BREXIT deadlock – creative fiduciary solution?

Creative solution? – Link the dispute resolution mechanism to a right to terminate the trade agreement

Parking ‘fish’, let’s assume that the primary fiduciary constraints are:

·       Level playing field i.e. standards – EU [‘LPF’]

·       Sovereignty – UK [‘UKS’].

Does a creative solution exist in the form of a termination provision i.e. for inclusion in the trade agreement?

How would this work?

The trade agreement needs to legislate for a dispute resolution process – let us assume that the inclusion of a trade dispute mechanism [‘TDM’] has already been agreed in principle, because it must have been.

What does the TDM need to provide to reconcile LPF with UKS?

The answer is simple, so I assume that for political reasons this has already been exhaustively discussed and dismissed on both sides. However, I am not a trade lawyer. My field is will ,trust, inheritance, and fiduciary disputes, so I have no idea. I am simply asking a question – ‘has this solution been dismissed in all its various forms by the parties? ‘ Is so, why, i.e. what is the legal problem? Because as far as I am aware, there is no legal impediment to agreement.

The obvious and simple solution is that the TDM operates as follows:

1.  If there is a dispute about non-compliance by the UK with standards (i.e. if our standards are lower than those of the EU – LPF), the impact of compliance for the UK i.e. actual / potential future loss of paying tariffs v. compliance needs to be assessed by the UK Government.

2.  If the UK Parliament decide that the cumulative economic impact of a series of non-compliances results in an economic impact threshold being reached [‘EIT’], they may vote to instruct the Government to terminate the Trade Agreement, and if the termination mechanism is triggered penalties would not be payable – that is fair.

3.  Before a decision is made in the UK Parliament, the issue shall be mediated, with the political decisions being made by the UK Prime Minister and the President of the EU Commission.

4.  If mediation does not result in an amicable resolution of the dispute within e.g. one year, then the vote may be put to Parliament.

This solves the LPF problem because prior to termination Britain will agree to comply with the LPF.

Non-compliance is academic if our standards are in fact higher (and that can be provided for in the drafting of the termination clause).

It is also a practical solution for the UK Government because Britain can pull-out of the trade agreement (i.e. withdraw) if in the future the cumulative economic impact of compliance is not in our national economic interest overall.

The problem is how to devise an economic formula for determination of the EIT, and what the EIT will be, which cannot be worked out in a few days.

So:

·       If there is trade agreement, the parties must perform their respective obligations under its terms in good faith (see International Law below).

·       If there is a material breach of any term, that will naturally generate legal consequences, e.g. tariffs.

·       If in the long term, the cumulative economic impact of tariffs for breach exceeds the overall economic benefits of preferential access to the European single market, the legal tools exist for incorporating a unilateral exit strategy into the terms of the treaty, so that the UK is not left in perpetual lock-step. See International Law below.

Whilst this is an oversimplification, and I know nothing about the detailed issues under discussion, and the devil is of course always in the detail, it is reasonable to conclude that if a trade deal is not agreed that failure cannot be blamed upon a lack of legal tools. It would be a failure of political statecraft, i.e. because of lack of will.

What then is the paramount fiduciary duty of the UK Government?

Examined through the prism or lens of a public fiduciary duty owed by a Government to its citizens, the issue can be reframed as the question – ‘is a trade deal likely to increase or decrease the flourishing of our society as a whole?’

That begs further questions including;

·        What do we mean by ‘flourishing’.

·        How can flourishing be measured and what are the tests.

Since the concept of human flourishing has philosophical underpinnings, it is not purely a question of law, business, and economics – it is a much wider question.

The answer to that question will determine the direction in which our society will develop.

The question therefore is, if there is a choice between a deal or nor deal, in which direction do we need as a society to travel, in order to flourish?

Since we live in a globalized world, the answer is a political no-brainer.

That I would argue, is the paramount fiduciary real-politik of BREXIT.

To read my recent blog about what trading on WTO terms means for the UK please visit:

What would trading on WTO terms mean for the UK | Carl’s Wealth Planning Blog

See also:

Negotiating BREXIT through a ‘fiduciary’ prism | Carl’s Wealth Planning Blog

Toward a practical theory of fiduciary government | Carl’s Wealth Planning Blog

International Law

Extracted from www.diplomaticlawguide.com

Withdrawal

Denunciation and withdrawal are used interchangeably to refer to a unilateral act by which a nation that is currently a party to a treaty ends its membership in that treaty.

In the case of multilateral agreements, denunciation or withdrawal generally does not affect the treaty’s continuation in force for the remaining parties.

‘The Vienna Conventionlimits the grounds for termination and suspension in the abstract and accords exclusivity to the grounds which are mentioned in the VCLT. Yet, for the scope of its application, it acknowledges in Art.54 VCLT that the parties generally have the right to provide for denunciation and withdrawal in the representative treaties or by agreement of the parties. But even if a treaty grants no express possibility of denunciation or withdrawal, there is a possibility for implicit regulation, which is described in Art 56 VCLT. This, however, only applies if the treaty provides neither for the termination nor (cumulatively) for denunciation or withdrawal. In these cases, the provision contains a general presumption against such an implicit right which can be rebutted in two circumstances: first, where it can be established that the parties intended to admit such a possibility; second: where the nature of the treaty might imply such a right. Both refer to a special way of interpreting the treaty. It has been contended that the two options can be termed as subjective in the case of the intention of the parties and objective in the case of the nature of the treaty … In essence, Art 56 VCLT alters the ordinary process of interpretation as to its means which has potentially an intertemporal effect. Art 56(1)(a) seems to be fixed in time and alters some of the methods of interpretation such as the travaux. Most importantly the determination of the interpretative question is tied to the original meaning. The VCLT here uses the static approach. Art 56(1)(b) introduces an alternative means of interpretation: it resorts to the “nature of the treaty”. The inferences we draw from the nature of treaty can change, similar to the object and purpose of the treaty. Yet, it can be assumed that the nature of a treaty remains stable most of the time.’(‘Static and Evolutive Treaty Interpretation’ by Christian Djeffal page 194).

Breach

Article 26 contains the fundamental principle of the law of treaties: pacta sunt servanda:

‘Every treaty in force is binding upon the parties to it and must be performed in good faith.’ 

‘Pacta sunt servanda embodies a rule that is an elementary and universally agreed principle fundamental to all legal systems, and is of prime importance for the stability of treaty relations … It goes without saying that if a party to a treaty does not perform it, that will to the extent of the non-performance, be a breach of its international obligations to the other party or parties … [Furthermore under] Article 27: a party may not invoke the provisions of its internal (i.e., domestic) law as justification for its failure to perform a treaty. Thus if a new law, or modification to existing law, is needed in order to carry out the obligations on the state by the time it consents to be bound by the treaty, a negotiating state should ensure that this is done at least by the time that the treaty enters into force for it. If this is not done, not only will the state risk being in breach of its treaty obligations, but it will also be liable in international law to another party if, as a result, that party, or its nationals, is later damaged … A state cannot plead a change of government to excuse failure to implement a treaty. Since the treaty is entered into on behalf of the state, the new government must also perform the treaty. Nor is it at all easy to plead successfully that a treaty is invalid because its consent to be bound was expressed in violation of its own law.’  (Modern Treaty Law and Practice by Anthony Aust, Third edition, pages 160 to 162).

Sir Humphrey Waldock in his ‘Second Report [to the ILC] on the Law of Treaties [1963] VBILC, vol 11, 36 (draft Art 17) stated that a treaty ‘shall continue in force indefinitely [if it is] (c) … a treaty of disarmament, or for the maintenance of peace’… in other words that Art 56(1) does not apply to such a treaty.

Therefore where a state unilaterally notifies withdrawal from a treaty:

(i)    for reasons which fall outside the scope of an express termination clause; or

(ii)   where the treaty does not contain a termination clause,

if the treaty is ‘a treaty of disarmament, or for the maintenance of peace’ because Art 56(1) does not apply, an act of unilateral withdrawal from the treaty would be a breach of the VCLT, and therefore constitute a violation of international law, entitling the innocent party to refer the breach to the International Court of Justice for a decision under Art 66.

That does not apply to trade agreements.

Dispute settlement

When a treaty is denounced and a dispute arises on the legality of the denunciation, a clause on the settlement of the dispute contained in the treaty is not considered to be terminatedFisheries Jurisdiction cases (Jurisdiction), ICJ, Reports, 1973, p.16, at 29 and p.60 at 29.

In principle, the dispute will have to be channelled through the procedural provisions of the VCLT (articles 65-68) which provide:

‘Article 65     Procedure to be followed with respect to invalidity, termination, withdrawal from or suspension of the operation of a treaty 

1.  A party which, under the provisions of the present Convention, invokes either a defect in its consent to be bound by a treaty or a ground for impeaching the validity of a treaty, terminating it, withdrawing from it or suspending its operation, must notify the other parties of its claim. The notification shall indicatethe measure proposed to be taken with respect to the treaty and the reasons therefor.

2.  If, after the expiry of a period which, except in cases of special urgency, shall not be less than three months after the receipt of the notification, no party has raised any objection, the party making the notification may carry out in the manner provided in article 67 the measure which it has proposed. 

3.  If, however, objection has been raised by any other party, the parties shall seek a solution through the means indicated in Article 33 of the Charter of the United Nations.

4.  Nothing in the foregoing paragraphs shall affect the rights or obligations of the parties under any provisions in force binding the parties with regard to the settlement of disputes.

5.  Without prejudice to article 45, the fact that a State has not previously made the notification prescribed in paragraph 1 shall not prevent it from making such notification in answer to another party claiming performance of the treaty or alleging its violation.

Article 66 Procedures for judicial settlement, arbitration and conciliation

If, under paragraph 3 of article 65, no solution has been reached within a period of 12 months following the date on which the objection was raised, the following procedures shall be followed:

(a)     any one of the parties to a dispute concerning the application or the interpretation of article 53 or 64 may, by a written application, submit it to the International Court of Justice for a decision unless the parties by common consent agree to submit the dispute to arbitration;

(b)     any one of the parties to a dispute concerning the application or the interpretation of any of the other articles in part V of the present Convention may set in motion the procedure specified in the Annex to the Convention by submitting a request to that effect to the Secretary-General of the United Nations.

 Article 67      Instruments for declaring invalid, terminating, withdrawing from or suspending the operation of a treaty

1.  The notification provided for under article 65, paragraph 1, must be made in writing.

2.  Any act of declaring invalid, terminating, withdrawing from or suspending the operation of a treaty pursuant to the provisions of the treaty or of paragraphs 2 or 3 of article 65 shall be carried out through an instrument communicated to the other parties. If the instrument is not signed by the Head of State, Head of Government or Minister for Foreign Affairs, the representative of the State communicating it may be called upon to produce full powers. 

Article 68      Revocation of notifications and instruments provided for in articles 65 and 67 

A notification or instrument provided for in article 65 or 67 may be revoked at any time before it takes effect.