The Brexit Bill and the Law of Treaties

As has been widely reported in the media (e.g. The Guardian, the BBC), the House of Lords reached two main legal conclusions in its March 2017 report on Brexit and the EU budget:

1. Article 50 TEU allows the UK to leave the EU without being liable for outstanding financial obligations under the EU budget and related financial instruments, unless a withdrawal agreement is concluded which resolves this issue.(para. 135).
2. The jurisdiction of the CJEU over the UK would also come to an end when the EU Treaties ceased to have effect. Outstanding payments could not, therefore, be enforced against the UK in the CJEU. (para. 133).

The UK government appears to have adopted a similar position on the Brexit bill as the House of Lords. The German newspaper Frankfurter Allgemeine Zeitung published an account of a ‘disastrous Brexit dinner’ at the end of April 2017 between UK Prime Minister Theresa May and Commission President Jean-Claude Juncker in which PM May reportedly argued that the UK does not owe anything to the EU upon its departure. The fact that this dinner conversation was leaked led to strong criticism, particularly in the UK as the campaign for the general election in June is currently underway (see for example here and here).

On 3 May 2017, the UK’s Brexit Secretary David Davis in a TV interview emphasized that he had not seen any official figure of the EU’s demands, and left open room for compromise:

[The UK] have said we will meet our international obligations,  but there will be our international obligations including assets and liabilities and there will be the ones that are correct in law, not just the ones the Commission want.

However, he indicated that the UK would not pay €100 billion upon leaving the EU.

The Commission’s draft negotiating directives for Article 50 negotiations with the UK, published later on the same day, emphasize the need for a ‘single financial settlement’ of the UK’s financial obligations as a member ‘in full’ – referring to it as a ‘settling of accounts’, rather than ‘punishment’. In February, the EU Commission claimed that the UK owes the EU around €60 billion as a result of its EU membership since 1973 (which the EU Commission reportedly revised to around €100 billion in early May).

The House of Lords rightly noted the considerable uncertainty about the UK’s financial obligations arising out of its departure from the EU. Like other aspects of their past and future relationship, the UK’s financial obligations are primarily a matter for negotiation between the EU27 and the UK. The EU27 and the UK will bargain about the UK’s financial obligations in the shadow of the UK’s legal obligations. And if the EU 27 and the UK were to fail to reach agreement on this point, the legal position is even more important.

This blog post shows that both the conclusions of the House of Lords, and the UK government’s apparent position, are likely erroneous. It argues first that the UK is liable, in principle, for a share of the EU’s budget commitments which all current EU member states (incl. the UK) have assumed, as well as for pensions of EU officials. Second, the European Court of Justice  may well have jurisdiction over the UK’s financial obligations arising out of its membership in the EU. It first considers the UK’s liability in principle, before turning to the jurisdiction of the European Court of Justice.

The UK’s Liability in Principle

The House of Lords relies on Article 50 TEU for its conclusion that the UK is not liable for financial obligations arising out of the UK’s EU membership. Article 50 provides:

Any Member State may decide to withdraw from the Union in accordance with its own constitutional requirements.

A Member State which decides to withdraw shall notify the European Council of its intention. In the light of the guidelines provided by the European Council, the Union shall negotiate and conclude an agreement with that State, setting out the arrangements for its withdrawal, taking account of the framework for its future relationship with the Union. That agreement shall be negotiated in accordance with Article 218(3) of the Treaty on the Functioning of the European Union. It shall be concluded on behalf of the Union by the Council, acting by a qualified majority, after obtaining the consent of the European Parliament.

The Treaties shall cease to apply to the State in question from the date of entry into force of the withdrawal agreement or, failing that, two years after the notification referred to in paragraph 2, unless the European Council, in agreement with the Member State concerned, unanimously decides to extend this period.

Article 50 TEU is an example of a withdrawal clause. Such clauses are found in many treaties. Withdrawal clauses allow states to evolve from a party to a non-party without breaching the treaty. They allow a unilateral, voluntary departure from the treaty. Upon withdrawal, the treaty is no longer binding on the withdrawing party. It brings treaty relationships to an end.

The House of Lords’ report takes the view that Article 50 contracts out of customary international law on withdrawal (the report refers specifically to Article 70 of the Vienna Convention on the Law of Treaties, ‘VCLT’). Articles 70 (1), which is customary international law, provides:

Unless the treaty otherwise provides or the parties otherwise agree, the termination of a treaty under its provisions or in accordance with the present Convention:

• releases the parties from any obligation further to perform the treaty;
• does not affect any right, obligation or legal situation of the parties created through the execution of the treaty prior to its termination.

A preliminary question – which the House of Lords’ report correctly answered in the affirmative – is whether international law, and specifically the VCLT, applies to the EU treaties. While EU law is a new legal order of international law, this order still exists against the background of general international law, particularly regarding basic questions of treaty law. International law serves as a fall-back for particular issues that the EU treaties do not regulate, or regulate only incompletely. This is the position with respect to Article 50 TEU, as the paragraphs below show.

Crucially, the House of Lords’ report concludes that Article 50 TEU is lex specialis, or an exception, expressly mentioned in the first part of Article 70 (1) VCLT. In other words, because the TEU contains a specific provision on withdrawal, Article 70 is irrelevant to the UK’s financial obligations arising out of its EU membership.

In reality, however, Article 50 TEU only partly contracts out of relevant customary international law. For the most part, Article 50 TEU lays down a specific procedure (the timeline and notification requirements) for a member state to withdraw from the complex edifice of the EU treaties. It also confirms the default rule in Article 70 VCLT that the EU treaties cease to apply from the critical date (Article 70(1)(a) speaks of “releases the parties from any obligation further to perform the treaty”).

That said, the contracting out is only partial because the VCLT has three provisions that deal, in part, with withdrawal, rather than just one. In addition to Article 70 VCLT, there are Articles 56(2) and 65-68 VCLT. Article 56 (1) is about the possibility of withdrawal in the absence of a withdrawal provision. Given the presence of Article 50 TEU, it is not relevant for present purposes. Article 56 (2) establishes a default notice period of 12 months. Article 65-68 provides for default procedural steps for, among others, withdrawal from a treaty (the same default steps also apply to invalidity, termination or suspension).

Contrary to the House of Lords’ report, Article 50 is no exception to Article 70 (1) (b) VCLT. All that Article 50 does is depart from the default procedural rules set out in Article 56 (2) and Articles 65-68. For instance, Article 56(2) TEU lengthens the notice period to 2 years (rather than the default period of one year). It also confirms the release from obligations under treaties going forward under Article 70 (1)(a).

The House of Lords’ report errs in taking the more specific procedural steps for withdrawal in Article 50 TEU as evidence that Article 50 contracted out of all other rules of international law on treaty withdrawal. Article 70(1) is the decisive provision for the UK’s financial obligations arising out of its EU membership because it expressly states that withdrawal does not affect these rights and obligations (“does not affect any right, obligation or legal situation of the parties created through the execution of the treaty prior to its termination”).

Importantly, the general rule is that silence of the treaty parties does not mean contracting out of customary international law. In other words, there is a presumption that there is no contracting out – but like other aspects of the law of treaties, this is ultimately a matter for interpretation. The UK may be able to rebut the presumption – for instance by adducing travaux préparatoires that show that member states intended to contract out of the VCLT’s provisions on withdrawal in their entirety. But this is likely to be a long shot – particularly given that the travaux expressly say that they are ‘partly inspired by the Vienna Convention on the Law of Treaties’.

In sum, Article 50 is lex specialis only with respect to the procedure for withdrawal. It preserves the customary international law rule in Article 70 VCLT (1) (b) that the rights and obligations of the treaty parties prior to withdrawal are untouched. And importantly, this includes the UK’s financial obligations arising out of its EU membership.

Whither the CJEU’s Jurisdiction?

The House of Lord’s second conclusion mentioned above would mean that the main compulsory dispute settlement mechanism is unavailable in the event that the EU and the UK fail to agree on the UK’s financial obligations on its departure from the EU.

It is uncontroversial that once the UK leaves the EU, the European Court of Justice will no longer have jurisdiction over the UK in respect of the EU treaties (unless the EU27 and the UK otherwise agree). Conversely, prior to the critical date, the EU treaties continue to apply to the UK and the UK remains subject to the European Court’s jurisdiction. Under Article 50 TEU, the critical date is either March 29 2019, unless the UK and the EU27 unanimously extend this period, or the date of entry into force of the withdrawal agreement.

However, there is an important temporal caveat. Neither Article 259 TFEU (infringement proceedings) nor Article 267 TFEU (preliminary rulings) contains any temporal limitation to the CJEU’s jurisdiction. Article 259 TFEU merely refers to a situation in which “another Member State has failed to fulfil an obligation under the Treaties”, and Article 267 TFEU refers to “the interpretation of Treaties”.

First, one, several or all EU member states other than the UK could request that the Commission examine whether the UK has failed to fulfil its obligations under the treaties. To the extent that the UK’s financial obligation at issue arose prior to the critical date, any dispute concerning such an obligation is likely to fall within the CJEU’s temporal jurisdiction because it concerns an allegation that the UK ‘has failed to fulfil an obligation under the treaties’ and this dispute arose before the critical date. As a result, the dispute over the UK’s financial obligations could reach the CJEU in the form of infringement proceedings against the UK.

Second, the CJEU’s temporal jurisdiction might also extend to give a preliminary ruling on the UK’s financial obligations arising out of its departure. The CJEU’s interpretation of EU law is likely binding on the UK with respect to obligations that arose prior to the UK’s withdrawal from the EU. However, a national court would need to refer such a dispute to the CJEU in the first place. Given that this is a dispute between the EU27 and the UK, it is not straightforward how this dispute would appear before a national court of an EU member state (given that the individuals and companies that are the ultimate beneficiaries will look to the EU, rather than the UK for payment, for example retired Commission officials).

Of course, it would be possible for the EU27 and the UK to agree on another method of dispute settlement, such as inter-state arbitration. However, to the extent that the CJEU is likely to have temporal jurisdiction over the UK’s financial obligations arising from its membership in the EU, the EU has few incentives to opt for inter-state arbitration instead. Finally, the EU has allegedly also considered the International Court of Justice as a possible forum for such a dispute – but this is unlikely to be the EU’s preferred option.

The ICJ would only have compulsory jurisdiction to the extent that the UK’s optional clause declaration and the optional clause declarations of other EU member states overlap (the minimum common denominator). A case against the UK would face several hurdles in the ICJ, though these may be surmountable. First, as is well known, only states could be claimants (rather than the EU in its own rights). Second, there is no existing example of multiple states bringing a case against a state in the ICJ. Third, six EU member states have not made an optional clause declaration in the first place, and two further EU member states are members of the Commonwealth (Malta and Cyprus). As a result, the carve out in the UK’s optional clause declaration for disputes with other Commonwealth member states would apply.