Dispute resolution

Business and Human Rights: is international arbitration the future, and what does it mean for businesses?

Published on 19th Jul 2019

New rules are being developed to address the lack of access to an effective remedy for human rights violations by businesses. The Hague Rules will support the UN Guiding Principles on Business and Human Rights, and move the issue up the corporate risk agenda.


Background to the UN Guiding Principles on Business and Human Rights

Businesses, particularly those with a global footprint, can impact people in different communities in many ways, directly and indirectly. There is a growing acknowledgement of the responsibility that this brings for businesses to act and use their influence in a way that upholds human rights and ensures that their impact is a positive one.

It is also important to understand the respective roles that States and businesses have in relation to business and human rights (BHR). With a view to addressing this, in 2011, the UN Human Rights Council endorsed the UN Guiding Principles on Business and Human Rights (UNGPs). The UNGPs provide guidelines for States and companies to prevent, address and remedy human rights abuses committed in business operations. The UNGPs have been widely endorsed and followed by many other national and international initiatives, often focused on particular industries such as the Dutch Agreement on Sustainable Garment and Textile 2016.

The UNGPs are based on three pillars:

  1. the State duty to protect human rights;
  2. the corporate responsibility to respect human rights; and
  3. the need for access to an effective remedy.

The problem of effective remedy

The UNGPs clarify the requirements for States to implement protection against BHR violations, including steps to punish and redress such abuse (the first pillar), and for companies to cooperate in remedying situations through independent and legitimate dispute resolution mechanisms (the second pillar). However, the third pillar has proven more difficult in practice, especially for trans-national disputes. The barriers to enforcement include that the national courts may be unable to adjudicate a complex BHR case fairly, the costs may be prohibitive and the parent company of a subsidiary responsible for BHR breaches may be insulated from liability abroad due to jurisdictional obstacles or legal principles.

This is particularly relevant in the context of international investment law, where a private investor can enforce its rights in a claim against the host State pursuant to an investment treaty, but the host State may be unable to bring a counterclaim against the investor for BHR violations. Nevertheless, counterclaims are becoming more common, due to the practice of investment tribunals and the inclusion of specific human rights provisions in investment treaties. For example, the tribunal in Burlington Resources Inc. v. Republic of Ecuador (ICSID Case No. ARB/08/5) ordered Burlington to pay USD 41 million in respect of Ecuador's counterclaims for environmental and infrastructure damage after the parties agreed that the tribunal had jurisdiction.

The bilateral investment treaty between Morocco and Nigeria is an example of a treaty with human rights provisions: it includes an article entitled "Post-Establishment Obligations", which states that investors and investments shall "uphold human rights in the host state" and "act in accordance with core labour standards as required by the ILO Declaration on Fundamental Principles and Rights of Work 1998".

While there has been some progress on the third pillar of the UNGPs, it is widely acknowledged that more work is needed.

A proposed solution: international arbitration of BHR disputes

With the aim of addressing the gap in the remedies available for BHR violations, an independent working group of international lawyers and academics have recently published the draft Hague Rules on Business and Human Rights Arbitration (the "Hague Rules"), alongside a public consultation. The Hague Rules are based on the 2013 UNCITRAL arbitration rules, but have been developed to cater for the specific nature of BHR disputes.

Arbitration may be uniquely positioned to provide a forum for effective BHR adjudication and enforcement, which is attractive both to States and to companies, because it can provide a neutral forum and is consent-based. The working group has proposed that parties' consent to arbitrate could be established by:

  • the initial contract, if it imposes human rights obligations on businesses or includes an arbitration clause broad enough to cover non-contractual human rights claims;
  • a subsequent agreement to submit a dispute to arbitration; or
  • a multilateral agreement, such as the Accord on Fire and Building Safety in Bangladesh of May 15, 2013, which has already given rise to two arbitrations at the Permanent Court of Arbitration.

A key advantage of the arbitration of BHR disputes would be the ability to enforce resulting arbitral awards easily around the globe under the 1958 Convention on the Recognition and Enforcement of Foreign Arbitral Awards, also known as the New York Convention, which has 159 contracting States.

The vision of the working group is not the creation of any new arbitration institutions to deal with BHR disputes. Rather, existing international arbitration institutions located throughout the world would use the Hague Rules to resolve disputes (although parties would not be required to use an institution and could instead resolve disputes on an ad hoc basis).

The Hague Rules emphasise that State-based judicial mechanisms should remain the primary remedy for those affected by human rights violations arising out of business activities. International arbitration may bridge a gap for those wishing to access remedies for breaches of human rights, but it is not intended to be a replacement mechanism.

The Hague Rules: key features

Whilst traditional arbitration rules were originally designed to resolve commercial disputes, the Hague Rules contain specific provisions to address the characteristics of BHR disputes. Key features of the Hague Rules include the following:

  • a higher degree of transparency of the proceedings;
  • a requirement for tribunals to ensure that unrepresented parties can present their case in a fair and efficient way;
  • an opportunity for participation by interested third persons and States;
  • a recognition of the importance of having a diverse tribunal of arbitrators with the relevant expertise;
  • a recognition that evidence-gathering and witness protection may require special procedures to be put in place. For example, due to a power imbalance, it may not be possible for claimants to attach certain documents to their statement of claim;
  • an emphasis on multi-party claims: there is a general principle that claims with significant common issues should be heard together. (This might lead to an increase in class actions, although some jurisdictions require an express agreement to consent to class arbitration);
  • an expectation that the seat of the arbitration should be in a jurisdiction where BHR disputes are arbitrable;
  • an expedited process to dispose of claims or defences which are manifestly without merit at a preliminary stage;
  • the ability to appoint an "emergency arbitrator";
  • a code of conduct for arbitrators; and
  • the designation of the Permanent Court of Arbitration in The Hague as the default appointing authority.

The working party has also published a set of questions on certain aspects of the Hague Rules for feedback during the consultation. Some of the most significant questions are as follows:

  • what specific qualifications should be required for arbitrators and how should these qualifications be ensured?
  • should one or both parties be able to waive transparency provisions and should there be minimum transparency requirements that parties cannot waive?
  • should there be specified criteria for the tribunal to apply in deciding whether to allow participation of non-disputing parties in the arbitral proceeding?
  • should the provisions on interim measures be broad and flexible, or more specific in order to provide concrete guidance as to appropriate measures for given situations?

The public consultation period runs from 21 June to 25 August 2019 and the working party is seeking submissions. We are continuing to monitor this initiative and would welcome any comments to feed into that consultation.

What does this mean for businesses?

There are many reasons why businesses should be complying with the UNGPs. The UK's National Action Plan on Business and Human Rights (the first such action plan to be published in 2013 and updated in 2016, with 20 other States having now published their own) lists some of the benefits for businesses of tackling BHR issues. These include: protecting and enhancing the business's reputation and brand value; attracting and retaining good staff; attracting institutional investors (many of whom have their own ethical investment principles); and reducing risks to operational continuity.

Beyond being good for business, the UNGPs have been aligned to a number of international standards, such as the OECD's Guidelines for Multinational Enterprises, which require OECD members to establish National Contact Points that can, and do, publish assessments of complaints made against companies. The UNGPs also underpin national legislation such as the UK's Bribery Act and Modern Slavery Act.

With the Hague Rules as a potential route to effective remedy, BHR issues are likely to move in the direction of other responsible business initiatives, taking on more of a mandatory character, and moving up the corporate risk agenda accordingly.

Now is the time for businesses to ensure that they understand the BHR risks that relate to their operations, and what this means from compliance, brand and responsible business perspectives.


* This article is current as of the date of its publication and does not necessarily reflect the present state of the law or relevant regulation.

Connect with one of our experts

Interested in hearing more from Osborne Clarke?