16 Jan 2019
Businesses in the 21st century operate in an increasingly complex environment: they manage extensive supply chains in multiple jurisdictions, oversee relationships with a variety of stakeholders, including local communities and the local labour force, and provide goods and services to evermore savvy and sophisticated consumers who express concerns about corporate behavior and, increasingly, the role of corporations in disputes concerning alleged violations of human rights. The legal means of redressing alleged human rights abuses by corporations is complicated. Access to justice in local courts by the underlying victims may not be possible due to corruption or dysfunctionality in the court system. Prospective claimants have therefore sought redress in foreign states; however, in recent years, litigation against multinational companies in some jurisdictions has become more difficult.
For instance, in Jesner v Arab Bank, PLC, the Supreme Court of the United States effectively closed the avenue of bringing claims against foreign companies under the US Alien Tort Statute. In England, a parent company’s assumption of responsibility for the actions of its foreign subsidiaries remains a live question, as seen in last year’s trio of Court of Appeal decisions in Okpabi v Royal Dutch Shell Plc, Lungowe and Ors v Vendata Resources plc and Konkola Copper Mines plc and AAA and Ors v Unilever Plc and Unilever Tea Kenya Limited. In this context, and in the absence of other practical alternatives, business and human rights arbitration (BHR Arbitration) has been suggested as a means of providing victims of human rights abuses with access to an effective remedy, in accordance with the third pillar of the United Nations’ Guiding Principles on Business and Human Rights (the UNGPs).
The Proposals for BHR Arbitration
In light of the above backdrop, a number of years ago, a group of international lawyers (the Working Group) began consulting stakeholders on draft “Business and Human Rights Arbitration Rules” (the BHR Arbitration Rules) which could be used in institutional or ad hoc arbitrations involving business and human rights disputes. These disputes, broadly speaking, fall into 2 categories: business-to-business disputes and victim-to business disputes.
Arbitration between two commercial parties is certainly not new. The Working Group envisages that parties could incorporate contractual obligations to comply with human rights in their supply or development contracts, which would also include an arbitration agreement. Such provisions, along with obligations to conduct human rights due diligence, are already becoming more common in commercial contracts involving multinational companies. Disputes in respect of performance of these obligations would fall to be considered in accordance with the arbitration agreement in the relevant contract.
In contrast, the proposals for human rights arbitration for victim-to-business disputes is more controversial. Leaving aside the issue of consent to the arbitral process (as to which see further below) adjudicating the breach of an individual’s human rights has traditionally been perceived as a matter for a state’s national courts. Are these sorts of disputes capable of being resolved via arbitration, a private and consensual process of dispute resolution? In the view of the Working Group, such disputes are indeed arbitrable, and the BHR Arbitration Rules would necessarily include provisions to address such concerns, including with respect to transparency and the participation of no-disputing parties such as NGOs and civil society groups. With respect to the issue of consent, the Working Group proposes that (i) businesses and victims could enter into arbitration between themselves via a submittal agreement, or (ii) that business could specify in their commercial contracts certain means through which victims might participate in arbitration proceedings as third-party beneficiaries (and consequently participate as claimants, witnesses and/or as amicus curiae) or (iii) that consent could be established by multilateral independent agreements, such as the Bangladesh Accord. Disputes could also be adjudicated by business and human rights specialists, and hearings and awards would be open to the public.
The proposals, however, are not without their challenges. At the heart of any arbitration is an agreement to arbitrate, and the contours of the Working Group’s proposals in respect of a submittal agreement or participation of victims in an existing arbitral process require further elaboration – which will no doubt follow at the end of the current consultation period on the BHR Arbitration Rules which closes at the end of January 2019. In a world where social media is now part and parcel of business strategy, businesses are certainly more sensitive to reputation risk and adverse publicity, such that they may consider BHR Arbitration as a way to respond to allegations of human rights abuses and consideration of it in commercial contracts would be in line with the third pillar of the UNGPs in relation to which there has been much concern that this pillar has not made sufficient headway and as such the expectation on business will be in focus in the coming years. However, this is may be unlikely to suffice as the sole incentive for business to submit to BHR Arbitration, particularly when it could give rise to a potentially wide class of possible claimants and offers little legal certainty as to the scope of a business’ potential liability.
Further, while the Working Group has taken a pragmatic approach to the issue of arbitrability, arguing that arbitration does not usurp the State’s regulatory role in protecting human rights but merely provides a way of addressing human rights abuses in the absence of suitable judicial avenues, there remain concerns about enforcement of BHR Arbitration awards. Indeed, in cases where arbitration is pursued for the very purpose of circumventing a State’s judicial system on the grounds that its courts do not provide adequate remedies for victims, one can see the possibility of legal and practical difficulties in enforcing a BHR Arbitration award in that State. There is also the risk that enforcement may well be challenged on the grounds that the adjudication of human rights issues by a private tribunal is either not capable of being settled by arbitration under national law or is contrary to the public policy of that State (Art. V(2) of the New York Convention).
None of these issues have easy solutions, and the Working Group has the unenviable task of producing a framework that will get the necessary buy-in from both victims and businesses. Prospective and existing users of arbitration should continue to watch this space with interest – with balanced measures in place, the proposed BHR Arbitration Rules could provide a useful avenue to address and respond to alleged human rights violations arising in the course of modern-day business operations. Ultimately, the initiative is to be welcomed in the context of pillar 3 of the UNGPs.
Julianne Hughes –Jennett and Marjun Parcasio are the Head Partner of and Associate in Hogan Lovells' Business and Human Rights Group.
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