Let us rule out arbitration for post-Brexit UK-EU disputes

The Law Society is to be commended for its series of technical papers on Brexit outcomes. The most recent, which was published last week, describes options for a future UK-EU dispute settlement mechanism, to resolve the inevitable differences that will arise. 

The Law Society wants a system that is completely separate from the Court of Justice of the European Union (CJEU). Most importantly, that system should grant access to individuals and businesses so that they are able to enforce their rights, like that which happens with the CJEU itself, and without undue obstacles placed before them.

The paper goes through possible models, such as that from the European Economic Area and European Free Trade Association (EEA-EFTA) and the EU’s Comprehensive Economic and Trade Agreement with Canada (CETA), and also considers a special mechanism tailored specifically to the coming UK-EU deal. The CETA model falls short because it covers chiefly investor-state disputes, and there are limited means for individuals to bring cases.

Where I part company from the Law Society paper is in its statement that ‘The chosen dispute settlement system should apply across all strands of the final UK-EU deal’. It is too soon to say that. As the paper itself concedes, the prime minister herself has already said that there might be parts of our law which would still be subject to EU law and CJEU jurisdiction, for instance membership of European agencies and data protection law. I would agree with the Law Society’s line only if our final deal does not bring that about.

The implication in the Law Society paper is that disputes should be handled by a court or tribunal, and not by less formal means. I agree with that, too. It is the way that the EU itself is in any case thinking in its free trade agreements with third countries. It issued last year a proposed recommendation authorising the opening of negotiations for a convention establishing a multilateral court for the settlement of investment disputes. This would deal with disputes between investors and the state in which they invested, as is chiefly the case with CETA. It is commonly assumed, though, that the Brexit deal will be much broader than that, and will doubtless include areas covering citizens’ rights as well. We are yet to see how that will fit into the EU’s current model.

The best alternative to a court or tribunal is presumably arbitration. This does not appear very prominently in the Law Society’s thinking. Its paper does not deal with arbitration’s problems, but if you want to see the difficulties to which an arbitration system can lead, the current work of the United Nations Commission on International Trade Law (UNCITRAL) on investor-state disputes will soon educate you.

Its Working Group III is now dealing with Investor-State Dispute Settlement (ISDS) Reform – in other words, the same legal area in which the EU has already expressed its preference for a court. UNCITRAL documents contain all the problems that ISDS arbitration throws up. Some of the ethical issues should concern the legal profession, since our members are involved in the work.

For instance, here is a brief list of what bothers UNCITRAL when the parties appoint arbitrators:

• There is alleged to be insufficient guarantee of independence and impartiality on the part of the individual arbitrators
• The same limited number of individuals are repeatedly appointed as arbitrators
• There is an absence of transparency in the appointment process
• Some individuals act as counsel and as arbitrators in different ISDS proceedings, with the possibility of ensuing conflicts of interest and/or so-called issue conflicts
• There is a perception that arbitrators are less cognizant of public interest concerns than judges holding a public office, and
• Development of third-party funding has given rise to ethical issues, such as possible conflicts of interest between arbitrators and funders and the confidentiality duties of the funder, as well as procedural concerns, such as the possible control or influence of the funder over the arbitration process, and the allocation of costs.

The legal profession has failed to deal with these matters, although they have been discussed for some time. Presumably those currently involved in such arbitration have an interest in the system continuing as it is. But that is a short-sighted view.

For instance, in the current discussions about Brexit, arbitration has not figured highly in the proposed comprehensive solutions. Among other reasons, that may be because the ethical issues have still not been dealt with. Until they are resolved, I imagine that more formal alternatives to international arbitration will continue to be preferred.

The Law Society’s principal conclusion is that the final dispute mechanism should be more robust than those used in current free trade agreements. I would go further and say that it must be a proper court or tribunal.