On December 12, 2019, the Hague Rules on Business and Human Rights Arbitration (“the Rules on Human Rights Arbitration“) were launched at the Peace Palace in The Hague. The Rules on Human Rights Arbitration provide for the administration of arbitrations concerning disputes related to the impact of business activities on human rights. The Rules on Human Rights Arbitration are based on the UNCITRAL Arbitration Rules (as adopted in 2013) with modifications needed to address issues likely to arise in the context of business and human rights disputes. The Rules on Human Rights Arbitration are the result of a five-year long project, which began with the creation of a Working Group on Business and Human Rights Arbitration and a Drafting Team in 2017, to prepare and draft the Rules on Human Rights Arbitration. After consultation and deliberation and receiving feedback on a set of draft rules and commentary thereto, the Rules on Human Rights Arbitration and the commentary were finalised and officially launched in December 2019.

Given that there are a number of arbitration rules already available and in use for administration of both institutional as well as ad-hoc arbitrations, the question that begs to be answered then is what is the purpose of the Rules on Human Rights Arbitration. Firstly, what are business and human rights disputes and how are the Rules on Human Rights Arbitration better suited to administer such business and human rights related disputes. These are some of the questions that this article will address.

How is business linked to human rights issues?

Businesses today operate transnationally, i.e. across borders and across continents. An international fashion retailer based in Italy, may procure its raw material from Uzbekistan, and manufacture its products in Vietnam. It may partner with smaller local companies in these locations for sourcing the raw material and for manufacturing. This corporation based in Italy is eventually answerable to its investors and shareholders, and it has to ensure that no laws or international regulations were violated in the manufacture of the products sold under its brand. If it were to come to light that child labour was employed for picking the cotton that was eventually used in the garment, or that the workmen who manufactured the garments were made to work in oppressive or inhuman conditions, then this would negatively affect the reputation and brand name of the Italian company, thereby affecting the value of its shares and eventually causing loss to its investors and shareholders. Therefore, it is in the interest of every business to ensure that human rights are not being violated in their supply chains.

Business related human rights issues cover a wide range of impacts that a company, its contractors, its suppliers or business partners may have on people. They include, but are not limited to:

  • Damage to people’s health through pollution, environmental accidents and health and safety failures;
  • Use of forced labor or child labor, or underpayment of workers;
  • Provision of unsafe or unhealthy working conditions;
  • Forced or involuntary displacement of communities, including indigenous communities;
  • Use of excessive force by security guards protecting assets;
  • Discrimination against employees, for example by race, gender or sexuality;
  • Depletion or contamination of water sources that local communities depend upon.[1]

These are only examples. The range of issues that can be categorised as human rights issues concerning business is very broad.

What are business and human rights disputes?

Business activities can have an impact on human rights in various ways. If workers in a garment factory are forced to work in inhuman and unhygienic conditions, causing many of them to suffer disease and illness, the workers (through their union) could initiate legal proceedings against the company for whom they manufacture garments. Similarly, if the garment company were to become aware of the fact that one of the companies in its supply chain had engaged in acts of human trafficking, then the garment company can file a claim against this company. One could, however, also imagine disputes which involve individuals, States, State entities, international organizations and civil society organizations. Any dispute between parties due to a human rights violation caused by the impact of business activities, would qualify as a “business and human rights dispute”.

Can these disputes be resolved by arbitration?

A business and human rights dispute can only be resolved by arbitration if all the parties involved consent to arbitration. But how is consent established in case of a human rights violation? In a contractual dispute such as the dispute between a garment company and its supplier mentioned above, the supply agreement will usually include an arbitration agreement. In disputes which do not arise from a contract, the parties would have to submit their dispute to arbitration in a submission agreement (compromis) after the dispute has arisen. Alternatively, one could think of a multilateral agreement for the protection of human rights, which contains an arbitration clause.

One such multilateral agreement for the protection of human rights is the Accord on Fire and Building Safety in Bangladesh (the Accord). The Accord is an agreement created in the aftermath of the Rana Plaza building collapse on 24 April 2013 (which killed 1,133 workers and critically injured thousands more) to establish a fire and building safety programme for workers in the textile industry in Bangladesh. Signatories to the Accord include over 200 global brands, retailers and importers across 20 countries in Europe, North America, Asia and Australia, eight Bangladeshi trade unions, two global trade unions, and four non-governmental organisations that witnessed the signing. The consent to arbitrate disputes arising out of the Accord is contained in Clause 5 of the Accord.[2] The parties to the Accord are labour unions and companies, so only those parties can submit any dispute to arbitration under the Accord. Workers from factories cannot directly initiate arbitration. They can only submit complaints regarding health and safety risks in the factory through a worker complaint process and mechanism established under the Accord.[3]

In fact, there have been two arbitrations for human rights violations against global fashion brands under the Accord. However, the parties in both arbitrations eventually settled and the tribunals in both arbitrations issued termination orders.[4]

Arbitration does offer some advantages to its users, particularly large global brands who are keen to protect their reputation, and who may not be comfortable navigating local judicial systems. In particular, arbitration offers: (i) a neutral forum for dispute resolution, independent of both the parties and their home states; (ii) a specialized dispute resolution process in which the parties are able to participate in the selection of competent and expert adjudicators for their dispute; (iii) the possibility to obtain binding awards subjected only to limited judicial review, and enforceable across borders; (iv) means of dispute resolution potentially cheaper and quicker than litigation, which are also able to (v) accord parties broad autonomy to agree upon the substantive laws and procedures applicable to their arbitrations.[5]

Where can the Rules for Human Rights Arbitration be applied?

It is not necessary that a dispute needs to be characterized as relating to business and human rights, in order for the Rules on Human Rights Arbitration to apply to its administration.[6] Article 1 of the Rules on Human Rights Arbitration provides that parties can agree that disputes between them in respect of any defined legal relationship, whether contractual or not, be resolved by arbitration under these Rules. In order to ensure that an award rendered under the Rules on Human Rights Arbitration, is enforceable as per the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (“the New York Convention“), Article 1(3) of the Rules on Human Rights Arbitration clarifies that by submitting to arbitration under these Rules, the parties agree that their dispute is deemed to have arisen out of a commercial relationship or transaction. The parties to the dispute can request the tribunal and the Secretary General of the Permanent Court of Arbitration (“PCA“), for the PCA to act as Secretariat and serve as registry.

Salient features of the Rules on Human Rights Arbitration

Unlike many other institutional rules, the Rules on Human Rights Arbitration encourage parties to endeavour to resolve any dispute in good faith through negotiation, conciliation, mediation, facilitation or other collaborative settlement mechanisms, at any time including after arbitration proceedings have been commenced.[7] This provision is meant to highlight the importance of collaborative settlement mechanisms in business and human right disputes.[8]

The Rules on Human Rights Arbitration provide for a Code of Conduct for arbitrators, which forms an integral part of these Rules and can also be applied to arbitrations conducted under other rules of procedure. The Code of Conduct is influenced by international best practices, including the IBA Guidelines on Conflicts of Interest in International Arbitration, but in some cases adopt stricter requirements due to the nature of business and human rights disputes. The Code of Conduct lays down the basic norms that all arbitrators have to comply with, including a duty to make necessary disclosures as enumerated therein, and to remain independent and impartial. The Code of Conduct also extends to assistants and staff of arbitrators as well as any tribunal secretary that may be employed.[9] Any actual or potential violation of the Code of Conduct may be reviewed by a Code of Conduct Committee established by the Permanent Court of Arbitration or a body designated by the Permanent Court of Arbitration.[10]

As regards the constitution of the tribunal, the Rules on Human Rights Arbitration stress the benefits of diversity and recommend the constitution of a diverse tribunal.[11] Additionally, the Rules on Human Rights Arbitration provide that the presiding or sole arbitrator must have demonstrated expertise in international dispute resolution and in areas relevant to the dispute, which may include, depending on the circumstances of the case, business and human rights law and practice, relevant national and international law and knowledge of the relevant field or industry.[12] Moreover, the presiding or sole arbitrator cannot be a national of States whose nationals are parties or of any State that is a party, to the dispute.[13]

In the conduct of arbitral proceedings, the arbitral tribunal is required to provide a fair, efficient, culturally appropriate and rights-compatible process for resolving the parties’ dispute, including in particular by giving due regard to the urgency of addressing the alleged human rights impacts.[14] This means that the arbitral proceedings should be based on inclusion, participation, empowerment, transparency and attention to vulnerable people. The tribunal must take care to ensure that the impact of the arbitration proceedings and its outcome does not undermine any one party or group of parties.[15] This has been drawn from Principle 28 of the UN Guiding Principles on Business and Human Rights.[16]

Given the likelihood of multiple claims and interests involved in such disputes, Article 19(1) of the Rules on Human Rights Arbitration empowers the tribunal to adopt such special procedures where appropriate, in order to efficiently handle large number of parties and claims. Therefore, the tribunal can, after taking in to account the particular facts and circumstances of the case, decide whether or not class, mass, collective or multiparty procedures are available and may be applied to a particular arbitration. This could include situations wherein the underlying legal instrument in which the arbitration clause is contained, grants certain rights to third persons, and who may therefore have an interest in the arbitration proceedings, as well as situations wherein the arbitration agreement itself foresees the right of certain third persons to join the arbitral proceedings.

A relatively recent procedural provision regarding objections to claims or defences manifestly without merit, has also been inserted in the Rules on Human Rights Arbitration. The word “manifest” means the lack of merit must be clear and obvious upon a preliminary review without need of evidentiary fact-finding.[17] Given the possibility of unfounded claims that might entail costly litigation and reputational consequences for respondents, as well as unfounded defences that might be used to discourage a claim or even intimidate claimants, Article 26 seeks to provide for an expedited procedure to dispose of claims and defences manifestly without merit at a preliminary stage of an arbitration. This provision has been developed on the basis of similar provisions under the ICSID Convention Arbitration Rules, the SCC Arbitration Rules, the SIAC Arbitration Rules and the HKIAC Administered Arbitration Rules.[18]

Keeping in line with developments in other institutional rules, the Rules on Human Rights Arbitration contain provisions for requesting emergency measures prior to the constitution of the arbitral tribunal.[19] The Rules on Human Rights Arbitration also provide for third parties to file written submissions.[20] This is based on Article 4 of the UNCITRAL Rules on Transparency in Treaty based Investor-State Arbitration (which has previously been covered here). Additionally the Rules on Human Rights Arbitration also enable the State(s) of nationality of the parties, the State(s) on whose territory the conduct that gave rise to the dispute occurred and the State(s) parties to any treaties applicable to the arbitration, to file written submissions.[21]

Tribunals hearing disputes under the Rules on Human Rights Arbitration can allow disclosure of information to the public, keeping in mind public interests, confidentiality concerns of the parties, and the potential for aggravating conflicts amongst the relevant stakeholders.[22] In the two arbitrations filed under the Accord, the tribunal issued a protocol on confidentiality and transparency, allowing for publication of orders, decisions, and awards after redaction of certain confidential information.

The award or any other decision is to be made by a majority of the arbitrators.[23] The award must be in writing[24] and must state the reasons upon which it is based and satisfy itself that the award is human rights compatible.[25] This means that the award must accord with internationally recognized human rights[26] and must also conform to public policy requirements under the law of the seat and the likely places of enforcement of the award.[27] Any party or third party receiving funding or financial assistance to participate in the arbitration, is required to disclose this fact.[28] The Rules also provide for expedited procedures, where disputes are of a simple nature with only a modest amount in dispute.[29]

Conclusion

Arbitration of business and human rights disputes can be beneficial both for the victims (e.g. the factory workers) and the multinational company. The Rules on Human Rights Arbitration seem to be particularly suitable for such disputes, and provide access to remedy for victims of human rights violations, in keeping with Pillar III of the UN Guiding Principles on Business and Human Rights. The improvements compared to existing institutional rules such as the ICC Arbitration Rules are, however, only marginal.

 

[1] https://assets.kpmg/content/dam/kpmg/xx/pdf/2016/11/addressing-human-rights-in-business.pdf

[2] Dispute resolution. Any dispute between the parties to, and arising under, the terms of this Agreement shall first be presented to and decided by the SC, 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).

[3] Clause 18 of the Accord.

[4] https://pca-cpa.org/en/cases/152/

[5] Martin Doe, Steven Ratner and Katerina Yiannibas, “Arbitrating Business and Human Rights Disputes: Public Consultation on the Draft Hague Rules on Business and Human Rights Arbitration”, http://arbitrationblog.kluwerarbitration.com/2019/06/27/arbitrating-business-and-human-rights-disputes-public-consultation-on-the-draft-hague-rules-on-business-and-human-rights-arbitration/

[6] Article 1, paragraph 1

[7] Article 1(6)

[8] Commentary to Article 1, paragraph 6

[9] Code of Conduct, Article 4(1)

[10] Code of Conduct, Article 6(2)

[11] Article 11(3)

[12] Article 11(1)(c)

[13] Article 11(1)(d)

[14] Article 18(1)

[15] https://www.business-humanrights.org/sites/default/files/reports-and-materials/Grievance-mechanisms-principles-Jan-2008.pdf

[16] Commentary to Article 18(1)

[17] Commentary to Article 26

[18] ibid

[19] Article 31

[20] Article 28

[21] Article 28(4)

[22] Article 38

[23] Article 44

[24] Article 45(3)

[25] Article 45(4)

[26] Article 31(f) of UN Guiding Principles

[27] Commentary to Article 45(4)

[28] Article 55(1)

[29] Article 57

Previous articleCOVID-19: Implications for the future of Dispute Resolution
Next articleProtection of foreign investments in Indonesia