Is BHR Arbitration the New Black? A Proposal for International Arbitration on Business and Human Rights
Nathália de Paula Brandão
Université Paris 1 Panthéon-Sorbonne
This paper focuses on outlining (i) the Proposal for International Arbitration on Business and Human Rights and (ii) the main features of arbitration as an effective remedy to resolve disputes arising from Business-related Human Rights violations (BHR Disputes).
The 6th United Nations Forum on Business and Human Rights held in Geneva (1) focused on the third pillar of the United Nations Guiding Principles on Business and Human Rights (UNGPs). Under the theme of “Realizing Access to Effective Remedy”, the hot topic of the 2017 Forum was the proposal for the “International Arbitration of Business and Human Rights Disputes”.(2)
After more than three years of consultations with stakeholders, a Working Group of international law specialists (3) has concluded that international arbitration has potential to be an effective method to resolve human rights disputes involving business. According to them, arbitration may also be an attractive alternative to court litigation even where competent courts are available thanks mainly to its speedier procedure and awards that are potentially enforceable throughout the world under the New York Convention. (4)
This proposal 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). Since then, it has been the subject of long, intense and controversial discussions.
CONTEXT: UN GUIDING PRINCIPLES ON BUSINESS AND HUMAN RIGHTS
Traditionally conceived as a set of norms and practices to protect individuals from threats by the State, the idea that business enterprises might have human rights responsibilities is relatively new and still not universally accepted. The root cause of the business and human rights predicament today lies in the governance gaps created by globalization. While the liberalization of trade, domestic deregulation, and privatization throughout the world extended the scope and deepened the impact of markets, the capacity of societies to manage their adverse consequences did not keep pace: (5)
“…how to close the gaps between the scope and impact of economic forces and actors, and the capacity of societies to manage their adverse consequences. Among other effects, these governance gaps, as I call them, provide the permissive environment for wrongful acts by companies without adequate sanctioning or reparation. How to narrow and ultimately bridge such governance gaps in relation to human rights is the focus of my work.” (6)
Under such circumstances, Professor John Gerard Ruggie (7) developed a set of principles, the UN Guiding Principles on Business and Human Rights (UNGPs), which have been described as a game changer. (8) Adopted by multiple international agencies (9), the 2011 Guiding Principles are the first global framework that exclusively address Business-related Human Rights abuses (BHR Abuses). Although not legally binding, the UNGPs enjoy wide recognition and serve as a basis for policy approaches towards business and human rights. (10)
At bottom, those responsibilities for corporations provide a basis for monitoring and remediating corporate misconducts. (11) The UNGPs are divided in three interrelated pillars: (i) the state duty to protect human rights; (ii) the responsibility of business to respect human rights; and (iii) the access to an effective remedy. Simply put: states must protect; companies must respect; and those who are harmed must have redress.
Their implementation aim is precisely to establish a common global normative platform as a basis for making progress without foreclosing any other promising long-term developments. (12) When entrusted with the Special Representative of the United Nations Secretary-General (SRSG) mandate, the Professor expected his work to mark the “end of the beginning”:
“What do these Guiding Principles do? And how should they be read? Council endorsement of the Guiding Principles, by itself, will not bring business and human rights challenges to an end. But it will mark the end of the beginning: by establishing a common global platform for action, on which cumulative progress can be built, step-by-step.” (13)
So if ever this “end of the beginning” paraphrases Churchill’s Speech (14) after the crucial El Alamein battle, the Guiding Principles will mark a turning point rights in business and human rights as it did in the Second World War. Thus, for the sake of effectivity, the UNGPs are now expected to be the authoritative point of reference for all States and businesses with regard to the human rights arena. (15)
PILLAR THREE: ACCESS TO REMEDY
The Pillar Three of the UNGPs sets out the responsibility of States to provide access to remedy through State-based judicial mechanisms, State-based non-judicial mechanisms, and to facilitate access to non-State-based grievance mechanisms. (16) As is pointed out in commentaries on the Remedy Pillar of the UNGPs, there is a wide gap in access to justice (17) at the national and international level that is harming both victims and corporations. In this scenario, we must draw a particular attention to the content of the GP 27, which provides:
“States should provide effective and appropriate non-judicial grievance mechanisms, alongside judicial mechanisms, as part of a comprehensive State-based system for the remedy of business-related human rights abuse.” (18)
By proposing effective non-judicial remedies, the UN Guiding Principles, as well as the 2016 Council of Europe Recommendation, call for States to ensure that non-judicial grievance mechanisms meet certain effectiveness criteria. The GP 28’s Commentary stresses the necessity of a speed access to justice and remediation, reduced costs and/or transnational reach on the ground of a dialogue-based or other culturally appropriate and rights-compatible processes. (19)
In light of the above, should we thus consider the arbitration to be an effective remedy to fill this gap?
ARBITRATION IS THE NEW BLACK
Arbitration is a form of dispute resolution. (20) The decision makers are not judges of state courts, but arbitrators selected by the parties. The parties refer their dispute to an arbitral tribunal, generally consisting of one or three arbitrators, by whose decision they agree to be bound. (21) The arbitrators hear their positions, conduct some forms of reasoning or wider investigation and arrive at a decision on the course of action to be taken in settling the grievance or dispute.
According to Gary Born, international arbitration warrants attention because it operates within a framework of international legal rules and institutions which enables private and public actors from diverse jurisdictions to cooperatively resolve deep-seated and complex international disputes in a satisfactory manner. (22)
However, arbitration wasn’t built or even adapted for business-related human rights disputes. The UNCITRAL (23) and other commercial arbitration rules are not flexible enough to accommodate human rights disputes. Human rights arbitration is fundamentally different from, for example, investor-state arbitration and has special requirements. It happens that there is a growing interest in reversing this scenario — and an important progress has been made.
The Working Group on International Arbitration of Business and Human Rights concluded that international arbitration has the potential to handle human rights abuses and proposed that it should be recognized and used by parties to resolve their BHR Disputes. According to this new proposal, arbitration could be adapted for use in BHR Disputes in two scenarios: (a) victims-to-business and (b) business-to-business issues. (24)
The proposal is not intended to replace any existing means of redress, but rather offer a potentially more effective alternative. It is about a complementary, cooperative and constructive remedy.
In many countries, the Courts are unsuitable or otherwise unavailable to hear cases relating to BHR Abuses. Even in fair, independent and competent courts, the plaintiffs are supposed to experience many obstacles to get into them: overloaded courts, delays, high entrance fees, language problems, lengthy litigations, a host of legal/jurisdictional, and practical difficulties in enforcing orders.
Conversely, the Working Group proposes that many features could contrast favorably with court litigation: (25)
• Tailor-made proceedings: Regardless of the nationalities of the parties or the place where the BHR Abuse occurs, proceedings could be made to fit both parties’ locations, means and resources. According to the Working Group, BHR Arbitration would be available worldwide thanks to virtual hearings that could take place anywhere in the world and even online;
• Flexibility: International arbitration would allow for greater procedural flexibility and efficiency, as compared particularly to domestic court systems. Besides, the flexible procedure and expeditious resolution of a dispute would limit corporation’s reputation frequently questioned by NGO campaigns;
• Cooperation: Based on engagement and dialogue, proceedings can be less adversarial than in court litigation, and preserve working relationships;
• Impartiality: while domestic or international courts may face political pressure or judicial corruption, international arbitration can provide a more neutral forum. At least in theory, both parties could choose arbitrators who are impartial and have high levels of expertise related to human rights disputes;
• Enforceability: Such awards are potentially enforceable (26) throughout the world under the 1958 UN Convention on Recognition and Enforcement of Foreign Arbitral Awards (New York Convention) (27), to which 157 States have acceded.
SHADES OF GREY: POTENTIAL CHALLENGES
During the Working Group’s panel in the 2017 UN Forum on Business and Human Rights, a number of questions have been raised by commentators from the human rights and arbitration communities in reaction to this bold proposal, including:
• Inequality of arms: The costs of the arbitration process, and its complexity, could place victims of BHR Abuse in a disadvantage position. 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: support from international human rights NGOs, pro bono lawyers, labor unions and individual lawyers. Otherwise, dedicated funds for the arbitration of BHR Disputes could be set up. One funding model would be the Financial Assistance Fund established by the Permanent Court of Arbitration (28), which aims at helping developing countries meet part of the costs involved in international arbitration.
• Confidentiality versus Transparency: Is a private forum appropriate to resolve human rights disputes? Transparency may be desirable when public interest is at stake. Coupled with the expansion of arbitration subject matter, the confidentiality of arbitration is criticized as being incompatible with issues of human rights (29). Some also argue that human rights should remain the prerogative of national courts as a matter of public policy. Hearings should not be held in secret, and awards should not be unpublicized. Transparency will also allow the public to hold arbitrators accountable for making fair and impartial rulings. Supporters of the proposal point to the greater neutrality and impartiality offered by arbitration, which may be welcome in politically or emotionally charged disputes.
• Arbitration agreement: How can International Human Rights become subject to BHR Arbitration? Either by incorporating into contracts associated with arbitration clauses or by BHR Submittal Agreement.(30) However, if disputes do not arise 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 — which may be difficult to achieve in practice. The Working Group thus suggested that commercial contracts could specifically identify as “third party beneficiaries” classes of victims that could initiate or participate in future arbitrations.
• Applicable law: What norms or laws would be applied by the arbitral tribunal? The Working Group says the applicable norms or laws could be incorporated by reference in the contract or agreement to arbitrate. The problem is: the corporations’ liability for violations of human rights under international law and/or domestic law remains uncertain in many jurisdictions (see for example Kiobel v Shell and Jesner v Arab Bank in the U.S.). As for the possibility of incorporating the UNGPs or other voluntary principles, query the implications of enforcing obligations that were only ever intended to be soft law.
Aware that existing procedural arbitration rules are inadequate to deal with BHR Disputes, these experts, after a three-year of consultation involving a wide range of stakeholders, are being assembled to prepare a set of rules for this purpose. Once drafted by the committee, the New Arbitration Rules will be offered to the Permanent Court of Arbitration and other international arbitration institutions. The new rules could also be used in arbitration proceedings that the parties manage themselves on an ad hoc basis. (31) The 28 project is being funded by the City of The Hague and supported by the Netherlands Foreign Ministry; and a wide range of stakeholders will provide input through a network of “sounding boards”.
The world of BHR Arbitration seems to be mostly sunny, thanks largely to universal recognition of arbitral awards, an increase in supply chain responsibility and responsible conflict management. But there is already some cloudy weather, namely the inequality of arms between parties, whether awards should be subject to appeal and the need for transparency in human rights proceedings. The Proposal may develop into a thunderstorm, but at least thunderstorms tend to be patchy and eventually pass on. Once passed, arbitral tribunals may find themselves determining BHR Disputes before too long.
After all, the proposal claims a willingness to protect — not thwart — human rights.
(1) The UN Forum on Business and Human Rights is the global platform for yearly stock-taking and lesson-sharing on efforts to move the UN Guiding Principles on Business and Human Rights (UNGPs) and the “Protect, Respect and Remedy” Framework from paper to practice.
(2) Claes Cronstedt, Jan Eijsbouts and Robert C. Thompson, International Business and Human Rights Arbitration, Available at: http://www.l4bb.org/news/TribunalV6.pdf , Access: 12 February 2018.
(3) Claes Cronstedt, Jan Eijsbouts, Adrienne Margolis, Steven Ratner, Martijn Scheltema and Robert C. Thompson.
(4) The New York Convention is a key instrument in international arbitration. The primary advantage of international arbitration is enforceability. Thanks to the New York Convention, to which 157 countries has acceded, a foreign arbitral award is enforceable in many countries of the world. The Convention requires courts of Contracting States to give effect to arbitration agreements and to recognize and enforce foreign arbitral awards. Arbitral awards must, however, undergo court proceedings aiming at the declaration of enforceability in the State where recognition and enforcement are sought (exequatur). In: Dr. Reinmar Wolff, New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards – Commentary, Beck, Hart and Nomos, 2012.
(5) “Count up the results of fifty years of human rights mechanisms, thirty years of multibillion dollar development programs and endless high level rhetoric and the general impact is quite underwhelming . . . this is a failure of implementation on a scale that shames us all.” Mary Robinson, UN Human Rights Commissioner, on the fiftieth anniversary of the UDHR, 10 December 1998.
(6) John Gerard Ruggie’s Testimony at United Nations General Assembly, 27 October 2008.
(7) John Gerard Ruggie is the Berthold Beitz Professor of International Affairs at the Kennedy School of Government; and an Affiliated Professor in International Legal Studies at Harvard Law School.
(8) Sune Skadegård Thorsen, Mira Skadegård Thorsen and Anders Dahl Krabbe, A Game Changer, GLOBAL CSR, 2011, Available at: https://business-humanrights.org/sites/default/files/media/documents/ungps-a-game-changer-nov-2011.pdf, Access: 12 February 2018.
(9) “After the unanimous adoption and endorsement of the United Nations Guiding Principles on Business & Human Rights in June 2011, a tide of initiatives have appeared at the international, regional and local levels to implement such principles and develop them within the corresponding spheres of commercial activities and operations. Some of them have been led by States, but an overwhelming majority has been developed by non-state actors (NGOs and multinational corporations like) in different industrial fields.” Cf. Humberto Cantú-Rivera, Towards Judicial Accountability in the Business & Human Rights Field?, Leiden, Koninklijke Brill Nv, 2016.
(10) Moreover, the OHCHR issued in 2016 a guidance dealing in particular with access to remedy (the OHCHR Accountability and Remedy Project, the 2016 UN Guidance). This guidance, which the UN Human Rights Council welcomed, concretely advises on which tools work well to implement the UN Guiding Principles. In February 2017 the Council of the EU adopted conclusions on the Union’s priorities in UN fora for the year 2017, which included a commitment to the UN Guiding Principles and the UN guidance. See e.g. FRA (2017), Opinion of the European Union Agency for Fundamental Rights on the Framework Improving Access to Remedy in the area of business and human rights at the EU level, Vienna, 10 April 2017.
(11) John H. Knox, “The Ruggie Rules: Applying Human Rights Law to Corporations” in Radu Mares (ed), The UN Guiding Principles of Business and Human Rights, Leiden•Boston, 2012.
(12) John Gerard Ruggie, Just Business: multinational corporations ad human rights. W. W. Norton & Company, Inc. 2013.
(13) Guiding Principles on Business and Human Rights: Implementing the United Nations ‘Protect, Respect and Remedy’ Framework, 10 A/HRC/17/31, 2011, para. 13 (hereinafter `Guiding Principles`).
(14) Churchill said: “This is not the end. It is not event the beginning of the end. But it is, perhaps, the end of the beginning.” Winston Churchill, ‘The End of the Beginning’, The Lord Mayor’s Luncheon, Mansion House, Speech in10 November 1942. Available at: http://www.churchill-society-london.org.uk/EndoBegn.html , Access: 14 November 2017.
(15) Implementation of the UN Guiding Principles on Business and Human Rights, EP/EXPO/B/COMMITTEE/FWC/ 2013-08/Lot8/09. 13, Available at: http://www.europarl.europa.eu/RegData/etudes/STUD/2017/578031/ EXPO_STU(2017)578031_EN.pdf, Access: 14 November 2017.
(16) See Guiding Principles on Business and Human Rights: Implementing the United Nations “Protect, Respect and Remedy” Framework, A/HRC/17/31, 2011, Available at: http://www.ohchr.org/Documents/Issues/Business/A-HRC-17-31_AEV.pdf, Access: 12 February 2018.
(17) “The words “access to justice” are admittedly not easily defined, but they serve to focus on two basic purposes of the legal system-the system by which people may vindicate their rights and/or resolve their disputes under the general auspices of the state. First, the system must be equally accessible to all; second, it must lead to results that are individually and socially just. (…) Indeed, a basic premise will be that social justice, as sought by our modem societies, presupposes effective access.” In: Garth, Bryant G. and Mauro Cappelletti, Access to Justice: The Newest Wave in the Worldwide Movement to Make Rights Effective, 1978.
(19) For such mechanisms to be effective, these minimum standards must ensure that they are (a) legitimate; (b) 17 accessible; (c) predictable; (d) equitable; (e) transparent; (f) rights-compatible; (g) a source of continuous learning; (h) based on engagement and dialogue, as stipulated in Principle 31 of the UN Guiding Principles and restated in Paragraph 50 of the Annex to the 2016 Council of Europe Recommendation.
(20) Op. Cit.
(21) Rees Caroline and David Vermijs, “Mapping Grievance Mechanisms in the Business and Human Rights Arena” Corporate Social Responsibility Initiative Report No 28, Cambridge, MA: John F. Kennedy School of Government, Harvard University, 2008.
(22) Gary B. Born,“International Commercial Arbitration. Volume I: International Arbitration Agreements”, 2014 Kluwer 19Law International BV, The Netherlands, pp. 6-24.
(23) United Nations Commission on International Trade Law.
(24) For example, when a supplier had failed to comply with certain contractually-imposed human rights obligations.
(25) Op. Cit.
(26) “Instead of being dependent on existing complex and frail mechanisms for enforcing court judgements, international arbitral awards could benefit from existing mechanisms for enforcement, including the 1958 UN Convention on Recognition and Enforcement of Foreign Arbitral Awards, to which 156 states have acceded.” Available at: http://www.harvardilj.org/ 2016/07/a-proposal-for-an-international-arbitration-tribunal-on-business-and-humanrights/#_ftn4, Access: 20 November 2017.
(27) The New York Convention is probably one of the most successful international conventions in the realm of commercial law. Some even consider the New York Convention to provide for the normative architecture of international arbitration, establishing not only an enforcement mechanism for arbitration agreements but also containing a policy statement about the proper scope of arbitral control and allocating the competences between the courts in the various countries concerned. Cf. Stefan Kroll, The Concept of Seat in the New York Convention and the Autonomy of Arbitral Award, 81, in Stavros Brekoulakis, Julian D.M. Lew, Loukas Mistelis (ed.), The Evolution and Future of Arbitration, Kluwer Law International BV, The Netherlands, 2016.
(28) Permanent Court of Arbitration Financial Assistance Fund for Settlement of International Disputes, Terms of Reference and Guidelines (as approved by the Administrative Council on December 11, 1995) Available at: https://pca-cpa.org/wp- content/uploads/sites/175/2016/02/Financial-Assistance-Fund-for-Settlement-of-International-Disputes.pdf, Access: 12 February 2018.
(29) Op. Cit.
(30) According to the Working Group, where no pre-existing arbitration clause is in place, a multinational business enterprises facing a claim involving BHR Abuse could enter into an agreement with the victims to submit the matter to BHR Arbitration (BHR Submittal Agreement). The BHR Submittal Agreement would describe the particular human rights that the parties agree to arbitrate.
(31) “International arbitration can be either “institutional” or “ad hoc”. There are vitally important differences between these two alternatives. Institutional arbitrations are conducted pursuant to institutional arbitration rules, almost always overseen by an administrative authority with responsibility for various aspects relating to constituting the arbitral tribunal, fixing the arbitrators’ compensation and similar matters. In contrast, ad hoc arbitrations are conducted without the benefit of an appointing and administrative authority or (generally) preexisting arbitrations rules, subject only to the parties’ arbitrations agreement and applicable national arbitration legislation.” In: Gary B. Born, “International Commercial Arbitration. Volume I: International Arbitration Agreements”, 2014 Kluwer Law International BV, The Netherlands, p. 169.