor the EU-Ukraine AAs set such obligation, perhaps because the EU does not have a common rulebook with them. Instead, they commit themselves to progressive legislative approximation, that is making their laws similar to those of the EU. In the process of legislative approximation, due regard must be given the case-law of the CJEU (e.g. Article 153 of the EU-Ukraine AA on the approximation of public procurement rules) but that is different from directly binding domestic courts to follow the CJEU’s case-law.

On the other hand, the implementation of rights and obligations stemming from the EU-Turkey Customs Union, in so far as they are identical to corresponding provisions of EU Treaties, must be interpreted in conformity to CJEU’s case-law (Article 66 of Decision No 1/95 of the EC-Turkey Association Council). Unlike association with Moldova and Ukraine which do not have a customs union with the EU, Turkey must ensure that its trade policies are compatible with those of the EU in order to maintain frictionless trade.

The UK courts would not, however, be able to make a preliminary ruling to the CJEU to ask for the CJEU’s interpretation on a certain aspect of EU law (para. 35 of the White Paper). However, the draft Withdrawal Agreement, which governs the UK’s exiting from the EU as well as matters related to the transitional relationship (i.e. post 29 March 2019 until 31 December 2020), does allow EU citizens to ask UK courts to make a reference to the Court of Justice. Article 151(1) of the Withdrawal Agreement states that when dealing with cases concerning citizens’ rights which were commenced within 8 years from the end of the transition period, the UK courts will be able to request the preliminary ruling (i.e. decision on interpretation) from the CJEU (without the presence of a British judge). The time-limits of the transition period are not (yet) known, but it may be extended for some years.

So, in answer to the question, has the UK been set free from the CJEU, the answer must be: not as much as many might like.

The role of the CJEU in dispute resolution between the parties

The White Paper also discusses resolution of disputes between the UK and the EU, as opposed to cases in the UK courts enforcing private rights.

Disagreements between the UK and the EU over the common rulebook for trade in goods would have to be resolved consistently with the CJEU’s case law. The Joint Committee (by mutual consent) or the arbitration panel would be able to make a preliminary reference to the CJEU. The CJEU’s interpretation of points of EU law would be binding on the Joint Committee and the arbitration panel (para. 42 of the White Paper).

This is not novel. Article 403 of the EU-Moldova AA provides that the CJEU’s rulings are binding on matters of EU law in disputes between the EU and Moldova (this would cover the common rulebook). Similarly, Article 322 of the EU-Ukraine AA provides that where a dispute raises a question of EU law, the arbitration panel must request the CJEU’s ruling which would be binding on the arbitration panel.

The approach adopted under the EEA Agreement is different. Reference to the CJEU is neither mandatory nor automatic – only if the dispute has not been settled within three months after it has been brought before the EEA Joint Committee, the parties ‘may’ agree to request the CJEU to give a ruling on interpretation of relevant points of EU law (Article 111(3) of the EEA Agreement).

In sum, the degree of influence of the EU Court over the UK’s judiciary will to a large extent depend on how much EU law will be let into the domestic system: the deeper the relationship, the bigger the role for the EU Court. A full stop to the jurisdiction of the CJEU would be a reality in case of a ‘no deal’ Brexit, and even in this situation the Withdrawal Act makes clear that the British courts may still take account of the case law of the Court of Justice because given the volume of EU law which is incorporated into UK law, the case law of the Court will have influence for decades to come.

Barnard & Peers: chapter 27

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