The UK’s obligations under the EU Budget on withdrawal from the EU

Brexit and the EU budget Contents

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Appendix 3: Advice by the Legal Adviser to the European Union Committee—The UK’s obligations under the EU Budget on withdrawal from the EU without a withdrawal agreement

https://www.publications.parliament.uk/pa/ld201617/ldselect/ldeucom/125/12511.htm

Legal Opinion

Introduction

1.This advice concerns the UK’s legal obligations arising under EU Budget and related financial instruments on its withdrawal from the EU. It takes account of the evidence provided to the inquiry by Professor Tridimas and Dr Sánchez-Barrueco, and Rhodri Thompson QC.

2.Two issues fall to be determined in the light of the evidence received. The first is whether Article 50 of the Treaty on European Union (TEU) should be interpreted in the context of the 1969 Vienna Convention on the Law of Treaties (the Vienna Convention). The second is the legal effect of Article 50 TEU on the UK’s obligations under the EU budget, and related financial instruments, after its withdrawal from the EU.

Should Article 50 TEU be determined in the light of the Vienna
Convention?

The relationship between EU law and international law

3.The Vienna Convention is part of international law, which is comprised of international treaties for the most part, but also of customary international law (the practice of inter-State relations), and the case law of international courts and tribunals. The Vienna Convention is an international treaty which in 1969 consolidated in large part customary international legal practice on treaty-making between States.

4.By contrast, the EU has what the Court of Justice of the EU (CJEU) describes as an “autonomous legal order”, which is separate and distinct from international law, and over which the CJEU has sole jurisdiction.225 Within that autonomous legal order is a “hierarchy of norms”, at the pinnacle of which are the EU Treaties. From these all EU legislation derives: every Regulation, Directive or Decision is made pursuant to an Article in the EU Treaties. The EU Charter of Fundamental Rights has the same status as the EU Treaties.

5.The relationship between EU law and international law is now set out in the EU Treaties themselves, as well as the judgments of the CJEU. In a judgment in 1992226 the CJEU ruled that “the European Community must respect international law in the exercise of its powers.” Since the entry into force of the Lisbon Treaty in 2009, Article 3(5) TEU declares that the EU “shall contribute to [ … ] the strict observance and the development of international law.” Consistent with this, CJEU judgements on international law and EU law, though few in number, have tended to interpret EU law in the light of relevant international law when the rules in each legal jurisdiction overlap.227

6.Importantly, the CJEU has in the past relied on the Vienna Convention to interpret EU law. In a judgment in 2010228 it stated that, whilst the Vienna Convention did not legally bind the EU, or all of its Member States,229 provisions of the Vienna Convention that reflected customary international law were binding on the EU:

“The Court has held that, even though the Vienna Convention does not bind either the Community or all its Member States, a series of provisions in that convention reflect the rules of customary international law which, as such, are binding upon the Community institutions and form part of the Community legal order.”230

7.In this case, the CJEU ruled that the EU must respect the principles of customary international law set out in Article 34 of the Vienna Convention.231

8.It follows, therefore, that that the meaning of Article 50 TEU, should, as a matter of EU law, be determined in the light of rules laid down in the Vienna Convention, to the extent that those rules reflect customary international law.

The relationship between Article 70 of the Vienna Convention and Article 50 TEU

9.Both Articles set out the consequences of withdrawing from a treaty, the former under international law, the latter under EU law. For the purposes of this advice it is assumed that Article 70 of the Vienna Convention reflects customary international law.

10.Article 70, entitled “Consequences of the termination of a treaty”, provides:

“1. 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:

a) releases the parties from any obligation further to perform the treaty;

b) does not affect any right, obligation or legal situation of the parties created through the execution of the treaty prior to its termination.”

11.The general rule of international law, codified in Article 70(1)(b), is, therefore, that the termination of a treaty does not affect any right, obligation or legal situation which arise as a result of participation in that treaty. This applies as much to the remainder States participating in the treaty as to the withdrawing State. In other words, existing rights and obligations under the treaty must be respected until they are fulfilled.

12.The relevant extracts of Article 50 TEU are as follows:

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

“2. [ … ] 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. [ … ]”

“3. 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.”

13.From these provisions it is clear that:

(a)a Member State can unilaterally withdraw from the EU (paragraph 1);

(b)it can do so on the basis of an agreement “setting out the arrangements for its withdrawal” and taking account of the future relationship (paragraph 2);

(c)but it can also do so without an agreement (“failing that”) (paragraph 3);

(d)the withdrawal takes place either when the withdrawal agreement enters into force, or two years after the notification to withdraw, whichever is the earlier (paragraph 3); and

(e)the two year period can be extended by agreement between the withdrawing State and the other EU Member States (paragraph 3).

14.Unlike Article 70 of the Vienna Convention, Article 50 TEU does not preserve in terms the rights, obligations or legal situation of the withdrawing State that have arisen as a result of participation in the EU. Nor does it preserve the rights, obligations or legal situation of the EU as a result of the withdrawing State’s participation in the EU. In other words, there is no express provision in Article 50 which states that existing rights and obligations under the EU Treaties must be respected until they are fulfilled, by both the withdrawing State and the EU. On first reading, therefore, there may appear to be a conflict between Article 70 of the Vienna Convention and Article 50 TEU.

15.On closer inspection, however, it is clear that there is no such conflict. Article 70(1) of the Vienna Convention is introduced by the all-important exception “unless the treaty [in question] otherwise provides”. The Commentary on the draft of this Article, prepared by the UN’s International Law Commission, makes clear that the intention of these words is to ensure that the rules laid down in the treaty in question prevail over Article 70 of the Vienna Convention:

“Clearly, any such conditions provided for in the treaty or agreed upon by the parties must prevail, and the opening words of paragraph 1 of the article (which are also made applicable to paragraph 2) so provide”.232

16.The rules on withdrawing from a treaty in Article 70(1) only apply, therefore, if the treaty in question does not have any provisions on withdrawal. Manifestly, this is not the case for the EU Treaties: Article 50 sets out the provisions on withdrawal from the EU.

17.Reliance has been placed on Article 5 of the Vienna Convention as a further reason why the Vienna Convention is not relevant to the interpretation of Article 50 TEU. This Article provides:

“The present Convention applies to any treaty which is the constituent instrument of an international organization and to any treaty adopted within an international organization without prejudice to any relevant rules of the organization.”

18.If the expression “relevant rules of the organisation” were to be read to include rules laid down by the treaties establishing that organisation, Article 5 would add further force to the conclusion that there is no conflict between the Vienna Convention and Article 50 TEU. That said, the wording of Article 70(1) alone is enough to lead to that conclusion.

The effect of Article 50 TEU on the UK’s rights and obligations under the EU budget after its withdrawal from the EU

19.It follows from the above that Article 50 TEU does not need to be interpreted in the light of the Vienna Convention, but on its terms alone.

20.The analysis of Article 50 TEU above demonstrates that two options for withdrawal from the EU are possible. The first is withdrawal on the basis of an agreement. By using the phrase “setting out the arrangements for its withdrawal”, the drafters of Article 50 TEU no doubt intended the agreement to cover all of the issues whose resolution is necessary for an orderly withdrawal from the EU. In Vienna Convention terms, “any right, obligation or legal situation of the parties created through the execution of the treaty prior to its termination”.233 Such issues would include ongoing legal and financial obligations under the Own Resources Decision, the Multiannual Financial Framework, and the Annual Budget. The withdrawal agreement could also include a dispute resolution mechanism, in case of future disagreement. Once the withdrawal agreement enters into force, Article 50(3) TEU makes clear that the EU “Treaties shall cease to apply to the State in question.”

21.The second option is stark: if no agreement is reached within two years, the effect is exactly the same as if a withdrawal agreement had been agreed and entered into force: the EU “Treaties shall cease to apply to the State in question” (Article 50(3) TEU). The second option allows, therefore, for the most disorderly of withdrawals. The travaux préparatoires explain that the two-year cut-off was inserted to ensure that the right of a Member State to withdraw from the EU was unilateral, rather than dependent on the conclusion of a withdrawal agreement. Indeed, the drafters of Article 50 foresaw the two-year period being extended:

“The Praesidium considers that, since many hold that the right of withdrawal exists even in the absence of an explicit provision to that effect, withdrawal of a Member State from the Union cannot be made conditional upon the conclusion of a withdrawal agreement. Hence the provision that withdrawal will take effect in any event two years after notification. However, in order to encourage a withdrawal agreement between the Union and the State which is withdrawing, Article I-57 [now I-60] provides for the possibility of extending this period by common accord between the European Council and the Member State concerned.”234

22.The expression the “Treaties shall cease to apply to the State in question” in Article 50(3) TEU is unqualified by any condition about ongoing liabilities under EU law, no doubt because this is exactly what the withdrawal agreement is intended to cover. The meaning of the words are clear: the foundation of the whole edifice of EU law—the acquis communautaire—is abruptly removed for the State in question. Given that the EU Treaties are at the pinnacle of the hierarchy of EU norms, once they cease to have effect, the legal base for every aspect of the UK’s membership of the EU comes to an end. This will include all of its legal obligations under the Own Resources Decision, the Multiannual Financial Framework, and the Annual Budget. It will also include the supremacy of EU law over UK law, and the jurisdiction of the CJEU over the UK.235

23.It follows that, under EU law, Article 50 TEU allows the UK to leave the EU without being liable for outstanding financial obligations under the EU budget, unless a withdrawal agreement is concluded which resolves this issue. (This advice does not address the political consequences of the UK withdrawing from the EU without settling outstanding payments to the EU budget and related financial instruments.)

The legal liability of the UK in the event of a withdrawal without an
agreement under international law and national law

Under international law

24.EU Member States may seek to bring a case against the UK for the payments of outstanding debts under principles of public international law, such as acquired rights, but international law is slow to litigate and hard to enforce. In addition, it is questionable whether an international court or tribunal could have jurisdiction. Article 344 TFEU prohibits EU Member States from submitting the legal interpretation of the EU Treaties to a court other than the CJEU:

Member States undertake not to submit a dispute concerning the interpretation or application of the Treaties to any method of settlement other than those provided for therein.

25.In terms of substance, a case against the UK in an international court or tribunal would be hindered by the fact that Article 50 does not conflict with the relevant rule of international law on withdrawal from treaties, namely Article 70(1)(b) of the Vienna Convention.

Under national law

26.The Supreme Court in Miller236 has made clear that once the UK withdraws from the EU, EU law will cease to be a source of domestic law:

“Upon the United Kingdom’s withdrawal from the European Union, EU law will cease to be a source of domestic law for the future (even if the Great Repeal Bill provides that some legal rules derived from it should remain in force or continue to apply to accrued rights and liabilities), decisions of the Court of Justice will (again depending on the precise terms of the Great Repeal Bill) be of no more than persuasive authority, and there will be no further references to that court from UK courts. Even those legal rules derived from EU law and transposed into UK law by domestic legislation will have a different status. They will no longer be paramount, but will be open to domestic repeal or amendment in ways that may be inconsistent with EU law.”237

27.It remains to be seen to what extent the Great Repeal Act repeals national legislation implementing the UK’s obligations under the EU budget and related financial instruments. It can be assumed, however, that the Great Repeal Act will be amended to reflect the outcome of the negotiations, including the UK Government’s view on whether it is legally bound to continue paying into the EU budget. It can also be assumed that the Great Repeal Act will repeal the European Communities Act 1972 and so end the jurisdiction of the CJEU over the UK. The Government’s White Paper, The United Kingdom’s exit from, and new partnership with, the European Union, makes this clear.238

28.Whatever the content of the Great Repeal Bill, it will not allow the EU or its Member States to sue in the UK courts for outstanding contributions under the EU budget.

The legal liability of the EU institutions in the event of a withdrawal without an agreement

29.Any individual, company or organisation can challenge a decision of the EU institutions before the CJEU. Nationality of a Member State of the EU is not a prerequisite. To bring a case they would have to show that they are individually and directly affected by the decision in question.239 For example, UK organisations whose EU funding was stopped could bring a case. It may be, however, that the CJEU would rely on Article 50 TEU as allowing all EU funding programmes to be stopped in relation to UK institutions, if it decided that that the legal obligation to do so ended with the UK’s withdrawal.

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225 See, for example, Opinion 1/76, or case C-459/03 Commission v Ireland

226 Case C-286/90, Poulsen and Diva Navigation

227 That said, when international law is in direct conflict with a fundamental right safeguarded in the EU Treaties or EU Charter, the CJEU has held that, in order to preserve the autonomy of EU law, the EU Treaties prevail. See Cases C-402 and 415/05 Kadi

228 Case C-386/08 Firma Brita

229 France and Romania have not ratified the Vienna Convention.

230 Para 42. See also C-162/96, Racke, paragraphs 24, 46 and 46

231 Article 34 states that treaties do not impose any obligations or confer any rights on non-party States without their consent.

232 International Law Commission, Draft Articles on the Law of Treaties with commentaries,1966, p 265: http://legal.un.org/ilc/texts/instruments/english/commentaries/1_1_1966.pdf [accessed on 13 February 2017]

233 Article 70(1)(b)

234 Explanatory notes on the Treaty Establishing a Constitution for Europe

235 It is possible under Article 273 TFEU for the CJEU to be asked to interpret Article 50 TEU before the UK withdraws by means of “a special agreement”, but the UK would have to give its agreement to this.

236 R (On The Application of Miller and Another) (Respondents) v Secretary of State For Exiting The European Union (Appellant), [2017] UKSC 5

237 Paragraph 80

238 HM Government, The United Kingdom’s exit from and new partnership with the European Union, Cm 9417, (February 2017), pp 7–8: https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/589191/The_United_Kingdoms_exit_from_and_partnership_with_the_EU_Web.pdf [accessed 21 February 2017]

239 Article 263 TFEU: “Any natural or legal person may […] institute proceedings against an act addressed to that person or which is of direct and individual concern to them, and against a regulatory act which is of direct concern to them and does not entail implementing measure.”

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