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The Suitability of Arbitration as a Forum for the Resolution of Business Human Rights Disputes by Dr Sally El Sawah*

29 Apr 2021 4:30 PM | Anonymous member (Administrator)

Paper presented at the AfAA 2nd Annual International Arbitration Conference, 15th - 16th April 2021[1]

Summary

The road to hell is paved with good intentions.” The Hague Rules on BHR Arbitration definitely pursue a noble purpose. Yet, they threaten the arbitration process and its legitimacy. The scarcity and fragmentation of the substantive rules that the arbitral tribunals are amenable to apply to decide on BHR disputes increase the risk of contradicting awards. The specificities of BHR disputes shake the efficiency and effectiveness of arbitration and question the accountability of arbitrators. A lesson should have been learnt from the ISDS debate and Reform. But no, it was irresistible to “tendre le bâton pour se faire battre”. 

*** 

It is certainly not an easy task to be on the side “against” the Hague Rules on Business and Human Rights (“BHR”) Arbitration. It is not an easy task to advocate against “arbitration” among arbitration practitioners, and it is even more difficult when we add the words “Human rights”. Arbitrators strive for the enshrinement of the Rule of Law, which in our view, includes Human Rights. Therefore, advocating against the Hague Rules would entail that I am advocating against the Rule of Law, in a conference aiming to enhance the Rule of Law and the development of arbitration in the African continent. 

Hearing the presentation of my dear colleague and friend Femi Omere, by advocating against the BHR Arbitration Rules, I would be advocating for the Multinational enterprises (“MNEs”), the “new colonisers of the Post-colonial era”, according to many?[2] 

I am the devil incarnate, then. 

Yet, what if we think about the suitability of arbitration in BHR disputes from a different perspective and put things into context: 

1)     what if advocating against the Hague Rules, or more generally the BHR arbitration, is actually to “protect arbitration” and its “perception” by the public at large? 

2)    Is BHR Arbitration (and not only the Hague Rules) not in fact a real threat to the viability of arbitration as a dispute resolution method in matters involving public interests? 

3)    Will BHR Arbitration not most likely increase the campaign against arbitration and give rise to the same criticism that we are witnessing today in Investor State Dispute Settlement (“ISDS”)? 

Any imperfections happening or even the feeling that there are shortcomings in a single BHR arbitration case could shake the credibility of the whole arbitration system and question its legitimacy. 

After all, the reasons which have led to the current ISDS reform and questioning the appropriateness of arbitration to solve Investor State disputes in favour of the creation of a multinational court are present in BHR Arbitration. 

Regarding the ISDS reform, we have heard along the conference about: the “fragmentation of rules”, the “spaghetti bowl”,[3] a term that is very well-placed here. 

That fragmentation, which has led to a strong debate about the effectiveness of the arbitration mechanism and its replacement by a multinational court in ISDS, was at the origin  of contradicting awards and an ensuing lack of predictability and serious doubts about the legitimacy of arbitration in light of the lack of accountability of arbitrators. That fragmentation, contradiction and inconsistency, lack of effectiveness and accountability are the same critics that one can address to BHR Arbitration. 

1-The “Spaghetti Bowl” – The Fragmentation of the Substantive Rules Governing BHR Disputes and the Lack of Predictability and Legal Certainty

The main purpose behind the Hague Rules on BHR Arbitration is to fill the existing gap of unavailable courts because of justiciability or lack of jurisdiction issues, and provide the redress required by the Pillar III of UN Guiding Principles on Business and Human Rights, i.e. the Remediation by MNEs to both victims of human rights violations on the part of companies, and companies themselves in relation to human rights violations carried out by their business parties.[4] 

Therefore, it is legitimate to contend that we are in presence of Premature rules, a Premature remedy that will negatively impact the perception of arbitration. Have we put the cart before the horse? 

Indeed, the rules governing Business and Human Rights are still embryonic. The UN Guiding principles on Business and Human Rights[5] were endorsed by the UN Human Rights Council on 16 June 2011. The principles implement the UN “Protect, Respect and Remedy Framework” developed by the Special Representative of the Secretary-General’s Report on the issue of human rights and transnational corporations and other business enterprises, who endorsed the Guiding principles to his final report to the Human Rights Council[6]  with the aim of “contributing to a socially sustainable globalization”. 

The Guiding Principles include three Pillars, the first sets-out the States’ duty to protect Human Rights; the second, the Corporate’s responsibility to protect Human Rights; and the third, safeguards the “access to remedy”, and by remedy the Principles mean “appropriate and effective”. 

The UNGPs are the outcome of the Millennium Declaration of the UNGA of 8/9/2000; the Adoption of the UN Secretary General First Report on the rule of law and Transitional justice in Conflict and Post-Conflict Societies of 23 August 2004[7]. They were reinforced by the 2012 UNGA Declaration on the rule of law adopted only in 24/9/2012,[8] and the UN Secretary General 2012 Report to the Security Council on the rule of law and transitional justice in conflict and post-conflict societies.[9] 

Since then, we have started to hear more and more about ESG (environment, social and governance) and CSR (corporate social responsibility). More and more practitioners are now becoming aware of ESG and CSR. 

Yet, it is common knowledge that, whereas there is a plethora of rules with regard to Environment, the rules are still embryonic when it comes to Social and Governance. Both MNEs and States are still “learning” in this field, such there is lots of uncertainty and lacunae when it comes to the substantive rules applicable by arbitral tribunals sitting in BHR arbitrations. 

Concerning the “E” for environment, there are more than 1500 climate-change related laws and policies, international, regional, sub-regional and national rules,[10] which, absent harmonization, creates a lot of inconsistency and unclarity, in a matter with lots of extraterritorial ramifications. This inconsistency is increased in a supply chain, where environmental concerns are integrated differently in each of the production units and where internal practices are often conflicting.

When it comes to the S (Social) and the G (governance) and CSR, there is a real lacuna about what these terms actually encompass and what they entail. 

There is very little guidance to businesses about the conduct of human rights due diligence, and how to consider effectively issues of gender, vulnerability and/or marginalization, recognizing the specific challenges that may be faced by indigenous peoples, women, national or ethnic minorities, religious and linguistic minorities, children, persons with disabilities, and migrant workers and their families. 

The other main problem when it comes to substantive rules, is the extraterritorial nature of obligations and rules that come into play in this kind of dispute, such that the inconsistency of awards will be a serious issue, which in our opinion, will inevitably impact the trust in the arbitration mechanism and its perception by the public at large. 

In recent court cases brought by Human Rights victims against the mother company in the seat of its incorporation, we have seen that the fragmentation and unclarity of the standards of duty of care and of the substantive norms have led to inconsistent decisions by the courts of the same country and between national courts.[11] 

If this is the case in State courts, how about arbitration where arbitrators are not bound by only one set of conflict of law rules and the factors of extraterritoriality can be increased with the increase of the number of the parties involved? 

According to Article 46 of the BHR Rules, 

The arbitral tribunal shall apply the law, rules of law or standards designated by the parties as applicable to the substance of the dispute, or failing such designation, the law or rules of law which it determines to be appropriate.   In all cases, the arbitral tribunal shall decide in accordance with the terms of the applicable agreement(s), if any, and shall take into account any usage of trade applicable to the transaction, including any business and human rights standards or instruments that may have become usages of trade”. 

As explained in the commentary, 

The use of the complete phrase “law, rules of law or standards” in Article 46(1) intends to provide the parties with the broadest possible flexibility in choosing the normative sources from which the applicable law is drawn, including, for example, industry or supply chain codes of conduct, statutory commitments or regulations from sports-governing bodies or any other relevant (business and) human rights norms which the parties have agreed to apply.  3. The applicable law or rules of law determined by the tribunal under Article 46(2) may include international human rights obligations. Another matter for the tribunal to consider is the potential direct or indirect relevance of international human rights obligations of any States involved in the dispute either as parties or as the State of nationality of any of the parties.”

Putting Article 46 into context, given the fragmented legal framework, the arbitrators’ task will definitely not be the easiest, especially where there was no choice of law by the parties. 

Added to that, the Commentary of Article 12 of the UNGPs provides that, “the responsibility of business enterprises to respect human rights is distinct from issues of legal liability and enforcement, which remain defined largely by national law provisions in relevant jurisdictions”. 

In these circumstances, how would an arbitral tribunal determine such personal liability and whether or not it has been engaged in abstract of the laws applicable to legal liability and enforcement, if any? 

The Urbaser v. Argentina Award of 2016 which involved the human right to water and sanitation and where the UNGPs have been invoked is a stark example of the challenges faced by arbitral tribunals in this type of disputes. The Tribunal emphasised that Argentina did not provide any legal ground entitling individuals to claim compensation for the violation of their right to water, nor that such violation entails a duty of reparation under international law with the effect that the concerned individuals obtain compensation for the alleged harm. 

In this case, the Arbitral Tribunal solemnly declared that, “in light of this more recent development [CSR], it can no longer be admitted that companies operating internationally are immune from becoming subjects of international law. On the other hand, even though several initiatives undertaken at the international scene are seriously targeting corporations' human rights conduct, they are not, on their own, sufficient to oblige corporations to put their policies in line with human rights law. The focus must be, therefore, on contextualizing a corporation’s specific activities as they relate to the human right at issue in order to determine whether any international law obligations attach to the non-State individual.”[12] 

Moreover, very complex issues of conflict of laws will arise in disputes involving supply chains which involve parties from multiple jurisdictions, and thus, include domestic measures involving extraterritorial obligations. 

Aware of the complexities of supply chains and business structures, the Commentary of Article 17 of the UNGPs clarifies that “where business enterprises have large numbers of entities in their value chains it may be unreasonably difficult to conduct due diligence for adverse human rights impacts across them all. If so, business enterprises should identify general areas where the risk of adverse human rights impacts is most significant, whether due to certain suppliers’ or clients’ operating context, the particular operations, products or services involved, or other relevant considerations, and prioritize these for human rights due diligence.”[13] 

This leads us to the following question: Can an arbitral tribunal appreciate whether human rights due diligence requirements have been met in a supply chain in a vacuum, or on the basis of Article 17 only, without relying on national legislations (if any)? and if the latter do exist, which ones? 

Furthermore, although not at the origin of the Human Rights adverse impact, a business may find itself “complicit” in the acts of another business “if they are seen to benefit from an abuse committed by that party”. It will be a matter for national legislations on civil and criminal liability to deal with the legal liability according to the UNGPs commentary.[14] Yet, in the meantime, until such legislations are enacted, how can an arbitral tribunal determine such complicity? On which set of rules? Based on which criteria? 

Finally, which rules to apply in case of gross human rights abuses in conflict-affected and high-risk areas?   

These are not mere hypotheses as may be evidenced by existing material addressing serious violations of Human Rights such as “The OECD Due Diligence Guidance for Responsible Mineral Supply Chains”[15] and “The Lusaka Declaration of the ICGLR (International Conference of the Great Lakes Region)”.[16] 

Accordingly, there is an increased likelihood of contradicting awards, which leads to the second criticism that can be raised against BHR Arbitration: the lack of effectiveness. 

2-   The Lack of Effectiveness and Efficiency of BHR Arbitration 

I will not address the topic from the perspective of effectiveness of the award, which involves issues of arbitrability, commerciality, public policy, and class actions. I will address it from the effectiveness of the arbitration process itself. 

To advocate for the BHR Hague Rules, my learned colleague Clémence Assou has mentioned that “arbitration provides ‘Innovative procedures’, like site visits”. 

This, however, raises the following questions: 

-        How would experts be able to access conflicted zones to investigate? 

-      What is the likelihood for arbitrators to be willing or able to travel to the conflicted zone for appreciation of evidence?

Additionally, the UNGPs adopt the principle of proportionality concerning the means through which businesses meet their responsibilities to respect Human Rights, in consideration of their size, the sector of their activities and the severity of impacts of their activities on Human Rights, amongst others. The “Severity of impacts will be judged by their scale, scope and irremediable character.” (Commentary of Art. 14). 

Yet, how would arbitrators and experts investigate the severity of impacts of the activities on Human Rights when they need visas to get into the country where the violations are taking place? 

Moreover, coming to the costs of arbitration, “the BHR Arbitration Rules are not drafted from a rights holder-claimant’s perspective. […] The Rules’ default position on costs, for instance, claimants bear their and the defendant company’s legal costs, a possibility that would likely deter legitimate claims, especially if defendant companies are expected to employ high-priced legal counsel.”[17] 

Finally, one may wonder why a Corporate would insert an arbitration clause instead of a choice of court clause recognising the jurisdiction of the courts of its place of incorporation?  As pointed-out by learned Scholars, “arbitration will be agreed to when it has advantages for the corporate defendant. The flipside is that, for victim claimants, arbitration may pose risks that litigation in other forums does not. Prospective claimants may not be aware of these benefits to companies, and risks to claimants, when they agree to arbitrate.”[18] 

This points us back to the issue of informed decision by the stakeholders and the fairness and effectiveness of the arbitration process in BHR disputes. 

3-   The Lack of Accountability and The Lack of Effectiveness 

Article 19 provides for Multiparty arbitration including class actions and Joinder under the two following scenarios: 

-        parties or third-party beneficiaries of the underlying legal instrument that includes the relevant arbitration clause; and 

-    that of parties to, or third-party beneficiaries of, the arbitration agreement itself.

Firstly, regarding Class actions and the arbitrators' powers, how will arbitrators deal with Class Actions and actually, can they? is the arbitration system tailored in the first place to deal with them? Class actions in BHR Arbitration give rise to the same issues and debate about class actions in arbitration in general, such as issues of consent, arbitrability and management and conduct of the proceedings with fairness, efficiency and effectiveness. 

Secondly, BHR Arbitration also thrusts into the limelight issues of accountability of arbitrators and effectiveness of the arbitration process when the host State has the same interests as the MNE and all reasons to thwart the arbitration proceedings. 

Would the State seriously grant visas to the arbitrators and experts to conduct site visits? Can we really expect the enforceability of the award in the host State, if the arbitrators decide in favour of the victims?

Added to that, what if the State intervenes in the proceedings for the purpose of supporting the investor and not the victims of Human Rights violations? 

What if the State invokes its right to regulate and thus its sovereign power to sacrifice certain rights, of a minority group for instance, in favour of the more general public interest? Article 1 of the Charter of Economic Rights and Duties of States enshrines, every State’s “sovereign and inalienable right to choose its economic system as well as its political, social and cultural systems in accordance with the will of its people, without outside interference, coercion or threat in any form whatsoever”. 

Besides serious issues of jurisdiction, does an arbitral tribunal have the power, the tools, and even more, the legitimacy to apply the proportionality test in that case? Can it seriously appreciate and decide whether the State complied with the proportionality test requirements when it sacrificed the rights of minorities for the benefit of a more crucial interest of the more general public? 

Finally, and more generally, are three, five or seven individuals well-armed and have the necessary tools to assess abuses and violations of Human Rights? 

Conclusion

The BHR Arbitration Rules are both premature and “out of synch”. 

One may wonder if, instead of spending resources to pay a panel of arbitrators who lack any accountability, would it not be more appropriate to use these resources to adjust the court system and rules and correct the pending deficiencies? 

After all, Africa is not a rich continent, and it would be more beneficial both for African States and victims to use spent resources in BHR Arbitration (with or without Third-Party Funding) to foster the court system of these countries and enhance the Rule of Law. Perhaps, enhancing the rule of law in Africa through enactment of regulations and building capacity of African judges would be more beneficial for the victims of Human Rights. 

The by-default rules, opt-out rules on transparency and the rules on expedited procedures require an “informed decision”. One may doubt that today, any of the stakeholders, including the MNEs themselves, have enough information of any kind to make an informed decision. 

Finally, beyond the issue of perception of arbitration, with all the by-default rules added by the Hague Rules to adapt the arbitration system to the specificities of BHR disputes, are we actually still talking about the same thing?

____________________

* Dr Sally El Sawah is Founder and Principal of El Sawah Law | Paris and AfAA Deputy Secretary General. She is Attorney-At-Law at Paris and Cairo Bar Associations and Registered Foreign Lawyer (England & Wales). She holds an LL.M. and a Ph.D. in International Law from Sorbonne University and a Bachelor of Laws from Cairo and Sorbonne Universities.

[2] Anna Berti Suman, “Human rights violations in the ChevronTexaco case, Ecuador: Cultural genocide?” Global Campus Human Rights Journal 2017, p 259. Regarding the Chevron/Ecuador saga, the author explained that ‘‘the core of the discussion is represented by the assertion that the Chevron case could be regarded as a form of colonisation, cultural genocide and even a crime against humanity. This reflection is rooted in the analysis of international instruments enacted in defence of indigenous peoples’ rights.’’, p. 261.

[3] Patience Okala used this term in her contribution on “Current Initiatives and Proposals on ISDS Reform at Multilateral Levels”.

[4] Bruno Simma and others, “International Arbitration of Business and Human Rights Disputes- Elements For Consideration In Draft Arbitral Rules, Model Clauses, And Other Aspects Of The Arbitral Process, Prepared by the Drafting Team of the Hague Rules on Business and Human Rights Arbitration”, 2018, p. 3, <https://www.cilc.nl/cms/wp-content/uploads/2019/01/Elements-Paper_INTERNATIONAL-ARBITRATION-OF-BUSINESS-AND-HUMAN-RIGHTS-DISPUTE.font12.pdf> .

[5] <https://www.ohchr.org/documents/publications/guidingprinciplesbusinesshr_en.pdf>.

[6] A/HRC/17/31. 

[7] Report of the Secretary-General, UN Doc S/2004/616 (2004), 23 August 2004.

[8] A/RES/67/1. In principle, the UN Declaration which underlies the interrelation between the rule of law and sustainable development is non-binding.

[9] S/2011/634.

[10] Grantham Research Institute on Climate Change and the Environment, “Global trends in climate change legislation and litigation: 2018 snapshot”, <https://www.lse.ac.uk/GranthamInstitute/wp-content/uploads/2018/04/Global-trends-in-climate-change-legislation-and-litigation-2018-snapshot-3.pdf>.

[11] Vedanta Resources Plc and Konkola Copper Mines Plc (Appellants) v Lungowe and Ors. (Respondents) [2019] UKSC 20; Ekaterina Aristova, Tort Litigation against Transnational Corporations in the English Courts: The Challenge of Jurisdiction, Utrecht Law Review Volume 14, Issue 2, 2018, p 7; Okpabi & Others v Royal Dutch Shell Plc & Another [2021] UKSC 3 ; Wiwa v. Royal Dutch Petroleum Co., Wiwa v. Anderson, Wiwa v. Shell Petroleum Development Company (3 cases before US Court for the Southern District of New York), < https://ccrjustice.org/home/what-we-do/our-cases/wiwa-et-al-v-royal-dutch-petroleum-et-al>.

[12] Urbaser S.A. and Consorcio de Aguas Bilbao Bizkaia, Bilbao Biskaia Ur Partzuergoa v. The Argentine Republic, ICSID Case No. ARB/07/26, 8 Dec. 2016, para. 1195. (Emphasis added).

[13] Emphasis added.

[14] Commentary of Article 17 of the UNGPs.

[15] The 3rd Edition of the OECD Due Diligence Guidance was published in April 2016, <OECD (2016), OECD Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Affected and High-Risk Areas: Third Edition, OECD Publishing, Paris. http://dx.doi.org/10.1787/9789264252479-en>.

[16] The Lusaka Declaration on Illegal Exploitation of Natural Resources was signed by 11 Heads of State of the International Conference on the Great Lakes Region (ICGLR) in December 2010. The signatories are Angola, Burundi, Central African Republic, Democratic Republic of Congo, Kenya, Rwanda, Sudan, Tanzania, Uganda. The Declaration provides that “11. Call on the Multinational Companies to put an end to unfair protectionism and working with illegal or criminal organized groups in the region to the detriment of security in the region”. < https://www.oecd.org/daf/inv/mne/47143500.pdf>.

[17] Lisa E. Sachs, Lise Johnson, Kaitlin Y. Cordes, Jesse Coleman & Brooke Güven, “The Business and Human Rights Arbitration Rule Project: Falling Short of its Access to Justice Objectives”, (2019), <https://scholarship.law.columbia.edu/sustainable_investment_staffpubs/152>.

[18] Ibid.



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