Doing Business Right Blog

T.M.C. Asser Instituut

Doing Business Right – Monthly Report – July & August 2019 - By Maisie Biggs

17. September 2019 Antoine Duval (0)

Editor's note: Maisie Biggs graduated with a MSc in Global Crime, Justice and Security from the University of Edinburgh and holds a LLB from University College London. She is currently working with the Asser Institute in The Hague. She has previously worked for International Justice Mission in South Asia and the Centre for Research on Multinational Corporations (SOMO) in Amsterdam.

 

Introduction

This report compiles all relevant news, events and materials on Doing Business Right based on the coverage provided on our twitter feed @DoinBizRight and on various websites. You are invited to contribute to this compilation via the comments section below, feel free to add links to important cases, documents and articles we may have overlooked.

 

The Headlines

Revised Draft of Treaty on Human Rights and TNCs has been published

The Revised Draft has been released here by the Permanent Mission of Ecuador. The Draft comes ahead of the intergovernmental negotiations to be held at the 5th session of Open-Ended Intergovernmental Working Group on transnational corporations and other business enterprises with respect to human rights (OEIGWG). For further comment and context, see Larry Catá Backer's blog, the BHRRC's debate the treaty section on the revised draft, as well as the BHRJ Blog's series on the revised draft.

Business Roundtable redefined the group’s Purpose of a Corporation 

A prominent group of business leaders has redefined its purpose of a corporation to include stakeholder interests. In a statement signed by 181 CEO members of the Business Roundtable, an American group of business leaders, the statement of “the purpose of a corporation” has been altered from the long-standing commitment to shareholder primacy, to a broader ‘Commitment to All Stakeholders’. The change was announced in an advertisement in the Wall Street Journal and signed by 181 members, including the business leaders of Amazon, American Airlines, Bank of America, Coca-Cola, Marriott, Lockheed Martin, Morgan Stanley, UPS, and Walmart.

Chairman of Business Roundtable and CEO of JPMorgan Chase, Jamie Dimon, explained in the release: “The American dream is alive, but fraying. Major employers are investing in their workers and communities because they know it is the only way to be successful over the long term. These modernized principles reflect the business community’s unwavering commitment to continue to push for an economy that serves all Americans.”

This reconceptualisation of the purpose of corporations has been met with cautious enthusiasm; however, the statement has no bearing on the legal obligations of the signatories, and whether this materially alters business conduct by the signatories’ companies is yet to be seen.

The ‘Business Roundtable Statement on the Purpose of a Corporation’ can be found here.

UK Supreme Court to hear Okpabi case against Shell

The Supreme Court has granted permission for Nigerian communities to appeal their case concerning environmental degradation against Royal Dutch Shell. Previously the Court of Appeals rejected jurisdiction for the claimants, however the Court’s reasoning was fundamentally undermined by the subsequent Supreme Court judgement in Vedanta. See our previous post here concerning how these cases are related, and how Vedanta has paved the way for jurisdiction to be found in the Okpabi case. See the statement by Leigh Day, working with the appellants, here.

In another case concerning the liability of a UK parent company for harms perpetrated abroad by a subsidiary that hinged on jurisdiction, the Supreme Court refused permission in AAA v Unilever PLC for Unilever subsidiary employees to appeal. Leigh Day have announced they will now move to file cases with the UN Working Group and the OECD.

Samsung France indicted for deceptive commercial practices for not abiding by CSR statements

NGOs Sherpa and ActionAid France have successfully obtained an indictment against Samsung France for deceptive commercial practices. Preliminary charges were lodged in April by a Paris investigating magistrate in the first French case in which ethical commitments have been recognised as likely to constitute commercial practice.

The organisations argue that public ethical commitments by Samsung to workers' rights were misleading, citing alleged labour abuses and child labour in factories in China, South Korea and Vietnam. The case represents a novel approach to litigating extraterritorial business human rights abuses; even in the aforementioned Vedanta case in the UK, there was a similar (brief) suggestion that CSR-style public commitments could be actionable.

Guatemalan shooting victims announce settlement with Pan American Silver in Canada

It has been announced that landmark 2017 Canadian case Garcia v. Tahoe Resources has been resolved between the parties. The case concerned remedy for 2013 shooting of protesters by Tahoe Resources mine security on April 27, 2013 outside Tahoe’s Escobal Mine in south-east Guatemala. The resolution included a public apology from Pan American Silver, who acquired Tahoe Resources earlier this year, while other terms of the settlement remain confidential. Settlements were reached with three of the claimants earlier, but the remaining four only settled on 30 July when PAS issued a public apology and acknowledgement of the violation of their human rights by Tahoe.

In 2017, the BC Court of Appeal confirmed jurisdiction over the case in Canada, finding that the “highly politicized environment” surrounding the mine meant that there was a “real risk” that the plaintiffs would not obtain justice in Guatemala, permitting the claimants to use the Canadian forum. The head of security for the mine is also facing criminal proceedings in Guatemala.

Remedy being reached has led to celebration from commentators, however no further legal precedent has been set than that from the 2017 appeal, so it might have limited value for future claimants. It has been surmised that settlement was reached because of the overwhelming evidence in the case: video footage from security cameras showed protestors being shot in the back as they fled the mine site.

See also: The Guardian – Brazilian mining company to pay out £86m for disaster that killed almost 300 people and San Francisco Chronicle – Suit alleging US chocolate makers collaborated in slave labor proceeds for US developments.

 

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Doing Business Right Blog | Towards reforming the fair and equitable treatment standard in International Investment Agreements - By Dr. Yulia Levashova & Prof. Tineke Lambooy (Nyenrode Business University)

Doing Business Right Blog

T.M.C. Asser Instituut

Towards reforming the fair and equitable treatment standard in International Investment Agreements - By Dr. Yulia Levashova & Prof. Tineke Lambooy (Nyenrode Business University)

4. February 2019 Antoine Duval (0)

Introduction

One of the most important pillars of investment protection under international law is the understanding that a foreign investor investing in a host state should be treated ‘fairly and equitably.’ The importance of this notion is supported by the inclusion of the fair and equitable treatment (FET) standard in most of the International Investment Agreements (IIAs), as well as its invocation in the vast majority of investment disputes. However, the concern has been expressed frequently that a broad interpretation of this usually openly formulated provision has an adverse impact on the host state’s ‘right to regulate’ in the public interest. These concerns have been voiced particularly as a result of FET claims in which investors have challenged a variety of state decisions in publicly sensitive areas, e.g. renewable energy, waste management, public health issues, and access to water. In this regard, tribunals have often been criticised for attaching insufficient weight in their assessment of the FET standard to a host state’s right to regulate and its duty to fulfil its obligations under other international treaties, such as human rights and environmental treaties.

In the last five years the balance has gradually shifted from an approach of a broad interpretation of investor protection under the FET standard to an approach in which the state’s right to regulate is also recognised, and in particular when this right is exercised to benefit the public interest and/or to fulfil obligations in the field of human rights, health, and environmental protection, derived from international treaties.[1]

However, there are still gaps in clarifying the scope of the FET standard in the IIAs, including the new generation of treaties.  The following proposals made in the context of the 2018 UN Forum on Business and Human Rights are aimed at harmonising treaty practice – both treaty drafting and treaty interpretation practice. In the proposals, a host state is allowed to maintain adequate policy space to exercise its right to regulate in the public interest and, on the other hand, is obliged to observe its obligations under FET standards in IIAs:

  • Exhaustive list of the state’s obligations complemented by a provision on the state’s right to regulate

For example, in the IIAs concluded between the EU and Canada (CETA), the EU and Vietnam, and the EU and Singapore the obligation to provide fair and equitable treatment has been clarified through an exhaustive, but expandable, list of the state’s obligations in relation to foreign investors. Furthermore, these agreements include provisions on the state’s right to regulate in the public interest. What is important in reforming the FET standard in future treaties is to continue to include such a list. The exhaustive list of obligations provides some certainty and predictability to host states and investors about those types of state conduct that might lead to a breach of the FET standard.

Also important is the explicit codification of the host state’s right to regulate in some recent IIAs. See examples hereof in CETA, the EU-Singapore FTA and the Dutch Model BIT. Explicating the right to regulate in the body of an IIA constitutes a strong sign that, in the opinion of the contracting states, the role of tribunals is to balance the state’s public interests and the interests of the investor when interpreting and applying the FET standard.

  • Direct obligations towards investors

Further, retaining adequate domestic policy space, while providing the FET standard to investors, can be attained by including a provision on Corporate Social Responsibility (CSR) in the IIA (see our article). Such a provision should be addressed directly to foreign investors rather than to the contracting states. Examples hereof are the 2016 Morocco-Nigeria Bilateral Investment Agreement (BIT), the 2016 Argentina-Qatar BIT, the 2016 Pan-African Investment Code, and the 2012 South African Development Community (SADC) Model Bilateral Investment Treaty Template.

Also, it is essential to specify in the CSR provisions to which CSR norms an investor should adhere while operating in a host state. It is not sufficient to merely refer to the ‘internationally recognized standards of corporate social responsibility’ that often can be traced in CSR provisions. In the absence of a definition of CSR norms, tribunals may face difficulty in interpreting these norms, as it will remain unclear as to what investor obligations flow from such CSR provisions. A concrete specification of the CSR norms that foreign investors are expected to comply with when investing in the host state provides more concrete guidance to such investors, as well as to arbitrators. For example, the Dutch Model BIT refers to the OECD Guidelines for Multinational Enterprises, the United Nations Guiding Principles on Business and Human Rights, and the Recommendation CM/REC(2016) of the Committee of Ministers to Member States on human rights and business. The Morocco-Nigeria BIT refers to the ILO Tripartite Declaration.

Such CSR obligations of investors - stipulated in an IIA - can be even more effective, if the same treaty also contains a provision that allows a tribunal to reduce the protection under the substantive investment protection clauses, e.g. the FET standard, in a situation where an investor has breached one or more of the CSR provisions contained in the IIA. For example, in Article 23 ‘Behavior of the investor’ of the Dutch Model BIT such a provision has been included. It provides that ‘a Tribunal may, in deciding on the amount of compensation, take into account non-compliance by the investor with its commitments under the UN Guiding Principles on Business and Human Rights, and the OECD Guidelines for Multinational Enterprises.’

  • The investor’s due diligence efforts

The inclusion of the investor’s duty to conduct due diligence, is another aspect that can help to create a better balance between the rights and obligations of states and investors under the FET standard. For example, in Article 7 of Dutch Model BIT, the contracting parties are encouraged to reaffirm the importance of due diligence conducted by investors ‘to identify, prevent, mitigate and account for the environmental and social risks and impacts of its investment.’

The due diligence conducted by foreign investors in assessing the socio-political risks in a host state has been growing in importance in tribunals’ assessments of the FET standard. Some FET tribunals (see, for example: Charanne v. Spain, Isolux Netherlands, BV v. Kingdom of Spain, Mamidoil v. Albania) have underlined that an investor bears the responsibility of appraising the reality and the context of the state, in which the investment is/will be made, by performing a due diligence investigation and conducting risk assessments. The investor has to be aware and to take into account the relevant regulations, policies and decisions concerning its investment in order to anticipate the possible risks. This aspect played a role in cases in which the investor’s claim was based on a claim to protect his ‘legitimate expectations’ in the context of regulatory changes applied to a general regulatory framework. The extent of an investor’s due diligence investigation can operate as a yardstick in judging whether an investor could have predicted the contested changes. As was pointed out in Isolux Netherlands, BV v. Kingdom of Spain, if the changes were not foreseeable by a prudent investor, despite visible efforts to collect the information about the future of the regulatory framework, the legitimate expectations of the investor may be protected under the applicable IIA.

Therefore, it would be advisable to specify in a IIA that an investor has the duty to conduct adequate due diligence comprising an investigation of the environmental, human rights, and social risks, and that this constitutes a condition for receiving fair and equitable treatment. An explicit reference in IIAs to an investor’s duty to conduct due diligence also strengthens the importance of investors’ responsibilities under international investment law.

General Conclusion

In this contribution, several proposals have been made in the context of the 2018 UN Forum on Business and Human Rights to further clarify the right of investors to receive the FET standard under an applicable IIA and to assure the adequate policy space for host states to regulate in the public interest. We have suggested to include (or to continue to include) an exhaustive list of the state’s obligations under the FET standard into the text of IIAs with the aim to provide a certain degree of predictability to foreign investors as well as host states regarding the types of state conduct that might lead to a violation of the FET standard. Also, the provision on the right to regulate should continue to be included in the operative part of IIAs. The function of the aforementioned provision is not to exempt the state from liability under the FET standard. Rather, it requires tribunals to balance the state’s public interests and the interests of the investor, while interpreting and applying the FET standard. Finally the proposal further argues that by incorporating the direct CSR obligations imposed on foreign investors, as well as the inclusion of the investor’s due diligence duty into the text of IIAs will further assure the balance of the rights of the investor under the FET standard and the state’s right to regulate.

[1] This is based on the study of Y. Levashova, ‘The Right of States to Regulate in the Public Interest and the Right of Investors to Receive Fair and Equitable Treatment,’ Kluwer International Arbitration Law Library, forthcoming in 2019. 

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