Business Human Rights emerging as a new field of arbitration?

The possibility to choose BHR-related experts

Armed conflicts, corruption and political influence can hinder the judiciary at the location of the reported BHR violation and impede their ability to efficiently adjudicate related liability claims. It is questionable whether such deficiencies can be remedied by simply shifting the jurisdictional authority to the state courts at the seat of the concerned multinationals. These courts are not necessarily familiar with the foreign cultural and economic realities or the BHR at stake. By contrast, arbitrators can be selected based on their expertise in the area of BHR, their knowledge of local laws and habits or the necessary industry-related know-how.

The significance of being able to choose the right arbitrator for BHR disputes is emphasised in the "The Hague Rules on Business and Human Rights Arbitration 2019". Under the Hague Rules, the parties preserve their full autonomy in selecting their respective arbitrators. The presiding or sole arbitrator, however, is required to be experienced in the areas relevant to the dispute, such as business and human rights law and practice, as well as the relevant field of law and the concerned industry.

Efficiency in taking BHR-related evidence

Another challenge local courts at the seat of the sued multinational are likely to face is the gathering of evidence abroad. Generally, it will not be possible to adjudicate Business Human Rights disputes on a documentary evidence basis only. Rather, a thorough understanding of the health, safety and environmental circumstances that have potentially caused the damage to the concerned local community can often only be gained through onsite inspections and the examination of first-hand witnesses.

The taking of evidence by way of mutual legal assistance can be cumbersome and time-consuming. In some jurisdictions, such as Switzerland, even cross-border examinations of witnesses via video conference are generally not permitted beyond the process of mutual legal assistance. Such obstacles do not exist in the context of international arbitration. The flexibility of arbitration in the taking of evidence therefore pays off particularly well in the context of BHR disputes.

Confidentiality

The fear of becoming the subject of public "show trials" and forced into unfavourable settlements is a major concern of corporations vis-à-vis the enforcement of BHR. These concerns can be addressed by keeping the arbitration process confidential. Therefore, confidentiality is an important incentive for multinationals to voluntarily agree to arbitrate BHR disputes.

A multinational's interest in keeping BHR disputes confidential, however, contrasts with what is considered a public interest in having such matters adjudicated in open and transparent proceedings. The expectation is that enhanced transparency will generate guidelines for exposed corporations and policy makers to effectively observe BHR. The Hague Rules foresee, amongst other things, that, at the beginning of an arbitration, information on the names of the disputing parties, the economic sector involved and the legal instrument under which the claim is being brought will be made available to the public. Yet, exceptions to the transparency provisions of the Hague Rules apply and the arbitral tribunal has broad discretion in applying them and is free not to apply them at all.

Achieving an agreement to arbitrate BHR disputes

The parties potentially damaged by BHR violations, such as the citizens of a polluted area, do not typically have any contractual ties with either the targeted parent company or its subsidiary on the ground. Therefore, it is not always obvious that the potential parties to a BHR-related dispute can conveniently opt for arbitration.

Given the tangible benefits of arbitration, corporations potentially confronted with BHR-related lawsuits may consider granting in their supply contracts a third-party beneficiary right to initiate arbitration for non-contracting stakeholders, such as employees, local communities and citizens. This legal concept is largely uncontroversial as long as the granting of the third-party beneficiary right is covered by the common intention of the contracting parties. A model clause to reflect this common intention is also included in the Hague Rules.

The agreement to arbitrate can also be concluded after a specific BHR problem has materialised. While it is generally unusual for parties already in conflict to compromise on the dispute-resolution mechanism, this is not necessarily the case for BHR matters. The benefits of arbitration seem too obvious for all parties involved. Indeed, the Accord on Fire and Building Safety in Bangladesh signed in the aftermath of the Rana Plaza tragedy in 2013 is an example of a case where various stakeholders have jointly chosen to submit specific BHR issues to arbitration. This Accord was binding on various global apparel brands, importers, retailers as well as global and local trade unions with the goal of promoting a safe working environment in the Bangladeshi garment industry.

Conclusion

Some of the unique selling points of international arbitration, such as a parties' right to appoint the adjudicating body, procedural flexibility and efficiency in the taking of evidence and the possibility of keeping the process confidential fit perfectly with the parties' special needs in BHR-related disputes. It is all the more striking that arbitration does not yet play a prominent role in discussions related to the enforcement of Business Human Rights.

For more information on BHR arbitrations, contact your CMS client partner or local CMS experts: