Arbitration: a new forum for business and human rights disputes?
This post originally featured on the Thomas Reuters Arbitration Blog on the 16th October 2017.
On 27-29 November 2017, the United Nations Forum on Business and Human Rights will convene in Geneva. Its central theme: Access to Effective Remedy. In line with this shifting focus by the international community on the third pillar of the UN Guiding Principles on Business and Human Rights (UNGPs), a working group of international law specialists published a proposal to use arbitration to resolve disputes that arise out of human rights abuses involving businesses (BHR disputes).
The proposal for the “International Arbitration of Business and Human Rights Disputes” was published on 13 February 2017 and formally presented on 23 March 2017 at an event hosted by the Arbitration Institute of the Stockholm Chamber of Commerce (SCC) (attended and commented on by Hogan Lovells partner Julianne Hughes-Jennett). On 17 August 2017, the Working Group followed up with the publication of a “Questions & Answers” paper addressing key issues raised by consulted stakeholders.
According to the proposal, arbitration could be adapted for use in BHR disputes either:
- By victims of human rights violations who wish to bring claims against businesses.
- To resolve disputes involving human rights-related claims between commercial parties (for example, where a supplier fails to comply with certain contractually-imposed human rights obligations).
The proposal is not intended to replace any existing means of redress. Rather, the intention is to offer a potentially more effective alternative.
According to the working group, international arbitration “holds great promise” as a method of resolving BHR disputes, which often occur in regions where national courts are “dysfunctional, corrupt, politically influenced or simply unqualified”. Indeed, arbitration offers many advantages:
- A neutral forum, whereas domestic or international courts may face political pressure.
- Impartial judges with expertise in human rights, and who are selected by the parties.
- Procedural flexibility.
- Greater efficiency (compared with many domestic court systems).
- Universal recognition (the New York Convention provides for the recognition and enforcement of arbitral awards; it is subject only to limited grounds for refusal and applies in 157 countries).
Commentators from the human rights and arbitration communities have reacted to this innovative proposal with a number of questions, including:
- How would businesses and victims of human rights violations submit to arbitration in practice for disputes not arising out of an existing contract containing an agreement to arbitrate? There would need to be a voluntary submission to the arbitral process after the harm or event in question has occurred. This may be difficult to achieve in practice. One option suggested by the working group is that commercial contracts could specifically identify as “third party beneficiaries” classes of victims that could initiate or participate in future arbitrations.
- What norms or laws would be applied by the arbitral tribunal? According to the working group, the applicable norms or laws could be incorporated by reference in the contract or agreement to arbitrate. However, what would those applicable norms or laws be? Do they recognise corporate liability for human rights violations? Indeed, the question of whether corporations can be liable for violations of human rights under international or domestic law remains an open one in many jurisdictions (see, for example, Kiobel v Shell and Jesner v Arab Bank in the US). As for the possibility of incorporating the UNGPs or other voluntary principles, what are the implications of making obligations contractual and enforcing obligations that were only ever intended to be soft law?
- Is a private forum like arbitration appropriate for resolving human rights disputes? The importance of ensuring transparency in human rights cases is potentially inconsistent with the confidentiality that is usually associated with arbitration. Some also argue that, as a matter of public policy, human rights should remain the prerogative of national courts. Those in favour of the proposal highlight the greater neutrality and impartiality offered by arbitration, which may be welcome in politically or emotionally charged disputes. It may also be possible to modify the arbitration process to make it more transparent and public for BHR disputes (in the same way that such transparency is increasingly a feature of investment treaty arbitration). Of course, the affected parties would need to consent to arbitrate the dispute in the first place.
- How would victims of human rights violations afford the cost of arbitration? The working group’s response to this “inequality of arms” concern is that funding and support could be found for arbitration proceedings in the same way as it is currently found for domestic litigation. Alternatively, dedicated funds for the arbitration of BHR disputes could be established; similar perhaps to the Permanent Court of Arbitration’s Financial Assistance Fund, which helps developing countries meet their costs in investor-state arbitrations.
- What recourse would a defendant business have to dismiss unfounded claims? It is true that, compared with the mechanisms available in domestic courts, arbitration offers limited options for summary dismissal of spurious claims. However, addressing this perceived shortcoming could be considered in the context of adapting the arbitration process for BHR disputes.
The working group acknowledges that existing procedural arbitration rules are inadequate for dealing with BHR disputes, and that tailored arbitration rules should be developed. These should take into account the need for greater transparency, how to accommodate multiple victims and protect vulnerable victims, and whether awards should be subject to appeal. The working group is in the process of convening a drafting committee for this purpose.
Although this initiative still has some way to go before it could work in practice, the implementation of the UNGPs by corporations is leading to an increased incidence of “BHR clauses” in commercial contracts (imposing human rights compliance obligations on business counterparties, for example, suppliers). As a result, arbitral tribunals may, in any event, find themselves determining business-to-business BHR disputes before too long.