Dispute Resolution in the Brexit Deal: Is There Salvation Outside the CJEU Church?

Filippo Fontanelli (Edinburgh Law School)

On 14 November 2018, the Commission published the Draft Agreement on the withdrawal of the UK from the EU (the Draft Agreement). The Draft Agreement is a draft of an international agreement between the post-Brexit EU and the then autonomous UK. Its function is to regulate the relationship between the two contracting parties after their separation. It is the blueprint of their “post-nup” arrangement.

The Draft Agreement is part of EU law

The Draft Agreement itself, at Art. 2(a)(iv), confirms that “international agreements to which the Union is party” are part of EU law. It follows, somewhat oddly but inescapably, that the Draft Agreement is EU law. While this is not surprising from the EU law point of view, the inclusion of this definition in the Draft Agreement implies that the UK must subscribe to this characterisation too. This point must be emphasised because it plays a role in the topic at stake in this blogpost: the resolution of future disputes on the interpretation and application of the Draft Agreement itself.

The CJEU will have jurisdiction to interpret the Draft Agreement for a long time

Before the end of the transition period (which may now be extended once – see Art. 132 DA), the UK is bound by EU law and remains subject to the jurisdiction of the Court of Justice (CJEU). Even in relation to alleged breaches of the Draft Agreement occurred before the end of the transition period, the Commission can launch infringement proceedings and seise the CJEU under Art. 258 CJEU (see Art. 87(1) and 87(2) of the DA) for years after the transition period has ended.

National courts can raise preliminary questions to the CJEU on the interpretation of the DA, within eight years from the end of the transition period. The resulting preliminary rulings have the same effects on the UK that they have on the Member States (Art. 158 DA).

A Joint Committee will serve as “super-Commission” for the implementation of the Draft Agreement

Art. 164 DA provides for the establishment of a Joint Committee, tasked with the supervision of the Draft Agreement’s implementation. Its mandate includes the launching of infringement procedures and the issuing of decisions that bind the parties (see Art. 166 DA).

In case of disputes between the UK and the EU regarding the application of the DA, the parties must attempt to reach an amicable solution, and the Joint Committee shall serve as a forum for conciliation.

The EU and the UK agree to outsource the resolution of disputes to an arbitral tribunal

If conciliation is not achieved, the Draft Agreement provides for an exclusive (Art. 168 DA) method of compulsory third-party dispute settlement. Either party can request the appointment of an arbitration panel administered by the Permanent Court of Arbitration (PCA). For the non-initiated in international arbitration, the PCA is a more than 100-year-old institution located in the Hague that administers arbitration proceedings and provides support to ad hoc tribunals, much like the International Chamber of Commerce or the London Court of International Arbitration. It is not a permanent jurisdiction with sitting judges.

A panel of five persons shall be composed (Art. 171 DA), to resolve the UK-EU controversy. The standard timeframe is optimistic: 12 months to reach a decision.

The application of EU law in the arbitration

In the course of the arbitration, the tribunal might have to make a determination requiring a legal interpretation of EU law. The PCA tribunal, then, “shall not decide on any such question,” and “shall” instead request a preliminary ruling from the CJEU. The CJEU’s ruling “shall” be binding on the tribunal (Art. 174 DA). If the tribunal does not pick up the EU matter proprio motu, the parties can ask it to raise the preliminary question, and request a review of a refusal (Art. 174(2) DA).

Between a rock and a hard place

The inclusion of international arbitration is easily explained. After Brexit, the UK would not agree to let the CJEU determine its responsibility under the Draft Agreement. A third party dispute settlement mechanism could serve the purpose instead.

However, the viability of the tribunal is in doubt:

• If the Draft Agreement is part of EU law (as the Draft Agreement apparently confirms, see above), it follows that the circumstance of Art. 174 DA (the application of EU law in arbitral proceedings) would not occur occasionally, but every single time a claim is brought under the Draft Agreement. Moreover, it would concern the totality of the dispute, not just some aspects thereof. The Art. 174 DA exception, in fact, would swallow the rule and paralyse the arbitral tribunal. This, I will call the “CJEU monopoly” scenario.
• Even if that were not the case, and it would be possible to circumscribe EU law matters within the wider DA dispute, it is unclear whether the CJEU would consent to the mechanism of Art. 174 DA. The mechanism is quite similar to that of prior involvement that was included in the Draft Protocol of Accession of the EU to the European Convention of Human Rights. The European Court of Human Rights would have had to consult the CJEU before interpreting EU law. This safeguard, designed to protect the CJEU’s jurisdiction, was deemed insufficient. The mere fact of looking into EU law to determine whether prior involvement was necessary, said the CJEU in its Opinion 2/13, implied a pre-interpretation of EU law that was not tolerable. The scenario in the Draft Agreement is comparable: the PCA tribunal would retain the last word as to whether a preliminary question on a matter of EU law would be warranted. By the same token coined in Opinion 2/13, the CJEU could consider this scenario incompatible with the Treaties and the founding principle of the autonomy of EU law. In all likelihood, should the CJEU be asked to issue an opinion pursuant to Art. 218(11) TFEU, on the compatibility of the Draft Agreement with the Treaties, we would expect another instalment of the “autonomy” saga. This, I call the “threatened CJEU monopoly” scenario.

In conclusion, the operation of the Draft Agreement seems to be already at risk even when it is still fresh from the press. The “CJEU monopoly” scenario, of course, is unacceptable to the UK and, in all likelihood, must be ascribed to a drafting mishap. The more plausible alternative, however, is the “threatened CJEU monopoly” scenario. And recent history teaches us that, whatever the underlying reasons, the CJEU has systematically rebutted all attacks at its monopoly on the interpretation of EU law. Opinion 2/13, in fact, relied on a notion of autonomy of EU law that might have well been “strict and unnecessary,” but it is difficult to see how the CJEU could come back on its steps and tolerate the institution of the arbitral tribunal.

 

Filippo Fontanelli is senior lecturer in international law at the Law School of the University of Edinburgh. He is a co-rapporteur of the ILA Committee on the procedural reform of international courts and tribunals, a consultant for the Italian government on investment arbitration and a fellow of the Scottish Parliament Information Centre on matters of international trade.