Brexit dispute resolution: a bridgeable gap?

A continued role for the ECJ

So far, the EU has only expressed a desire for continued involvement of the ECJ in relation to citizens’ rights.  Broadly, it wants the UK to retain the current position, where UK courts are obliged to refer a matter to the ECJ for an opinion if the legal position under the relevant EU-UK arrangement is unclear.  As at present, the ECJ would only give an opinion on what the correct interpretation of the law is - it would still be up to the UK courts to apply that interpretation to the particular facts of the case (although they would have to act in accordance with the ECJ's view of the law).

The UK’s position is somewhat ambiguous.   Its own paper on citizens' rights (issued in June) appeared to reject any involvement of the ECJ – and some parts of this week's paper on dispute resolution and enforcement read as if the government is sticking firmly to that "red line".  But elsewhere in the paper, there appears to be an acceptance that a non-UK court could have a role to play in some aspects of the UK’s future relationship with the EU (although the paper does not indicate what areas the UK has in mind). For example:

•  Mention is made of the possibility of using the EFTA Court, which performs a similar role to the ECJ in relation to the EEA Agreement (and although not always bound by ECJ case law, is effectively under an obligation to maintain consistency with it).  This option is understood to have been offered by the EU to Switzerland, even though the Swiss are not party to the EEA Agreement.
  
  
• There is also a recognition that, in areas where it is desirable for EU and UK regulation to be closely aligned, mechanisms may need to be found to allow account to be taken of both pre-Brexit and post-Brexit ECJ rulings.  Mention is made of the possibility that references could still be made to the ECJ where a dispute between the EU and the UK concerns the interpretation of EU law – for example, because the UK has agreed that, in certain areas, it will continue to align its own laws with the EU position after Brexit.

This apparent softening of the UK government's "red line" on the ECJ may reflect a more realistic assessment of its feasibility in practice.  For example, if the UK insists on cutting all links to the ECJ and to EU law, this is likely to make it more difficult to agree satisfactory transitional arrangements with the EU or to secure continued UK participation in EU programmes such as the European Medicines Agency, the Erasmus scheme and EU scientific research programmes.  It may also reflect a realisation that the ECJ is likely to continue to exert informal control over the UK's laws even if the UK elects to pursue a "hard" Brexit.  This is because UK-based businesses selling into the EU will not want to have to comply with two substantially different sets of rules – particularly in heavily regulated sectors such as pharmaceuticals, chemicals or aviation.  So even if Brexit means that the UK is no longer obliged to follow EU law, significant parts of UK law are likely to continue to be influenced by it.

Can all disputes be resolved on a "state to state" basis?

Much of the UK paper is devoted to a point that the EU would probably not disagree with – which is that, for disputes between the UK as a state on the one hand and the EU as a supra-national body on the other, the ECJ is highly unlikely to be the final arbiter.  As the UK paper points out, the chosen mechanism for resolving such disputes is far more likely to be some form of arbitration, as used for similar "state to state" disputes relating to the EEA Agreement, the EU's association arrangement with Ukraine and numerous free trade agreements to which the EU is a party.  But since the EU has not so far proposed the ECJ as a forum for resolving such “state to state” disputes, the UK paper is effectively setting up a straw man here.

The real issue is that, whilst the EU is clearly prepared to regard such "state to state" procedures as sufficient in relation to looser free trade agreements with third countries, it regards them as inadequate where a closer economic relationship is envisaged (which is what the UK says it wants).  In particular, the EU's view is that arrangements where both parties have agreed to align their regulatory systems in many highly technical areas also require:

• an independent monitoring and surveillance body (such as the EFTA Surveillance Authority in the case of the EEA Agreement or the European Commission in the case of the EU); and
  
  
• an independent court (such as the EFTA Court or the ECJ). 

The role of the court is twofold;  to rule on infringement proceedings brought by the monitoring and surveillance body against member states and to deal with references from member state courts hearing disputes between private parties which relate to areas where member states have agreed to align their laws.  Without these mechanisms, hundreds of highly technical disputes involving private parties risk being referred "up the chain" to be dealt with under the "state to state" mechanism.  This is exactly what has happened with the EU-Swiss arrangements – hence the EU's insistence on the involvement of a surveillance body and a court.

A bridgeable gap?

Whether the EU and UK can reach agreement on a dispute resolution mechanism will ultimately depend on what sort of economic relationship the UK wants with the EU – and what the EU is prepared to offer.  The closer it is (and the UK continues to insist that it wants a "deep and special relationship"), the more likely the EU will insist on involvement of a surveillance body and a court. 

As we argued here in our submission to the Department for Exiting the EU (see in particular Annex 2), the EFTA Court (coupled with the EFTA Surveillance Authority) may represent a compromise that both sides can live with – and in that respect, the fact that the UK's latest paper includes it as a possibility is a welcome move. 

However, none of the position papers emanating from Whitehall in recent weeks has clarified what the UK wants in terms of the "big picture" of its economic relationship with the EU after Brexit; indeed, some parts of them read as if they have been written primarily for domestic consumption, with a view to addressing political sensitivities in the UK.

This may explain the frustration which has reportedly been expressed by some on the EU side with the UK's approach.  That said, the UK government makes a fair point in some of its more recent position papers that the EU's focus on a narrow range of topics in the first phase of talks results in an artificial partitioning of the issues, many of which cannot sensibly be discussed in isolation from the "bigger picture" of the UK's post-Brexit economic relationship with the EU.

With talks set to resume next week, we may soon know how successful the UK has been in its attempt to bridge the gap between the parties by widening the ambit of the discussions.