State to state dispute resolution in the UK Government's White Paper: arbitration with a potential role for the CJEU

The White Paper published yesterday, "The Future Relationship between the United Kingdom and the European Union", includes the UK Government's proposal for the resolution of disputes between the UK and the EU under what the UK Government views as an "Association Agreement". This Association Agreement would form the institutional framework for the relationship, with a number of separate agreements (the majority falling within this institutional framework), each covering different elements of economic, security and cross-cutting cooperation.

Under the institutional framework there would be a UK-EU Governing Body, and under that Governing Body and answerable to it, a Joint Committee which would be responsible for the effective and efficient administration of the agreements. The Joint Committee, "through regular and structured dialogue", would seek to prevent disputes arising, or otherwise play a role in resolving them.

The White Paper emphasises the potential for resolution of disputes through dialogue and non-formal means. However, it also outlines a potential dispute resolution process to ensure that the obligations contained in the institutional framework and agreements can be enforced if needed.

UK's Proposal for Dispute Resolution under the institutional framework and agreements within it

The UK's proposal puts forward the following framework:

1. Informal discussions.
2. A formal dispute to be raised in the Joint Committee.
3. Negotiation for a set period of time in the Joint Committee.
4. Where the Joint Committee does not resolve the dispute, "[i]n some cases," an independent arbitration panel to be established including members from both parties. In some instances the panel might include specialist expertise e.g. sectoral knowledge.
5. Where the dispute relates to interpretation of rules within an agreed common rulebook, there should be the option for a referral to the CJEU for an interpretation (either by mutual consent from the Joint Committee, or from the arbitration panel): "The CJEU would only have a role in relation to the interpretation of those EU rules to which the UK had agreed to adhere as a matter of international law". The CJEU would not itself resolve the dispute: the Joint Committee or arbitration panel would have to resolve the dispute in a way that was consistent with the CJEU's interpretation.
6. This process would be separate to other routes the parties might have for resolving disputes in other international agreements, e.g. under the auspices of WTO.

 The White Paper also considers the possibility of non-compliance. It notes that a party may take measures to mitigate harm in a way that is (i) proportionate to the scale of the breach; (ii) temporary and only in effect for, or related to, the period of non-compliance; and (iii) localised to the extent possible to the area of the future relationship that the dispute concerned. It further notes that such measures could include financial penalties and suspension of specific obligations. The proportionality and duration of the measures should be subject to challenge by way of arbitration. The White Paper notes examples of agreements which include financial compensation – such as a number of US trade agreements - and also refers to the provisions of the EEA Agreement which allow for suspension in the case of non-compliance.

Comment

 In its "future partnership paper" published on 23 August 2017, the UK did not set out a concrete proposal for resolution of UK-EU disputes, but instead gave a number of illustrative examples from other agreements and considered that the CJEU must not have direct jurisdiction to enforce the obligations imposed by any future relationship agreements.  The UK has now set out a proposal consistent with this position, albeit in relatively little detail. However, the White Paper does move towards the EU's position released in March 2018, that the CJEU has, under the EU Treaties, an exclusive right to determine matters of EU law. The inclusion of a preliminary reference procedure (to be used by either the Joint Committee or an independent arbitration panel) is therefore a concession to the EU (albeit that the UK could block a reference at Joint Committee level, as it would require mutual consent). The preliminary reference procedure is to be available in limited circumstances – where the rules in dispute form part of an agreed common rule book. In such circumstances, prohibiting divergence of interpretation from rules based on EU law is arguably in the interests of both sides.

As might be expected, whilst offering a framework for potential agreement in principle, further detail will be required to indicate how the dispute resolution framework will operate in practice.  For example, not all disputes between the UK and EU will be referable to arbitration but it is yet to be determined which types of disputes could only be resolved by the Joint Committee.

The proposals as to the composition and appointment of the arbitration panel are stated only in general terms, noting that it would be independent but include representatives from the EU and the UK, and that in some cases arbitrators with specialist or sectoral expertise may be involved.

In short, the UK's proposal does not push the EU too far from the current position - the CJEU does not have direct jurisdiction over every aspect of the relationship between EU and its member states – and is consistent with general public international law principles whilst recognising the significance of the CJEU's role in interpreting EU law.

For more information, please contact Andrew Cannon, Partner, Hannah Ambrose, Professional Support Consultant, or your usual Herbert Smith Freehills contact.