Henry Brooke explores the legal and financial implications of leaving the EU
Although I do not pretend to be an expert on EU law, I am writing this blog in an effort to explain in fairly simple terms some of the issues surrounding Brexit that are currently being canvassed by way of megaphone diplomacy.
By the referendum result we opted by a narrow majority for Brexit. The majority were seduced by a menu without prices – or, perhaps, by a menu with false prices. Any siren voices that suggested that it might be rather expensive to leave were pilloried for proselytising for Project Fear.
Part of the current brouhaha relates to the payments, if any, the UK should make to the EU in addition to their regular subscriptions up to the date of leaving.
The usual rule, if nothing else is agreed, is that when what lawyers describe as a joint venture comes to an end the assets and liabilities will be valued, and the departing partner will pay, or receive, what is due after this account has been taken.
In contrast the rules of a members’ club very often provide by express agreement that a member may resign, and when his/her membership comes to an end he/she will no longer be entitled to any of the assets of the club or be liable for any of the club’s liabilities.
The rules form the basis of the membership agreement in such a case, and there is often an assumption that a retiring member will be replaced immediately, or fairly soon, by a replacement member who is willing to take over his/her responsibility for continuing liabilities.
Ideally, as in such a case, the joint venture agreement will provide for what is to happen, but it is usual to have a default arrangement in place (in the case of England and Wales, the Partnership Act) which provides in express terms what is to happen in default of any express agreement.
In the case of an international treaty, the default position is established by the Vienna Convention on the Law of Treaties which 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.
Although two of the members of the EU have never ratified the Vienna Convention, the European Court of Justice, which resolves any ambiguities in the meaning of the EU treaties, has ruled that this does not matter, because the Convention reflects what was already binding as a matter of customary international law.
This, then, was the position until the beginning of the recent ill-starred attempt to create a self-contained constitution for the EU, and when that effort was abandoned, the member states agreed to adopt a newly drafted provision which provides for what is to happen if one or more of them decides to withdraw from the Union. This is Article 50 of the EU Treaty, inserted by the Lisbon Treaty less than ten years ago.
So far as is relevant, this provides:
- Any member state may decide to withdraw from the Union …
- 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…
- 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 ….
When the European Union Committee of the House of Lords produced a report two months ago on “Brexit and the EU Budget”, it suggested that if a withdrawal agreement was not reached, there appeared to be a strong argument for concluding that all EU law would simply cease to apply when the UK ceased to be a member, and that the UK would be subject to no legally enforceable obligation to make any financial contribution at all.
This is the argument on which David Davis was relying in the discussion at the recent notorious dinner party at 10 Downing Street which led to a version of events being leaked to a reputable German newspaper three days later. The EU’s representatives not unnaturally riposted that if that were true the UK could not expect many favours when the time came to negotiate the terms of any future relationship.
The House of Lords included the legal advice it received as Appendix 3 to its report. This was to the effect that the provisions of Article 50 entirely replaced the provisions of Article 70 of the Vienna Convention which I have quoted above.
This would have the effect that any negotiation over the terms of withdrawal would be conducted in a complete vacuum, with no guiding principles of any kind.
More recently, Dr Michael Waibel, a Fellow of Jesus College Cambridge specialising in international law, has suggested that the House of Lords has got this wrong. He says that Article 50 is primarily concerned with procedure. For instance, the usual default rule (Article 56(2) of the Vienna Convention) provides for a 12 month notice period, and this is to be two years in the case of the EU. Both the Vienna Convention and the new EU provision expressly provide that a member state will be under no continuing obligation after it leaves. But, he says, there is nothing in Article 50 which nullifies the effect of Article 70(2) of the Vienna Convention, which provides that the termination of the treaty
“does not affect any right, obligation or legal situation of the parties created through the execution of the treaty prior to this termination.”
This is the basis for the EU’s claim that the UK cannot simply walk away from the liabilities it incurred while it was still a member:
to contribute to the pensions of current or retired staff,
to pay its share of the cost of major capital projects (such as rail and road construction costs) with long lead times,
to contribute its share of the commitment it made towards European structural and investment funds,
to pay its share in honouring any guarantees which may be called upon in due course,
and so on.
The departure of a member state which was contributing about one eighth of the total budget will leave a massive hole in the EU’s finances, so that it is hardly surprising that the imaginations of the remaining 27 are working overtime to add more items to the EU’s Christmas tree of financial demands.
And into the mix are also being poured the unknown cost of moving two EU agencies from London to the Continent, and the UK’s counterclaim for its share of the value of the EU’s assets at the moment of its departure (a claim which the House of Lords Committee was unwilling to recognise).
A Brussels thinktank has recently assessed our potential net liabilities at between 25 billion and 65 billion euros, and some of the numbers have grown since then. This has all the ingredients of an international dispute on a truly massive scale. The sums are colossal, the scope for arguments seemingly endless, and negotiations which call for extremely close attention to detail are being hampered by political name-calling, which do nothing to make any settlement easier to achieve.
The Government, who have been monotonously intoning that Brexit means Brexit, will have been receiving private advice as to the strength of its legal case in the negotiations, and I doubt if it makes very comfortable reading.
In practical terms (because time must be allowed for securing the agreement of the European Parliament and a qualified majority of the 27 member states) there were 18 months available for negotiating an agreement after the Government triggered Article 50 at the end of March.
It is hardly surprising that the Prime Minister is saying that no deal would be better than a bad deal, if she recognises that the EU may hold out for the payment of sums of the magnitude that are being suggested. On the other hand, a recent speech by the last Permanent Secretary at the Foreign & Commonwealth Office provides a vivid reminder of what the uncomfortable consequences of “no deal” would be. And Mr Waibel has also suggested that the Court of Justice of the EU might still have a continuing jurisdiction to decide issues relating to the UK’s liabilities under the Treaties, even though its jurisdiction was otherwise ended by the UK’s withdrawal.
In short, we seem to be between the devil and the deep blue sea, whatever the apparent insouciance of our current political leaders.
This blog first appeared on Henry Brooke’s personal blog: https://sirhenrybrooke.me/
3 thoughts on “Brexit musings: The cost of withdrawal”
There are two ways to view a member leaving any organisation. If the organisation has no existence independent of its members, like an unincorporated partnership, then the organisation ceases to exist and the remaining partners must effectively form a new organisation among themselves. In such an event, the assets and liabilities of the organisation ought to be valued, and the departing member is entitled to his share of any surplus and liable for his share of any deficit.
If, on the other hand, the organisation has a legal existence independent of its members, like a limited company, the resigning member leaves with no obligations beyond those clearly specified.
It seems clear that the European Union is an organisation in the latter category. If, however, it insists on claiming beyond what is clearly specified by the treaties or any other contracts, the United Kingdom would surely not be unjustified in seeking a general valuation of its assets and liabilities. Since, in theory, the assets of the EU should be greater than its liabilities, that should leave the UK with a notional surplus – but one suspects that is not a liability the EU would want put to the test!
The authority of the ECJ to make the ultimate decision on this ends automatically in March, 2019, unless an alternative agreement is made in the meantime as a result of the negotiations.
Sorry – typo. ‘Not a liability the EU would want put to the test’ should read ‘not a theory the EU would want put to the test.’
This is politics not law. Whatever the legalities, if talks over “alimony” break down, trade and other issues will not even be discussed officially. Bad for the EU; catastrophic for UK.
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