The potential incompatibility of the arbitration clause in the Brexit withdrawal agreement

/

As in most international agreements, the Brexit withdrawal agreement (which has been agreed at negotiators’ level but has yet to receive approval in the UK Parliament) contains a dispute resolution clause to resolve any disputes on its interpretation or application.

The UK and the EU agreed to an arbitration clause, which borrows some elements from the WTO dispute settlement system.

This must have been a difficult compromise to achieve. On the one hand, the UK had to deliver on its promise to the Brexiteers to minimise any role of the Court of Justice of the EU (CJEU), whereas on the other hand, the EU had to make sure that the uniformity and consistency of EU law as well as ultimate authority of the CJEU over EU law is preserved. In other words, they had to deal with the existing tension between international arbitration and EU law.

The arbitration clause

The result is an arbitration clause which provides that, in case of a dispute regarding the interpretation or application of the withdrawal agreement, the UK or the EU may initiate arbitration proceedings by requesting the establishment of an “arbitration panel” at the Permanent Court of Arbitration (PCA) in The Hague.

The arbitration panel shall consist of five members: two members each will be nominated by the UK and the EU, and one chairperson will be agreed by consensus between the two parties.

The arbitrators are to be selected from a list of 25 persons, which should be drawn up by the Joint Committee established by the withdrawal before the end of the transition period (currently envisaged as 31 December 2020). The UK and the EU would each nominate 10 persons to act as arbitrators and another five to act as chairpersons.

Those selected should possess the qualifications for the highest judicial office in their respective countries, or be jurisconsults with specialised knowledge or experience in EU law and public international law. They should not be officials or servants of the EU, the UK or any member state.

The arbitration panel should deliver its “ruling” within 12 months and, in urgent cases, six months.

Thus, as far as international arbitration is concerned, the arbitration clause is pretty straightforward. However, the more interesting and potentially problematic aspect concerns the issue of preserving the uniformity and consistency of EU law and ensuring the final authority of the CJEU when it comes to EU law issues.

Interpreting EU law

The solution is to be found in Article 174 of the withdrawal agreement, which reads as follows:

ARTICLE 174 Disputes raising questions of Union law

1. Where a dispute submitted to arbitration in accordance with this Title raises a question of interpretation of a concept of Union law, a question of interpretation of a provision of Union law referred to in this Agreement or a question of whether the United Kingdom has complied with its obligations under Article 89(2), the arbitration panel shall not decide on any such question. In such case, it shall request the Court of Justice of the European Union to give a ruling on the question. The Court of Justice of the European Union shall have jurisdiction to give such a ruling which shall be binding on the arbitration panel.

The arbitration panel shall make the request referred to in the first subparagraph after having heard the parties.

2. Without prejudice to the first sentence of the first subparagraph of paragraph 1, if the Union or the United Kingdom considers that a request in accordance with paragraph 1 is to be made, it may make submissions to the arbitration panel to that effect. In such case, the arbitration panel shall submit the request in accordance with paragraph 1 unless the question raised does not concern the interpretation of a concept of Union law, interpretation of a provision of Union law referred to in this Agreement, or does not concern whether the United Kingdom has complied with its obligations under Article 89(2). The arbitration panel shall provide reasons for its assessment. Within 10 days following the assessment, either party may request the arbitration panel to review its assessment, and a hearing shall be organised within 15 days of the request for the parties to be heard on the matter. The arbitration panel shall provide reasons for its assessment. […]

Accordingly, the arbitration panel is obliged to request a ruling from the CJEU whenever EU law is at issue. Moreover, the UK and the EU as disputing parties may request the arbitration panel to make such a request to the CJEU. In such a case, the arbitration panel shall submit the request to the CJEU. If the arbitration panel refuses to do so it has to provide reasons for its assessment, which the disputing parties may challenge by asking the arbitration panel to review its assessment. In such a case, a hearing shall be organised so that the parties can be heard on this matter.

In short, the CJEU’s jurisdiction has in fact been extended extra-territorially, potentially to cover the withdrawal agreement and bind the UK as far as EU law issues are concerned. This is not the first time that a non-EU member state has accepted the binding jurisdiction of the CJEU, as illustrated by the EU-Ukraine Association Agreement.

Nonetheless, at the end of the day, it will be the arbitration panel alone that will decide whether or not EU law is at issue and thus whether or not a request for a ruling from the CJEU is needed. Neither disputing party nor the CJEU can force the arbitration panel to request a ruling from the CJEU.

Hence, while the language of Article 174 aims to minimise the room for the arbitration panel to make its own decision as to the relevance of EU law in a particular case, there remains a lack of ultimate control by the CJEU over the arbitration panel ensuring the consistency and uniformity in the application of EU law, which has been a recurring concern for the CJEU.

Indeed, in the past, the CJEU has made clear that the lack of control over other international courts and tribunals when it comes to the possibility that they might potentially interpret or apply EU law is a concern. While the CJEU has repeatedly stated that the EU may become party to international agreements that establish international courts or tribunals as dispute settlement bodies, at the same time it has always emphasised that such courts or tribunals may not affect the autonomy of the EU and its institutions.

It is exactly for this reason that the CJEU rejected the EU’s accession to the European Convention of Human Rights. The CJEU feared that the European Court of Human Rights might issue judgments which would touch on EU law and therefore bind the CJEU. Similarly, the CJEU also considered the Unified Patent Court to be incompatible with EU law, and, in the early 1990s, it rejected the proposed European Economic Area (EEA) court.

The arbitration panel under the withdrawal agreement is in exactly the same position. Even though Article 174 states that any ruling of the CJEU is binding on the arbitration panel, the CJEU has no tools available to ensure that the arbitration panel will actually following its rulings. Consequently, the CJEU cannot control the arbitration panel to make sure it interprets and applies EU law correctly in all cases.

Is the withdrawal agreement compatible with EU law?

So, if one were to follow the logic of the previous jurisprudence of the CJEU, the CJEU would have to conclude that the arbitration panel under the withdrawal agreement is incompatible with EU law. Thus, in light of the CJEU’s general and longstanding aversion against other international courts and tribunals that may be able to meddle with EU law, it is interesting to note that the EU has accepted international arbitration as a binding dispute settlement tool in the withdrawal agreement.

Indeed, the EU is taking a big risk considering the fact that the question of whether the proposed investment court system (ICS), as included in EU-Canada Comprehensive Economic and Trade Agreement (CETA) and the other EU free trade agreements, is compatible with EU law is still pending before the CJEU. It is expected that the CJEU will issue its opinion on this during the course of 2019.

Although CETA does not provide for the ICS to request a ruling from the CJEU when it comes to EU law matters, since the ICS is not supposed to apply or interpret domestic legislation of the contracting parties, it is able to review EU law on appeal as a point of fact. It is therefore potentially in a position to interpret or apply EU law without being under the control of the CJEU. This arguably should be a sufficient reason for the CJEU to deem the ICS to be incompatible with EU law.

Conclusion

In sum, the arbitration clause contained in the withdrawal agreement highlights again the tension between international arbitration and the CJEU when EU law is potentially at issue. It remains to be seen whether the solution found in the withdrawal agreement is indeed compatible with EU law.

As far as the Brexiteers are concerned, this shows that the UK will not fully escape from the influence of the CJEU, even long after its withdrawal from the EU has become reality.

More generally, the withdrawal agreement arbitration clause is another example of the EU’s efforts to export and thus expand the CJEU’s jurisdiction extra-territorially to non-EU member states.

Leave a Comment