Editor's Note: Catherine
Dunmore is an experienced international lawyer who practised international
arbitration for multinational law firms in London and Paris. She recently
received her LL.M. from the University of Toronto and her main fields of
interest include international criminal law and human rights. Since October
2017, she is part of the team of the Doing Business Right project at the Asser Institute.
Background
At the United Nations
Forum on Business and Human Rights from 27-29 November 2017 in
Geneva, discussions focused on the central theme of Realizing Access
to Effective Remedy. With an increasing focus on this third pillar
of the United Nations
Guiding Principles on Business and Human Rights, a working group of
international law, human rights and conflict management specialists (Claes Cronstedt, Jan Eijsbouts,
Adrienne Margolis, Steven Ratner,
Martijn
Scheltema and Robert C.
Thompson) has spent several years exploring the use of arbitration
to resolve business and human rights disputes. This culminated in the
publication on 13 February 2017 of a proposal for International Business and Human
Rights Arbitration. On 17 August 2017, a follow-up Questions and Answers
document was published by the working group to address the principal questions
raised about the proposal during the three-year consultation with stakeholders.
Now, a drafting team
is being assembled, chaired by Bruno Simma,
to prepare a set of rules designed specifically for international business and
human rights arbitration (the
Hague International Business and Human Rights Arbitration
Rules) in consultation with a wide range of business and human
rights stakeholders. Once
drafted, the rules will be offered to the Permanent Court
of Arbitration and
other international arbitration institutions and could be used in arbitration
proceedings managed by parties on an ad
hoc basis.
Introduction
Part 1
of this three-part blog series gave an overview introduction to the proposal
for international business and human rights arbitration. This Part 2 focuses on
(1) the potential advantages of
using international arbitration to resolve such disputes, as well as (2) the substantial challenges the
proposal will face in practice. Part 3 will then provide a case study of the
Accord on Fire and Building Safety in Bangladesh’s binding arbitration process.
1. The potential advantages
of international business and human rights arbitration
The
working group’s proposal to use international arbitration for the resolution of
business and human rights disputes offers many potential advantages. As alluded
to in Part 1 of this blog series, international arbitration can undoubtedly
provide a more neutral forum, whereas domestic or international courts may face
political pressure or judicial corruption. Arbitration would allow both parties
to a dispute to select their own judges, who could, in theory, be impartial
experts in business and human rights law and practice and accordingly more
sensitive to the often complex issues at stake. This may particularly be
welcomed in politically or emotionally charged human rights disputes.
Additionally, international arbitration would allow for greater procedural
flexibility and efficiency, as compared particularly to domestic court systems.
Proceedings could be more tailor-made to fit both parties’ locations, means and
resources, and resolved more swiftly than might otherwise be the case in
business and human rights disputes. Other potential advantages include (a) the universal recognition of the
arbitral award, and (b) an increase
in supply chain responsibility.
a. Universal recognition of
the arbitral award
Final
awards rendered in international business and human rights law arbitrations
could include monetary damages, injunctive relief and close monitoring of
future compliance. As the working group’s Questions and Answers
document confirms, such awards could have the advantage of being enforceable
under the 1958 Convention on
the Recognition and Enforcement of Foreign Arbitral Awards (the New
York Convention). The New York Convention provides for the recognition and
enforcement of foreign arbitral awards within its 157 State
parties. The courts of each member nation must recognise foreign
arbitral awards as binding and enforce them, unless the party against whom the
award is being invoked can prove that there is reason to refuse enforcement.
The limited grounds for refusing this universal recognition are outlined in Article 5
of the New York Convention, notably that:
- The parties to the agreement
to arbitrate were under some incapacity or the agreement to arbitrate is not
valid under the governing law or the law of the country where the award was
made.
- The party against whom the
award is invoked was not given proper notice of the appointment of the
arbitrator or of the arbitration proceedings or was otherwise unable to present
its case.
- The award contains decisions
on matters beyond the scope or terms of the submission to arbitration.
- The arbitral authority’s composition
or arbitral procedure was not in accordance with the parties’ agreement or,
failing such agreement, the law of the country where the arbitration took
place.
- The award is not yet binding,
or has been set aside or suspended by a competent authority of the country in
which, or under the law of which, the award was made.
- The dispute’s subject matter
is not capable of settlement by arbitration under the law of the country in
which enforcement is sought.
- The recognition or enforcement
of the award would be contrary to the public policy of the country in which
enforcement is sought.
Accordingly,
parties have an established means by which to achieve the recognition and
enforcement of final awards handed down by tribunals in business and human
rights arbitrations.
Although
this could provide a clear route by which parties can receive any monetary
damages, it may however be found lacking when it comes to potential long term
monitoring and supervision requirements of any business and human rights
arbitration award. Business and human rights arbitration tribunals might well
require in the award that a party’s actions to remedy a particular human rights
breach are supervised, and that its future compliance with human rights
obligations is closely monitored. In this vein, additional mechanisms of
enforcement and monitoring may need to be developed, perhaps along the lines of
the Permanent Court of Arbitration’s Optional Rules
for Conciliation of Disputes Relating to Natural Resources and/or the
Environment.
b. Increase in supply chain
responsibility
As the
working group explains, international business and human rights arbitration has
the potential to “reinforce global governance” and might encourage and assist
businesses to better manage their supply chains in order to avoid rights
abuses. Businesses are increasingly altering their supply chain contracts to
observe human rights norms, particularly in line with the United Nations
Guiding Principles on Business and Human Rights. In this manner,
international arbitration for the resolution of any human rights disputes could
be inserted into the contractual terms and conditions between companies and
their immediate business partners.
Precedent
contracts between parent companies, subsidiaries, suppliers and contractors
could simply be amended to include business and human rights commitments along
with a business and human rights arbitration clause. They might include clauses
requiring business partners to observe specific norms or to refrain from
particular practices which might lead to human rights abuses. They could also
include clauses granting potential victims, workers or members of affected
communities the right to enforce the human rights clauses. Parent companies
might use perpetual clauses to ensure effective supply chain responsibility,
meaning that parties throughout their entire chain of subsidiaries, suppliers,
contractors and subcontractors are required to insert the same provisions into
their own contracts. As the working group’s Questions and Answers
document explains, any defaulting party could then be subject to a binding
business and human rights arbitration process brought by any party empowered
under the contract to invoke proceedings.
These
steps would create a chain of contracts that protect victims from human rights
abuses and provide businesses with an avenue to reduce or eliminate the risk of
abuse for which they may share a degree of responsibility (see previous blog: Lungowe v Vedanta and the loi
relative au devoir de vigilance: Reassessing parent company liability for human
rights violations). The availability of international arbitration
could allow businesses to better manage their supply chains and facilitate
responsible conflict management in the event of any human rights abuses.
2. The challenges facing
international business and human rights arbitration
The
working group’s proposal to use international arbitration for the resolution of
business and human rights disputes also raises many potential challenges.
Careful consideration must be given to the existing limitations of
international arbitration. For instance, compared to domestic court systems,
arbitration offers limited options for the summary dismissal of spurious
claims. The recourse mechanisms available to defendant corporations must be
reassessed when developing business and human rights arbitration to enable the
early dismissal of unfounded allegations. Another key area for debate, is which
norms or laws would be applied by the arbitral tribunal in business and human
rights disputes, and indeed whether they would recognise corporate liability
for human rights violations. As evidenced through Kiobel v Royal Dutch Petroleum, Jesner v Arab Bank and Lungowe v Vedanta, the question of
corporate liability for human rights violations under international and
domestic law remains open in many jurisdictions. As for the possibility of
incorporating voluntary guidelines such as the United Nations
Guiding Principles on Business and Human Rights, attention must be
paid to the potential implications of making soft law a binding and
contractually enforceable obligation. A successful business and human rights
arbitration mechanism must also work to overcome the existing criticisms
of international arbitration, often focusing on cost and efficiency. Moreover,
in contemplating whether party appointed arbitrators or a permanent standing arbitral tribunal
is more appropriate, the working group must consider issues such as the role of
arbitrator bias and experience, as well as the feasibility of having
multiple decentralised offices if a Court of Arbitration for Sport
model were to be followed. As briefly mentioned in Part 1 of this blog series,
other potential challenges include (a)
an inequality of arms between parties, and (b) the transparency of arbitration proceedings.
a. Inequality of arms
between parties
As the
working group’s Questions and
Answers document explains, often victims of businesses’ human rights
abuses are poor and accordingly cannot compete on equal terms in disputes
against well-resourced business opponents. Unfortunately, this inequality of
arms issue might be compounded through the use of international arbitration, as
its high party and common costs, alongside procedural complexity, could place
victims at a significant disadvantage.
International
arbitration has been described as a “rich man’s game,
best left to large companies, insurers and organs of sovereign states”.
Both parties to international arbitral proceedings generally incur:
- Administrative charges by the
arbitral tribunal.
- Fees and expenses of the
tribunal, external counsel, experts and specialist services, such as
transcribers and interpreters.
- Hiring fees for hearing
room(s) and facilities.
- Expenses of testifying
witnesses.
- Significant costs for legal
representation.
Accordingly,
in promoting the international arbitration of business and human rights
disputes, efforts must be made to deal with the inequality of arms that victims
of rights violations may face when attempting to assert their rights, and how
they might afford the costs associated with arbitration proceedings.
Indeed,
the working group’s proposal explicitly recognises that victims may need
assistance to help defray their arbitration costs and legal fees. Proposals for
cost reduction in future international business and human rights arbitrations
include:
- Facilitating representation of
victims by human rights non-governmental organisations, labour unions and pro
bono lawyers.
- Supporting arbitration
proceedings in the same way as domestic litigation, through legal aid or the
provision of third-party funding.
- The establishment of dedicated
grants or the advance of funds (to be repaid from the proceeds of final
settlements or arbitral awards) for the arbitration of business and human rights
disputes. For instance:
- Private corporations,
individuals, foundations and States could contribute to the establishment of a
dedicated private trust fund. This would promote better access to justice for
victims whilst also contributing to businesses’ corporate social responsibility
objectives.
- A dedicated fund could be
established by arbitral institutions which adopt the Hague International
Business and Human Rights Arbitration Rules. One funding model would be the Financial Assistance Fund established by the Permanent Court of
Arbitration, which aims at helping developing countries meet part of the costs
involved in international arbitration.
- Centralised funds could be
created, for instance within the European Union, by which access to common
markets is contingent upon fixed contributions to support victims of
businesses’ human rights violations.
In terms
of costs and legal expenses allocation, a number of proposals have been put
forward to ensure a greater equality of arms. These include:
- Contractual requirements in
business and human rights arbitration clauses mandating that a losing company
pay the arbitration costs and legal fees of winning victims.
- The granting of additional
powers to international business and human rights arbitrators, allowing them to
allocate costs and legal fees to winning victims or with consideration of the
degree of fault demonstrated.
- Examining the use of
fee-shifting arrangements. Traditionally this could mean that the loser pays
the winner’s legal fees and costs, which may reduce initial hurdles for victims
seeking to litigate but also increases their potential risk and exposure
post-judgment. Another idea would be implementing reverse fee shifting, whereby
successful victims are awarded their legal fees and costs without winning
businesses being afforded the same luxury. The concept has previously been
implemented in environmental
suits bought by citizens in the United States to help overcome often
prohibitive litigation costs.
Given
the widespread interest in access to justice for business and human rights
victims, there is certainly the potential for means of reducing and
reallocating the costs involved in international arbitration proceedings.
However, more thought must be given by the working group, the drafters of new
arbitration rules and the business and human rights community as a whole to
overcome the inequality of arms between well-resourced business corporations
and their potential victims.
b. Transparency of
arbitration proceedings
One key
factor behind the success of international commercial arbitration is confidentiality.
The potential privacy of arbitral proceedings is a distinct motivator for
business parties to resort to this means of dispute resolution over more public
domestic litigation proceedings. However, when considering the arbitration of
business and human rights disputes, the expedient element of arbitral confidentiality is challenged by an
inconsistent concern for ensuring transparency in human rights cases. When
adjudicating on disputes involving human rights violations of international
concern, the public interest lies in having open, transparent proceedings.
Additionally, as Justice Scalia recognised in AT&T
Mobility LLC v Concepcion, 131 S. Ct. 1740 (2011),
confidentiality “becomes more difficult” with class action arbitrations
involving absent parties and potentially higher stakes. Accordingly, any rules
for arbitrating business and human rights disputes must rethink standard
arbitration provisions dictating party privacy, and take account of a need for
greater transparency. Indeed, the working group’s proposal identifies as an
issue for drafters of new arbitration rules, how “transparent the proceedings
and awards should be and how to accommodate any confidentiality concerns that
either side might have”.
The
working group’s Questions and
Answers document identifies greater transparency as a prerequisite
for business and human rights arbitration, including the possibility of open
proceedings for disputes as well as the potential for publication of human
rights arbitral awards. When
reassessing arbitral confidentiality, it is suggested that drafters of new
arbitration rules will turn to the United Nations Commission on International
Trade Law (UNCITRAL) Arbitration
Rules and the UNCITRAL Rules
on Transparency in Treaty-based Investor-State Arbitration. These rules recognise “the need
for provisions on transparency in the settlement of such treaty-based
investor-State disputes to take account of the public interest involved in such
arbitrations”, in a similar vein to the public interest in human rights
litigation. They also explain that “that rules on transparency in
treaty-based investor-State arbitration would contribute significantly to the
establishment of a harmonized legal framework for a fair and efficient
settlement of international investment disputes, increase transparency and
accountability and promote good governance”. Such harmonisation in a legal
framework for business and human rights arbitration would similarly augment
accountability and promote good governance in the resolution of disputes.
The UNCITRAL Rules increase the
public transparency of investor-state arbitration proceedings, notably authorising arbitrators to protect confidential business
information and permitting the submission of amicus curiae briefs by third parties. They also require that
repositories make all documents, including exhibits and expert reports,
available in a timely manner, in the form and language in which they are
received. Future rules governing business and human rights disputes might
incorporate these principles, as well as considering public entry to, and
online streaming of, arbitration hearings and the publication of pleadings and
arbitral awards. This will necessitate consultations with international arbitration
institutions, which do not routinely
create public venues for observation of their proceedings and often
decline to publically state the number and kinds of claims with which they
deal. It will also be
critical that arbitrators are fully informed of the legal and policy issues
surrounding confidentiality in business and human rights cases, in order to
appropriately resolve disputes arising between parties about privacy
provisions.
As
Judith Resnik has highlighted, publicity in courts can discipline businesses
and governments by making visible how they treat judicial procedures and the
claimants against them. Only through such “public processes, one learns whether
individuals of all kinds [...] are understood to be persons equally entitled to
the forms of procedure offered others to mark their dignity and to accord them
respect and fairness”. Public access to the resolution of business
and human rights disputes is paramount, and great attention must be paid by
drafters to balancing the protection of sensitive business information with the
need for transparent arbitral proceedings.
Conclusions
The
working group’s proposal for international business and human rights
arbitration is not intended to replace any existing means of redress. Its
desire is to offer a potentially more effective alternative to current means of
dispute resolution, rather than remove access to any existing remedies.
Providing parties with a greater range of options to resolve business and human
rights disputes will undoubtedly improve their ability to select a method most
appropriate to their cause. The availability of international business and
human rights arbitration would bring with it many potential advantages,
including the universal recognition of arbitral awards, an increase in supply
chain responsibility and responsible conflict management. However, the concept
still has some way to go before it could succeed in practice. International
arbitration proceedings must be heavily adapted, accounting for, amongst other
factors, a likely inequality of arms between parties and the need for
transparency in human rights proceedings, whilst the existing limitations of
international arbitration must be reconsidered. Commentators from business,
human rights and arbitration communities have reacted to the proposal with
questions and concerns, and the working group, drafters of new arbitration
rules and the business and human rights community as a whole face substantial
challenges moving from concept to reality. Part 3 of this blog series will
further discuss the arbitration of business and human rights disputes through a
case study of the Accord on Fire and Building Safety in Bangladesh’s binding
arbitration process.