US objects to new UK- WTO agricultural quotas schedule being established using “technical rectification”

·    Introduction

·     Requests for compensation

·     No impact assessment

·     The TRQ challenge

·     US objection

Introduction

The EU has taken the final formal step to implement the decisions taken at the Nairobi World Trade Organisation (WTO) Ministerial Conference in 2015 on eliminating farming export subsidies. In a Press Release 06.10.2017 the European Commission announced,

‘The EU today submitted its revised goods schedule to the WTO which, on top of reconfirming the elimination of export subsidies, also includes the outcome of other recent negotiations, including those linked to EU enlargements.

This will bring the commitments on things like tariffs and farming subsidies that the EU and the 28 Member States have toward our trade partners up to date under WTO rules. This is ahead of the next Ministerial Conference which will take place in Buenos Aires from 10 to 13 December 2017.

The decision to eliminate farming export subsidies was taken by Trade Ministers in December 2015 during the 10th WTO Ministerial Conference in Nairobi, Kenya. The decision, apart from eliminating farming export subsidies, also introduced new rules regarding other types of farming export support, including export credits.’

In ‘Brexit, Trade and Agriculture: Waiting for Answers’, published 04.12.2017, Joseph A McMahon, Full Professor of Commercial Law, UCD Sutherland School of Law, University College Dublin wrote,

‘In the absence of agreement on the proposed trade agreement at the end of the withdrawal negotiations, or an interim agreement, the default position will be that the UK would have to trade with the EU on World Trade Organisation (WTO) terms. These terms will also apply to the UK’s trading relationship with all other countries once it leaves the EU as it will no longer be able to benefit from trade agreements concluded between those countries and the EU…

When the UK leaves the EU, it will have been just over forty-six years since it had its own Schedules in the GATT, so a new Schedule of Commitments will be needed as will an amendment to the EU Schedule. These will be submitted to the WTO’s Director General who will inform other WTO members of the Schedules. The Director General will certify/record these unless another Member objects to certification; in this event there will be informal consultations and if these fail there will be formal negotiations under Article XXVIII GATT and if these fail, recourse can be had to the Dispute Settlement Understanding.

a. Market Access

Under Article 4.1 AoA, the market access concessions contained in Schedules relate to bindings and reductions of tariffs. In answer to the question as to level of tariffs that the UK will impose with respect to agricultural products, it should be noted that the EU Agricultural Tariff Schedule is extraordinarily complicated, so the UK might take the opportunity to reduce the level of tariffs on certain products e.g. those not produced in the UK. It must be remembered here that the UK is a net-food importing country and once it leaves the EU as it is no longer bound by the principle of Community preference, imports may come from any source.

In addition to reducing the level of tariffs, Article 4 also provides for the tariffication with Article 4.2 providing that members are not to “maintain, resort to, or revert to any measures of the kind which have been required to be converted into ordinary customs duties” which are detailed in a footnote to this provision as being:

… quantitative import restrictions, variable import levies, minimum import prices, discretionary import licensing, non-tariff measures maintained through state-trading enterprises, voluntary export restraints, and similar border measures other than ordinary customs duties, whether or not the measures are maintained under country-specific derogations from the provisions of GATT 1947, but not measures maintained under balance-of-payments provisions or under other general, non-agriculture-specific provisions of GATT 1994 or of the other Multilateral Trade Agreements in Annex 1A to the WTO Agreement.

So, these are measures that the UK will not be able to rely on post-Brexit.

To maintain the situation prevailing at the time of tariffication, the AoA provides that quantities imported before it took effect could continue to be imported, and it guaranteed that some new quantities were charged duty rates that were not prohibitive. This was realised through tariff-quotas i.e. lower tariff rates for specified quantities, with higher rates for quantities that exceed the quota. So, all of the current 87 existing EU agricultural tariff quotas have their origins in the implementation of Article 4 and in the latest EU notification concerning imports under tariff quotas for 2016, some 27 products are listed as having a fill rate of 100% and of the remaining 37 products in the notification, eleven had a fill ratio of 0%.

So, the question is; can the EU’s tariff quotas be “divided” between the UK and the EU? One starting point is to undertake a detailed examination of the existing tariff quotas in the EU Schedule to determine if the UK is the major/principal beneficiary of those quotas. If so, there is an argument that the tariff quota in the new UK Schedule should match the traditional pattern of trade for a particular product with a consequent reduction in the EU Schedule for that product. One example here is the tariff quota for Angus Beef in the Korean Schedule – maintaining this tariff quota will require the EU to agree to allocate this tariff quota to the UK and if it does not, this would require the UK to undertake negotiations with Korea to retain its existing market access for this product.10 If one Member State were to object to the allocation of this particular quota to the UK, it is unlikely that the UK will be able to demand that its current status on the Korean beef market be maintained. In answer to the question of whether the existing tariff quotas can be divided, it is not clear whether tariff quotas arising under the AoA can in fact be split. If possible, it is probable that some WTO members may object to new tariff quotas coming into existence in 2019 rather than 1995.

This has indeed happened. On 11 October the UK and the EU notified the other members of the WTO that the UK would leave the EU at the end of March 2019 by which time the UK will have notified the WTO of its own separate schedules of commitments for goods and services. Until 2019 the UK will have to respect the EU’s Common Commercial Policy. The notification went on to note:

… the EU and UK intend to maintain the existing levels of market access available to other WTO Members. To this end, we intend that the future EU’s (excluding the UK) and the UK’s (outside the EU) quantitative commitments in the form of tariff-rate quotas be obtained through an apportionment of the EU’s existing commitments, based on trade flows under each tariff-rate quota. In doing so, we propose to follow a common approach, inter alia to data and methodology, and to engage actively with WTO Members on these.

The notification concluded by committing the UK and the EU “to engaging with the WTO Membership in a spirit of cooperation, inclusiveness and openness on these matters over the course of the coming weeks and months.” It is clear that some WTO members are not happy with the proposed approach to the division of tariff quotas as even before the letter from the UK and the EU, seven WTO members had expressed their concerns.

A letter from the Geneva representatives of Argentina, Brazil, Canada, New Zealand, Thailand, the United States and Uruguay suggested that the proposed division of tariff rate quotas based on historical averages was unacceptable as it would not fully honour existing tariff quota commitments. The proposed technical rectification was deemed unacceptable with the seven arguing that negotiations were needed between the UK and the EU on the one hand and, on the other hand, “the countries which are holders of Country-Allocated Tariff Rate Quotas into the European Union market, users of Most Favoured Nation Tariff Rate Quotas as well as holders of initial negotiating rights and principal and substantial interests in several concessions.” It seems that further discussions will be necessary before a definitive answer emerges to the question of what will happen to existing EU tariff quotas.

Another problem arises as a result of the process of tariffication, namely the ability to use Article 5 AoA which offers protection against import surges, provided that the products has been designated in a Member’s Schedule with the symbol SSG. Thirty-nine WTO members have reserved the right to use Article 5, including the EU who indicated that it could be used for a total of 539 products. The latest notifications by the EU indicates that the SSG had been used 36 times in the 2015/16.14 In answer to the question whether the UK would be able to use Article 5, it is difficult to imagine other WTO members agreeing that after 24 years of not being able to use Article 5 that the UK can rely on Article 5. So, it may be unlikely that the UK will be able to invoke a special safeguard measure…

In the context of the Agreement on Agriculture, the proposed division of existing EU tariff quotas between the UK and EU has been objected to by a number of WTO members. Further discussions will be needed to ensure that the final agreement is more than a technical rectification. Whilst it is unlikely that the UK will seek to use export subsidies as the EU has already moved to implement the Nairobi decision, it is less clear what the UK’s commitment on domestic support will be. A decision on this matter will reflect the nature of UK agricultural policy post-Brexit. Discussions on this to date suggest that an ecosystems services approach will be taken to domestic support which will have to be compliant with the terms of the Green Box. However, discussion on the future shape of UK agricultural policy have not yet progressed sufficiently for the promised Agriculture Bill to emerge. Whether the Bill provides for a UK-wide policy or allows each of the devolved administration to pursue a more nuanced approach to domestic support remains an unanswered question. It entirely possible that the Agriculture Bill could provide for the transfer back to the devolved administrations of competence in agriculture if common provisions are not needed. It also far from clear what the nature of the future trading relationship between the EU and UK and whether it will be a new deep and special relationship as suggested by the UK Prime Minister. Whilst the EU (Withdrawal) Bill provides for regulatory convergence as the UK leaves the EU, regulatory divergence is bound to emerge, if for example, new rules are adopted post-Brexit by the EU or when the UK relaxes existing rules as part of trade deal post-Brexit with a third country.’

Requests for compensation

‘When a panel or the Appellate Body concludes that a measure is inconsistent with a covered agreement, it “recommends” that the member bring the measure into conformity with the agreement, and may “suggest” ways in which the member could implement the recommendation … Within thirty days of the adoption of a panel or Appellate Body report , the member must tell the DSB of its intentions as regards the implementation of the recommendation.

Compensation is voluntary. But if the member fails to comply with the recommendations and rulings within the reasonable period it must, if so requested, enter into negotiations with the other party with a view to agreeing compensation. If that cannot be agreed, any complaining party may ask the DSB to authorize it to take countermeasures (Article 3(7) and 22). Countermeasures (coyly referred to in the DSU as “retaliatory action” or “suspension of concessions”) are temporary measure available in the event that recommendations or rulings are not implemented.’ Handbook of International Law by Anthony Aust, page 357.

No impact assessment

The government has not carried out any impact assessments of leaving the EU on the UK economy, Brexit Secretary David Davis told MPs 06.12.2017.

It therefore appears that no economic impact assessment has been undertaken of the consequences of trading under WTO rules.

The TRQ challenge

‘Defining the problem

When a country joins a customs union (CU), the acceding member adopts the CU tariff schedule. Where this results in a loss of market access for third countries, because custom union tariffs are higher than the bound tariffs the acceding country had scheduled in the WTO, third countries have a right to seek compensation (for example, countries such as Australia, Argentina, Brazil, China and Uruguay submitted claims for compensation when Croatia acceded to the EU in July 2013). All contingency trade measures (antidumping, anti-subsidy and safeguards) equally apply to the acceding members.

In the case of quantitative market access commitments, such as tariff rate quotas (TRQs), these are conventionally added to those of the CU. Similarly, commitments in the areas of domestic support and export subsidies are added to those of the CU. In practice, these changes in the CU’s commitments will be reported in its annual notifications to the WTO and will not be challenged by other WTO members, even if the implicit changes to the CU’s schedule of commitments are never formally approved.

Going in the opposite direction following the exit of a CU member is not so easy, particularly when that member was a member of the EU when the current WTO commitments were agreed following the Uruguay Round in 1994. There is no evident baseline to which these commitments can be rolled back. So how to establish what the UK’s agricultural policy WTO commitments would be following a possible Brexit?

In my view, this will require a two-stage process. The first stage will be a matter for negotiation between the UK and the EU27 (here used to mean the current EU28 member states less the UK, and not the EU prior to the accession of Croatia)… [The] procedures for leaving the EU were first set out in the Treaty on European Union, whose Article 50 provides, inter alia:

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.

One of the issues in negotiating the withdrawal agreement will be to decide how some of the EU28’s WTO commitments (for example, on import access) and concessions it has obtained (for export sales) should be apportioned between the UK and the EU27. Where the latter has obtained dedicated export rights (for example, through pre-allocated quantities in a bilateral tariff rate quota (TRQ)), changing this would require the consent of the importing country which seems an unlikely expectation. In these cases, the most likely outcome is that the TRQ would remain with the EU and the UK would lose its market access under that TRQ following Brexit. However, in the case of import TRQs there is a more realistic possibility that these might be divided between the UK and the EU27 if there were a will to do this. An allocation of the EU’s current domestic support commitments would also be required.

In such situations, there would then be a second stage within the WTO where other members would have to agree to this apportionment. This should not be taken as a foregone conclusion. If some WTO members felt that the agreed division of commitments discriminated against their market access entitlements or nullified some of their expected benefits under the WTO agreement, they might seek improvements or compensation in lieu.

WTO agricultural policy commitments

Let us conduct a thought experiment to see how these two stages might play out in the case of the WTO agricultural policy commitments.

With respect to tariff bindings, the UK would most likely inherit the EU’s bound tariffs which for most tariff lines are also the EU’s applied tariffs. This is not likely to be controversial in a WTO context. The UK could of course set its future applied MFN tariffs below this level but it could not exceed them.

There might be less agreement that the UK could inherit the ability to use the special safeguard on selected imports but the UK would have a strong case that it would be entitled to these provisions if it wished to make use of them.

As noted above, tariff rate quotas (TRQs) would be a more problematic issue. Some EU import TRQs are particularly important for the UK because a significant share of in-quota imports is destined for the UK market, such as butter from New Zealand. Whether the EU would want to share these quotas would be a matter for negotiation in the withdrawal negotiations. One could envisage that a more protectionist EU might be only too delighted to offload a larger than pro-rata share of its TRQs to the UK.

Getting agreement on any TRQ divvy up at the WTO would be more difficult. This is because different countries have different dependencies on the UK vs EU27 markets. No matter what allocation key is used, some third countries are bound to be aggrieved and feel that their exports (either to the UK or EU27 markets) would now face greater market access difficulties than before. If no agreement is forthcoming at the WTO, this could lead to a formal dispute over claims for compensation. To avoid this, or to be in a better position to defend such cases, the more objective the basis for the allocation and the more consistently it is applied across all TRQs, the better the chance of a successful defence.

Note my conclusion above that, in the case of bilateral export TRQs, these would probably stay with the EU and the UK would lose its existing market access rights. At this stage, I have not investigated how many such bilateral TRQs exist and how important they are for the UK. The UK could still compete, of course, for access under WTO multilateral TRQs as a WTO member outside the EU.

The UK will also want a share of the EU’s Bound Total AMS commitments which, together with its de minimis limits of product-related and non-product-related distorting support, represent the limit on the amount of trade-distorting support it can provide. At the moment the EU28 does not make full use of its Bound Total AMS, and its Current Total AMS is well below its bound ceiling. The apportionment of the AMS is unlikely to prove contentious as the UK is not likely to want to increase its use of trade-distorting support after Brexit. Some allocation key such as the relative shares in the value of gross agricultural output is likely to be used and would not meet with objection at the WTO.

The apportionment of export subsidy entitlements will not be an issue. Following the Nairobi Ministerial Council meeting of the WTO in December last year, the EU and all other developed country members agreed to eliminate remaining scheduled export subsidy entitlements with immediate effect (with some limited exceptions which will expire in 2020). As the negotiations leading to a withdrawal agreement are very unlikely to be completed by then (in my previous post I speculated that the date for a possible Brexit would be 1 January 2021), subsidies on agricultural exports will be prohibited by the time that this happens.

Bilateral trade agreements

The most complicated set of issues relates to the extent to which the UK will inherit the rights and obligations under the EU’s bilateral and regional trade agreements (RTAs). This is simply because of the number and detail of the provisions of these agreements, compared to a single WTO agreement (albeit with many individual chapters). I assume that in all cases the UK would intend to continue these agreements after Brexit to the extent that the other partners agree.

In all cases, because these are mixed agreements (meaning that they cover provisions that fall under member state responsibility under the Treaty of Lisbon) the UK is already in a legal relationship with the partner countries having separately ratified these agreements. Nonetheless, at a very minimum, a Brexit would imply textual changes to these agreements to recognise that the agreement is now with the UK directly and not through the EU. This would imply a process of ratification both by the UK and by each of the individual partner countries.

However, more than textual changes are likely to be required. Take again the issue of TRQs. which are widely used in bilateral trade agreements to address market access for sensitive agricultural products. Through its RTAs, the EU both gives and receives TRQ access to and from its trading partners. TRQ imports are important to the supply chains for various food processing industries in the UK. The notable example is sugar where the Tate and Lyle sugar refinery depends on access to duty-free sugar imports from ACP countries for its viability.

These sugar imports enter under Economic Partnership Agreements which are the EU’s RTAs with these countries (in this specific case, the UK could continue to import sugar from the least developed ACP countries under WTO rules but it could not offer duty-free access to other ACP countries without a comprehensive RTA with these countries). Of course, without separate UK RTAs with these countries, it could lower its applied MFN duty on sugar which would then apply to all countries including Brazil. Brazil would likely take the lion’s share of UK sugar imports under that scenario.

It is unlikely that the UK’s exit would require any alteration of the TRQ quantities in existing EU RTAs even if the agreements would now be only with EU27 rather than EU28 (in the same way as enlargement of the EU does not lead to any automatic change in these TRQ quantities in existing RTAs).

There are two conceivable options. One is that the EU27 and the third countries concerned voluntarily agree to renegotiate a division of the existing TRQs (both those of the partner country giving access to EU28 exports and those of the EU28 giving access to the partner country). This strikes me as highly implausible. On the EU side, it is very unlikely to want to go through the process of re-ratifying its 33 regional trade agreements to date. Approval of trade agreements now requires a time-intensive process including impact assessments and the involvement of both the Parliament and the Council, with the risk of unexpected pitfalls along the way.

The time pressure on the EU which is already engaged in negotiating a wide range of complex new agreements also means that it has no incentive to adjust its existing RTAs just to facilitate the UK which, after all, would be the one wanting to walk away from the EU. This option is also not attractive to the partners because, by definition, it reduces their market access. A TRQ dividing into binding limits in two markets is less valuable that the same TRQ with the flexibility to switch exports between two markets. I thus cannot see an incentive on either side to pursue this option.

The other option is for the UK to negotiate its own market access arrangements for these sensitive commodities as part of a full renegotiation of bilateral RTAs with these countries. It could decide to offer an additional TRQ or even abolish the sensitive status of the import and offer duty-free access. However, this implies simultaneous negotiations with the same 50 or so partners that are party to the EU’s over 30 RTAs.

It is important to underline that the UK cannot simply offer a bilateral quota to supplier countries to ensure continued access to supplies. Bilateral quotas are only WTO-compatible if agreed within the context of an RTA and, in turn, an RTA is only WTO-compatible if it covers ‘substantially all trade’ and if it is phased in ‘within a reasonable period of time’ (often taken to mean ten years). There is thus no alternative to concluding new comprehensive RTAs with these trading partners if the market access provisions (in both directions) are to continue.

To put it mildly, this will be a difficult balancing act to be achieved under considerable time pressure during the prescribed renegotiation period for withdrawal once the UK formally announced it wished to exit. All of these new agreements would have to be in place by the time of the formal end of the exit negotiations to avoid disruption of supply chains. While countries routinely use the possibility to provisionally apply the tariff concessions contained in an RTA before all the formal ratification steps are completed, there must be a strong possibility of disruption to particular UK supply chains which are dependent on access to duty-free supplies under existing EU RTAs in the wake of a possible Brexit.

Conclusion

Advocates of a UK withdrawal from the EU argue that the WTO provides a clear alternative to EU membership. This post asks the question what would its WTO commitments be with respect to agricultural policy in the event of a Brexit, and how would WTO rules affect its current trade flows?

The answers are not likely to be controversial in the case of tariff bindings or domestic support commitments, but its WTO commitments could create difficulties in the case of imports and exports under tariff rate quotas.

Also, WTO rules on non-discrimination imply that it may not be easy to maintain the market access granted under the EU’s RTAs without full-fledged negotiations to agree parallel agreements with the 50 or so countries that have signed free trade agreements with the EU. While signing new agreements outside the EU is certainly feasible, whether these can be in place before the end of the withdrawal period from the EU is a moot point.

There must be a high risk that Brexit would lead to disruption to supply chains (in the case of imports) and to export sales. Also, the time pressure on the UK to secure agreements will leave it in a relatively weak bargaining position vis-à-vis its trade partners implying that it may have to yield more concessions than might otherwise be the case in order to secure these agreements.’

WTO dimensions of a UK ‘Brexit’ and agricultural trade by Alan Matthews 05.01.2016. http://capreform.eu/wto-dimensions-of-a-uk-brexit-and-agricultural-trade/

(Professor Emeritus of European Agricultural Policy in the Department of Economics at Trinity College, Dublin, Ireland. His major research interests are agricultural policy analysis, the impact of international trade on developing countries, and computable general equilibrium analysis of trade and agricultural policy reforms).

See also Agriculture & Horticulture Development Board (‘AHDB’) Horizon Report, ‘The WTO and its implications for agriculture’: https://ahdb.org.uk/documents/Horizon_june2017.pdf

US objection 

‘The Trump administration has joined a group of countries objecting to a deal between the UK and EU to divide valuable agricultural import quotas, in a sign of how the US and others plan to use Brexit to force the UK to further open its sensitive market for farm products. President Donald Trump has been one of the most prominent international backers of Brexit and has vowed quickly to negotiate a “beautiful trade deal” with the UK after it leaves the EU. But his administration’s objection to a preliminary plan, agreed to by Brussels and London over how to split the EU’s existing “tariff rate quotas” under World Trade Organisation rules after the UK assumes its own WTO obligations following Brexit, illustrates how Washington is likely to drive a hard bargain. It also undermines efforts by Theresa May’s government this week to portray the WTO deal with the EU as a significant win, something made doubly painful by Mr Trump’s past backing of Brexit. The risk for the UK is that as part of its post-Brexit transition in the WTO it may have to accept opening up access to agricultural goods from third countries far more than it wants — even before it agrees any new trade deals with such countries. A spokesman for Britain’s department for international trade said on Thursday that the EU-UK plans would be discussed “extensively with our partners in the WTO before proceeding”, in a reference to the UK’s desire to avoid a bruising battle in the WTO on the issue. Britain was seeking a “smooth transition which minimises the disruption to our trading relationships”, he said. But the US joined other major agricultural exporters including Argentina, Brazil and New Zealand in signing a letter sent last week to the EU and UK’s WTO ambassadors objecting to the plan to split the quotas that cover everything from New Zealand butter and lamb to US poultry and wheat. Under WTO rules, those country-specific quotas allow low-tariff imports up to a certain volume with tariffs increasing after that. As such, they are hugely valuable to countries such as Argentina and New Zealand that depend heavily on agricultural exports and the powerful farm lobby in the US. While the UK was a founding member of the WTO and one of the first signatories of its predecessor, the General Agreement on Tariffs and Trade, its membership obligations until now have been managed by the EU. The EU-UK plan calls for the existing EU quotas to be split between the EU and UK after Brexit based on historical imports and consumption patterns. The US and others, however, argue that method is unfair as it would effectively allow the EU to reduce its obligations to fellow WTO members and set a low bar for the UK as well. “Such an outcome would not be consistent with the principle of leaving other [WTO] members no worse off, nor fully honour the existing TRQ access commitments. Thus, we cannot accept such an agreement,” the countries wrote. Emily Davis, spokeswoman for Robert Lighthizer, the US trade representative, said neither the EU nor the UK had presented any written plan for how to handle the WTO quotas to Washington. But the Trump administration was “actively engaged with its trading partners on the future of UK and EU tariff rate quotas following Brexit”. “Ensuring that US exporters of food and agricultural products have the market access in Europe due to them even after Brexit is a high priority for the administration,” she said. The UK and EU are due to present their plan to other WTO members during the week of October 16 when trade negotiators descend on Geneva for what is known as agriculture week. European diplomats have emphasised the importance to both the EU and the UK of striking a deal on dividing up of TRQs.

Brussels is keen to avoid having to maintain EU TRQs at their current size after Brexit, something that would put increased pressure on its farmers once Britain leaves. For Britain, the stakes are potentially much higher, given the UK’s need to establish itself independently at the WTO in any Brexit scenario. The talks are bound up with other WTO issues that Britain needs to settle, such as what share it should take of the EU’s rights to subsidise its farmers. Among the UK’s plans is to ask that its new agricultural quotas schedule be established using a method called “technical rectification”, which would avoid having to secure approval from other WTO members. But in their letter to the EU and UK ambassadors the US and other signatories objected to that method as well. “The modification of these TRQ access arrangements cannot credibly be achieved through a technical rectification,” they wrote. “None of these arrangements should be modified without our agreement . . . In the case of substantial changes affecting the balance of concessions, the whole membership of the organisation may take an interest.” The UK redoubled its backing for the approach on Thursday. “We still believe that technical rectification remains the most appropriate procedure for introducing UK schedules into the WTO,” the UK trade department spokesman said, adding that Britain was “committed to working constructively and openly with our international partners throughout the process.”’

Trump rejects May’s post-Brexit agriculture deal with EU – US expected to drive hard bargain as UK assumes its own WTO obligations, FT, 05.10.2017.

 

 

 

 

 

 

Christodoulides v Marcou [2017] (High Court) – Fraudulent Calumny

‘The calumny must induce the change in the testator’s intentions. The challenger must prove that on the balance of probabilities. If it is possible that the calumny did induce the change, but the court is not persuaded on the balance of probabilities that it did induce the change, the challenge will fail. If there are other possibilities or other explanations and those other explanations persuade the court to find on the balance of probabilities that the calumny did not induce the change, the claim will fail.’ Christodoulides v Marcou [2017].

  • The concept of fraudulent calumny
  • The facts in Christodoulides v Marcou
  • Pleading fraudulent calumny
  • The burden of proof
  • The correct test of causation or inducement
  • Conclusion

The concept of fraudulent calumny

The basic concept of fraudulent calumny is that if ‘A’ poisons the testator’s (‘T’s’) mind against ‘B’, who would otherwise be a natural beneficiary of T’s bounty, by casting dishonest aspersions on his character, then the will is liable to be set aside.

The essence of fraudulent calumny is that the person alleged to have been poisoning T‘s mind must either know that the aspersions are false or not care whether they are true or false. If a person believes that he is telling the truth about a potential beneficiary then even if what he tells T is objectively untrue, the will is not liable to be set aside on that ground alone (Re Edwards [2007]).

The facts in Christodoulides v Marcou

In Christodoulides v Marcou [2017] (High Court) (Chancery Division) 26/10.2017, the facts were that, ‘By [her] will, [T] appointed [A] to be her executor and the trustee of the will. Under the will, after payment of any debts and expenses, the entire residuary estate was left to [A]. Clause 3 of the will contained a declaration by [T] that she had not made any provision in the will for [B]. [A] issued these proceedings [asking] the court to pronounce for the will in solemn form. [B] defended the claim by alleging that the will was procured by the fraud of [A] practised on her mother. The conventional legal phrase for such a plea is that there was a fraudulent calumny. [B] alleged that [A] committed a fraudulent calumny of her to her mother and as a result the mother made no provision for [B] in the mother’s will. [B] counterclaimed a declaration that the will was invalid and there being no other valid will that [T] had died intestate. [A] served a Reply and Defence to Counterclaim. In relation to [B’s] case that there had been a fraudulent calumny, [A’s] Reply pleaded:

“The elements of a claim in fraudulent calumny is that the person alleged to have committed fraud has poisoned the mind of the testatrix by casting untruthful aspersions about, or making untruthful allegations against, other potential beneficiaries, which caused the discretion and will of the testatrix to be overborne; and that such aspersions were made either knowing that they were false, or not caring whether they were true or false.”

In assessing [A] and [B] as witnesses the Recorder found, [A] to be a thoroughly dishonest and manipulative individual to whom integrity and truth are less important than achieving what she wants, even when she knows she is not entitled to it’, and that [B] ‘was a calm and sensible witness who dealt with all questions some of which were difficult and personal put to her in a convincing fashion. Her evidence obviously needs to be compared to the contemporaneous documents but there is nothing in that process or her evidence in general which causes me to doubt her evidence. I would observe that although [B] is able to give evidence about what she saw, much of her case must inevitably depend on what was going on between [A] and [T] which [B] did not see or hear. In this respect, evidence other than [B’s] is important.’

Pleading fraudulent calumny

In relation to the pleading of an allegation of fraudulent calumny the Recorder also observed, ‘Any allegation of dishonesty ought, in my view, to be pleaded with the greatest particularity which is possible in the circumstances. The Court must be astute to ensure that any deficiency in the pleading does not cause prejudice to the opposite party in any fashion such as not having the opportunity to prepare or present her case as she may wish if she knew fairly what the allegation is against her… The representations in a calumny case are not made to the claimant and can almost never be pleaded with the same degree of precision or particularity as would be expected in a commercial fraud case. The representee is dead and, if the claim is made good, has gone to his or her grave with the poison having done its work. In this particular case, much has been learned as the evidence emerged … I have read [B’s] pleading with care and, whilst not perfect, it is sufficient in my judgment to support the case which has been advanced. Although it is true that some of the points … were not part of [B’s] pleaded complaint, they have been introduced by [A] to explain [T’s] belief other than by reference to her fault. Both sides have freely investigated the points and the evidence has been taken without a murmur of objection. Most influentially of all, it has caused no prejudice. If the point had been pressed before closing submissions, it might (I do not put it higher) have led to an application to amend. I can think of no witness who might have been called but who was not and no line of questioning which might have been followed which was not. An objection of this kind at the stage it was raised is without substance in the circumstances of this case and I reject it.’

In refusing permission to appeal, Mr Justice Morgan stated,

[Counsel for A] submitted that the Recorder should have held [B] strictly to this pleading and he relied on what was said by Lord Millett in Three Rivers DC v Bank of England (No 3) [2003] 2 AC 1 at [183] – [190]. In that passage, Lord Millett explained what is required for a proper plea of fraud or dishonesty. He also explained what is required by way of sufficient particulars in support of such a plea. In the same case at [47], Lord Hope of Craighead explained that if the particulars support the allegation of fraud or dishonesty then the question as to whether the pleading is supported by evidence is to be determined at the trial and not at the pleading stage. Lord Hope at [50] also approved the comments in McPhilemy v Times Newspapers Ltd [1999] 3 All ER 775 at 792J-793A as to the respective roles played by pleadings and by witness statements. In his judgment at [147] – [150], the Recorder dealt with a similar point to the one I am now dealing with … I agree with the Recorder that the matter was adequately pleaded. I do not accept that the Recorder was at fault in not confining the evidence at the trial so as to exclude parts of it. In any case, counsel then appearing for [A] made no such application to the Recorder before the evidence was given. Counsel engaged with all of the evidence which was called and cross-examined all of the witnesses called for [B]. Indeed, counsel for both parties prepared a lengthy and thorough statement setting out proposed findings of fact. There were altogether some 82 proposed findings of fact. In relation to each finding, each counsel set out a full list of evidence relied upon including transcript references. All of the matters to which objection is now taken were included in the findings of fact which the Recorder was asked to make. Accordingly, the Recorder was in no way at fault in making the findings which he did …

The burden of proof

[Counsel for A] relied heavily on the decision in Re Hayward now reported at [2017] 4 WLR 32. This case was decided on 16 December 2016 which was just before counsel for the parties made their closing submissions to the Recorder in this case. I was told that counsel then appearing for [A] included a copy of the judgment in his bundle of authorities but it appears that he did not cite it. In re Hayward, the Deputy High Court Judge (now His Honour Judge Klein) had to consider the legal principles as to fraudulent calumny. In his judgment, he set out paragraph [47] from re Edwards. He commented that Lewison J may well have obtained his statement of the principles from Boyse v Rossborough (1856) 6 HL Cas 2. It is plain that the Deputy Judge considered that he should apply the principles in re Edwards. He then directed himself, at [122], by reference to the facts of the case before him as to the matters he had to decide. I will set out what he said in that paragraph but I will substitute the names of the relevant persons in this case for the names which were relevant in that case. So adapted, paragraph [122] reads as follows:

“122 It seems to me that, to succeed on this plea, [B] must satisfy the following to a sufficient degree; namely,

i) that [A] made a false representation

ii) to [T]

iii) about [B’s] character

iv) for the purpose of inducing [T] to alter [her] testamentary dispositions and

v) that [A] made such a representation knowing it to be untrue or being reckless as to its truth and

vi) that the … Will was made only because of the fraudulent calumny.”

The correct test of causation or inducement

The sixth matter, based on the formulation from re Hayward was whether [T] made her will in the terms in which she did only because of the fraudulent calumny on the part of [A]. That formulation may well have been appropriate on the facts of re Hayward but I would not regard it as a correct statement of the relevant test. The question for the court is one of causation or inducement. The calumny must induce the change in the testator’s intentions. The challenger must prove that on the balance of probabilities. If it is possible that the calumny did induce the change, but the court is not persuaded on the balance of probabilities that it did induce the change, the challenge will fail. If there are other possibilities or other explanations and those other explanations persuade the court to find on the balance of probabilities that the calumny did not induce the change, the claim will fail. Conversely, although the court is given other possible explanations, if the court is nonetheless satisfied that on the balance of probabilities that the calumny did induce the will, then the claim succeeds. That is what is meant by the references to consistent and inconsistent hypotheses in re Edwards, which is itself based on Craig v Lamoureux [1920] AC 349. However, the use of the word “only” should not be understood as requiring a finding that there must have been no other reason operating in conjunction with the effect of the fraud for the testator to change his or her intentions. The question of causation or inducement was therefore a matter of fact for the [fact finder].’

Conclusion

Where a fact finder makes a clear finding of fact on causation or inducement (i.e. that A’s fraud had induced T to change her intentions), and the evidence in support of that finding is very clear and cogent, he is not required to do any more in terms of discussing the suggested reasons for T’s decision advanced by A at trial. In any event, in this case he found that some of the suggested reasons were the consequence of T being turned against B by what she had been told by A. Therefore the judge did not consider that A had a real prospect of success in disturbing the Recorder’s findings as to causation or inducement and refused permission to appeal on that ground of appeal.

In his conclusion Mr Justice Morgan held, ‘I have now considered all of the suggested grounds of appeal. Whether the grounds are considered individually or collectively, [A] does not have a real prospect of success on appeal and I will therefore refuse permission to appeal.’

Carl Islam, Barrister TEP, Averose Chancery Chambers (www.ihtbar.com) is the author of the ‘Contentious Probate Handbook’ published by the Law Society (2016), specialises in will trust and inheritance disputes (including equitable compensation claims for breach of fiduciary duty), and is currently advising on the bringing of a fraudulent calumny claim in the Business and Property Courts. Carl is a qualified and registered Direct Access Barrister who may be instructed directly by members of the public without the involvement of a solicitor, and is one of only a small number of Barristers who have been authorised by the Bar Standards Board to conduct litigation. Prior to practising as a Barrister he practiced as a Solicitor, and remains dual qualified and on the Roll of Solicitors (as a non-practising solicitor). His forthcoming article, ‘Equitable compensation arising out of sale of a property ordered under s.14 TLATA’ is scheduled for publication in Trusts & Trustees (Oxford University Press) in December 2017: https://academic.oup.com/tandt

‘Trusts & Trustees is the leading international journal on trust law and practice. The most significant source of information in its field, the journal is essential for all trusts practitioners and lawyers … The journal is ideal for international trust lawyers working in both private practice and in-house in trust companies; trusts practitioners; and those working in trust companies. It will also be an essential source of reference for academics specializing in trusts; members of the judiciary; members of regulatory bodies; and institutional libraries.’ Oxford University Press.

Estate planning using an IPDI

  • Introduction
  • Creation
  • Termination/surrender of IPDI’s, automatic reading-back, and variations
  • Spouse-exempt gifts
  • Planning
  • Family owned companies
  • Future research and development

Introduction

‘The IPDI is an estate-IP, so the property is treated for IHT purposes as if it belonged to the life tenant. The trust property will be subject to tax on L’s death, unless the value of the estate is within the NRB, or an exemption applies. The spouse exemption will in principle apply on the death of the testator if L is the testator’s spouse. This will generally be better than:

(i)       the standard IHT trust regime of 10-year and exit charges, or

(ii)      an Age 18-to-25 trust (which suffers the 4.2% charge) …

So long as the trust endures there is no need for [CGT] hold-over relief. Also, if hold-over relief is needed, it can up to a point (for property within the NRB) be obtained by creating a short term discretionary period … IP trusts are better than discretionary trusts for [income tax] purposes.’ ‘Drafting Trusts and Will Trusts – A Modern Approach’ (13th edition), by James Kessler QC and Charlotte Ford.

Creation

  1. An Immediate Post-Death Interest Trust (‘IPDI’) exists where a will/trust provides for a tenant for life, and not for bereaved minors, or for a disabled person, and the life interest exists continuously from the Testator’s (‘T’s’) death.
  2. A trust created on death where a person becomes immediately entitled to an interest for life will be:

2.1     treated as that beneficiary’s property;

2.2     aggregated with his estate (note that the beneficiary, for example the surviving spouse (‘S’), is treated for IHT as owning the whole of the capital fund see Inland Revenue Press Notice 12 February 1976); and

2.3     if the interest is created in favour of a spouse, or passes on the death of a beneficiary to a spouse, will be a spouse exempt gift.

  1. An IPDI exists and will be taxed under s.49A IHTA 1984 where three conditions are satisfied:

3.1     the trust was effected by will or under the law relating to intestacy;

3.2     the life tenant (for example S) became beneficially entitled to the life interest on the death of T; and

3.3     the trust must not be for bereaved minors and the interest is not that of a disabled person, which requirement must have been satisfied at all times since S became beneficially entitled to the life interest.

  1. The first requirement is satisfied where:

4.1     under T’s will funds are transferred into a pre-existing life interest trust;

4.2     T’s will is varied to create a life interest trust; or

4.3     an appointment is made within 2 years of T’s death that is automatically read-back into his will under s.144.

  1. If T creates an IPDI in favour of S the gift is spouse exempt, and on her death S will be treated as owning the whole of the capital fund, which is aggregated with the rest of her chargeable estate for IHT.
  2. An IPDI can also be created within 2 years of T’s death, by trustees exercising an overriding power of appointment (which extends to both income and capital) under T’s will to give S an immediate interest in possession, resulting in the property out of which the income is appointed benefiting from the spouse exemption.
  3. An IPDI may be terminated by:

7.1     the life-tenant (a ‘surrender’);

7.2     under the express terms of the trust (for example, in the event of re-marriage); or

7.3     by the trustees (defeasance).

  1. If as a result of the termination of a life tenant’s life interest, the property in which the spouse interest subsisted becomes comprised in the estate of another absolutely, then the life tenant will be treated as having made a PET.
  2. Provided S survives for a period of 7 years after the transfer, it will not become chargeable (sections 3a, 51, 52).
  3. If the property passes on to further trusts, it will be treated as a chargeable transfer subject to the IHT gifts with reservation of benefit rules (‘GWR’), hence a tax-efficient termination can no longer be on discretionary trusts for the benefit of the life-tenant and issue.
  4. Under s.102ZA Finance Act 1986, termination of S’s life interest by;

11.1   her own act;

11.2   under the terms of the trust; or

11.3   by the exercise by trustees of overriding powers;

is treated as a gift by S for the purposes of the GWR rules.

  1. The effect of these rules is that:

12.1   S is treated as if the subject-matter of the gift was comprised in her estate at its then market value; or

12.2   if the cessation of the reservation occurred within seven years before her death, S is treated as having made a PET of its value at that time.

  1. However, the GWR rules can only apply where S continues to enjoy a benefit in some way from the property in which her interest has been lost.
  2. The POAT charge contains no equivalent rule. IPDI’s are used to determine the ultimate destination of trust property, and to preserve wealth for the benefit of, for example, T’s children from a former marriage.
  3. On S’s death the remainder interests in T’s estate may be in favour of:

15.1   absolute interests, for example for T’s adult children;

15.2   a discretionary trust, for example for T’s children who are minors or for young grand-children; or

15.3   exempt gifts, e.g. to a UK registered charity.

  1. On S’s death no further IPDI’s can be created over residue left to her on an IPDI.
  2. However a surviving spouse who is left a life interest with no right to capital is likely to have a claim under the Inheritance (Provision for Family and Dependants) Act 1975 (the ‘Inheritance Act’), therefore this strategy may not protect capital unless S remarries.
  3. Under the IHTA 1984 the pecking order between:

18.1   the bereaved minor’s trusts;

18.2   18-25 trusts; and

18.3   IPDI’s,

is: 1st a BMT; 2nd an IPDI; and 3rd an 18-25 (s.71D trust).

  1. If T by his will gives a minor ‘an immediate right to income with capital vesting at 25 this is not a s.71D trust but instead gives the child an IPDI’.
  2. Therefore s.144 can operate to destroy what appears at first sight to be a s.71D trust.
  3. Where a s.71D trust results from conversion of a discretionary trust within 2 years of T’s death, it will be read-back to the date of T’s death under s.144, in which case no exit charge will arise on the ending of the earlier relevant property trust.
  4. Whereas, if the conversion occurs more than 2 years after T’s death, a s.71D trust comes into existence on that date, resulting in an IHT exit charge arising on the ending of the relevant property trust.

Termination/surrender of IPDI’s automatic reading-back and variations

  1. If trustees exercise their power to terminate an IPDI during S’s lifetime in favour of an individual absolutely, that would cause S to make a PET.
  2. s.3A(1A) provides that,

‘Any reference in this Act to a potentially exempt transfer is also a reference to a transfer of value—

(a)     which is made by an individual on or after 22nd March 2006,

(b)     which, apart from this section, would be a chargeable transfer (or to the extent to which, apart from this section, it would be such a transfer), and

(c)     to the extent that it constitutes—

(i)       a gift to another individual,

(ii)      a gift into a disabled trust, or

(iii)     a gift into a bereaved minor’s trust on the coming to an end of an immediate post-death interest.’

  1. Following the Finance Act 2006, gifts must be made either to an individual outright, to a bare trust, to a disabled trust or, in certain circumstances, to a bereaved minor’s trust in order to qualify as a PET… Thus if A, a life tenant with a qualifying interest in possession, surrenders his qualifying interest so that the trust fund passes to his daughter B absolutely, A will have made a PET…[However] if on the termination of the qualifying interest in possession the trust fund is then held otherwise than absolutely or on bare trusts, e.g. on wide discretionary trusts, not only will the transfer not be a PET, so that A will have made an immediate transfer of value, but, in addition, special anti-avoidance rules may apply.’ (McCutcheon on Inheritance Tax).
  2. Where an IPDI is terminated during S’s lifetime the property can be retained in trust where the trust qualifies as a BMT under s.71A.
  3. Following the introduction of FA 1986, s.102ZA, the surrender or termination of an interest in possession will, from 22 March 2006, be treated for the GWR rules, as if the life tenant had made a gift.
  4. Therefore, if the former life tenant may benefit from the assets previously subject to the interest in possession, the GWR rules can apply.
  5. A PET will be made should the life tenant cease to have a reservation of benefit as at the date the reservation was released.
  6. s.102ZA FA1986 provides that the termination of a life interest will be regarded for the purposes of s.102 and Schedule 20, as a disposal by way of gift by the beneficiary entitled to the interest if the following conditions are met:

30.1   T is beneficially entitled to a life interest in settled property;

30.2   his interest is treated as part of his death estate because he became beneficially entitled to the life interest either:

30.1.1         before 22nd march 2006; or

30.1.2         on or after that date and the life interest is an IPDI or a DPT; and

30.3   the life interest comes to an end during T’s lifetime.

  1. Then T will be deemed to have made a gift of ‘the no longer possessed property’ (see s.102ZA (2) and (3)).
  2. That is the property in which his interest in possession had subsisted immediately before it came to an end, other than any of it to which T became absolutely and beneficially entitled in possession upon termination of his life interest.

 

Spouse exempt gifts

 

  1. The spouse exemption is available (provided the conditions in s.18 on domicile are satisfied) where residue is left to S on an IPDI.
  2. This is particularly useful where:

34.1   T wants to preserve capital for example for children from an earlier marriage; and

34.2   in enabling trustees to exercise overriding powers of appointment to cause PET’s to be made by the spouse.

  1. From 22.03.06 S will only be treated as making a PET (rather than an immediately chargeable transfer) where the appointment is to: 35.1 another beneficiary absolutely;

35.2   a disabled person; or

35.3   into a bereaved minor’s trust.

  1. In the case of a gift to S for life using an IPDI, she becomes entitled to a life interest on T’s death, the trust does not qualify as a BMT or as a DPT, and must not do so throughout the life of the IPDI. Most intended life interests will take effect as IPDI’s except for example where unusually a discretionary trust arises before the life interest can take effect. On S’s death, the whole of the capital fund constituted by the gift will be aggregated with her estate to calculate IHT payable on her estate.

Planning

  1. IPDI’s are used to determine the ultimate destination of trust property, and to preserve wealth for the benefit of for example, T’s children from a former marriage. They may also be tax-efficient.
  2. If a property is left into a discretionary trust, the IHT residential nil rate band (‘RNRB’) will not be available even if all beneficiaries are lineal descendants. This is because the beneficiaries are not treated as the beneficial owners of the property. ‘Generally, an IPDI will be effective in providing access to the RNRB because the beneficiary is deemed to own the asset. However, sometimes an IPDI can be set up as a discretionary trust in the first instance. It may therefore be necessary to review its terms to ensure that the RNRB is available. To use the RNRB it will be necessary to transfer part or all of the residence to the life tenant.’ (‘Bricks and mortar – the practical application of the residence nil rate band, including drafting issues and claiming the relief’ by Carl Islam and Stephanie Churchill CTA, which will be published in Taxation (www.taxation.co.uk) on 12 October 2017).
  3. The points to address when considering leaving residue to S on an IPDI include the following:

39.1    if the house is left on trust, the trustees can take the decision as to whether S’s interest should be terminated in whole or in part and PET’s made;

39.2    there may be CGT advantages in transferring the property into trust for S because future disposals that might trigger gains can be minimized;

39.3    if property is left outright to S she cannot make lifetime gifts on trust for T’s children to take effect as PET’s, and therefore such transfers will be chargeable; and

39.4    by contrast, if S is given an IPDI in the will which is then terminated so that the property becomes held on a bereaved minor’s trust during her lifetime that will be a PET.

  1. ‘… the interest in possession could have been left via a power of appointment trust (i.e. a ‘flexible’ IPDI) with the surviving spouse having the life interest, and a range of other beneficiaries, say children and grandchildren, being capable of benefiting on a trustee appointment. This would mean that if the survivor did have sufficient financial security outside of the trust, the trustees could consider making an absolute appointment of part or all of the trust fund to children. That would crystallise a PET by the survivor, which, if he survived it by seven years, would fall outside his taxable estate. As a result, he would still continue to qualify for the full transferable nil rate band on his death.’ (Financial Planning with Trusts by John Wooley).
  2. ‘On the death of a life tenant who is single, there should normally be a discretionary trust. On the death of a life tenant who is married, there is a stark choice to be made:

(i)        The trust fund may pass to the surviving spouse absolutely; or

(ii)       The trust property may continue to be held in trust.

If L’s spouse was disabled when the testator died, there is a third choice: to confer an IP on L’s spouse.

Route (i) qualifies for the IHT spouse exemption. Route (ii) does not …

Either route qualifies for the CGT uplift on the death of L. The decision must be made during the lifetime of L. It cannot be altered after L’s death. It is not necessary to make the final decision when drafting the will of the testator: it is necessary  to make a provisional decision, i.e. one which can be changed subsequently (during the lifetime of L) … The provisional decision may be changed by executing an appropriate deed of appointment during the lifetime of L to confer an absolute interest on L’s surviving spouse. The deed should normally be revocable during the lifetime of L. That is an issue which should be considered when L makes his or her own will.’ ‘Drafting Trusts and Will Trusts – A Modern Approach’ (13th edition), by James Kessler QC and Charlotte Ford.

  1. ‘… a life interest will should be drawn flexibly. The executors/trustees should be given wide, overriding powers of appointment, so that they can either appoint the capital in whole or in part to the surviving spouse absolutely and/or terminate the life interest in whole or part and appoint the capital to one or more of the other beneficiaries named or referred to in the will e.g. children or grandchildren.’ (Ray and McLaughlin’s Practical Inheritance Tax Planning’).

Family owned companies

  1. ‘The key provision is IHTA 1984 s.49(1), which provides:

“(1)      A person beneficially interested to an interest in possession in settled property shall be treated for the purposes of this Act as being beneficially entitled to the property in which the interest subsists.”

There is no mention of the interest being “qualifying” and the legislation refers to a “person” (so including a company) rather than an “individual”.

… a company can have an interest in possession which is not a qualifying interest in possession as it fails to satisfy the conditions in s.59(2). As a result the settled property will fall within the relevant property regime and yet the company may be treated as beneficially entitled to the underlying property in which the interest is possession subsists.’ (‘Trust Taxation And Estate Planning’ 4th Edition by Emma Chamberlain and Chris Whitehouse).

Future research and development

  1. Perhaps testamentary planning using an IPDI is a gateway to IHT planning strategies for a testator who held a 100% beneficial interest in a residential buy-to let property prior to his death.
  2. This is a subject I may research and discuss in a future article in 2018.

 

Publication of my Residential Nil Rate Band Article by Taxation

My article, co-authored with Stephanie Churchill CTA, ‘Bricks and mortar – the practical application of the residence nil rate band, including drafting issues and claiming the relief’ , will be published in Taxation (www.taxation.co.uk) on 12 October 2017.

My article, ‘Equitable compensation arising out of sale of a property ordered under s.14 TLATA’ is scheduled for publication in Trusts & Trustees (Oxford University Press) in December: https://academic.oup.com/tandt

‘Trusts & Trustees is the leading international journal on trust law and practice. The most significant source of information in its field, the journal is essential for all trusts practitioners and lawyers … The journal is ideal for international trust lawyers working in both private practice and in-house in trust companies; trusts practitioners; and those working in trust companies. It will also be an essential source of reference for academics specializing in trusts; members of the judiciary; members of regulatory bodies; and institutional libraries.’ Oxford University Press.

The forthcoming ACTAPS monthly Newsletter (which is global) will also contain an article I wrote last month about ‘Rectification of Wills’.

BREXIT – when economic lunatics take over the asylum!

For detailed commentary and links to published articles please visit the Brexit page at www.diplomaticlawguide.com

A two year interim period red line is not practical.

First, ‘[the] Brexit negotiations will take much longer and be far more complicated than many British politicians realise. One set of talks will cover Britain’s legal separation from the EU, the second a free trade agreement (FTA) with the EU, the third interim cover for the UK between its departure from the EU and the entry into force of the FTA, the fourth accession to full membership of the WTO [i.e. regularising the UK’s scheduled commitments as an independent member of the WTO], the fifth new FTAs to replace those that currently link the EU and 53 other countries, and the sixth co-operation on foreign, defence and security policies.’ [There is also a seventh ‘global’ dimension]. Charles Grant, Director of the Centre for European Reform, in his article ‘The Brexit negotiations: the UK government will have incentives to compromise’ published in the CER Insight.

Second, the negotiation of trade regulatory matters has not yet begun. [The] Brexit debate is currently far too focused on tariffs. All the debate was about tariffs. But tariffs are a minor aspect of doing business internationally today. The problem is on regulatory issues. The UK has to negotiate some kind of arrangement that can help to continue to ensure that UK regulatory standards will still be seen as equivalent. Without that it’s too easy for the EU to simply say ‘no, that doesn’t apply anymore’. Professor Stephen Woolcock.

Third, as negotiation of Britain’s WTO schedules could prove harder to negotiate than Brexit, and needs to be sorted out prior to the expiry of any interim period, the idea of an arbitrary two year interim period is vacuous. What work, if any, has been undertaken in relation to regularisation behind the scenes?

Note that Britain is currently a member of the WTO via the EU. Full members must deposit ‘schedules’ of tariffs, quotas, subsidies and other concessions on market access with the WTO. The UK will have to negotiate its own schedules, initially with the other 27. The tariff negotiation could be simple, if the British followed what the EU currently does. But dividing up quotas, on say New Zealand lamb imports, would be more complicated. And then the new British schedules would need the approval of all 163 WTO members, since the organisation’s decisions require consensus. So if one member (for example, Argentina or Russia) wanted to create difficulties, it could block the British schedules. British officials hope that such difficulties do not arise, but reckon that it will be hard work to sort out WTO membership within the two years of the Article 50 negotiation.

‘One of the most important questions for UK businesses and investors is whether the UK could trade under WTO rules as soon as it exits the EU. In my opinion the answer is twofold. First, the UK would most likely lose market access on goods in certain countries and face legal challenges by some WTO members unless it negotiates with both the EU and the WTO members its status as an independent member of the WTO. Second, in relation to the UK – EU trade relationship, if there is no FTA in place on the date the UK exits the EU, it is highly likely that both sides will treat each other on WTO terms (including MFN tariff rates). Due to the EU’s current trade restrictions to third countries, this is not a desirable outcome for either side…The current EU schedule of commitments is the so-called “EU-15” of 2012. The fact that this is an outdated schedule is likely to complicate matters in the UK’s future WTO negotiation because the EU schedule of concessions and commitments regarding agricultural products, domestic support and export subsidies does not reflect the enlargement of the EU (from 15 to 28 Member States). This means that the UK – EU allocation of commitments will likely lead to a series of requests by third countries seeking new compensation from the EU and the UK. How will third countries react to the UK-EU distribution of concessions is anybody’s guess. But at least one can expect the following: it is highly unlikely that WTO members will challenge the UK’s rights, concessions or commitments on industrial goods, export subsidies entitlements including those on agricultural exports or its schedule of services. The challenge, however, is likely to focus on the EU’s agricultural commitments related to tariff rate quotas (TRQ’s) to third countries such as Australia, Argentina, Brazil, China, New Zealand, Thailand, Uruguay and the U.S. TRQ’s are volumes that can be imported with a low or zero tariff. Imports above the quota quantity enter with a higher tariff rate. The UK and the EU would need to negotiate a distribution of the EU’s TRQ’s. This would be problematic to third countries. They may find the redistribution of the EU’s TRQ’s as unfair because it would reduce their access to the EU market as a result of the UK’s exit. The TRQ’s are likely to become the most contentious issue in the UK’s re-establishment of its legal status as an independent member of the WTO. Now let us assume that the UK is unable to agree on new commitments with other WTO members on the day it exits the EU…In the case of UK exports to WTO markets including the EU (in case there is no trade agreement in place yet), one would expect WTO members (including the EU) to apply MFN rates to UK products. But this raises doubts as to whether the UK can trade under MFN tariffs without having to make any concessions or commitments to WTO members. Because the UK would be trading on MFN without being forced to grant concessions and TRQ’s to the rest of the WTO members and, thus, creating an unfair scenario for the other WTO members, it is possible that the UK may be subject to MFN restrictions by other WTO members until it regularises its legal status which can only occur once it has negotiated a new schedule of commitments.

An additional uncertainty, in this case a legal one, is the legal process under the WTO rules to re-establish the UK as an independent member of the WTO, in particular with regard to the distribution of commitments. There is no provision in the WTO framework which covers the particular situation of the UK. The closest provision seems to be Article 28 of GATT which provides for the modification of schedules. Whether this provision applies to the particular case of the UK is not entirely clear. Despite these complexities, WTO members could allow the UK to trade under WTO rules on an interim basis (one or two years) without a schedule of commitments while it concludes the negotiations with all individual WTO members.

Having said all the above, it must be stressed that nothing prevents the UK negotiation in the WTO from being simple and straightforward. This will depend entirely on the political will of the WTO members on whether they want to make the UK’s life outside the EU easy or complicated.’

Brexit: Challenges for the UK in negotiating an FTA with the EU (a trade negotiator’s perspective) by Luis González García.

Fourth, the Government should have developed and agreed a principled position and negotiating strategy based upon evidence before triggering Article 50. However as far as I am aware no evidence based review was undertaken prior to triggering Article 50, or has been undertaken since. Because there is no evidence based strategy it follows that there is no consistent plan to deliver it. In other words, at present, no coherent, rational, and practical plan for negotiating Brexit, has been agreed in Cabinet and approved by Parliament.

‘To be more than an optimistic slogan, Global Britain needs to rest on a clear, evidence based strategy. And once we have the strategy, we will need a consistent plan to deliver it… [Our] strategy should not be opportunistic or reactive, but based in principles. Brexit makes it even more important for the UK to have an international trade system with rules ensuring non-discrimination, fair competition and enforcement. Alone, we will be less equipped to cope in a trade environment driven by the bilateral and power based instincts of the new US administration and China, or indeed the sheer trading weight of the future EU. That is why we should remain a strong supporter of the WTO, and resist any temptation to short-circuit rules to score quick successes…’ The Tacitus Lecture 2017 – ‘The World is Our Oyster? Britain’s Future Trade Relationships’ delivered by Sir Simon Fraser.

Trade negotiations, which are intrinsically linked to: freedom of movement; the rights of EU citizens living and working in the UK; and the Irish border, depend upon a decision being made about whether Britain stays in the single market and customs union. Until this has been decided a coherent trade model cannot be proposed to the EU. The practical real world consequences of political indecisiveness on this issue include the following:

1.        a UK-EU FTA cannot in practice be agreed and implemented;

2.        businesses in the UK cannot undertake long-term planning because they cannot know the extent to which Britain will remain integrated with the EU post Brexit (which will have a direct impact on foreign investment and jobs); and

3.        likewise, because they cannot know the extent to which the UK’s hands will be tied by the terms of a FTA with the EU, no other state (including the US, India, China, and Australia) can practically agree comprehensive terms of a FTA with the UK – which in any event, cannot be agreed and implemented until the UK-EU FTA has been implemented, which in itself may take 3-4 years post agreement on terms following the tabling of a trade model.

The Peterson Institute for International Economics who analysed how long it took the US to agree 20 bilateral trade deals concluded: (i) one and a half years, on average, and (ii) more than three and a half years to get to the implementation stage. https://www.weforum.org/agenda/2016/07/how-long-do-trade-deals-take-after-brexit/

= 5 years.

It is therefore not inconceivable that the first trade agreement with a non-EU trade agreement counter-party will be concluded and implemented sometime between 2024 and 2029/2030 (if e.g. the conclusion of a bespoke trade agreement with the EU takes e.g. 7 years from commencement of negotiations. Negotiations are unlikely to commence before October 2017 and the EU position appears to be that negotiations will only commence and take place in parallel if progress is made on the divorce settlement first, and crucially, the divorce bill.

7 years from 29 March 2017 is 29 March 2024. Add 5 years = 2029. Factor in delay in commencement = 2029/2030.

Logistically, there is also a huge gap between the scale of negotiations to be undertaken and the resources actually available to undertake them, which will take time to fill through recruitment and training:

1.        ‘The EU currently has existing PTA’s with 52 countries, and it is negotiating trade agreements with another 72 countries. In case of Brexit, the UK would therefore need to re-negotiate or start new bilateral negotiations on 124 trade agreements, plus one additional trade agreement re-defining its own trade status as a third country vis-à-vis the EU. If we limit the focus to the top-50 trade partners of the UK, who account for 92% of all UK trade, 41 of them do have some trade agreements or ongoing negotiations with the EU. 18 of the UK’s top 50 trade partners are EU countries, one (Norway) is an EEA country, one (Turkey) has a customs union agreement with the EU, eight countries have existing EU PTAs in place and 13 countries are currently negotiating EU trade agreements. This would translate into a minimum of 24 negotiations to be concluded.’ Leaving the EU would mean renegotiating more than 100 trade agreements by Pia Hüttl and Silvia Merler.

2.        124 trade agreements x 5 years each = 620 years. Hypothetically, all 124 could be negotiated within 5 years (if negotiated in parallel). How many trade negotiators does the UK need to resource this? ‘The EU typically sends 20 commission negotiators to any round of trade talks, backed up by between 25 and 40 technical experts… The UK has 40 trade negotiators, compared with the 550-strong trade department in Brussels’: https://www.theguardian.com/business/2016/aug/17/brexit-trade-deals-gruelling-challenge-taking-back-control. Assuming that each UK negotiating team will include at least around 25 negotiators (plus technical experts), 124 x 20 = 2,480 negotiators. One former EU trade negotiator Miriam Gonzalez Durantez, estimated more precisely (17 August 2016) that for the progressive negotiation of priority agreements (i.e. not all 124) the UK would need an operational cadre of least 500 negotiators. How many do we have? Lord Price, the former minister for trade and investment said that the Government had about 40 trade negotiators, compared with the 550 employed by the EU. Yet even these figures may exaggerate the number of people qualified to go into the room for Britain and agree trading deals for a post-EU era. Lee-Makiyama estimates that there cannot be more than 200 actual negotiators in the world as a whole. This shortfall will require the civil service to look far and wide, and is indicative of the kind of skills shortages Whitehall will struggle with in the years ahead. Dealmakers have to know what strategy they will use, if they will scope out the negotiation, what they will scope, and how they will do it. They must have an idea of what they want to propose, in what order, and which sections of a trade deal they want to debate first. Developing an understanding of how to do this can take years.

‘Serious multilateral negotiating experience is in short supply in Whitehall, and that is not the case in the Commission or in the Council.’ Sir Ivan Rogers.

As talks with the EU about the structure and terms of a FTA have not even commenced, and only 12 months remain in the Article 50 negotiating window (including Christmas 2017, Easter 2018, and the 2018 summer break during which MP’s do not sit in the House of Commons), it is respectfully suggested that the primary ambition of the forthcoming Conservative Party conference should be to agree a unified position on whether Britain is to stay in or leave the single market and customs union.

If this is not achieved, the likelihood is that no interim period can be agreed with the EU in which businesses can undertake planning with certainty. In which case there is likely to be an exodus.

This is a chance for the Government to demonstrate that the Conservatives are still the party of business – a vote-winning kudos which they appear to be handing to Labour on a plate.

If Britain falls over the economic cliff edge then:

1.        there appears to be a real likelihood that Labour with the support of Lib Dem votes could win the next general election, resulting in increased capital taxation (i.e. the depletion of personal wealth);

2.        that there will be less tax revenue available to fund public expenditure i.e. because of an exodus of businesses (particularly in the financial services industry); and

3.        that Britain could be bankrupted by Labour.

In which case if Theresa May and her government bring about the economic de-stabilisation of Britain what was Brexit for and all about? What did it achieve?

Carl Islam LLM (Exon) (International Business Law), Barrister, 1 Essex Court, Temple, London, is the founder of the Diplomatic Law Guide (www.diplomaticlawguide.com) which appears on page 1 of the following pages of Google:

  • ‘bilateral and regional trade agreements law’; and
  • ‘trade agreements lawyer’,

and is listed on the website of the United States ‘American Foreign Service Association’ (the ‘AFSA’) based in Washington DC underneath the heading ‘Codes of Conduct from Other Services/Countries’ (http://www.afsa.org/ethics).

Since July 2016 he has been researching and writing a new book for publication in 2018 about the ‘Structuring Drafting & Negotiation of FTA’s’.

Prior to entering private practice as a commercial solicitor and subsequently as a Barrister, Carl worked in-house for the Rolls-Royce Industrial Power Group and for Alstom (in Paris), structuring, drafting, and negotiating major contracts which were awarded in Malaysia, India, and China.

Rectification of wills

I am the guest speaker at the Barlow Robbins Solicitors annual Contentious Probate Seminar in Guildford on 9 November. I am speaking about ‘Rectification of Wills’ and set out below my presentation note.

Rectification of wills

Carl Islam, Barrister, TEP, author of the ‘Contentious Probate Handbook’ (published by the Law Society), www.ihtbar.com

I will speak briefly about:

  • The court’s power to rectify a will set out in section 20 Administration of Justice Act 1982
  • The approach of the court
  • Clerical error
  • Failure to understand instructions
  • Ascertaining the intentions of the testator

The court’s power to rectify a will set out in section 20 Administration of Justice Act 1982

  • Section 20 of the Administration of Justice Act 1982 enables the court to order a will to be rectified so as to remedy a failure to carry out the testator’s intentions in consequence of either:

(i)                a clerical error; or

(ii)               a failure to understand his instructions.

  • Section 20(1) requires the court to examine three questions:

(i)      what were the testator’s intentions with regard to the disposition in respect of which rectification is sought;

(ii)     whether the will is so expressed that it fails to carry out those intentions; and

(iii)    whether the will is expressed as it is in consequence of either:

(a)      a clerical error; or

(b)     a failure on the part of someone to whom the testator has given instructions in connection with his will to understand those instructions.

The approach of the court

In Kell v Jones [2012] Judge Cooke stated,

The approach of the court to the question of rectification was agreed by both counsel to be that which was summarised by Mr Justice Chadwick as he then was, in Re Segelman in 1996, as involving the resolution of three questions:

(1)      What were the testator’s intentions with regard to the dispositions in respect of which rectification is sought;

(2)      Secondly, whether the will is so expressed that it fails to carry out those intentions;

(3)      Thirdly, whether the will is expressed as it is in consequence of either:

  1. clerical error; or
  2. a failure on the part of someone, to whom the testator has given instructions in connection with his will, to understand those instructions.

It is accepted that the burden of proof is on the person seeking rectification in so far as all these matters require to be established. As to the standard of proof (which is primarily applicable to the evidence required to establish the testator’s intentions, given that that must be established by evidence extrinsic to the will in the nature of matters in relation to applying for rectification) that is accepted to be, again as Mr Justice Chadwick summarised it:

“Although the standard of proof required in a claim for rectification made under section 20(1) of the 1982 Act is that the court should be satisfied on the balance of probabilities, the probability that a will which a testator has executed in circumstances of some formality reflects his intentions is usually of such weight that convincing evidence to the contrary is necessary.”

Thus, the contrary intention of the testator must be established by convincing evidence.’

Clerical error

  • In Bell v Georgiou & Anor [2002] which was expressly endorsed and approved by Lord Neuberger in Marley v Rawlings [2014], Mr Justice Blackburne said that, ‘a clerical error occurs when someone, who may be the testator himself, or his solicitor, or a clerk or typist, writes something which he did not intend to insert or omits something which he intended to insert… The remedy is only available if it can be established not only that the will fails to carry out the testator’s instructions but also what those instructions were.
  • The court must consider three issues:

(i)      what the deceased’s intentions were;

(ii)     whether the will fails to carry them out; and

(iii)    whether the failure to do so, was the result of a clerical error?

  • In Re Segelman [1996] Chadwick J distinguished between three situations, the first two of which engage s.20 and the third of which does not:

(i)      the introduction of words into a will through lack of care without advertence to their significance and effect;

(ii)     the introduction of words to which the draftsman has applied his mind but in relation to which he has failed to understand his instructions; and

(iii)    the introduction of words to which the draftsman has applied his mind with a proper understanding of his instructions but which (perhaps through failure properly to understand the law) did not achieve the objective which he and the testator intended.

  • Marley v Rawlings [2014] was the first case on rectification of wills to reach the Supreme Court. Lord Neuberger stated the following:

(i)      The best judicial summary of the effect of the cases so far decided on s.20(1)(a) was given by Blackburne J in Bell v Georgiou [2002]:

‘The essence of the matter is that a clerical error occurs when someone, who may be the testator himself, or his solicitor, or a clerk or a typist, writes something which he did not intend to insert or omits something which he intended to insert. … The remedy is only available if it can be established not only that the will fails to carry out the testator’s instructions but also what those instructions were.’

(ii)     If, as a result of a slip of the pen or mistyping, a solicitor (or a clerk or indeed the testator himself) inserts the wrong word, figure or name into a clause of a will, and it is clear what word, figure or name the testator had intended, that would undoubtedly be a clerical error which could be rectified under s.20(1)(a). It is hard to see why there should be a different outcome where the mistake is, say, the insertion of a wrong clause because the solicitor cut and pasted a different provision from that which he intended. Equally, if the solicitor had cut and pasted a series of clauses from a different standard form from that which he had intended, [there is no apparent reason] why that should not give rise to a right to rectify under s.20(1)(a), provided of course the testator’s intention was clear.

(v)     The expression ‘clerical error’ is not one with a precise or well-established, let alone a technical, meaning. The expression also can carry a wider meaning, namely a mistake arising out of office work of a relatively routine nature, such as preparing, filing, sending, organising the execution of, a document (save, possibly, to the extent that the activity involves some special expertise). Those are activities which are properly described as ‘clerical’, and a mistake in connection with those activities, such as wrongly filing a document or putting the wrong document in an envelope, can properly be called ‘a clerical error’.

(vi)    ‘Clerical error’ is an expression which has to be interpreted in its context, and, in particular on the assumption that s.20 is intended to represent a rational and coherent basis for rectifying wills. The expression ‘clerical error’ in s.20(1)(a) should be given a wide, rather than a narrow, meaning.

(vii)   Rectification of other documents (including unilateral documents) is not limited to cases of clerical error, however wide a meaning that expression is given. Accordingly, given that there is no apparent reason for a different rule for wills, it would appear appropriate that the grounds for rectification is as wide for wills as the words of s.20(1) can properly allow.

(viii)  There is no apparent limit on the applicability of s.20(1)(b), which supports the notion that s.20(1)(a) should not be treated as being of limited application. However, s.20(1)(b) also has a potential limiting effect on the ambit of s.20(1)(a), in the sense that s.20(1)(a) should not be given a meaning which significantly overlaps with, let alone subsumes, that of s.20(1)(b).

(ix)     Sections 17 to 21 of the 1982 Act are all aimed at making the law on wills more flexible and rendering it easier to validate or ‘save’ a will than previously. Section 17, which re-enacts s.9, is concerned with the ‘relaxation’ of formalities; sections 18 and 19 introduce greater flexibility in relation to the effect of the testator’s marriage and death of his issue; s.20 introduces rectification for the first time for wills, and s.21 permits the testator’s subjective intention to be taken into account for the first time. The whole thrust of the provisions is therefore in favour of a broad interpretation of a provision such as s.20(1)(a).

Where a will draftsman knew what he wanted to achieve, and thought wrongly, that he was doing so, i.e. where he made a mistake advertently, then the mistake is not a ‘clerical error’ (Kell v Jones [2012]), and a claim for rectification will fail notwithstanding that the expression ‘clerical error’ should be given a wide, rather than a narrow, meaning following the Supreme Court decision in Marley v Rawlings.

Failure to understand instructions

(i)      ‘A failure to understand the testator’s instructions involves a misunderstanding or breakdown in communication between the testator and the person who is drafting or writing out his will. It is to be distinguished from the situation where the draftsman understands his instructions but uses inappropriate language in seeking to give effect to them, as where he introduces words into a will to which he has applied his mind with a proper understanding of his instructions but (perhaps through a failure properly to understand the law) they do not achieve the objective which he and the testator intended.’ (Hodge, Paragraph 8-48).

(ii)     This ground is limited to cases where the draftsman fails to understand the instructions given, and thus has a limited scope. It does not cover circumstances where the testator fails to understand the legal effect of the words actually used or where the draftsman uses the wrong technique in drafting the will, even though he has understood the intentions of the testator correctly.

(iii)    The conclusion to be reached by the court about whether the draftsman had failed to understand the testator’s instructions is ‘to be arrived at on the balance of probabilities but bearing in mind a strong bias in favour of the conclusion that a duly executed will evidences the intention of the testator.’ (Goodman v Goodman [2006].

Ascertaining the intentions of the testator

(i)      It is the testator’s intention at the date of the will that falls to be considered, rather than as at the date of his death.

(ii)     It should be borne in mind that the remedy of rectification is available to correct mistakes in the expression of the testator’s intentions, and not for lack or vision, perception or knowledge. ‘One cannot look at circumstances that were not foreseen by the testator at the time he made his will, speculate as to what he might have done in those circumstances, and then supply words to meet those circumstances.’ (Hodge, paragraph 8-43).

(iii)    Whilst the standard of proof required is that the court should be satisfied on the balance of probability, ‘the probability that a will which a testator had executed in circumstances of some formality reflects [his] intentions is usually of such weight that convincing evidence to the contrary is necessary.’ (Re Segelman [1996]).

(iv)    The evidential burden of proving that the testator’s will failed to carry out his true intentions, is particularly difficult to discharge where he has drafted his own will without the benefit of independent professional legal advice because:

(a)      there is unlikely to be any documentary evidence of the testator’s intentions other than the will itself; and

(b)     there may not be a witness who was privy to, and can provide evidence of, the testator’s true testamentary intentions.

 

BREXIT ‘Blue sky’ thinking

This is not a worked through set of ideas and is merely intended to provide some food for thought as David Davis has called for blue sky thinking.

Agree as an interim package that:

1.    Britain will remain in the single market and customs union – which would also solve the problem of maintaining an open border with the Republic of Ireland and take any remaining wind out of the sails of Scottish nationalism, thereby preserving the relative market size of the UK in any future trade negotiations as part of the EU or outside it. For a brief explanation of the existential significance of the relationship between ‘relative market size’ and ‘integration’ please see my recent post, ‘What is the Single European Market?’: https://www.linkedin.com/pulse/what-european-single-market-carl-islam;

2.    instead of payment of a divorce bill, Britain continues to pay its full annual contribution to the EU budget throughout the duration of the interim period;

3.    all EU nationals currently resident in the UK can remain (including their families);

4.    all EU nationals who are deemed to meet qualifying criteria, are free to move to the UK and remain here at the end of the interim period, e.g. those working for a recognised employer e.g. the NHS, a University, or company (including the financial services industry);

5.    all other EU nationals seeking to move to the UK may do so if they meet certain criteria e.g. income, savings and health insurance for an initial period of two years before they can claim health and welfare benefits;

6.   there are specific carve-out rules e.g. for students paying for education in the UK;

7.   during the interim period the EU examines its freedom of movement policies and rules with the aim of reforming them to enable greater control by each sovereign member state in accordance with uniform criteria (i.e. to restore border control);

8.    the interim period end after policy reform has been voted on by each member state, subject to a specified long-stop end-date;

9.   following publication of the decision reached by the EU about reform of freedom of movement, a referendum be held about whether Britain should remain a full member of the EU or negotiate an orderly exit within a period that is sufficient for the civil service to put in place practical implementation plans e.g. about customs, ports, and air safety, and for businesses to adjust.

Would this provide business with the certainty is needs in order to undertake long-term planning? If not, and businesses decide that it is better to go now rather than in e.g. 4-6 years time, the package will not avoid the adverse economic consequences of a hard Brexit.

 

 

What is the European Single Market?

If you stopped a member of the public on the street and asked ‘what is the economic rationale and function of the European single market?’, what is the likelihood they would preface their remarks by explaining:

  1. differing national technical and licensing regimes create major obstacles to a unified market, restricting market entry on a grand scale;
  2. differing product standards and certification procedures hamper the Europe-wide acceptance of numerous items ranging from cars to pharmaceuticals, and cereals;
  3. the basic rule on the elimination of non-tariff barriers to trade is enshrined in Article 34 of the Treaty of the Functioning of the European Union (‘TFEU’) which provides,

‘Quantitative restrictions on imports and all measures having equivalent effect shall be prohibited between Member States’;

  1. ‘measures having equivalent effect’ has been defined by the European Court of Justice as meaning,

‘All trading rules enacted by Member States which are capable of hindering, directly or indirectly, actually or potentially, intra-community trade are to be considered as measures having an effect equivalent to quantitative restrictions’ (Fourcroy v Dassonville [1974]).

Therefore Articles 34 and 35 (which contains a similar prohibition for the export of goods) apply to any conceivable, discriminatory and non-discriminatory, direct and indirect hindrances to trade within the internal market; and

  1. Article 26 of the TFEU propounds the existential policy that,

‘The Union shall adopt measures with the aim of … ensuring the functioning of the internal market, in accordance with the relevant provisions of the Treaties… The internal market shall comprise an area without internal frontiers in which the free movement of goods, persons, services and capital is ensured in accordance with the provisions of the Treaties.

Efficiency depends upon integration. ‘Thus an essential thrust of the move towards completion of the internal market by 1992 was the harmonisation of regulatory regimes with respect to financial services, securities, insurance, company law, and telecommunications, as well as community-wide standards with respect to product safety, and technical specifications’. (The Regulation of International Trade by Trebilock, Howse, and Eliason).

Integration determines economic power. ‘The EU’s role and possibly effectiveness in international economic negotiations will be greater the larger the EU’s economic power. Equally important is the ability or willingness on the part of the EU to offer or deny access to its market. In the exercise of such market power it is the EU as a whole that counts and therefore the ability of the EU rather than the member states to determine access. If one takes market size as a measure of economic power then clearly the more integrated the EU market the greater the potential economic power of the EU.’ (European Union Economic Diplomacy by Stephen Woolcock).

Reduction of relative market power is an existential threat. It also proves the fallacy that Britain will be economically better off ‘out’ rather than ‘in’ because we can then negotiate FTA’s on our own terms. As we will be proceeding from a position of weakness against states that belong to trading blocs who in relation to the UK have vastly superior market power to dictate terms in their own favour, it is they (including the EU) who will be in the driving seat and not us. This is a stark negotiating reality that the British public does not yet appear to have grasped or even woken up to. Furthermore, because terms pivot upon residual integration post-Brexit, no state is likely to conclude and implement terms of a FTA with the UK until the EU and UK have agreed and implemented terms of a FTA to govern their future trading relationship, which typically can take up to seven years from commencement of FTA negotiations (which have not yet started), see the Brexit page of the Diplomatic Law Guide which refers to research by the Peterson Institute: http://newsite.diplomaticlawguide.com/brexit-2#roadmap

‘Relative market power is important because all economic diplomacy is shaped to a greater or lesser degree, and more or less formally, by reciprocity or the view that there should be a broad balance of benefits (or costs) resulting from any negotiation. The issue is generally how such a balance is defined and over what period. In some areas such as trade policy, reciprocity has been and remains, for better or for worse, one of the underlying principles of the GATT/WTO system of multinational trade negotiations. Relative market size is even more important in bilateral (or other preferential) trade negotiations that have become the dominant feature of international trade negotiations since the late 1990’s. In 2009 the EU constituted the largest single market in the world with a GDP in purchasing power parity of $14.5 trillion, just slightly larger than the US at $14trn and equivalent to China, India, Brazil and South Africa put together ($14.9trn) (European Union Economic Diplomacy by Stephen Woolcock).

When the British public voted for Brexit I wonder what percentage could have explained if you had stopped them on the street and asked them, what the Single Market and Customs Union actually are, and the existential significance of the relationship between relative market size and integration?

For a definition of ‘customs union’ please visit the ‘Bilateral and Regional Trade Agreements’ page of the Diplomatic Law Guide: http://newsite.diplomaticlawguide.com/bilateral-and-regional-trade-agreements#structuring

In his article published in the Independent 3 August 2017, ‘This is what the single market and customs union actually are – and here’s what will happen to Brexit if we leave them’, Richard Corbett wrote,

‘The debate about continued British membership of the single European market is often confused, because the shorthand term “membership”, just like the term “access to”, can mean different things.

There is not actually an entity called the “single market” that you can apply to join. The EU has created an “internal market” as one of its policies, and it has associated countries from outside the EU with it, to various degrees, as the EU treaties allow it to do. The EEA countries (Norway, Iceland and Liechtenstein) are the most closely involved though not quite fully participating, as fish and agriculture are excluded. Switzerland is involved through different arrangements. So are others, to a lesser degree, such as Moldova.

The shorthand term “members of the single market” is inaccurate, but is usually used to refer to the EEA countries and Switzerland. Those countries have red-tape-free access to the single market for most of their products, on the condition that they follow its rules.

After all, that is what the single market is about: ensuring that there are common standards on consumer protection, workers’ rights, the environment and fair competition means that products do not need to be checked at borders and can circulate without hindrance. This is particularly important for supply chains that criss-cross borders, such as in the manufacture of automobiles and aircrafts, or in agriculture. It is also vital in transport, where, notably, the right of airlines to fly across Europe is conditional on them complying with EU safety standards and being tested by the European Air Safety Agency. Britain’s financial sector, which provides one third of government tax revenue, is similarly dependent on its right to passport insurance and banking services across the single market in accordance with its rules.

In other words, “membership” of the single market is vital for our economy, jobs and public finance. 

But here’s the rub: leaving the EU, assuming we go ahead with it, means Britain will have no direct say on those rules anymore. We would probably have some influence – the EEA countries are consulted on draft single market legislation – but we would no longer have representation where the final decisions are taken: the EU Council of Ministers and the European Parliament.

This loss of influence is the political price of leaving the EU. We do not need to compound that by the economic damage of distancing ourselves from the single market.

Some argue that we must leave the single market in order to make our own, separate rules, otherwise we will be a rule-taker, not a sovereign state. But the supposed gain in sovereignty would not be so great as to justify the huge economic cost. EU legislation in its entirety amounts to some 13 per cent of our laws according to the House of Commons library, and single market rules are a proportion of that. Within even that smaller proportion, we would have little option but to keep most of it anyway.

First, some of it is where the EU has set standards that have since become world standards, as frequently happens. Second, sectors such as chemicals, aviation, pharmaceuticals and agriculture will still be dependent on EU rules that apply to their supply chains. Thirdly, some EU rules are the simple application in the single market of world level agreements in the WTO, UN agencies and so on. Fourthly, most rules are not controversial and there would be no particular gain from changing them. All in all, the extra “sovereignty” to do our own thing would, in practice, be limited, and not worth the economic damage of leaving the single market.

Others argue that staying in the single market does not respect the result of the referendum. Yet, it was Leave campaigners themselves who promised that we could leave the EU without economic damage because we’d stay in the single market:

“I’d vote to stay in the single market. I’m in favour of the single market,” said Boris Johnson.

“Only a madman would actually leave the [single] market,” said Owen Paterson.

“Increasingly, the Norway model looks best for the UK,” said Arron Banks.

“Absolutely no one is talking about threatening our place in the single market,” said Daniel Hannan.

A similar argument applies to the customs union – the arrangement whereby EU countries don’t impose any tariffs on trade between themselves, but set a common external tariff to the outside world. Leaving the customs union would probably mean tariffs and certainly mean border checks on our exports to, and imports from, the EU, which, let us not forget, is our biggest trading partner by some margin.

The price to pay here is that staying in the customs union means we can’t negotiate a different set of tariffs with third countries. But the new shiny trade agreements offered by Liam Fox are anyway turning out to be illusory. It won’t be easy to get better deals than we have secured via the EU with countries around the world. These have been negotiated with the clout of the whole of Europe – the world’s largest market – behind us. Negotiating new agreements, as Britain alone, and in a hurry, would not be to our advantage. If we gain anything at all compared to now, it is unlikely to balance the loss of diminished access to the European market.

Few people voted for Brexit-at-any-cost; indeed they were told it would save money that could go to the NHS. If it turns out to be a costly exercise, damaging the economy, they will be entitled to feel let down. A soft Brexit, staying in the single market and the customs union, will attenuate that cost and is arguably the only kind of Brexit that would come close to what several Leave campaign leaders pledged. But many would go further and say that even these costs, and the loss of British influence over decisions that will affect us anyway, are too high a price to pay for Brexit.And if this government doesn’t fall within the next 18 months and muddles its way through to an unclear, half-baked, or clearly damaging deal, then the clamour for a rethink of Brexit will grow. As Manuel Cortes said from a trade union perspective: “If a bad deal is on the table, the prospect of staying in must be an option.”

And as David Davis himself said: “If a democracy cannot change its mind it ceases to be a democracy.”

This still has a long way to go. But the fact that, well over a year after the referendum, there is still no clarity in what alternative to full membership we might go for means that no option should be closed.’

 

How civil courts decide

The common law judge is not concerned with establishing the truth of what did or did not happen on a given occasion in the past but merely with deciding, as between adversaries, whether or not the party upon whom the burden of proof lies has discharged it to the required degree of probability. Adversarial advocacy is not an enquiry into the truth. The adversarial system creates a polite contest: while a judge will seek out the truth as best he can, the advocates use their skill to test the evidence, and to control the way the evidence emerges, and then comment in closing on whether a case has been proved to the necessary standard of proof.

‘After hearing the evidence the judge must decide where the truth lies, decide any points of law, and give judgment… [The] judge is guided by any inherent probabilities, contemporaneous documentation or records, any circumstantial evidence tending to support one account or the other, and impressions made as to the character and motivations of the witnesses. Generally the judge is constrained by the pleadings, and has to make decisions on the pleaded issues. There are limited exceptions. A judge should not be deterred from deciding a case on the correct basis, where through incompetent presentation, the underlying legal cause of action has not been identified by a party’s representatives. The more usual course is to require the correct basis of the claim to be formulated through amended statements of case, which can be done even at the end of closing speeches. The claimant has the burden of proof on the balance of probabilities. It is for the claimant to prove the case, and the judge should be aware of too much speculative reconstruction. The law operates a binary system in which the only values are zero and one. There is no halfway house for the judge who concludes there is a real possibility that a fact in issue took place. If the party with the burden of proof fails to discharge that burden, the fact is treated as not having happened. If the burden of proof is discharged, the court treats the fact as having happened.’ (Blackstone’s Civil Practice 2017).

In Ball & Ors v Ball & Ors [2017] HHJ Paul Matthews, sitting as a judge of the High Court made the following observations about how judges decide civil cases,

‘Lawyers will know this, but it may help the parties (none of whom is a lawyer) to understand this judgment if I explain a few points about the way in which judges decide civil cases. Where there is an issue in dispute between the parties in a civil case, such as this is, the law places the burden of proving the necessary facts upon one party or the other. As a general rule in English law, the person who asserts something has to prove it: Robins v National Trust Co Ltd [1927] AC 515, 520. On the issues whether the testatrix was acting under pressure from her husband amounting to undue influence, or whether the will fails to make reasonable provision for the claimants, these matters are alleged by the claimants. So they bear the burden of proving them. The defendants do not have to prove a negative. As to the question of testamentary capacity of the testatrix, this is more complex. Ultimately the proponents of the will (the defendants) bear the burden of proving that she had capacity, but only once the issue of incapacity is properly raised. Here the claimants say that the testatrix was mistaken at the time she made her will, and thus had no capacity. So, on that basis, it would be for the defendants to show that she had capacity.

The significance of who bears the burden of proof in civil litigation is this. If the persons who bear the burden of proof of a particular matter (here the claimants) satisfy the court, after considering the material that has been placed before the court, that on the balance of probabilities that something happened, then, for the purposes of deciding the case, it did happen. But if those persons do not so satisfy the court, then (for these purposes) it did not happen. Our system of fact-finding is binary. It is either one thing or the other. There is no room for maybe. As I have said, the standard of proof in a civil case is the balance of probabilities, that is, that a thing is more likely to have happened than not. In mathematical terms, more than 50%. It is not scientific certainty at 100%. Nor is it even the criminal standard of “beyond reasonable doubt”, even though sometimes (as in this case) there are some criminal elements in what happened.

There is another point that I should make about the way the English civil courts reach their decisions. This is that it is for the parties to find and put before the court the material which they think will best help the court and prove their case. The English courts do not investigate of their own motion. It may often be that other relevant material exists elsewhere. But the court does not go and look for it. In civil litigation, the court usually makes its decision only on the basis of the material put before it by the parties.

Taken altogether, what all this means is that the decision of the court is not necessarily the objective truth of the matters in issue. Instead, it is what is most likely to have happened, based on the material which the parties have chosen to place before the court. My decision in this case must be seen in that light.’

Whether or not the burden of proof is discharged depends on the weight and value which the judge attaches to the various strands of evidence. This involves weighing up the credibility or reliability of the evidence, and ultimately comes down to deciding which version of the relevant matters is more likely to be correct.

 

The psychology of advocacy

The trial advocate should remember at all times that ‘Human beings are far more video than audio. The way we collect most of our information is through our eyesight…Intent listening is something we do with surprisingly rarity…What most lawyers ask the fact finders to do in court is to use their second best device for gathering understanding. And the fact finders do it: on the whole they do it well. But since we don’t tie blindfolds on them, they don’t switch off their best information gathering device… People who have studied the psychology of communications have some terrifying statistics for us lawyers. Examples:

  • 60% of a message is conveyed by body language and visual appearance generally.
  • 30% of the message is conveyed by tone of voice.
  • Only 10% of a message comes through the words used.
  • Only 10% of what people hear gets remembered. If, on the other hand they see something connected with what they are hearing, as they are hearing it, they remember 50%.

Lawyers tend not to know these statistics, just as they don’t seem to realise that they are operating all the time in the Video dimension.’ (Common Sense Rules of Advocacy for Lawyers by Keith Evans).

In his book the Golden Rules of Advocacy, Keith Evans adds,

‘[At trial what the judge normally has to do] is decide which parts of the evidence [he] prefers. An advocate’s job is to lead his or her fact finder to a preference and thus to an opinion…Your fact finders may arrive at their preference and their opinion entirely as a result of thinking. But that’s not very likely, is it? Even trained thinkers like us, in choosing between two conflicting witnesses, often ask ourselves what our gut reaction is…The process of getting to a preference and an opinion involves both – thinking and feeling. In a trial by judge alone you are before a trained thinker: here there may be more thinking than feeling involved in the search for preference or opinion. I say “may be” because that isn’t by any means certain. Judges are human too…You see lawyers behaving as if their fact finders had no feelings at all, whereas it is their feelings you should be reaching out to all the time. Your job is to make them feel , as well as think, that they prefer your version. It is your task, in total honesty, to lead them to this. And if you take this as your starting- point all sorts of guidelines present themselves.’

‘Judges, as human beings, are not immune from vanity. It is, then, “always a good principle of advocacy” for counsel to base his submissions on the previous decisions of the judge trying the case, since, as Lord Donaldson MR has acknowledged, “nothing appeals to judges quite as much as something which they have thought of themselves”. Little has changed since Quintilian advised all aspiring advocates in the first century AD that “we shall win the goodwill of the judge not merely by praising him, which must be done with tact and is an artifice common to both parties, but by linking his praise to the furtherance of our own case.’ (Advocates, by David Pannick).

To read my on-line guides to Advocacy and ADR please visit www.carlislam.co.uk

The direct link to the Advocacy page of my website is: http://newsite.carlislam.co.uk/advocacy

“The Advocate and the Expert in a Testamentary Capacity Claim”, the paper serialised in the monthly Newsletter of the Association of Contentious Trust and Probate Specialists (ACTAPS), of the talk I presented at their Annual Spring Seminar on 7 April 2016, at Charles Russell Speechlys in the City of London is also available to download on the Publications page: http://newsite.carlislam.co.uk/publications click on the link ‘HANDOUT’.