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Withdrawal - UK potential financial liabilities

The European Union’s ever expanding Brexit financial claims against the UK, now apparently northward of €100bn, have been and ongoing subject of controversy. On 21 March 2017, the Prime Minister gave an interview to The Sunday Telegraph in which she insisted that the UK’s rights must be respected -- including its claim to a share of the European Investment Bank --  as well as any obligations. It has been reported that, to the outrage of the Commission's negotiators, these financial claims were subjected to a line-by-line dissection in the exit negotiations.

We have looked in detail at the EU’s Brexit financial claims as they are now being advanced under the European Council’s approved negotiating guidelines. Our new and updated Analysis of the UK’s potential financial liabilities by Martin Howe QC and Charlie Elphicke MP (jointly published with the European Research Group) looks at the legal arguments in depth. We have failed to find a credible legal argument either for a liability on the UK to contribute to the EU’s unfunded pension fund deficit, or for any liability to contribute to the EU’s ongoing programmes after Brexit day on 29 March 2019, with the possible exception of an obligation to carry on contributing overseas aid of €1.3bn up to the end of 2020 via the European Development Fund (EDF). But the EDF example is actually helpful to the wider argument that the UK has no ongoing liability at all to contribute to the EU budget, since the funding for the EDF is agreed via a quite different mechanism in which the individual Member States assume direct obligations to fund the programme outside the framework of the EU treaties.

On the other hand, the UK has a firm financial claim for the value of its shareholding interest in the European Investment Bank (EIB) worth about €10bn, although it is likely that the UK’s interest in the EIB and its uncalled capital obligation will have to be unwound together with a proportion of its loan book rather than being “cashed up”.

We have also examined the vexed question of whether there is an international court which has jurisdiction to adjudicate on these financial claims and counterclaims.  We conclude that neither the ECJ nor the ICJ (International Court of Justice) have jurisdiction, and indeed neither is an appropriate forum to decide this dispute.  On the other hand it would be possible to establish an ad hoc international tribunal to rule on the dispute in accordance with well recognised procedures. In view of the strength of its legal arguments, the UK should welcome adjudication of these claims in front of a fair and impartial tribunal. If an impasse over these financial claims causes a blockage in the Brexit negotiations, a possible solution may be to refer the claims and counter-claims to adjudication.

Summary of our Analysis

The summary of our Analysis of the UK’s potential financial liabilities says:-

Formal negotiating guidelines issued by the European Commission to the United Kingdom on 12 June 2017 state that any financial settlement between the UK and the EU “should respect in full the financial obligations resulting from the whole period of the [UK’s] membership in the Union.” The EU's approach clearly represents the most extensive possible liabilities for the net bill. In fact there is no credible legal argument either for a liability on the UK to contribute to the EU’s pension fund deficit, or for any liability to contribute to the EU’s ongoing programmes after Brexit day on 29 March 2019. The following conclusions can be drawn:-

(1) The EU’s principal claim appears to be that the UK is obliged to contribute to the EU’s budget, including substantial elements of it representing forward commitments to ongoing programmes, for a period of roughly two years after withdrawal. This claim is devoid of merit as a matter of international law. For the EU’s “Own Resources Decision” and its “Multiannual Financial Framework” are legally subordinate to the EU treaties, have no binding force in law independently of the treaties, and therefore cease to impose any legal obligation on the UK on the date when the Treaties themselves cease to apply to the UK under Article 50 TEU.

(2) The EU’s second claim relates to the large deficit of its staff pension scheme. The UK could not in any event be liable for a share of that without also having a claim on a corresponding share of the assets of the EU, if a process of valuing the EU’s assets and liabilities and then making or receiving a balancing payment on exit were to be undertaken. However, there is no general practice in international law of States making or receiving balancing payments representing the net assets or liabilities of an international organisation when the join or withdraw from the organisation. Moreover no such balancing payments have in fact been made when Member States (including the UK itself) joined the EEC/EC/EU. It is therefore difficult to see any credible basis upon which the UK could be said to be obliged to make any net payment when it leaves.

(3) The European Investment Bank stands in a rather different position, since the Member States including the UK have paid up capital to this organisation which stands in its books. There is a compelling argument that the UK on EU exit is entitled to the return of its paid up capital and to a corresponding share of the accumulated reserves of the EIB.

(4) The adjudication of these claims does not fall under the jurisdiction of the ECJ under the EU treaties, or under the jurisdiction of the ICJ under its Statute. However, in view of the strength of its legal position, there would be no disadvantage in the UK agreeing that these claims (and the UK’s cross-claims) be referred to adjudication in front of a neutral international tribunal. This might be a possible way of unblocking any impasse which might otherwise arise in the negotiations with the EU if theseclaims cannot be resolved by agreement, as well as demonstrating the good faith of the UK in being willing to pay sums that may be legally owed.