Red line crossed? The Withdrawal Agreement’s arbitration clause

Articles & Publications
22 November 2018

Ending the jurisdiction of the CJEU over the UK is one of the highest-profile ‘red lines’ drawn by Theresa May and emphasised since the Brexit vote in June 2016, under the mantra of “taking back control of our laws”. Since the notion of a two-year transition period was introduced into negotiations between the UK and the EU, it became clear to most that this red line would be crossed for this period at the very least. It may be that the draft Withdrawal Agreement’s arbitration clause is the escape mechanism by which the UK can avoid the jurisdiction of the CJEU and gain a political win, but it might represent a red line crossed for the CJEU itself.

Commentators and practitioners in EU law have struggled to see how the jurisdiction of the CJEU can be brought to an end after a transition period in circumstances where there is any suggestion of questions of EU law being determined outside the jurisdiction of the CJEU. This was brought home in the context of arbitration in the Achmea decision of March 2018, in which the CJEU held that a court or tribunal ruling – or potentially ruling – on matters covered by EU law would be incompatible with EU law. Achmea has established that the creation of courts and tribunals to deal with disputes that may relate to fields where the EU has adopted legislation would disrupt the EU constitutional and legal order.

It comes as something of a surprise, therefore, that the draft Withdrawal Agreement does not concede total control to the CJEU – rather, the UK has managed to negotiate a discrete mechanism to resolve inter-party disputes over the interpretation of the Withdrawal Agreement. This is a concession by the Commission, as it was absent from their original draft. Most notable (particularly in the wake of Achmea) is that the method of dispute resolution is arbitration. The tribunal will not only resolve the dispute; it will have the unchallengeable right to decide whether EU law is engaged. If it is, the question will be referred to the CJEU; but if the panel decides it is not, there is no further recourse to the Court.

The dispute resolution scheme under the draft Withdrawal Agreement

The scheme operates as follows:

  1. If a dispute arises as to the interpretation of the Withdrawal Agreement, and a solution cannot be found following consultation with the Joint Committee (established under Article 164), the UK or the EU can request the establishment of an arbitration panel (Article 170).
  2. The procedure for the establishment of the panel is governed by Article 171, which requires the EU and the UK to put forward 10 names each and 5 names jointly from which a panel of 5 is assembled (two members will be nominated each and a chairperson will then be selected by the panel from the 5-person joint list). The only persons eligible are those “whose independence is beyond doubt, who possess the qualifications required for appointment to the highest judicial office in their respective countries or who are jurisconsults of recognised competence, and who possess specialised knowledge or experience of Union law and public international law”. They cannot be members of EU institutions or the government of the UK or any other Member State.
  3. Where a dispute submitted to arbitration under Article 170 raises a question requiring the interpretation of EU law, the arbitral panel must not decide this but must refer it to the CJEU for a ruling, which will be binding on the panel (Article 174).
  4. It is open to the parties to request a review by the CJEU; the panel will state with reasons whether they consider EU law is engaged. The parties are able to request that the panel review its assessment (Article 174 paragraph 2).
  5. The arbitration panel ruling is binding (Article 175).

The Commission have provided a helpful flowchart within Memo/18/6422 on dispute resolution under the Withdrawal Agreement to illustrate how this mechanism is intended to work in practice. This is available HERE (below sub-heading VI).

Will the arbitration clause work within the EU legal order?

The provision for a referral to the CJEU would appear to be the means by which the arbitration agreement can be squared with the autonomy of the EU legal order. The origin of this model appears to be the Association Agreements entered into between the EU and former Soviet states, such as the EU-Ukraine Association Agreement. Chapter 14 of the EU-Ukraine AA provides for arbitration to resolve disputes arising under the AA, subject to a strictly circumscribed carve-out in Article 322 for specific Chapters and any “question of interpretation of a provision of EU Law” which will be referred to the CJEU, whose ruling will be binding on the arbitration panel.

Although the CJEU continues to play a central role in the relationship between the EU and UK under the Withdrawal Agreement (a key criticism of the draft agreement raised by Brexiteers) it should be noted that Article 174 of the Withdrawal Agreement leaves it to the arbitration panel to decide whether or not the dispute raises a question requiring the interpretation of EU law. As shown by the flowchart provided by the Commission in Memo/18/6422, there is no question of the arbitral panel’s decision on whether or not EU law is engaged being open to review by the CJEU.

Experience has shown that the question of whether or not EU law is engaged is not always clear-cut; this is a common thread running back in time through the decision in Achmea, through Opinion 2/13 from December 2014 (where the CJEU concluded that the proposed accession of the EU to the ECHR was incompatible with the Treaty); all the way to Van Gend en Loos in 1963. Those decisions were considered extremely controversial at the time; the same may well apply to the decisions of the Withdrawal Agreement arbitral tribunals on whether EU law is engaged.

The dispute resolution process is not going to top the list of political issues arising under the Withdrawal Agreement, and if it is scrutinised on the domestic front it may well be seen as at worst a sop and at best a minor concession where the CJEU still retain the exclusive right to deal with any questions of EU law. Seen through the prism of EU jurisprudence, the picture may well be different. Even if the Withdrawal Agreement survives its political test in the forthcoming weeks, a further problem may lurk around the corner if the question of its compatibility with the Treaty is raised.

Disclaimer: this article is not to be relied upon as legal advice. The circumstances of each case differ and legal advice specific to the individual case should always be sought.

© Benjamin Fowler of 4 New Square, November 2018.

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Benjamin Fowler

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