International Arbitration of Business and Human Rights Disputes: Part 3 - Case study of the Accord on Fire and Building Safety in Bangladesh’s binding arbitration process - By Catherine Dunmore

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. Part 2 focused on the potential advantages of using international arbitration to resolve such disputes, as well as the substantial challenges the proposal will face in practice. This Part 3 now provides a case study of the Accord on Fire and Building Safety in Bangladesh’s binding arbitration process. More particularly, it will provide (1) a brief background to the Accord on Fire and Building Safety in Bangladesh, as well as (2) an analysis of its binding arbitration process, before (3) discussing the arbitrations brought by IndustriALL Global Union and UNI Global Union against two global fashion brands under the Accord on Fire and Building Safety in Bangladesh.


1.     Background to the Accord on Fire and Building Safety in Bangladesh

The Accord on Fire and Building Safety in Bangladesh (the Accord) is a five year independent, legally binding agreement between global brands, retailers and trade unions created in the immediate aftermath of the Rana Plaza building collapse, which led to the death of more than 1,100 people and injured over 2,000. Its purpose is to create a safe and sustainable Bangladeshi Ready Made Garment Industry in which no textile worker need fear fires, building collapses or other accidents that could be prevented with reasonable health and safety measures. The Accord was signed on 15 May 2013 and in June 2013 an implementation plan was agreed, leading to the incorporation of the Bangladesh Accord Foundation in the Netherlands in October 2013. The agreement notably consists of six key components:

  • A five year legally binding agreement between brands and trade unions to ensure a safe working environment in the Bangladeshi Ready Made Garment Industry.
  • An independent inspection program supported by brands in which workers and trade unions are involved.
  • Public disclosure of all factories, inspection reports and corrective action plans.
  • A commitment by signatory brands to ensure sufficient funds are available for remediation and to maintain sourcing relationships.
  • Democratically elected health and safety committees in all factories to identify and act on health and safety risks.
  • Worker empowerment through an extensive training program, complaints mechanism and right to refuse unsafe work.

To date, the Accord has been signed by over 200 apparel brands, retailers and importers from over twenty countries in Europe, North America, Asia and Australia, as well as two global trade unions, eight Bangladesh trade unions and four non-governmental organisation witnesses. As of October 2017, the Accord’s inspectors have identified thousands of safety hazards, but nearly 80% of workplace dangers discovered in the original round of inspections have been remediated whilst over 600 factories have completed 90% or more of the necessary remediation works.

In June 2017, a second term was agreed for the Accord which will enter into effect when the current agreement ends in May 2018 (the 2018 Accord), expiring in 2021. The concept is then for the work to be handed over to a national regulatory body, supported by the International Labor Organization, to be carried forward from that point.


2.     The Accord on Fire and Building Safety in Bangladesh’s binding arbitration process

Article 5 of the Accord contains the agreement’s dispute resolution mechanism, which includes appeal to a final and binding arbitration process. It states that:

“Any dispute between the parties to, and arising under, the terms of this Agreement shall first be presented to and decided by the SC [Steering Committee], which shall decide the dispute by majority vote of the SC within a maximum of 21 days of a petition being filed by one of the parties. Upon request of either party, the decision of the SC may be appealed to a final and binding arbitration process. Any arbitration award shall be enforceable in a court of law of the domicile of the signatory against whom enforcement is sought and shall be subject to The Convention on the Recognition and Enforcement of Foreign Arbitral Awards (The New York Convention), where applicable. The process for binding arbitration, including, but not limited to, the allocation of costs relating to any arbitration and the process for selection of the Arbitrator, shall be governed by the UNCITRAL Model Law on International Commercial Arbitration 1985 (with amendments as adopted in 2006)”.

A number of critiques have been levied of this arbitration mechanism. For instance, Roger Alford highlighted that the mechanism contains no governing law clause and no seat of arbitration. Accordingly, if a party were to refuse to arbitrate then there is no evident national court in which the claimant might file a motion to compel arbitration. Additionally, although reference is made to the United Nations Commission on International Trade Law (UNCITRAL) Model Law on International Commercial Arbitration 1985, no specific arbitration rules are selected. Another constraint is that only disputes arising under the terms of the Accord are subject to arbitration, which may restrict the mechanism’s scope to breach of contract and potentially exclude disputes relating to third-party injuries. The article also appears on one reading to limit arbitration to an exclusively appellate function, with the arbitral tribunal only able to review the Steering Committee’s decision for legal or factual errors as opposed to considering the case afresh. Finally, whilst arbitration awards rendered following an appeal of the Steering Committee decision are subject to enforcement under the New York Convention, there is no stated procedure for directly enforcing the Steering Committee decision and creating binding obligations for the parties without recourse to arbitration.

Article 3 of the 2018 Accord contains some notable alterations to the agreement’s dispute resolution mechanism, stating that:

“Any dispute between the parties to, and arising under, the terms of this Agreement shall be presented to and decided by the SC.

The Steering Committee shall adopt a revised Dispute Resolution Process (DRP) to specify the timelines and procedures involved when disputes are presented to the SC, with the aim to 3 establish a fair and efficient process. The decision making process of the SC shall be supported by a member of Accord secretariat who will perform an initial investigation for the parties and present facts and their recommendations.

The DRP will also incorporate the opportunity for parties to participate in a mediation process in order to make arbitration unnecessary where there is no resolution of the dispute by the SC. Upon request of either party, the decision of the SC may be appealed to a final and binding arbitration process. Any arbitration award shall be enforceable in a court of law of the domicile of the signatory against whom enforcement is sought and shall be subject to The Convention on the Recognition and Enforcement of Foreign Arbitral Awards (The New York Convention), where applicable. The process for binding arbitration, including, but not limited to, the allocation of costs relating to any arbitration and the process for selection of the Arbitrator, shall be governed by the UNCITRAL Arbitration Rules (as in its last revision) unless otherwise agreed by the parties. The arbitration shall be seated in The Hague and administered by the Permanent Court of Arbitration”.

By specifying a seat in The Hague and administration by the Permanent Court of Arbitration, the 2018 Accord’s dispute resolution article addresses the previous Accord’s silence on arbitral institution and seat of arbitration. It notably also incorporates a mediation process into the dispute resolution mechanism, providing parties with an alternative to arbitration proceedings. However, a number of lacunas remain in the 2018 Accord’s dispute resolution mechanism, leaving questions as to the practical implementation of its binding arbitration process.


3.     IndustriALL Global Union and UNI Global Union’s arbitrations against two global fashion brands under the Accord on Fire and Building Safety in Bangladesh

In July and October 2016, IndustriALL Global Union and UNI Global Union, non-governmental labour organisations based in Switzerland, commenced arbitrations against two global fashion brands under the Accord and the UNCITRAL Arbitration Rules 2010. The claims include that the fashion brands failed to compel suppliers to remediate facilities within the Accord’s deadline and negotiate commercial terms to make it financially feasible for their suppliers to cover the costs of remediation. The Claimants sought a declaration that the fashion brands violated their Accord obligations alongside a contribution to remediation costs.

Subsequently, the Parties in both PCA Case No. 2016-36 and PCA Case No. 2016-37 agreed that while remaining formally distinct, the two cases would be heard by the same tribunal. The Parties agreed that the seat of the arbitrations would be The Hague, with the Secretary-General of the Permanent Court of Arbitration acting as appointing authority. The Tribunal, composed of Professor Hans Petter Graver, Mr Graham Dunning QC and presiding arbitrator Mr Donald Francis Donovan, was formally constituted on 3 February 2017.

The Tribunal issued its Procedural Order No. 1 on 19 April 2017 which dealt with, amongst other matters, the complex issues of transparency and confidentiality discussed in Part 2 of this blog series. Clause 15 of Procedural Order No. 1 notably cited the UNCITRAL Arbitration Rules 2010 for authority that:

  • Any hearing would be held in camera unless the parties agreed otherwise (article 28(3)).
  • Any award would be made public only with the consent of all parties or where and to the extent disclosure is required of a party by legal duty, to protect or pursue a legal right or in relation to legal proceedings before a court or other competent authority (article (35(2)).

Accordingly the Tribunal confirmed its direction that all details of the proceedings, including that they were pending, be kept confidential pending an agreement or ruling on confidentiality.

The Respondents raised challenges to the admissibility of the claims on the basis that the pre-conditions to arbitrate under Article 5 of the Accord had not been met, and even questioned the Article’s validity as a mechanism to arbitrate. They further argued that because the deadlocked Steering Committee did not produce a majority decision, there was no final decision which could be appealed to a final and binding arbitration process. The Respondents also argued that the term ‘appealed’ in Article 5 of the Accord expressed a clear and unambiguous intent to limit a tribunal’s role to that of an appellate body, providing simply an additional layer of scrutiny as opposed to a de novo appraisal.

Subsequently on 4 September 2017, the Tribunal issued Procedural Order No. 2 containing its Decision on Admissibility Objection and Directions on Confidentiality and Transparency. The Tribunal unanimously rejected the Respondents’ interpretation, finding that the pre-conditions to arbitrate had indeed been met. It found that the Steering Committee “went through a deliberative process and arrived at a ‘decision’ for each charge within the meaning of Article 5” of the Accord. The Tribunal pointed to the “pointless consequences” that would arise from following the Respondent’s argument that the claims were inadmissible due to the deadlocked Steering Committee, explaining that:

  • “At this point, there is nothing further that the Claimants could do to pursue their petition except to refile it with the Steering Committee. But that body has already given it the consideration contemplated by Article 5. Hence, the only way to release the petition from Steering Committee limbo would be for one of the union or brand representatives – presumably here, one of the union representatives – to ‘cross the floor’ and vote to reject it, which would then produce the majority vote that the Respondents contend is the condition to invoking arbitration. The Accord signatories could not have intended to promote that kind of gamesmanship as the only way to access arbitration in the event of an evenly divided Steering Committee. Equally, they could not have intended to deny a claimant access to arbitration in the event of a tie but make it available if the claimant lost by a majority or unanimous vote”.

It also emphasised that the term ‘appealed’ on its own did not bring any limitation to a body’s scope of review. Rather, the Tribunal held that particularly given the “non-legal, industry-based character of the first level of decision-making” by the Steering Committee, “there is every reason to believe that the Accord signatories considered that the ‘arbitration’ to which that initial decision could be ‘appealed’ would involve the full fact-finding and law-deciding authority of standard arbitral processes”.

The Tribunal accordingly held the claims admissible and within its jurisdiction. The Permanent Court of Arbitration’s press release noted that the case would proceed to a merits phase, with hearings scheduled for the first half of 2018.

The Tribunal also issued directions on confidentiality and transparency. It noted the particularity of the case, as neither “a classic ‘public law’ arbitration” involving a State nor a “traditional commercial arbitration” between private parties. In its deliberations, the Tribunal accounted for the interest in the Accord from the public, numerous signatories and other stakeholders, but also the need to protect the business information and reputational interests of the fashion brands. To strike a balance between these competing interests, the Tribunal ordered that some basic information about the arbitration’s existence and progress be disclosed but that the identity of the Respondents be kept confidential. Pursuant to a protocol developed in consultation with the Parties, redacted copies of certain documents might be published, including awards, decisions and orders of the Tribunal.

In relation to one of these two Accord arbitrations, on 15 December 2017 IndustriALL Global Union announced that the Parties had reached a settlement agreement. The settlement will ensure that the fashion brand’s supplier factories are remediated and that substantial funds are available for that remediation work consistent with the Accord.


Conclusions

The Accord on Fire and Building Safety in Bangladesh represents a ground-breaking accountability structure and, despite its notable deficiencies and uncertainties, its arbitration process provides a binding enforcement mechanism unique in its resolution of human rights disputes. The arbitrations brought by IndustriALL Global Union and UNI Global Union under the Accord presented the first tests of this mechanism. The Tribunal’s unanimous decision in holding the claims admissible bolstered its credibility, whilst it also acknowledged the challenges arising when adjudicating on disputes of a hybrid nature involving public interests and private concerns. The Accord’s binding arbitration process, as well as the ongoing arbitration proceedings, will undoubtedly be of significant interest to the business and human rights community as a promising example of an alternate means to resolve business and human rights disputes. The working group and drafting team must both reflect and build upon the Accord’s arbitration process as they seek to create strong, binding rules for arbitrating business and human rights disputes.

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