As the international community turns its focus to the third pillar of the UN Guiding Principles on Business and Human Rights – “Access to Effective Remedy” is the central theme of the upcoming 2017 UN Forum on Business and Human Rights – a working group of international law specialists has published a proposal to use arbitration to resolve disputes arising out of human rights abuses involving businesses (“BHR disputes“).

Arbitration is a private civil (as opposed to criminal) mechanism pursuant to which parties consent to a dispute being resolved by a tribunal of experts appointed by the parties, and empowered by the parties to determine their respective rights and obligations and grant relief (such as monetary damages, injunctions or declarations).  Arbitration is already widely used to resolve (1) contractual disputes between commercial counterparties and (2) investor claims against nation-states pursuant to international investment treaties.

According to this new proposal, arbitration could be adapted for use in BHR disputes in two scenarios: (1) by victims of human rights violations wishing to bring claims against businesses, or (2) to resolve disputes between commercial parties involving human rights-related claims (for example where a supplier failed to comply with certain contractually-imposed human rights obligations).  The proposal is not intended to replace any existing means of redress, but rather offer a potentially more effective alternative.

The authors argue that 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”.  By contrast, arbitration offers many advantages: a neutral forum, free of the political pressures faced by domestic or international courts; judges selected by the parties for their impartiality and expertise in human rights; procedural flexibility; greater efficiency (compared to many domestic court systems); and universal recognition (the New York Convention on the Enforcement of Foreign Arbitral Awards provides for the recognition and enforcement of arbitral awards, subject to only limited grounds for refusal, in 157 countries around the world).

A number of questions have been raised by commentators from the human rights and arbitration communities in reaction to this innovative proposal. These include:

• For disputes not arising out of an existing contract containing an agreement to arbitrate, how would businesses and victims of human rights violations submit to arbitration in practice? There would need to be a voluntary submission to the arbitral process after the harm or event in question has occurred, which may in practice be difficult to achieve. One option suggested by the working group is that commercial contracts could specifically identify classes of victims that could initiate or participate in future arbitrations as “third party beneficiaries“.
• 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.  However, what would those applicable norms or laws be and 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 law and/or domestic law remains an open one 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 contractualising 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 transparency in human rights cases is at odds with the confidentiality that traditionally cloaks arbitration proceedings. Some also argue that human rights should remain the prerogative of national courts as a matter of public policy.  Supporters of the proposal point to the greater neutrality and impartiality offered by arbitration, which may be welcome in politically or emotionally charged disputes, and to the possibility of modifying the process to make it more transparent and public for BHR disputes.  The affected parties would also 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 set up, for example on the model of 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? Indeed, arbitration offers limited options to strike out spurious claims at a summary stage, compared to the mechanisms available in domestic courts. This is a criticism levelled at arbitration generally, and could perhaps be addressed in the context of adapting the arbitration process for BHR disputes.

Indeed, the working group acknowledges that existing procedural arbitration rules are inadequate to deal with BHR disputes, and that tailored arbitration rules should be developed, taking into account, for example, 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, e.g. suppliers).  This means that arbitral tribunals may in any event find themselves determining business-to-business BHR disputes before too long.

Hogan Lovells looks forward to continuing to participate in this constructive dialogue, drawing on the expertise of both its International Arbitration team and its Business and Human Rights team.

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, which was 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.