After Brexit: a legal void?

Lawyers fear that the government’s hard line on its promise to ‘take control’ of its own laws will lead to failure in pursuing a comprehensive dispute settlement agreement in Brexit negotiations.

The UK government’s White Paper offers various examples of dispute panels or joint committees used in other treaties, but lawyers with extensive experience in the European market fear such a process would be insufficient to settle the complex EU–UK relationship after Brexit.

‘This is going to be so much more substantive for regulatory harmonisation than existing FTA’s [Free Trade Agreements]. It would just need to be governed by different rules,’ says Lourdes Catrain, Vice-Chair of the IBA’s International Trade and Customs Law Committee and Director of Hogan Lovells’ European International Trade and Investment Group.

Catrain suggests a bespoke dispute settlement process is needed, either through an existing or new body, which would be much more all-encompassing than an agreement like CETA. ‘You are looking to disentangle a relationship of 43 years, which is a completely different starting point from trying to access a market,’ she says.

The Prime Minister’s statement that ‘no deal for Britain is better than a bad deal’ was regarded as little more than tough talk by various legal experts who spoke to Global Insight. The worst deal for the UK would be no deal, they say.

‘This is a very generic statement that holds true for most things in life. It's hard to guess what she really means. Perhaps she is concerned that too many concessions to the EU – in areas such as free movement of labour or financial contributions – might not be justified by limited access to the common market,’ says Hendrik Haag, a partner at Hengeler Mueller in Frankfurt and Chair of the IBA’s 2009 Task Force on the Financial Crisis.

Peter Oliver, who has almost 35 years’ experience in the Legal Service of the European Commission, envisions a bleak future if no Brexit deal is reached. ‘If there is no agreement by Brexit day, there will be a real mess,’ the Monckton Chambers barrister and former Legal Advisor to the Commission says. ‘Obviously, the ideal outcome is a withdrawal agreement under Article 50 with provisions on dispute resolution. Probably, the EU will insist on that.’

Concerned also that a joint committee for dispute settlement would be inadequate to deal with the relationship between the UK and the 27-member body, he sees potential for disputes between the UK and the EU or one or more Member States to be handled by an international court or tribunal, such as the Permanent Court of Arbitration. Dispute settlement procedures for World Trade Organization (WTO) and United Nations Convention on the Law of the Sea (UNCLOS) agreements would be decided according to the mechanisms laid down in these treaties, to which the UK is already party.

For disputes involving private parties, the procedure may be more complicated.

In 2014, the Court of Justice of the European Union (CJEU) rejected a draft agreement for the accession of the European Union to the European Convention on Human Rights because it would sideline the Court. Some cases relating to EU law would have been decided outside the normal mechanisms, thereby circumventing the Court for interpreting and applying EU law.

Debate is still ongoing as to whether the dispute settlement mechanisms in the Comprehensive Economic and Trade Agreement (CETA) between Canada and the European Union are in line with EU law, because the establishment of arbitral tribunals to hear disputes involving private parties would bypass the Court in Luxembourg.

Belgium is set to request an opinion from the Court of Justice on the legality of these mechanisms, which are likely to take about 18 months and should be delivered shortly before Brexit is expected to occur, in March 2019, according to Oliver.

Unless the Court gives its blessing to the CETA mechanisms, the EU presumably will insist British companies bring their disputes involving EU law before the courts of the Member States or before the Court of Justice. To ensure reciprocity, it is likely that the EU wants any withdrawal agreement to be introduced into UK law, to ensure that EU nationals and companies can litigate in the UK courts.

This would most likely be met with strong opposition from hardline Brexiteers. ‘No doubt, they would be against this because they would see it as introducing the case law of the European Court of Justice into UK law by the back door,’ says Oliver.

It is exactly for fear of a backlash from hardline Brexit supporters that Damian Chalmers, Professor of European Union Law at the London School of Economics, is worried that the UK may not pursue the optimal deal the country needs.

‘The UK would actually have a strong interest in powerful dispute settlement, because the likelihood of noncompliance from the rest of the EU is much bigger than noncompliance from the UK. The EU is bigger, it has more jurisdictions, and some of the Member States have weaker institutions,’ says Chalmers. ‘But my suspicion is that, for reasons of sovereignty, they are unlikely to pursue that.’

Yola Verbruggen is the IBA's Multimedia Journalist and can be contacted at yola.verbruggen@int-bar.org