Dispute resolution

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What is dispute resolution and why does it matter?

Dispute resolution (also known as dispute settlement) is the process for resolving disagreements about the meaning of international treaties.

The process for upholding the domestic rule of law is well established. At home, Parliament makes laws. The courts apply, interpret and enforce them. When there is ambiguity over what the law means and a dispute arises, the matter finds its way to a courtroom and the judge takes a view.

Treaties between countries must also be applied, interpreted and enforced if they are to be worth making. However, upholding the rule of law internationally is more complex, as treaties cut across different legal jurisdictions. The institutional mechanisms for this tend to be more ad hoc.

For example, a treaty can:

  • create its own court to hear disputes
  • set up a mechanism for dispute resolution, like a system for arbitration, that does not involve a court at all
  • submit itself to some existing international court for application and interpretation, such as
    • the Court of Justice of the European Union (CJEU)
    • the International Court of Justice (ICJ)
    • the Court of Justice of the European Free Trade Associations States (EFTA Court).

The resolution mechanisms for certain disputes in some recent trade treaties have proven highly controversial, as they have sometimes allowed private companies to take governments to court. 

Why are people talking about dispute resolution?

The European Council’s draft guidelines for the Brexit negotiations say:

  • The withdrawal (divorce) agreement should include dispute resolution mechanisms which protect the EU’s “autonomy and legal order”, including the role of the CJEU. In other words, the EU will not accept any solution that threatens the monopoly of its own institutions (like the CJEU) in making and interpreting its own laws for its own member states.
  • Any deal on the post-Brexit relationship between the UK and the EU must include “dispute settlement mechanisms that do not affect the Union's autonomy”. Again, the EU will not let non-EU institutions set or interpret EU law for member states.

Why would there be disputes post-Brexit?

Exit disputes

There is some disagreement as to how separate the two deals:  the withdrawal and the future relationship. Regardless of whether the two are dealt with in the same treaty, elements of the UK’s exit could generate disputes further down the line.

For instance, the exit deal will determine the rights and obligations of UK citizens residing in the EU and EU citizens living in the UK. These are likely to include access to public services, such as healthcare and pensions. If the UK or an EU state failed to meet an obligation to provide such a service, the state could be in violation of its international obligations under the treaty.

Trade disputes

If the British Government concludes a comprehensive Free Trade Agreement (FTA) with the EU before the EU treaties cease to apply, that agreement will set out a way to resolve trade disputes. Trade disputes typically arise when one country takes measures to protect its own producers at the expense of foreign producers, like imposing tariffs, but not in circumstances permitted by the treaty. Read our explainer on trade defence for more details. 

Investment disputes

Some protections are against 'expropriation' by the host state. Expropriation may be 'direct', where a state straightforwardly seizes a company’s property. The more contested concept of 'indirect expropriation' has also developed in international law. This can include a range of actions taken by the state which reduce the value of the company’s investment (normally some kind of regulatory interference).

Other protections are against the denial of so-called 'fair and equitable treatment' (FET) to foreign investors. The precise definition of FET is highly controversial, still evolving, and varies across the legal contexts in which it appears.

What are the options for dispute resolution?

The Court of Justice of the European Union (CJEU)

Legal disputes within the EU are typically resolved in national courts and, if substantive issues of EU law arise, ultimately in the CJEU.

The Government is clear that it intends to end the jurisdiction of the CJEU in the UK. However, this could allow some continuing role for the CJEU in cross-border disputes (that is, those between the UK and another country).

The European Commission’s negotiating guidelines say that the CJEU should have jurisdiction in such disputes. Specifically, they say the CJEU should be able to decide any disputes that involve the interpretation of EU law that still applies to the UK, or the rights of citizens, or the financial settlement between the UK and the EU.

The UK Government has not made its position on this clear.

The International Court of Justice (ICJ)

Some reports suggest that Britain’s exit treaty could be enforced by the International Court of Justice (ICJ). In theory, the ICJ can enforce any treaty. However, the ICJ is an unlikely forum for dispute resolution in this case, as only states can raise claims at the court. EU institutions would not be able to do so.

The Court of Justice of the European Free Trade Associations States (EFTA Court)

The EFTA Court was created in 1994 to enforce the European Economic Area Agreement (EEA Agreement).

Under the EEA agreement, Norway, Liechtenstein and Iceland adopt most EU legislation concerning the operation of the Single Market. That means the EFTA Court, rather than the CJEU, interprets EU law for those countries.

However, the EFTA Court itself consists merely a building and judges. The court presently enforces only the EEA treaty, but it could enforce another treaty too. It could, for instance, enforce Britain’s exit deal with the EU. It could also enforce Britain’s free trade deal with the EU. That could involve settling trade disputes and investment disputes. This need not involve the continuing supremacy, or direct effect, of EU law in the UK.

New body

The UK and EU could set up a new court or arbitration panel to settle disputes. This could involve some combination of UK judges and European judges. The system for dispute resolution for Canada and the EU is along these lines. But the kind of disputes that may arise from Brexit would not arise from a Canada-EU trade deal.

A novel approach may therefore be better suited to trade and investment disputes. Even this can often be controversial. Devising the appointments processes for international courts and panels is often fraught as both sides try to ensure it is not weighted against them. Additionally, some EU law experts believe that the EU would be averse to a court that significantly inflated the UK’s legal stature, by giving it half of judicial appointees in a new court, where it only had a 27th of appointees in the CJEU.

Where do matters stand now in the Brexit negotiations?

Governance remains one of the outstanding issues in the draft withdrawal agreement which will need to be concluded before it is finalised.  Article 162 of the EU draft tabled on 19 March envisaged the European Court of Justice as the final arbiter of disputes, which the UK has not accepted. The UK has accepted mechanisms for the oversight of the agreement on citizens’ rights, including a right to refer issues to the ECJ for 8 years after UK exit.

The Government has also made proposals for an arbitration mechanism, as opposed to a court, to settle disputes that arise in the future relationship, in its white paper on the future relationship with the EU, published after the Chequers Cabinet meeting. The Secretary of State for Exiting the EU has argued that this is preferable because, as he told the EU Scrutiny Committee in September, "it allows both sides to propose an arbitrator, or two, and then they choose a chairman. …what you have is a sense that both parties can feel confident in the overall balance, and that is the global practice and I think it is a really important way not just of making sure that individual disputes are resolved fairly in such a way that both sides have confidence, but of preserving the relationship….I think arbitration, ultimately, is a very effective means of doing that. It can feel very technical, it can feel very protracted, but in terms of what we want to be able to do – resolve disputes with certainty, preserve the relationship – I think it is very effective. And of course it means ending the jurisdiction of the ECJ”.

Further information 

Read our report Dispute resolution after Brexit

Update date: 
Monday, October 22, 2018