Doing Business Right Blog

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 will give an overview introduction to the proposal for international business and human rights arbitration. It will discuss particularly (1) considerations for the drafters of new arbitration rules for business and human rights disputes. Part 2 will focus on the potential advantages of using international arbitration to resolve such disputes, as well as 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.

The proposal for International Business and Human Rights Arbitration

As the working group explains, business and human rights disputes, generally between multinational business enterprises and the victims of human rights abuse, “often occur in regions where official national courts are dysfunctional, corrupt, politically influenced or simply unqualified”. Accordingly, and as discussed further in Part 2, the concept of using the international mechanism of arbitration has attracted great attention as a potentially promising means by which to give victims an effective access to remedy. Indeed, even where capable national court systems are available, the potential for a speedier dispute resolution procedure and globally enforceable awards could render arbitration a preferred means for resolving business and human rights violations

Drafting business and human rights arbitration rules

The proposal does not call for the establishment of a new arbitration institution, but rather acknowledges that human rights disputes are fundamentally different from investor-state or commercial arbitration and that accordingly existing international arbitration rules are poorly suited to the special requirements of human rights cases. As outlined further below, current arbitrators may lack the necessary expertise to handle business and human rights violations. Moreover, and as developed further in Part 2, an inequality of arms between disputing parties is a much greater possibility between corporations and individual victims, versus two private enterprises or an investor and state. Meanwhile, confidentiality is a key factor behind the success of international commercial arbitration, but when adjudicating on disputes involving human rights violations of public concern the standard arbitration provisions dictating party privacy and transparency must be rethought. As a result, the process has begun to draft a new set of rules designed specifically for international business and human rights arbitration. The proposal is that these arbitration rules could be applied in a number of contexts:

The parties could select the rules to use in an arbitration conducted entirely by themselves, without assistance from an arbitration institution.
The parties could select the rules to use in an arbitration administered with the assistance of an arbitration institution.
The parties could select an arbitration institution which has adopted the new business and human rights rules as the rules to govern proceedings conducted under its own auspices.

Identified areas which necessitate the drafting team’s focus include adaptations accounting for (a) the likely parties to business and human rights arbitrations, and (b) the constitution of business and human rights expert arbitration panels.

1. Parties to business and human rights arbitrations

In order to be fit for purpose, arbitration rules for business and human rights must suit the needs of potential parties to disputes. According to the proposal, arbitration could be adapted for use by victims of human rights violations who wish to bring claims against businesses. Consideration will need to be given by the drafters as to how to accommodate claims often by multiple victims, the mechanism to permit joinder of such claims and protections will need to be afforded to vulnerable victims. The proposal also suggests that arbitration could be used to resolve human rights related disputes between commercial parties, for instance where one party neglects contractually-imposed human rights obligations.

2. Business and human rights expert arbitration panels

Any new arbitration rules will need to provide for the appointment of expert arbitration panels to hear and decide business and human rights disputes. All parties to a dispute will need access to a wide variety of arbitrators with specific practical or academic expertise in business and human rights. However, human rights non-governmental organisations have told the working group that, in their view, “commercial arbitrators have neither the expertise nor the sensitivity to human rights matters to enable victims to feel comfortable coming before an arbitral tribunal”.

Accordingly, the working group recommends that arbitration institutions choosing to adopt the new rules create special rosters of human rights arbitrators, in a similar vein to the Permanent Court of Arbitration’s Panels of Arbitrators and Experts for Environmental Disputes. This may mean that existing arbitrators who wish to serve on business and human rights cases will be required to broaden their fields of knowledge and skill sets, whilst lawyers and scholars now working on business and human rights issues may require specialist training in acting as an arbitrator. Additionally, the proposal refers to the possibility of parties appointing qualified individuals to a business and human rights panel, even if they are not listed on an arbitration institution’s formal roster.

Conclusions

At least in theory, international arbitration has the potential to give victims of business and human rights violations access to effective remedy. Yet, the proposal clearly recognises the deficiencies in adopting existing procedural arbitration rules for the purposes of resolving business and human rights disputes and, accordingly, we now see tailored business and human rights arbitration rules being developed. However, care must be taken by the drafting team to ensure that these rules are fit for purpose. The drafters must incorporate not only the positive aspects of international arbitration but also tackle the challenges in practice of applying this alternate means of dispute resolution. These considerations will be discussed further in Part 2 of this blog series.

Editor's note: This report compiles all relevant news, events and materials on transnational business regulation based on the daily coverage provided on our twitter feed @DoinBizRight. You are invited to complete this survey via the comments section below, feel free to add links to important cases, documents and articles we might have overlooked.

The Headlines

United Nations Treaty Negotiations: Debating a Treaty on business and human rights

The Third Session of the Open-ended Intergovernmental Working Group on Transnational Corporations and Other Business Enterprises with Respect to Human Rights ran from 23-27 October 2017 at the United Nations in Geneva. The session saw substantive discussions between State delegates and civil society on the elements of a future Treaty on business and human rights. Topics of debate included extraterritoriality, provisions on the supremacy of human rights over trade and investment agreements, the Treaty’s scope in terms of companies covered, international cooperation, monitoring and implementation mechanisms. The process is set to continue in 2018, with the Chair expected to present a proposal for a draft Treaty ahead of the IV session. Meanwhile, over forty civil society organisations addressed an open letter to States and the EU calling on decision-makers to ensure the continuity of the process. The organisations call on governments and the European Union to explicitly commit to “prepare detailed reactions to the elements for a draft legally binding instrument, in preparation for constructive engagement in the ongoing process towards a draft text and the next negotiation session of the OEIGWG”.

Lungowe v Vedanta: Court of Appeal confirms jurisdiction against English domiciled parent company

On 13 October 2017, the Court of Appeal in London handed down its judgment in Dominic Liswaniso Lungowe and Ors. v Vedanta Resources Plc and Konkola Copper Mines Plc [2017] EWCA Civ 1528. The case is brought by 1,826 villagers from the Chingola region of Zambia against the London Stock Exchange listed metals and mining company Vedanta Resources Plc and its Zambian subsidiary Konkola Copper Mines Plc. The villagers claim personal injury, damage to property and loss of income, amenity and enjoyment of land, due to alleged pollution and environmental damage caused by discharges from the Nchanga copper mine for over a decade. The judgment runs contrary to the historical legal doctrine that English domiciled parent companies are protected from liability for their foreign subsidiaries’ actions. The decision clarifies the duty of care standard a parent company owes when operating via a subsidiary and opens the gates to other English domiciled companies and their subsidiaries potentially being held accountable for any human rights abuses.

Bangladesh Accord Arbitrations: Decision on Admissibility of Claims and Confidentiality

On 16 October 2017, the Permanent Court of Arbitration issued a press release on behalf of the Tribunal in two arbitrations. The arbitrations arose under the Accord on Fire and Building Safety in Bangladesh signed on 15 May 2013. The Accord is an agreement between global brands and trade unions created in the aftermath of the Rana Plaza building collapse, to establish a fire and building safety programme for workers in the textile industry in Bangladesh. In 2016, IndustriALL Global Union and UNI Global Union commenced arbitrations under the Accord and the UNCITRAL Rules of Arbitration 2010 against two global fashion brands. The Tribunal, composed of Professor Hans Petter Graver, Mr Graham Dunning QC and Mr Donald Francis Donovan (presiding), was formally constituted on 3 February 2017. On 4 September 2017, the Tribunal issued a second Procedural Order, finding the claims to be admissible under Article 5 of the Accord and issuing directions on confidentiality and transparency. 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 brand companies. The arbitrations will now proceed to a merits phase, with hearings scheduled for the first half of 2018.

Company Reports and Press Releases