Brexit and business: UK sets out its position on enforcement and dispute resolution for Brexit agreements with the EU

On 23 August 2017, the UK government published its latest Brexit position paper, on enforcement and dispute resolution of Brexit agreements between the UK and the EU. This follows a separate paper published the previous day on civil judicial cooperation, which concerns civil disputes between private individuals and/or businesses.

This latest paper confirms the UK’s stance that the Court of Justice of the EU (CJEU) should not be the ultimate arbiter of either the UK-EU withdrawal agreement, or of any future ‘partnership’ agreement.

It also sets out the UK’s position that those Brexit agreements should not be directly enforceable against the UK or EU by individuals or businesses (as many international investment treaties currently are). Beyond that, the paper leaves open the crucial question of which dispute resolution mechanism the UK government favours for resolving any disputes between the UK and the EU.

Why does this matter?

As we have previously discussed, the UK’s membership of the EU gives the UK (as well as other Member States), UK/EU businesses and their citizens various rights. Many of those rights are aimed at ensuring ease of trade, as part of the Single Market. Some of those rights can be directly enforceable by individuals or businesses to bring claims against states or (in some circumstances) other businesses or individuals.

The UK / EU withdrawal agreement, and any future partnership / trade agreement, will need to cover a wide range of issues that will affect individuals and businesses, from citizens’ rights to customs arrangements and business regulation. Two of the things that the UK and EU will need to agree on are:

• how the rights and obligations under the UK / EU Brexit agreements could be enforced; and
• how any dispute about a term under a UK / EU Brexit agreement will be resolved.

This position paper addresses the first question, and eliminates one of the possible answers to the second question (that the CJEU would have jurisdiction to resolve any dispute), but falls short of setting out which of the remaining options the UK government favours.

What is the UK proposing?

Enforcement of rights by individuals or businesses

The UK government’s position is that the UK / EU Brexit agreements themselves would not confer any direct right for individuals or businesses to take action, either against a state or another individual or business.  As the paper explains (and as the UK Supreme Court confirmed in the Miller case regarding the triggering of Article 50), the UK constitution is a dualist system.  This means that international treaties entered into by the government do not automatically become part of the UK’s internal legal order.  Domestic legislation is needed to give them effect.

The UK’s position is that any rights conferred by a UK / EU Brexit agreement will therefore need to be enshrined in UK legislation. The enforcement of those rights would be a matter of UK law, for which the UK Supreme Court is the ultimate arbiter.  The UK is opposed to the CJEU having jurisdiction to decide issues relating to the rights of individuals or businesses as far as the UK’s obligations are concerned. The implementation of those rights into EU law (on the EU side of the bargain) would be a matter for the EU, which ultimately would be subject to the CJEU’s jurisdiction.

Any dispute about the UK’s (or the EU’s) implementation into law of those rights would be subject to the dispute resolution procedure between the UK and the EU.

Resolution of disputes between the UK and the EU

The paper sets out three scenarios in which a dispute might arise between the UK and the EU:

• “Implementation: one party considers that the other has not appropriately or properly implemented the agreement, for example in domestic law.

• Subsequent actions: one party considers subsequent legislation or executive actions or decisions of the other party to be incompatible with the obligations under the agreement.

• Divergence: the way in which the agreement, or implementing legislation, is interpreted by the parties’ respective courts, or other bodies or agencies, has diverged in areas where the parties had agreed to seek to avoid divergence.”

The paper looks at various models under different international agreements, through which disputes between states can be resolved:

• Joint committees would have representation from both parties, and may be underpinned by technical groups. Joint committees tend to be given powers to make recommendations, rather than issuing binding decisions. The North American Free Trade Agreement (NAFTA) and the European Economic Area (EEA) agreement are two regimes that make use of joint committees.
• Arbitration models involve an arbitral tribunal that has the power to hear disputes and issue binding rulings. Arbitration models are common in bilateral or multilateral free trade agreements, with the paper (perhaps tellingly) giving the examples of the free trade agreements that the EU has recently concluded with Canada (CETA) and Vietnam. The relevant trade agreement will set out rules for appointing the tribunal – usually involving each party nominating an arbitrator and then a mechanism for appointing a third, ‘neutral’ arbitrator.
• Reporting and monitoring arrangements may involve the parties setting up a body to oversee the implementation of an agreement under each party’s national law. Examples given in the paper include the Lugano Convention on civil judicial cooperation, which includes an information exchange for judgments made by courts subject to the Lugano Convention.  As with joint committees, this would not involve a body being able to issue binding rulings.

The paper does not set out which model the UK favours, although it does make the point that these mechanisms are not mutually exclusive. In the same way that commercial contracts often contain escalation provisions, which require discussion between representatives, failing which the parties may agree to mediate or arbitrate their dispute, the Brexit agreements may provide for a joint committee reporting body, failing which a dispute could be resolved through arbitration.

The status of the CJEU

One of the issues with Brexit that has attracted the most attention, from press and politicians on both sides, is the extent (or lack) of the CJEU’s jurisdiction post-Brexit. This position paper sets out strongly the UK government’s opposition to the CJEU having what it describes as ‘direct jurisdiction’ (though what the use of ‘direct’ here means is not explained in the paper, and may provide the UK side with a little wriggle room on its previously vehemently-expressed conviction that continued CJEU jurisdiction is an unacceptable ‘red line’) to decide on any disputes over the UK / EU Brexit agreements.  The paper argues that “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 paper does, however, leave open the possibility that decisions of the CJEU could still be taken into account in resolving any disputes (this is the wriggle room):

• Pre-Brexit decisions – where the Brexit agreements replicate or refer to principles or terms of EU law, the UK does not rule out agreeing that those principles or terms should be interpreted in line with any pre-Brexit CJEU decision(s).
• Post-Brexit decisions – the paper also suggests that the UK and EU may agree for any dispute resolution mechanism to “take account of CJEU decisions” post-Brexit. The paper also notes that some agreements that have included this concept have been two-way, in that they take into account the case law of both parties (so in this case, decisions of both the CJEU and UK courts).
• Under UK law – the paper also notes that under the draft Repeal Bill, CJEU case law pre-Brexit will be binding under UK law (having the status of Supreme Court decisions), and the courts “may” also take into account CJEU case law post-Brexit.

Will the EU agree with the UK?

As we have previously discussed, in negotiations with other countries – most recently Japan – the EU has been a keen advocate of arbitration-based mechanisms to resolve disputes.  The EU’s preference is to constitute a permanent international “court”, with a fixed roster of arbitrators taken from both parties, and from non-party ‘neutral’ states (in equal numbers).

While it does not express a preference, this position paper leaves open the possibility of agreeing some form of arbitral mechanism, which would be consistent with views expressed previously by the UK government, particularly Brexit Secretary David Davis.

For many aspects of the Brexit agreements, therefore, it may well be that both sides are in broad agreement on the type(s) of dispute resolution mechanism that may be appropriate. The exact form, rules and sanctions applicable to the mechanism(s) may be more problematic, though.

The more fundamental disagreement is likely to be in relation to issues such as citizens’ rights, which the EU has consistently argued should be subject to the jurisdiction of the CJEU, on the basis that the CJEU is the highest authority on matters of interpretation of EU law.  Whether the EU will accept a body that simply takes some form of guidance from the CJEU, and whether this would survive opposition on the UK side, from those insistent on a complete break from CJEU influence, remains to be seen.

Investor protection provisions for business?

Businesses will also be looking for clarity as to whether, as this paper seems to suggest, a future partnership agreement between the UK and the EU will omit any directly enforceable investor protection provisions.  If so, this would be unusual for a major free trade agreement. With cross-border trade at the heart of Brexit negotiations, businesses will want reassurance from government that they will have effective protection and remedies under the Brexit agreements to protect their trading and investment.