The House of Lords’ report on the “Brexit bill” : an extremely dangerous development for the coming negotiation

On 4 March 2017, the House of Lords made public a new report about the so-called “brexit bill” – i.e. the final contribution that the United Kingdom should make to the EU budget to honour its previous budgetary commitments before leaving. It is, as usual, a very good technical document. The most important element is an advice from the legal adviser of the European Union Committee that concludes quite drastically that the UK should pay nothing to the EU budget if there is no exit agreement with the other 27 Member States.

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The house of Lords’ report on the “Brexit bill” : an extremely dangerous development for the coming negotiation

On 4 March 2017, the House of Lords made public a new report about the so-called “brexit bill” – i.e. the final contribution that the United Kingdom should make to the EU budget to honour its previous budgetary commitments before leaving[1]. It is, as usual, a very good technical document. The most important element is an advice from the legal adviser of the European Union Committee that concludes quite drastically that the UK should pay nothing to the EU budget if there is no exit agreement with the other 27 Member States.

Of course, this has been commented in various ways. Revealing was Lord Lawson’s immediate reaction : “this definitive answer to the spurious ransom demands of some prominent EU apparatchiks”[2]. For Lord Tebbit, any 60 bn € claim was “sheer nonsense”[3]. On the other side, one of the leading members of the European Parliament, M. Pitella, linked immediately this to the conclusion of a new trade agreement between the EU and the UK[4]. For Mrs Grassle, chair of the European parliament’s budget control committee, it was “like putting the knife on the table”[5].

The legal adviser’s reasoning relies on a very simple basis. There are essentially two relevant texts : Article 70 of the 1969 Vienna Convention on Treaties (VCT) and Article 50 of the Treaty on the European Union (TEU).

According to Article 70 VCT § 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:

1. a) releases the parties from any obligation further to perform the treaty;
2. b) does not affect any right, obligation or legal situation of the parties created through the execution of the treaty prior to its termination.”

This looks basically like what happens when you sell an apartment in a building. You are bound to pay all operations that have already been decided before your departure – even if they are realized after your departure. Consequently, the wording “brexit bill” is inadequate ; one should rather speak about a “previous commitments bill.”

According to Article 50 TEU,

“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.”

The House of Lords’ legal adviser develops here an extremely simple interpretation. The principles of Article 70 CVT do not apply because Article 50 has evacuated them and established a special rule. This is far from evident. (1) Article 70 CVT establishes a general rule. This does not allow implicit and unclear exceptions. Additionally, treaties must be applied in good faith. (2) It has never been said during the negotiation of the Constitutional Treaty, later Lisbon Treaty, that Article 50 TEU aimed to exclude Article 70 CVT principles. (3) As a matter of fact, as explained by the legal adviser himself, Article 50 TEU’s two years deadline has been established so that no Member State could be constrained to remain indefinitely in the European Union – which is a completely different preoccupation.

This being said, however weak this legal interpretation may be, it is now a political fact. The opinion does not come from a consultant. It comes for the House of Lords’ legal adviser. It has been endorsed by the committee’s Liberal Democrat chairman Baroness Falkner of Margravine. She said that “we consider that the UK will not be legally obliged to pay into the EU budget after Brexit”.

Of course, all this can still be negotiated. However, the negotiation has become much more difficult. It will henceforth require a lot of political courage from ministers on the UK side to plead for a bill of 30 or 60 billion when some official authorities have indicated these billions did not need to be paid. Especially in a period of budget austerity. Additionally, campaigners for Brexit have promised the voters that they could so get back lots of money for the National Health Service. Finally, a second financial deal will still be needed to cover the costs of participating to the single market. All this risks increasing the political benefit of abandoning the negotiation on the UK side, possibly in the perspective of a coming election.

The risks for the negotiation are in fact still higher, for two reasons.

Firstly, the advice considers that the 27 Member States have no right to judicial redress. The competence of the Court of Justice of the European Union (CJEU) is excluded because the UK gets out of the European Union. Furthermore, “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.” (suddenly, here appears a need to interpret the two provisions in symbiosis). In a nutshell, even if the 27 Member States possess rights, they cannot enforce them. The competence of the UK national courts is also excluded.

Secondly, the advice considers that any UK “individual, company or organization” benefitting from EU budgetary commitments may sue the EU in front of the CJEU. Consequently, “UK organisations whose EU funding was stopped could bring a case.” So, according to the House of Lords, the UK would be freed from any payment to the EU whereas the UK private and public actors could still ask for payment from the EU.

All this could give many political operators on the UK side a mounting feeling that law is fully on their side. It could also give some EU administrators the feeling that they need to begin immediately to protect the EU budgetary interests against all UK “individuals, companies or organizations”. They could feel stimulated in this by the additional threat of an UK exit that would leave a huge – and immediate – hole in the execution of the present 2014 -2020 Financial framework. Such elements do not provide at all incentives to search for compromises.

One must not forget in general that the budgetary negotiation of brexit has a direct impact on the budget relationship between the 27 other Member States. Every euro that is not paid by the UK (as a net contributor) will have to be paid by someone else, and there are no many alternative volunteers to contribute more. For this reason, rumours are already circulating in Brussels about a possible anticipation of the debate concerning the next Multiannual Financial Framework(2021-27). A stalemate in the latter could easily bring the same in the former.

Again, the legal situation is far from clear, but perceptions have been created that risk making the brexit negotiations much more conflictual. Icebergs appear now quite bigger on the horizon.

[1] http://www.parliament.uk/business/committees/committees-a-z/lords-select/eu-financial-affairs-subcommittee/news-parliament-2015/eu-budget-report-publication/ (accessed 6 March 2017).

[2] The Telegraph, 4 March 2017.s

[3] FT, 4 March 2017.

[4] Guardian, 4 March 2017.

[5] Ibid.

Franklin DEHOUSSE

Professor at the University of Liège

Former Special representative of Belgium

Former judge at the Court of justice of the European Union