Two members of the Doing Business Right team, Antoine Duval and Catherine Dunmore have just published a policy brief feeding into the current debates on the use (and usefulness) of arbitration in the business and human rights context. More precisely, the brief makes the case for the creation of a single Court of Arbitration for Business and Human Rights. 

Here is the abstract: 

This policy brief makes the case for a single Court of Arbitration for Business and Human Rights (CABHR). It first highlights the challenges faced by victims of human rights violations caused or directly linked to the activities of transnational corporations (TNCs) in accessing effective remedy. It then discusses the opportunities and challenges in using arbitration to provide a remedy in the business and human rights context. If arbitration is to be used, we argue that it should be in the framework of a single CABHR, which could draw some inspiration from the structure and operation of the Court of Arbitration for Sport (CAS). The policy brief concludes by highlighting four core issues which stakeholders should focus on in the process of setting up a CABHR.

You can download the paper for free on SSRN.

The collapse of the Rana Plaza building on 24 April 2013 in Bangladesh left at least 1,134 people dead and over 2,500 others wounded, while survivors and the families of the dead continue to suffer trauma in the aftermath of the disaster. This first blog of our special series assesses the extent to which litigation and particular "soft" mechanisms have secured justice and compensation for victims and brought the relevant actors – whether global brands or individuals – to account for their alleged culpability for the collapse. To do this, it firstly examines the avenues that have been taken to hold corporations legally accountable in their home jurisdictions for their putative contributions to the collapse on the one hand, and individuals (particularly local actors) legally accountable before the courts in Bangladesh on the other. It then considers the effects of softer mechanisms aimed at compensating victims and their dependants.

1.     Tortious actions and home state liability for global brands

It is difficult to view the tortious actions that have been filed to bring the multinational companies sourcing garments from the factories located in the Rana Plaza building (whether directly or through intermediaries) to account in their home states without a deep sense of disappointment. Two of the most salient cases, brought in the US and Canada, arguably demonstrate foreign courts’ reluctance to hold multinational companies liable for tortious wrongs committed overseas, the ostensible rigidity of the applicable tort law to the detriment of victims of the collapse, and the total lack of legal consequence of CSR-based ethical sourcing policies/codes of conduct. These cases are considered in turn.[1]

a.     US

In May 2016, the Delaware Superior Court in Abdur Rahaman v. JC Penney Corporation, Inc., The Children's Place and Wal-Mart Stores, Inc.^[2] granted a motion to dismiss claims of negligence and wrongful death brought in a putative class action, rejecting efforts to bring litigation to the home jurisdiction of the relevant brands.^[3] The plaintiffs comprised the personal representative and husband of a worker killed in the collapse and another worker who was injured. The defendants, J.C. Penney Corporation, The Children's Place and Wal-Mart Stores, argued that the claims should be dismissed as they were filed after the expiration of the one-year statute of limitations period under Bangladeshi law and because the plaintiffs failed to allege the existence of a duty of care owed to them. 

Applying Delaware's choice of law rules, the Delaware Superior Court rejected the application of US law and found that Bangladeshi law – and its statute of limitations – should apply, thus barring the suit. As per these rules, the Superior Court considered the facts of the case in accordance with the established "most significant relationship" test.^[4] According to this test, the injury occurred in Bangladesh, the conduct causing injury occurred in Bangladesh, and the relationship between the parties was centred in Bangladesh – and thus Bangladeshi law (and its limitation rules) should apply.^[5] Accordingly, the Superior Court concluded that Bangladesh's Limitation Act 1908, dictating limitation periods for suits filed in Bangladesh, was applicable.^[6] On a "plain reading" of the statute, the relevant limitation periods under the act (for negligence and wrongful death, respectively) were each one year and, given that they were both filed two years after the collapse, the claims were time-barred.^[7]

The Superior Court also explored issues surrounding the establishment of the duty of care (which both parties agreed was governed by Delaware law) in respect of the negligence and wrongful death claims. The Superior Court agreed with Wal-Mart, J.C. Penney and The Children's Place that no duty of care was owed to workers downstream in their supply chain.  Here, the Superior Court rejected the notion that the defendants owed any duty of care to the plaintiffs under Delaware law. The plaintiffs were unable to demonstrate:

(i)             the existence of a "special relationship" ordinarily required to establish a duty of care under Delaware law or, excepting this, the operation of the "peculiar risk" doctrine (viz. a special risk particular to the work to be done), particularly given the lack of a direct employment relationship;^[8]

(ii)           an exception to the general rule protecting general contractors from liability for independent contractors' employees;^[9] or

(iii)          illegal conduct sanctioned, for example, by way of its sourcing agreements with factories.^[10]

No less crucially (and as shall be revisited below in respect of the Das v. George Weston decision), it was not the case under Delaware law that a duty of care could be created by way of an ethical sourcing statement; even if the defendant brands knew or should have known of unsafe working conditions, such a finding could not give rise to a legal duty of care where none already existed.^[11]

Accordingly, the Superior Court did not regard the plaintiffs as having alleged a prima facie case for negligence and wrongful death.^[12]

b.     Canada 

The Ontario Superior Court delivered its judgment in Das v. George Weston Limited,^[13] dealing with the responsibility of Canadian retailers for the factory collapse, in July 2017. In it, Justice Perell dismissed the $2 billion class action against the Loblaws group of companies and social auditing company Bureau Veritas. The named plaintiffs, three of whom were among those injured and one whose two sons and daughter-in-law died in the collapse, claimed that Loblaws' adoption of its corporate social responsibility (CSR) standards created a duty to protect workers involved in manufacturing products within its supply chain from structural and safety issues. Justice Perell dismissed the motion to certify the proceedings as a class action, finding that no duty of care could be said to exist under Bangladeshi law (which he concluded was the applicable law governing the action under the choice of law rules) or, in case it applied, Ontario law. In the event, no reasonable cause of action could be said to exist and, given the lack of any viable claims, the court was not able to certify the class.

The plaintiffs' main argument in tort was that, knowing of the notoriously dangerous conditions of workplaces in Bangladesh, Loblaws voluntarily took responsibility for ensuring the buildings in which vulnerable employees were producing its garments were "safe and structurally sound".^[14] Here, Justice Perell affirmed a "real and substantial connection" to Ontario (given presumptive connecting factors including that the defendants are resident and carry out business in Ontario).[15] Secondly, Justice Perell assessed whether Ontario or Bangladesh law should apply. In doing so, he noted the relevance of the location of the activity causing the harm – the lex loci – in determining the applicable law, and concluded that the harm occurred and the plaintiffs reside in Bangladesh and that a finding to the contrary would create an artificial link to Ontario.[16] Justice Perell also dismissed the plaintiffs' alternative argument that an exception to the lex loci rule should apply in such a way that Ontario should take jurisdiction.[17] Thirdly, Justice Perell considered that it was plain and obvious that the lawsuit cannot succeed under Bangladeshi law (the substance of foreign law being a "factual" question to be determined on the basis of expert evidence and source legal materials); no duty of care had been established between a purchaser of goods and workers employed by an independent subcontractor in Bangladesh, and there was no reason to believe that Loblaws would be found to owe such a duty under Bangladeshi tort law.[18] Finally, Justice Perell concluded that the action could not succeed under Ontario law (in the event that it applies). It would fail the relevant legal test to establish a duty of care requiring foreseeability, sufficient proximity, and the absence of overriding policy considerations, thus negating any prima facie duty.^[19]

In a similar vein to Abdur Rahaman v. JC Penney et al., this ruling demonstrates the apparent stringency of the application of the duty of care test at the motion to dismiss stage, as well as the ultimate vacuity and legal inconsequentiality of CSR standards and corporate codes of conduct adopted by global brands. Indeed, in respect of the latter, Justice Perell reasons that policy considerations augured against the recognition of a legal duty of Canadian corporations over workers of suppliers in other countries; such a duty would, Justice Perell argues, deter companies like Loblaws from taking any steps to help workers and effectively punish them for doing such good deeds as instituting CSR policies.[20] David Doorey is rightly sceptical, asking how a company that did little more than "adopt a piece of paper listing standards" could be regarded as carrying out a good deed. While a company can claim to do good deeds, it may well do the opposite in practice.[21] As such, Doorey concludes that there was no real requirement for any meaningful action to protect workers under CSR: "perhaps Justice Perell’s reference to Loblaws’ ‘good deeds’ simply reaffirms how very little we should expect from corporate social responsibility."[22] Other commentators broadly agree, with Agarwal, Beaulne and Schiff, for instance, noting that CSR policies aimed at improving labour standards in offshore factories may not in themselves be enough to bridge the proximity gap between Western brands and workers further down the supply chain (though they leave open the question of whether a more broadly formulated CSR policy would have satisfied the proximity element).[23] Similarly, Lam and Henderson, surmise that tort law has its "limits" in addressing such harms, even as business becomes more globalised.[24]

Taking the two judgments discussed together, it is not difficult to recognise the challenges for class action litigants bringing claims of this type. The rigour with which their claims will be scrutinised and the law applied at an early stage is clear. Agarwal et al. warn of judges' inclinations to conduct detailed appraisals of statements of claim, checking for material facts and whether asserted clauses of action have been artificially characterised to survive preliminary scrutiny.[25] In order to hold multinational companies responsible in their home jurisdictions for practices within their supply chain abroad, it is crucial that plaintiffs demonstrate a meaningful connection between the matter and the relevant country, and consider which laws can be proved through expert evidence. Indeed, these questions concern the very functioning and role of private international law and, as such, it is imperative in transnational disputes like this to assemble an international team of lawyers that is quickly able to anticipate and deal with questions surrounding applicable law and time constraints.

2.     Select case law developments in Bangladesh[26]

Certain legal actions have been instituted in Bangladesh aiming to bring individuals to account for domestic criminal and labour law violations in particular.[27] These actions principally concern local actors including building and factory owners and their affiliates and are wholly distinct from the attempts discussed above to hold multinational companies prioritising low costs to account in their home states (and which, in a sense, attempt to tackle systemic/root causes of injustice).

As regards criminal prosecutions, a case alleging construction code violations and illegally adding floors to the building was launched in April 2013 and has been filed against 18 people,^[28] including Rana Plaza owner Sohel Rana. Following the last hearing held in March 2016, the case was accepted for trial at the Chief Judicial Magistrate Court in Dhaka.^[29] Separate murder charges were accepted against 41 people including Sohel Rana, seven owners of the factories operating in the building, and twelve government officials responsible for safety and inspections.^[30] 35 of those charged have since appeared before court and pleaded not guilty.^[31] Precise trial dates are difficult to identify and the extent to which these cases have progressed at court is unclear. The first successful criminal prosecution relating to the collapse occurred in August 2017, when Sohel Rana was sentenced to three years imprisonment and fined BDT 50,000 for not submitting his wealth statement to the Bangladesh Anti-Corruption Commission (ACC) in a corruption case before Special Judge Court-6 in Dhaka.^[32] Another Dhaka court has framed charges in a separate graft case filed by the ACC against Rana, his parents and seven others.^[33] The ACC alleges that Rana had built the Rana Plaza building with illegally acquired money.^[34] 

Separate Labour Court actions were filed in 2013 against Sohel Rana, the factory owners and other responsible persons before the Labour Court for infringements relating to the failure to give notice of an accident and contravention of law leading to death/grievous harm/harm. Only Rana has been held in prison in connection with these actions, with the remainder either on bail or having failed to surrender to court.^[35]

Two public interest litigation cases were filed in April 2013 before the High Court. The first case was meant to establish which government departments were accountable for failings leading to the collapse. The High Court ruled that a Committee should be established to propose compensation criteria for those affected and their families, and, in September 2014, the Committee submitted its recommendation to the High Court that BDT 1,451,000 (EUR 18,400) should be provided as compensation to the family of each dead and missing worker and a further payment of BDT 500,000 (EUR 5,600) should be made as a payment for pain and suffering.[36] Yet, given the lack of any allocation of responsibility by the court for failings and the trivial amounts distributed, it is understandable that prominent Bangladeshi lawyer Sara Hossain regards these "legal" remedies as inadequate and ineffective.[37]

The second case included a request that the assets of the owners of the building and five factories should be frozen.[38] The Bangladesh Bank issued a circular to all banks shortly thereafter to restrict the withdrawal or transfer of monies of the six named owners and the High Court has since rejected the release of funds from Sohel Rana's bank account, though no decision has been made by the court on the utilisation of the frozen assets or the distribution of compensation.[39]

3.     Soft mechanisms

The relative failure of avenues taken through the national courts to hold corporations legally accountable in their home jurisdictions and individuals (particularly local actors) legally accountable in Bangladesh should be contrasted with the effects of softer initiatives aimed at compensating victims and their dependants.

a.     Rana Plaza Arrangement and Donors Trust Fund 

In November 2013, a number of major stakeholders set up the Rana Plaza Arrangement (Arrangement),[40] an independent process set up to establish a credible, transparent and independent system for delivering support to the victims of Rana Plaza, their families and dependants in line with standards enshrined in ILO Convention No 121 (Employment Injury Benefits Convention 1964).[41] Its twin objectives were to: (i) deliver compensation to workers who suffered injury and family members dependent on the income of those killed (as well as access to medical care for victims in need); and (ii) develop guidelines to verify the value and validity of each claim and by providing for individual awards[42] (a demarcation of any kind of responsibility for the collapse lay outside this ambit). Its support from all major stakeholders – including government, manufacturer and employer associations, civil society and global brands – was unprecedented.[43] A representative of the Clean Clothes Campaign at T.M.C. Asser Instituut's recent event, "Five Years Later: Rana Plaza & the Pursuit of a Responsible Garment Supply Chain", remarked on the Arrangement's uniting effects and ability to get every actor to agree on every single parameter in order to address immediate needs, while also meeting the aim of serving as a prototype for other compensation arrangements.

In January 2014, the Rana Plaza Donors Trust Fund was established to finance the Arrangement. The donors of the Trust Fund ranged from global retailers, textile companies to trade unions and NGOs, with Primark providing almost half of the US $30 million estimated amount required to cover the cost of the claims (revised down from US $40 million).[44] Yet it was only in June 2015, a full two years after the collapse, that the target amount was reached and the disbursement of compensation payments to the victims completed.[45]

b.     OECD National Contact Points

The Organisation for Economic Co-operation and Development's ("OECD") creation of National Contact Points ("NCPs"), tasked with furthering the "effectiveness" of the OECD Guidelines for Multinational Enterprises ("OECD Guidelines")[46] – a multilaterally endorsed code of business conduct promoted by participating governments on multinational corporations operating in or from their territory – has ostensibly provided a framework for dealing with abuses committed in the garment supply chain in Bangladesh. Adhering states of the OECD Guidelines are each required to set up an NCP, which provides the institutional framework through which stakeholders can bring allegations of breaches of the OECD Guidelines by corporations, including in relation to respect for human rights.[47] Under this "specific instance" procedure, the relevant NCP is able to use its good offices to consult and mediate between the relevant corporation and the complainant party[48] (and has on occasion determined that respondent companies have acted inconsistently with the OECD Guidelines).

Following the Rana Plaza collapse, a number of complaints have been filed to NCPs in respect of business operations in the Bangladeshi garment sector. A complaint concerning a fire in the Tazreen Fashion factory was submitted to the German NCP by a member of the German Bundestag in May 2013. In the complaint, KiK Textilien, C&A and Karl Rieker were accused of commissioning the production of goods at the factory despite inadequate fire safety measures in place, of failing to eliminate negative impacts on the safety of works, and of failing to carry out due diligence to eliminate the impacts of their activities on the health and safety of workers – all in contravention of certain provisions of the human rights chapter of the OECD Guidelines. C&A’s case was later forwarded to the Brazilian NCP since the subsidiary of the company that had business relationships with the Tazreen factory was registered in Brazil. The German NCP considered that the part of the complaint relating to alleged breaches of duties of care with respect to safety measures deserved further consideration and invited the remaining parties for mediation talks; the parties eventually agreed on a settlement, and the NCP noted efforts taken by the parties since 2012 instituting various measures such as the reduction in the number of supplier factories, the establishment of long-term supplier relations with the remaining suppliers, and close supervision of and assistance for supplier factories provided by staff based locally, as well as the signing of the Accord on Fire and Building Safety in Bangladesh. Separately in respect of the C&A complaint, the Brazilian NCP concluded by recognising the success of fire safety measures instituted by C&A but recommended the company continue to promote human rights and decent work conditions in line with the OECD Guidelines and noted that the company failed to respond to complaints regarding C&A's business relationships and supply structures.

The first complaint involving Rana Plaza was submitted by Clean Clothes Campaign Denmark and Active Consumers to the Danish NCP in December 2014, in which it was claimed that PWT Group, a Danish MNE which sourced from a garment factory in Rana Plaza, failed to carry out due diligence in relation to its supplier, New Wave Style. In October 2016, the Danish NCP determined that the PWT Group did not work with due diligence processes to such an extent as to comply with the OECD Guidelines and had failed to require New Wave Style to protect employees' human and labour rights, including by taking measures to ensure health and safety in the workplace. The NCP concluded its Final Statement with recommendations to PWT Group regarding the exercise of due diligence and the adoption of CSR policies in accordance with the OECD Guidelines. In its Follow-up Statement in January 2018, the Danish NCP confirmed that PWT had complied with its recommendations, noting that the company had made changes to its management systems to implement recommendations from the OECD Guidelines concerning due diligence, revised its CSR policy, and engaged in systematically implementing its Code of Conduct among suppliers. It also acknowledged efforts within the company to integrate CSR policies into its organisation; its efforts publicise information concerning access to complain; its cooperation with external stakeholders/networks concerning responsible business conduct; and its work to improve CSR communication.

The most recent complaint concerning the Rana Plaza collapse was filed before the German NCP in May 2016. In their submission, the European Center for Constitutional and Human Rights, victims of the collapse, humanitarian relief and development organisations, and trade unions claimed that TÜV Rheinland, a German social auditing company, and TÜV Rheinland India Pvt. Ltd., its Indian subsidiary, did not comply with minimum professional auditing standards and, in their social audit report, failed to identify major non-compliances with the relevant social auditing standards/code of conduct at a factory in the Rana Plaza complex. These shortcomings concerned the failure to reveal, among other issues such as building structure/safety, serious human rights violations including the presence of child labour, discrimination against women, the absence of trade unions, and forced overtime. The complainants viewed the audit report as the reason why companies did not take effective measures against these abuses, thus contributing to the violation of workers' human rights in contravention of the OECD Guidelines. The complainants are still awaiting an initial assessment from the German NCP.

4.     Conclusions

It is tempting to end with some bromide about the relative success of softer measures in providing victims with a measure of justice and accountability for the collapse. But the truth is that neither of the softer mechanisms discussed have resolutely done so. Though of course welcome insofar as payments have begun to be disbursed to victims who have endured so much, the sums paid under the Rana Plaza Donors Trust were very delayed (being disbursed over two years after the event at an amount significantly lower than originally estimated) and the Arrangement does not demarcate responsibility. Indeed, this was not its intention and care must be taken not to undermine the value of the industry-wide action taken to provide (even token) payments to those affected. But with retailer Primark itself determining the amount of and disbursing much of its payments directly, and with the lack of transparency/disclosure regarding the actual amounts that other retailers contributed, can the amounts distributed in connection with the Arrangement be considered reparative or compensatory? Sara Hossain of Bangladesh and Legal Aid Services Trust was right to say at our recent Rana Plaza event that these awards, which do not apportion any measure of responsibility for the collapse, are not compensatory in the legal sense (or even particularly adequate). The OECD NCP process perhaps shows more promise in terms of imputing responsibility to multinational companies for their role in garment industry abuses in Bangladesh, and mediation appears to be a way of getting retailers and auditors to engage with commitments under the OECD Guidelines. But NCP findings are of course not binding and they have no sanctioning power; indeed, it is telling that in one of the cases discussed, retailer C&A simply ignored (with no apparent consequence) complaints regarding its business relationships and supply chain practices.

Meanwhile, efforts to prosecute and hold actors to account in Bangladesh continue; justice and remediation remain out of reach locally. As these processes trundle on, there is no escaping the inability of hard legal avenues to hold global brands and retailers accountable in their home states. Courts have been thoroughgoing in their application of the law and, perhaps understandably in view of these laws, reluctant to hold multinational companies liable for tortious wrongs committed overseas as a result. They have also made clear the lack of legal consequence attached to ethical sourcing policies/codes of conduct; their vacuity serves to remind us how little we should expect from CSR-based standards and the need to go beyond them if we are to secure justice and accountability for the benefit of victims, as echoed by Nayla Ajaltouni of Collectif éthique sur l’étiquette at our recent event.  As it stands, it cannot sensibly be concluded that the legal and soft avenues pursued have dispensed any meaningful sense of justice, compensation or responsibility for the collapse, particularly as they have not brought the relevant garment industry actors – whether global or local – to account.

[1] The following list of cases is partial and that other actions have been filed elsewhere. See, for example, Abdur Rahaman v. JC Penney Corp., Inc. et al., Civ. Action 15-cv-619 (D.D.C. April 23, 2015) filed before the US District Court for the District of Columbia.

[2] Abdur Rahaman v. JC Penney Corporation, Inc., The Children's Place and Wal-Mart Stores, Inc., CA No. N15C-07-174 (Super. Ct. Del.).

[3] Larry Catá Backer, "Are Supply Chains Transnational Legal Orders? What We Can Learn from the Rana Plaza Factory Building Collapse" (2016) 1(11) UC Irvine Journal of International, Transnational, and Comparative Law 11, 36.

[4] Abdur Rahaman (n 2) 8.

[5] Abdur Rahaman (n 2) 13; for a more detailed overview of the court’s reasoning with respect to the “most significant relationship” test, see: Raam Dutia and Abdurrahman Erol, “Five Years Later: Rana Plaza and the Pursuit of a Responsible Garment Supply Chain – Background Paper” Asser Institute (April 2018), 5.

[6] Abdur Rahaman (n 2) 13; moreover, according to Delaware law, where the limitation period for the relevant cause of action under the law of a different state/country is shorter than under Delaware law, or vice versa, an action cannot be brought in a Delaware court after the expiration of the shorter period (14-15).

[7] Abdur Rahaman (n 2) 18-19.

[8] Abdur Rahaman (n 2) 21-23.

[9] ibid. 24.

[10] ibid. 25-26.

[11] ibid. 25.

[12] ibid. 26-27; for a more detailed overview of the court’s reasoning with respect to the duty of care, see Dutia and Erol (n 5) 5-8.

[13] Das v. George Weston Limited 2017 ONSC 4129.

[14] ibid. [121].

[15] ibid. [164].

[16] ibid. [236]-[237], [248], [262].

[17] ibid. [238], [278] ff.

[18] See generally ibid. [404]-[500]).

[19] ibid. [505].

[20] ibid. [525], [536].

[21] David Doorey, "Vacuousness of CSR on Display in Loblaws’ Victory in Rana Plaza Class Action Lawsuit" (2017) Law of Work Blog; for helpful background to the case, see Doorey's flowchart of the legal issues involved.

[22] ibid.

[23] Ranjan K. Agarwal, Gannon G. Beaulne and Ethan Z. Schiff, "Corporate Social Responsibility and the Rana Plaza Class Action" Bennet Jones (2017).

[24] Jessica Lam and Nicole Henderson, "Who Is My Neighbour? Ontario Court Rejects a Duty of Care to Employees of Foreign Suppliers" (2017).

[25] Agarwal et al. (n 23).

[26] For a more detailed appraisal of the case law in this section, see Dutia and Erol (n 5) 10-13.

[27] Note that gaining access to recent information regarding the status of some of these actions has proved tricky.

[28] Al Jazeera and Agencies, "Rana Plaza court case postponed in Bangladesh" Al Jazeera (23 August 2016); Clean Clothes Campaign, Rana Plaza 3 Years On: Compensation, Justice, Workers' Safety (April 2016), 9; "Rana Plaza victims demand justice, compensation" The Daily Star (Dhaka, 24 April 2016); "Rana Plaza owner, 17 others indicted" The Daily Star (Dhaka, 15 June 2016).

[29] Clean Clothes Campaign, Rana Plaza 3 Years On: Compensation, Justice, Workers' Safety (n 28), 9.

[30] Clean Clothes Campaign, Rana Plaza 3 Years On: Compensation, Justice, Workers' Safety (n 28), 10; "Court accepts Rana Plaza murder charge sheet" The Daily Star (Dhaka, 21 December 2015); "Rana Plaza: 24 murder suspects abscond before trial" Agence France-Presse (Dhaka, 21 December 2015).

[31] "Rana Plaza collapse: 38 charged with murder over garment factory disaster" Reuters (Dhaka, 18 July 2016).

[32] "Rana Plaza owner jailed for graft" The Daily Star (Dhaka, 30 August 2017).

[33] Md Sanaul Islam Tipu, "Rana Plaza collapse: Order on charge framing against Sohel Rana, others May 8" Dhaka Tribune (Dhaka, 19 April 2017); Md Sanaul Islam Tipu, "Verdict against Sohel Rana in ACC case on Aug 29" Dhaka Tribune (Dhaka, 19 April 2017).

[34] Md Sanaul Islam Tipu, "Verdict against Sohel Rana in ACC case on Aug 29" Dhaka Tribune (Dhaka, 19 April 2017).

[35] Clean Clothes Campaign, Rana Plaza 3 Years On: Compensation, Justice, Workers' Safety (n 28) 10.

[36] ibid. 8.

[37] As mentioned at T.M.C. Asser Instituut's recent event, "Five Years Later: Rana Plaza & the Pursuit of a Responsible Garment Supply Chain".

[38] ibid.

[39] ibid. 8 (as at April 2016).

[40] Understanding for a Practical Arrangement on Payments to the Victims of the Rana Plaza Accident and their Families and Dependents for their Losses (Rana Plaza Arrangement) (adopted 20 November 2013).

[41] See https://ranaplaza-arrangement.org/mou

[42] ibid.

[43] OECD Watch and the Trade Union Advisory Committee to the OECD (TUAC), "Compensating the Victims of Rana Plaza: What Role for the OECD and the National Contact Points?" (June 2014), 1.

[44] Refayet Ullah Mirdha, "Final Compensation to Rana Plaza victims soon" The Daily Star (Dhaka, 11 June 2015).

[45] ibid.

[46] OECD, OECD Guidelines for Multinational Enterprises (OECD Publishing 2011), 68.

[47] ibid. 31.

[48] ibid. 72-73.

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.