International Business and Human Rights Arbitration Proposal Gains Momentum

International Bar Association Conference on Law and Corporate Social ResponsibilityBetween November 27-29, over 2,000 delegates gathered in Geneva to attend the UN Forum on Business and Human Rights. The central theme of this year’s Forum was “Realizing Access to Effective Remedy,” which is the third Pillar of the U.N. Guiding Principles on Business and Human Rights (“U.N. Guiding Principles”).

A Working Group of specialists on international law, human rights, and conflict management have suggested one potential approach to strengthening the third Pillar, which is seen as the weakest aspect of the U.N. Guiding Principles in terms of implementation. Following a three-year consultation process, the group published a proposal on February 13, 2017 advocating the use of arbitration to resolve disputes involving business human rights abuses. Subsequently, it issued a follow-up Question and Answer on August 17 to address the principal concerns raised about the proposal during the consultation period.

Proponents of the proposal suggest that arbitration could provide recourse: (1) for victims of human rights violations to bring claims against businesses and (2) between commercial parties to resolve human rights-related claims. The tribunal could, in appropriate cases, award remedies including monetary damages for victims, injunctive relief, close monitoring of future compliance, and make declarations on the legal rights and responsibilities of the parties.

The proposal does not call for the creation of a new arbitration institution but rather for the development of specially designed arbitration rules. To this end, a drafting team chaired by former ICJ judge Bruno Simma has been assembled to prepare a set of arbitration rules specifically designed for international business and human rights arbitration. These arbitration rules—modelled on the UNCITRAL Arbitration Rules—will be offered to the Permanent Court of Arbitration and other international arbitration institutions.

Arbitration has been put forward as a potential means of filling a gap left by national courts, although NGOs have voiced substantial concern about this approach. Other potential advantages of arbitration are said to include:

  • a speedier form of dispute resolution;
  • a neutral forum;
  • arbitrators chosen by the parties;
  • procedural flexibility; and
  • globally enforceable awards.

The invocation of human rights in the context of international arbitration is nothing new. Indeed, human rights claims have entered in a number of high-profile investor-State cases such as SAUR v. Argentina and Urbaser v. Argentina though its role in investment disputes has been murky.

Similarly, the Bangladesh Accord Arbitrations mark a watershed in the arbitration of business and human rights disputes. The two arbitrations were initiated by labor unions under the Accord on Fire and Building Safety that was signed by global fashion brands following the devastating collapse of the Rana Plaza Building that killed 1,138 people in April 2013. Just days ago, the unions announced that a settlement was reached with one of the global fashion companies. The second case remains pending.

The use of arbitration to resolve business human rights violations, however, presents its own legal and practical challenges.  Among the questions that the drafting committee will need to consider are:

  • How have the concerns of affected communities or experts representing victims been incorporated in the design of this initiative?
  • How this process will interact with a potential UN Treaty on Business and Human Rights and any potential judicial recourse available under that treaty?
  • What are the applicable laws and norms in these disputes?
  • How can a “stepwise” approach that includes informal dispute resolution like mediation be encouraged, and should it be?
  • How can the rules accommodate different potential users (e.g., multiple victims, commercial parties) and levels of participation (e.g., observer, intervener, initiator)?
  • Should a roster be used to ensure the appointment of arbitrators to panels with specific practical or academic expertise in business and human rights?
  • How should considerations of transparency—often considered to be a challenge in international arbitration—be weighed against confidentiality concerns?
  • How can the system address the “inequality of arms” between individual victims and corporations given their very different access to expert advice and funding?
  • Would awards be subject to some form of appeal or annulment?
  • What steps must be taken to ensure that an award meets the requirements under the New York Convention (e.g., commercial reservation) to ensure enforceability?

Another challenge will be the issue of consent, which is a cornerstone of arbitration. Any future rules will require a process for businesses and victims to submit to arbitration after the harmful act has occurred, which they may be unwilling to do.

Cognizant of the potential harm to their reputations and social license due to human rights violations, corporations have responded to mounting pressure for responsible corporate behavior by adhering to the UNGPs, including “perpetual clauses” in commercial contracts, and ascribing to voluntary codes of conduct and other standards. The proposed adoption of specialized arbitration rules that allow victims to bring claims on their own behalf is an interesting potential addition to the global effort to improve access to remedies for victim of business-related human rights abuses. The concept, however, would benefit from further development, particularly to meet global expectations with regard to a human rights-based approach, an inclusive process, and transparency.

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