Brexit for beginners. A primer.

 

Now that Mrs May has seen off the challenge to her leadership of the Conservative Party, it may prove fruitful for all parties to take stock with where we are with the process of the UK leaving the EU – what some have called ‘Brexit’.

There are two stages in this process. There is the withdrawal from the EU itself and there is the negotiation of a new trade agreement between the UK and the EU. The latter cannot commence until after the UK has exited the EU but the parties can give some indication of their future intent. This is what the framework declaration does. The document that is intended to have legally binding effect is the Withdrawal Agreement which governs the terms on which the UK exits the EU. If there is no agreement, then there is a ‘cliff edge’ Brexit – with all that entails by way of possible shortages of food and medicine, lorry parks in Kent, uncertainty around the rights of UK citizens living and working in EU Member States.

The Withdrawal Agreement provides for an implementation period from exit day to 31.12.2020 during which time the UK will remain subject to all the rules and legislation of the EU but will not be able to participate in EU institutions – so no UK MEPs. In this period the UK and the EU will attempt to negotiate a trade deal. The UK will be free to negotiate trade deals with third party states but will be unable to implement them. The implementation period may be extended provided notice is given before 1 July 2020.

The three salient elements of the withdrawal agreement. (1) Reciprocal guarantees for the rights of UK citizens living and working in EU Member States and for citizens of EU Member States living and working in the UK. (2) Financial settlement of the UK’s accrued obligations as a Member of the UK, such as pensions for EU employees, in the period prior to exit day. This is to be paid as the obligations would have accrued had the UK remained a Member. Further financial payments will be required for the implementation period, including any extension. (3) A backstop in the event that no trade agreement has been reached by the end of the implementation period. This is contained in the Northern Ireland Protocol.

The third element is what is causing all the problems. At the end of the implementation period the UK as a whole would remain in a customs union with the EU and in addition Northern Ireland would be subject to some of the rules of the single market which would necessitate checks being carried out in the EU on certain classes of goods going into Northern Ireland.

The backstop is intended to be temporary and the Protocol states that it is not intended that it should form the basis of a permanent arrangement between the UK and the EU. On entering the backstop the UK would be no longer subject to the EU’s four freedoms, notably free movement of workers. The UK would no longer make payments to the UK other than in respect of its responsibility for accrued liabilities incurred during its period of membership. The UK would be constrained in acting on any trade deals with third party states as it would be prohibited from lowering tariffs below the EU’s common external tariff, and would also be prevented from obtaining a competitive advantage with the EU by lowering environmental standards[1], or labour and social standards[2], below those of the EU.

The backstop could be terminated by joint agreement of the UK and the EU or by reference to the arbitration proceeding established to deal with disputes arising under the agreement. It could not be unilaterally terminated by the UK. Although the technology for this does not currently exist, it is possible that in the future ‘maximum facilitation’ would be available to enable the necessary border checks without the creation of any hard border infrastructure. In this event, the rationale for the backstop would go and it would become possible for it to be terminated by either party either by reference to arbitration under the backstop procedure or by reference to the provisions of the Vienna Convention on the Law of Treaties 1969 that deal with the termination of treaties. It should be noted that the EU is unlikely to want the backstop to last for very long as it may give Northern Ireland, which will remain in the EU single market, an advantage over the Republic of Ireland. See paragraphs 20 and 21 of the Attorney General’s advice to the Prime Minister of 13 November 2019.

The question for any Prime Minister, whether they be Conservative, Labour, Liberal Democrat will be the same. Is there any alternative to the Withdrawal Agreement concluded by Prime Minister May? Absent any such alternative or agreement to the Withdrawal Agreement, the legal position is that there will be an abrupt exit from the EU at 23.00 on 29 March 2019 – with all the attendant chaos of trade disruption, shortages of food and medicines, lorry parks on the M20, chaos as to citizens’ rights.

Let us consider some of these alternatives.

– Norway plus. This cannot be negotiated now but could be on the table in the implementation period. It would require acceptance of freedom of movement of workers and continued financial contributions to the EU,  albeit at a lower level than the UK’s contributions as a member of the EU, and would constrain the UK’s ability to conclude trade deals with third party states. To quote the last words of Kenneth Williams ‘Oh, what’s the bloody point?’ We might as well remain in the EU.

–  Stay in the European Economic Area. We might argue that the UK remains a party to the European Economic Area Agreement on leaving the EU, but under article 126 this will have no effect. This provides: “The Agreement shall apply to the territories to which the Treaty establishing the European Economic Community is applied and under the conditions laid down in that Treaty, and to the territories of Iceland, the Principality of Liechtenstein and the Kingdom of Norway.” The Agreement would not apply in the territory of the UK. Furthermore, without a customs agreement there would still be the problem of the border in the Northern Ireland between the UK, a non-member state, and the Republic of Ireland, a member state.

– Revocation of the notice of withdrawal under article 50. The UK could stay in the EU either permanently or temporarily to buy time to renegotiate, although the latter option would seem to be ruled out by the caveat in the AG’s opinion that such withdrawal of the notice of withdrawal should not be ‘abusive’.

– Suspend the article 50 notice to allow more time for negotiation. Fine, if every other EU Member State agrees.

– Renegotiate the withdrawal agreement. The EU Member States have indicated that this will not happen. The most that seems likely is an insertion into the Framework Declaration of an intention to continue negotiating a trade agreement when the UK enters the backstop.  Maybe some encouraging words about maximum facilitation when it comes into existence. However, who knows, Prime Minister May, might be able to pull a unicorn out of the hat –  or Prime Minister Corbyn? This is what the Prime Minister has come back with today after her meeting with the EU>

“The EU made clear:

  • that it is their firm determination to work speedily on a future relationship or alternative arrangements which ensure no hard border by 31 December 2020 so that the backstop will not need to be triggered.
  • If the backstop was ever triggered, it would apply only temporarily and the EU would use its best endeavours to negotiate and conclude expeditiously a subsequent agreement that would replace the backstop.
  • That the EU stands ready to embark on preparations so that negotiations on the future partnership can start as soon as possible.

As formal conclusions, these commitments have legal status and therefore should be welcomed.”

– Run a second referendum. This would require agreement on the questions to be asked (three or two?) and on the voting system to be used (first past the post or single transferable vote or alternative vote?). Time is tight, as the old song goes, so an extension to article 50 would be required, but not too long otherwise there is the problem of the scheduled elections to the European Parliament on 23 May 2019.

 

Parliament has to act. If it fails to do so, we have the ‘Thelma and Louise’ Brexit of crashing out without an agreement with the EU, as surely as the sun will rise on 30 March 2019.

 

[1] Ireland /Northern Ireland Protocol. Annex Four. Article 2.

[2]  Ireland /Northern Ireland Protocol. Annex Four. Article 4.

The backstop and the 1969 Vienna Convention on the Law of Treaties.

Two pieces of good news for Prime Minister May yesterday. She survived the ’48 Crash’ which precipitated a vote of confidence in her by Conservative MPs – which she won convincingly. Ouseley J threw out the application for judicial review of the article 50 notification brought by Susan Wilson. However, the problem of the backstop still remains and the Prime Minister is now attempting to secure an amendment to the Draft Withdrawal Agreement from the EU on this issue.

This blog’s attention now turns to the public international law implications of the ‘backstop’ in the Northern Ireland Protocol. Sir Edward Leigh MP is of the view that the 1969 Vienna Convention on the Law of Treaties will enable the UK to terminate the backstop on the ground of a fundamental change of circumstances under article 62.

https://www.edwardleigh.org.uk/news/full-stop-backstop

This is disputed by https://policyexchange.org.uk/wp-content/uploads/…/How-to-Exit-the-Backstop.pdf which states:

“In international law, a fundamental change of circumstances is normally understood as relating to something external to the treaty. Moreover, the party invoking fundamental
change of circumstances must also show that the change “was not foreseen by the parties” (Article 62(1), VCLT). In this case, the possibility of the backstop becoming permanent is already foreseen and is indeed already causing concern. On the other hand, this foresight is also in tension with the stated intention that the Protocol is to apply only temporarily.”

It is possible that if a technically feasible system of maximum facilitation for frictionless border checks comes into existence, the backstop would be terminable without agreement with the EU under this article.

It would also be terminable under Article 60(1) of the VCLT  which provides:
“A material breach of a bilateral treaty by one of the parties entitles the other to invoke the breach as a ground for terminating the treaty or suspending its operation in whole or in part.”
Article 60(3)(b) of the VCLT provides that a material breach consists in “violation of a provision essential to the accomplishment of the object or purpose of the treaty”.  Article 2(1) of the Northern Ireland Protocol to the Draft Withdrawal Agreement provides for parties to use their “best endeavours”  to conclude “an agreement which supersedes this Protocol in whole or in part”. This obligation is fundamental to the object and purpose of the Protocol and a refusal by the EU to accept a maximum facilitation system could be regarded as a ‘material breach’.

 

More Lex Brexitaria. CJEU OKs AG’s opinion.

The Court of Justice has just announced its decision in Wightman. It confirms the opinion of the Attorney General published last week that the UK is free to withdraw its article 50 notice before 29 March 2019.

In today’s Press Release it is stated.

“In today’s judgment, the Full Court has ruled that, when a Member State has notified the
European Council of its intention to withdraw from the European Union, as the UK has
done, that Member State is free to revoke unilaterally that notification.
That possibility exists for as long as a withdrawal agreement concluded between the EU
and that Member State has not entered into force or, if no such agreement has been
concluded, for as long as the two-year period from the date of the notification of the
intention to withdraw from the EU, and any possible extension, has not expired.
The revocation must be decided following a democratic process in accordance with
national constitutional requirements. This unequivocal and unconditional decision must be communicated in writing to the European Council. Such a revocation confirms the EU membership of the Member State concerned under terms that are unchanged as regards its status as a Member State and brings the withdrawal procedure to an end.”

Another instalment in the Lex Brexitaria is expected later today in the judicial review application concerning article 50 in the Administrative Court which was heard last Friday.

 

In the light of the judgment, the current Prime Minister Mrs May has made  a statement at 15.30 in which she  announced a delay to tomorrow’s meaningful vote in the House of Commons on the Draft Withdrawal Agreement. The Prime Minister hopes to use this delay to address the concerns of MPs regarding the backstop. She could start by getting them to read paragraphs 20 and 21 of the Attorney General’s advice which points out that Northern Ireland will be in a more advantageous position with the EU than the rest of the UK in the event the UK enters the backstop.

Advocate General comes out for unilateral right to revoke article 50 notice (terms and conditions apply)

 

Today Advocate General Campos Sánchez-Bordona has given an opinion[1] that Article 50 TEU allows the unilateral revocation of the notification of the intention to withdraw from the EU, until such time as the withdrawal agreement is formally concluded, provided that the revocation has been decided upon in accordance with the Member State’s constitutional requirements, is formally notified to the European Council and does not involve an abusive practice. Revocation is only possible within the two year period that starts when the intention to withdraw is notified.

The decision of the Court of Justice on this matter is expected later this month.

 

[1] Advocate General’s Opinion in Case C-621/18 Wightman and Others v Secretary of State for Exiting the European Union

A couple more cases in the ‘Lex Brexitaria’. 

 

First, last Monday in its Judgment in Case T-458/17 Shindler and Others v Council of the European Union the Court of Justice of the European Union held that the application for annulment of the decision authorising the opening of Brexit negotiations, brought by thirteen British citizens who live in EU Member States other than the UK, was inadmissible. The applicants based their claim on the fact that, as UK citizens living in another Member State, they were unable to vote in the 2016 referendum. They claimed that this had a direct impact on the rights which they derive from the Treaties. and sought to annul the act by which the Council accepted the UK’s notification of intention to withdraw from the EU. The Court noted that, although the decision of the Council authorising the opening of the Brexit negotiations had legal effects as regards the relations between the EU and its Member States and between the EU institutions, in particular the Commission, which was authorised by that decision to open negotiations for an agreement with the UK, it did not directly affect the legal situation of the applicants. The action was dismissed as inadmissible since the Council’s decision did not produce binding legal effects capable of affecting the interests of the applicants by bringing about a distinct change in their legal position.

Second, in Susan Wilson v The Prime Minister this Friday, 7 December, the Administrative Court is due to hear an application for judicial review of the UK government’s giving of notice under art.50 on the grounds that “facts recently revealed since the Prime Minister exercised her power under s. 1 of the European Union (Notification of Withdrawal) Act 2017(“the 2017 Act”) to notify the European Union (“EU”) of the UK’s intention to leave the EU show that the 2016 referendum (“the Referendum”) on whether the UK should remain a member of the European Union (“the EU”) was vitiated by illegality and/or unlawful misconduct.” This is particularised with reference to the recent finding by the Electoral Commission that serious offences were committed by the designated campaign for leaving the EU and by others, in breach of the statutory framework established by Parliament for the Referendum. The applicants are seeking a declaration that the result of the EU Referendum is invalid and asking for the decision of the Prime Minister to invoke Article 50 to be quashed.

And we still await the CJEU’s decision on whether an article 50 notice can be unilaterally withdrawn by the Member State that gives the notice.

Where is General Average?

Jurisdiction decisions in the shipping context follow each other in close succession. Yesterday we had another, from Males J, of some interest to insurers: namely, Griffin Underwriting Ltd v Varouxakis (The Free Goddess) [2018] EWHC 3259 (Comm).

The Free Goddess, a 22,000 dwt bulker owned by Freeseas, was seized by Somali pirates while en route to Thailand with steel coils. K & R insurers Griffin, based in Guernsey but doing business in London, paid out something over $6 million to free her, whereupon she sailed to Oman. Griffin clearly had a right to take over from Freeseas a pretty cast-iron GA claim against cargo interests: on arrival it duly entered into a settlement agreement with Freeseas under which Freeseas agreed to furnish all assistance, including preservation of security, in claiming GA and also to account to Griffin for all sums received on that basis. GA, as might be expected, was settlable and payable in London.

According to Griffin’s (as yet unestablished) allegations, Freeseas did no such thing. Instead of the obvious course of oncarrying the cargo to Thailand and claiming GA in due course, it sold the ship in Oman, destroying any security for GA and providing cargo with a counterclaim for damages which was likely to dwarf the GA liability in any case. In addition it had allegedly trousered a large sum in interim GA contributions without accounting for it. 

Freeseas not being worth powder and shot, Griffin sued one Ion Varouxakis, the Greek-domiciled owner of the company, for inducing it to break the settlement agreement. They alleged that the damage had been suffered in London and therefore they could invoke Art.7, the tort article of Brussels I Recast. Mr Varouxakis insisted that he could only be sued in Greece, arguing for good measure that this was a suit by an underwriter in a matter relating to insurance under Art.14, so the other exceptions did not apply.

In fact Mr Varouxakis was held to have waived any jurisdiction point, so the claim is going ahead in London anyway. But Males J did go on to give a view on the other points. On the issue of the loss of the right to GA, he regarded the issue of where the loss had been suffered as finely balanced, but expressed the view that the direct damage had been suffered in Oman, where he opined that the right to enforce GA had been effectively lost: the fact that GA had not been paid in London he regarded as a remoter consequence and not in account because of decisions such as Kronhofer v Mayer [2004] All ER (EC) 939. So there would have been no jurisdiction. On the other hand, he thought the loss had been suffered in London as regarded the failure to account, and so would have allowed the claim under that head to go ahead on that head in any event. As for the suggestion that this was a matter relating to insurance, he smartly rebuffed the point: insurance might be the background, but this arose out of an independent settlement agreement.

The second point was fairly obvious: if someone infringes my right to an accounting in London, it is difficult to think of anywhere apart from London where the damage occurs. The third is also welcome: the insurance rules under under Art.14 are ill-thought-out even by Euro-standards, and anything that prevents their becoming any more bloated than they already are can only be a good thing.  

This blog is less sure about the first. Saying the damage occurred in Oman gets pretty close to conflating damage with the act giving rise to it; it also means that the place of the damage in cases of this sort becomes wildly arbitrary, depending on which port a vessel happens to be in at the time. On the other hand, if GA is settled and negotiated in London, it seems fairly convincing to argue that preventing it being settled and paid there causes a direct loss within the Square Mile. Unfortunately, because the claimants won in any case, we are unlikely to see an appeal here. But this shouldn’t be regarded as necessarily the last word.


Brexit. The draft political declaration – and a Spaniard in the works?

The draft political declaration has now been published. The shopping list for determining the shape of negotiations on the future relationship between the UK and the EU, which cannot start until after exit day, has grown from 7 pages to 26 pages. In the maritime sphere there is a brief reference to the UK’s relationship with EMSA in para 65, providing for facilitation of cooperation on maritime safety and security, including exchange of information between EMSA and the UK Maritime and Coastguard Agency, consistent with the UK’s status as a third country. There is nothing on civil jurisdiction.

Fishing opportunities are referred to in paras 73 to 76 with para 75 stating ‘Within the context of the overall economic partnership the Parties should establish a new fisheries agreement on, inter alia, access to waters and quota shares.” There is also some reference to what will be needed to ensure the new agreement is WTO compliant, so that, for example, in line with article V of the General Agreement on Trade in Services the Parties should aim at substantial sectoral coverage, covering all modes of supply and providing for the absence of substantially all discrimination in the covered sectors, with exceptions and limitations as appropriate.

Chapter IX notes that free  movement of persons between the EU and the UK will no longer apply and sets out various non discriminatory mobility arrangements such as confirming commitments to effective family law instruments to which the EU and the UK are party and noting the UK’s intention to accede to the 2007 Hague Maintenance Convention. In case the UK changes its mind on free movement in the future para 54 commits the Parties to consider addressing social security coordination.

A last minute obstacle to the signing of the agreement on Sunday has come with Spain’s objections to article 184 in the draft withdrawal agreement which provides that the EU and the UK will seek to “negotiate rapidly the agreements governing their future relationship” between the official day of withdrawal on 29 March 2019 and the end of a transition period in December 2020. Spain wants to ensure that negotiations on the future of the EU-UK relationship would not include Gibraltar and confine discussions to bilateral arrangements with the UK. No reference is made to this in the political declaration

It still remains uncertain whether the UK Parliament will vote for the withdrawal agreement when it is put before it in the meaningful vote, scheduled for some time early in December. There have been some interesting cultural references to the agreement. Following Dominic Raab’s resignation, various commentators have referenced ‘Hotel California’ with regard to the Backstop, “You can check out any time you like, but you can never leave.” while the Chief Minister of Gibraltar, Fabian Picardo, has referred to a ‘Thelma and Louise’ exit from the EU.

For myself, I go back to Tancredi’s words in ‘The Leopard’ by Giuseppe di Lampedusa. ‘For everything to stay the same, everything must change’.

Government loses challenge to article 50 CJEU reference.

 

 

The Secretary of State for Exiting the European Union sought  permission from the Supreme Court to appeal against the orders of  the Inner House of the Court of Session dated 21 September and 3 October 2018 requesting the CJEU to give a ruling on the following question:

“Where, in accordance with article 50 of the Treaty on European Union, a member state has notified the European Council of its intention to withdraw from the European Union, does EU law permit that notice to be revoked unilaterally by the notifying member state; and, if so, subject to what conditions and with what effect relative to the member state remaining within the European Union?”

Yesterday, the Supreme Court declined to give permission to appeal. Under section 40 of the Court of Session Act 1988 the only basis for an appeal against the orders would be if they constituted “a decision constituting final judgment in any proceedings”. The order did not constitute a final judgment. Under art. 267 of the TFEU under which the preliminary ruling has been requested the purpose of the ruling is “to enable [the national court] to give judgment”. The preliminary ruling is merely a step in the proceedings pending before the national court which is the court which must assume responsibility for the subsequent judicial decision.

The CJEU hears the case on 27 November.

Atlantik (misplaced) Confidence — the saga continues.

Last year we dealt here with Teare J’s meticulous decision in Aspen Underwriting Ltd & Ors v Kairos Shipping Ltd [2017] EWHC 1904 (Comm), in which following the Atlantik Confidence debacle, hull underwriters, having previously paid out on the orders of her owners’ (Dutch) bank under an insurance assignment provision, now sued the bank to recover their money on the basis that the ship had been deliberately scuttled. The issue was whether the bank could insist on being sued in the Netherlands on the basis of Art.4 of Brussels I Recast. The decision was that most claims, including those based on unjust enrichment, had to be brought in the Netherlands. Howver, claims based on tortious misrepresentation and under the Misrepresentation Act 1967 could be brought here. The fact that such claims related to insurance under Art.14 was no bar, since there was no question of a large Dutch bank being a weaker party who, according to Recital 18 to the Regulation, needed to be protected from the machinations of big bad insurers.

The Court of Appeal has dismissed an appeal (seeAspen Underwriting Ltd & Ors v Credit Europe Bank NV [2018] EWCA Civ 2590). On most points it simply said that the Judge had got it absolutely right. The only exception was that it was not open to a judge, consitently with Euro-law, to take the sensible view and decline to apply Art.14 to anyone he thouht was not in fact a weaker party. But this did not matter, since in Kabeg v Mutuelles Du Mans Assurances (Case C-340/16) [2017] I.L. Pr. 31 the ECJ Advocate-General had since Teare J’s judgment accepted that Art.14 could be disapplied to a subrogee “regularly involved in the commercial or otherwise professional settlement of insurance-related claims who voluntarily assumed the realisation of the claim as party of its commercial or otherwise professional activity”. This was near enough to the position of the bank here to justify ignoring Art.14.

Some good news, in other words, for marine underwriters trying to get their money back from those acting for crooks.  On the other had, the moral we advanced in our previous article still stands: all policies in future ought to contain a term, rigorously enforced, stating that no monies will be paid out save against a signed receipt specifically submitting to the exclusive jurisdiction of the English courts in respect of any subsequent dispute respecting the payment or the policy generally.

 

Brexit. It’s the Supremes again!

More judicial fun and games around Brexit – this time arising out of  the Court of Session sending a reference to the CJEU seeking a preliminary ruling on whether EU law permitted unilateral revocation of an article 50 notice of withdrawal by a notifying state.

The CJEU applied its expedited procedure and fixed an oral hearing  for tuesday week, 27 November 2018.

An application was made to appeal to the Supreme Court on 16 October 2018 against the Court of Session’s reference. The First Division of the Inner House refused the application on 8 November 2018.

The Secretary of State for Exiting the European Union has now applied to the Supreme Court for permission to appeal.

Secretary of State for Exiting the European Union (Appellant) v Wightman and others (Respondents)

UKSC 2018/0209