One of the UK Government's central objectives for Brexit is to bring an end to the jurisdiction in the UK of the Court of Justice of the EU ("CJEU"). A necessary implication of this objective is that, unless agreed otherwise during the Article 50 negotiations, citizens and businesses seeking a determination of their legal claims in the UK courts will lose their ability to make references to the CJEU on questions of EU law after Brexit takes effect.

Now that Article 50 has been triggered, the UK courts are starting to be asked to address the legal uncertainty this raises for those with legal proceedings outstanding during the Brexit negotiation period: where questions of EU law arise after Brexit in cases filed in the UK courts before Brexit, how and by whom will these questions be determined?

In one of the first reported cases on this issue, the Tax Chamber of the Upper Tribunal ("UT") last week refused an application for an accelerated reference to the CJEU on the basis of the UK's triggering of Article 50. The UT's reasoning, and unwillingness to step in, demonstrates the need for timely clarity from the UK Government about its proposed solution.

In the absence of such clarity, the uncertainty of Brexit looks likely to hang over many legal disputes falling to be determined in the coming years.

What was the case about?

The appellant, a UK-based pension scheme, was appealing a decision of the First-tier Tribunal ("FTT") upholding a refusal by HM Revenue & Customs ("HMRC") of its claim for repayment of over £8.8 million in withholding tax (between 2002-2003 and 2007-2008) on the basis that the refusal breached the appellant's right to free movement of capital, as protected under Articles 63 and 65 of the Treaty on the Functioning of the EU.

The appellant argued that the sole issue of the appeal was whether the relevant UK law was compatible with directly applicable EU law; in other words, whether the refusal to repay the withholding tax was a restriction of the appellant's right to free movement of capital and, if so, whether it was justified. As such, the appeal would at some point require a reference to the CJEU to determine the relevant questions of EU law.

However, the appellant was concerned that that there was not enough time to wait until the substantive hearing before making the reference. It claimed that the substantive appeal was unlikely to be listed until October 2017 and that the UT's decision on whether it should make a reference to the CJEU may not be until well into 2018. By that time, the appellant argued, it was very unlikely that the appellant would be able to obtain a judgment from the CJEU on the questions of EU law before the two year deadline envisaged in Article 50. If so, this may result in the appellant being deprived of its ability to seek the assistance of the CJEU in resolving the EU law-based claim it had made.

As such, the appellant argued that, although it was unusual for the UT to do so, it should make the reference to the CJEU before considered the substantive appeal itself.

What did the UT say?

Mrs Justice Rose, President of the Tax Chamber of the UT, in her judgment, accepted that the appeal raised issues of EU law that would require a reference to the CJEU in order to be determined and was willing to assume for the purposes of the appellant's application that its "rather pessimistic assessment of the speed of progress" of the appeal was correct.

The UT noted that the UK Government's intention to end the jurisdiction of the CJEU was clear, but that the "points of detail as to how this will be achieved have not yet been explained". In particular, the UT stated that it was not known what kind of transitional provisions would be put in place by the UK and/or EU to deal with the issue faced by people in the same position as the appellant. However, the UT refused to accept the appellant's contention that the arrangements the UK Government would make for resolving disputes pending at the date of the UK's exit about the interpretation and application of EU law would be so unsatisfactory that the UT should change its usual practice and accelerate the making of references to prevent that situation arising wherever possible. Rose J went on to say:

Some solution to the problem that arises in this case will have to be implemented because there are likely to be many people in the same position as the Trustee may be on the date of exit. Whatever those arrangements are will apply to the Trustee and will be implemented by the courts in accordance with whatever the law dictates. It would not be right to pre-empt that by rushing a preliminary reference off to the CJEU in the hope that the Court will give a ruling before the UK exit…. [i]n my judgment the triggering of Article 50 does not alter the test which the Tribunal has hitherto applied when deciding whether, as a matter of discretion, it should make a reference.

Rose J referred to the relevant test for when the national courts should make a reference to the CJEU, as summarised in R v International Stock Exchange of the United Kingdom and the Republic of Ireland Ltd ex parte Else (1982) Ltd and another [1993] QB 534, namely: "if the facts have been found and the [EU law] issue is critical to the court's final decision, the appropriate course is ordinarily to refer the issue to the [CJEU] unless the national court can with complete confidence resolve the issue itself".

Applying the test, Rose J held that it was not appropriate to make a reference to the CJEU before the UT considered the full appeal. She gave four reasons:

  1. It was difficult to decide at this stage how many questions would need to be referred and on what issues.
  2. It would be better for the UT to have a full grasp of both parties' contentions as to how the domestic regime operated before deciding whether a reference was necessary and if so what the right questions to ask were.
  3. The likelihood of the case having repercussions beyond the facts of the case were limited, not least because the relevant withholding tax had been abolished with effect from January 2014 and because the appellant's case depended on aspects of UK tax law that were not necessarily replicated in other EU Member States.
  4. There was established CJEU case law on what constituted a restriction of the free movement of capital and on what grounds a restriction could be justified. It was the application of the principles of these cases to the appellant's case that was the difficult issue, but that was not something on which the UT should seek a ruling unless it was really necessary. Indeed, if the UT agreed with the FTT's reasoning in the first instance decision, which the appellant was appealing, there would be no need for a reference. Athough the cases stated that the national courts were free to make a reference to the CJEU even if the question appeared already to have been decided, the existence of substantial case law on the relevant principles to be applied was an important factor weighing against making a reference at this stage.

What are the wider implications?

The practical legal consequences of Brexit are already starting to bite for litigants. The appellant in this case hoped that the UT would flex the rules to allow an early reference to the CJEU before Brexit leaves the process for determining its claim subject to an as yet unknown policy outcome. Perhaps unsurprisingly, the UT refused to do so.

Instead, the UT decided that the political reality of the impending severance between the UK courts and the CJEU as a result of Brexit had no bearing on the legal test to be applied when considering whether to make a reference in the meantime. Any uncertainty caused by the UK Government's policy decisions in relation to the UK's withdrawal from the EU is for the political sphere to resolve.

The UK Government's policy statements to date have not addressed the issue of CJEU jurisdiction over litigation pre-dating Brexit. Until the UK Government's plan is known, litigants in the UK face an anxious wait before finding out whether they will be entitled to obtain rulings by the CJEU post-Brexit. Indeed, given the considerable delay between the making of a reference and the resulting CJEU judgment, the final reference by a UK court in respect of which the CJEU will make a ruling may already have been made.

The European Council has already identified the issue and suggested a solution in its Article 50 Guidelines, agreed on 29 April 2017:

Arrangements ensuring legal certainty and equal treatment should be found for all court procedures pending before the Court of Justice of the European Union upon the date of withdrawal that involve the United Kingdom or natural or legal persons in the United Kingdom. The Court of Justice of the European Union should remain competent to adjudicate in these procedures…. In addition, arrangements should be foreseen for the possibility of administrative or court proceedings to be initiated post-exit for facts that have occurred before the withdrawal date.

Whether or not the UK Government would accept such a proposal is unclear. Although the European Council's proposal above would appear to provide the maximum degree of legal certainty for citizens and businesses, it would arguably amount to the continuation – albeit partial – of the CJEU's jurisdiction post-Brexit. In any event, this case demonstrates the UK courts' reluctance to change their procedures to accommodate litigants' concerns. The UK Government should make its position known as soon as possible and seek to agree a solution with the EU as part of the withdrawal negotiations under Article 50.