Resolving Supply Chain Disputes in Compliance With the UN Guiding Principles

The lockdown measures introduced in the wake of the COVID-19 pandemic have exacted an unprecedented toll on global supply chains.  In some instances, these disruptions may give rise to claims—for force majeure, frustration, or other contractual breaches—between contractual parties.  It is also possible that these disruptions have human rights dimensions, so called  ‘business and human rights disputes’. This article considers whether the Hague Rules on Business and Human Rights Arbitration (the ‘Hague Rules’) offer an appropriate forum for the resolution of such business and human rights disputes.

Conventional disputes forums—such as litigation, arbitration or consensual settlement processes—may not be entirely suitable for resolving business and human rights disputes. In commercial claims before national courts, human rights violations are typically litigated as torts or breaches of contract rather than as independent causes of action. Similarly, in commercial arbitrations, a tribunal’s ability to consider the adverse human rights consequences of business activities is often curtailed by the jurisdictional limits imposed by the parties’ arbitration agreement. 

The Hague Rules, by comparison, provide a set of procedures specifically designed for the arbitration of disputes related to the human rights impacts of business activities. As such, the rules represent a significant milestone in the effort to establish an effective dispute resolution mechanism that satisfies the responsibilities under Pillars II and III of the UN Guiding Principles to provide access to effective remedies. 

The Hague Rules are derived, inter alia, from the 2013 UNCITRAL Arbitral Rules. The UNCITRAL Arbitral Rules are well established and are commonly adopted by parties for the resolution of commercial disputes. Awards issued under the Hague Rules are enforceable in the ordinary way under the New York Convention. Crucially, the Hague Rules modify the UNCITRAL Arbitral Rules, in a number of material respects, to address the characteristics that are unique to business and human rights disputes. The key innovations include:

• Parties: the Hague Rules have been drafted with the intention of enabling a wide array of parties to settle business and human rights claims.  The rules therefore envisage that states, state enterprises, commercial entities, international organizations, unions and individuals will participate in proceedings. This diversity of potential users allows for the rules to be used for business-to-business (‘B2B’) disputes. 
• Relevant disputes (Article 1): the rules do not set out definitions for ‘business’ and ‘human rights’. Instead, these terms have the broad meanings ascribed to them under the UN Guiding Principles. The drafting committee of the Hague Rules noted that, in most cases, it would not be necessary to define these terms. This conceptual breadth is intended to ensure that the application of the Hague Rules is not limited by the subject matter or factual background of a particular dispute.  Article 1(1) provides that the Hague Rules are applicable to any disputes that parties to an arbitration agreement have agreed to resolve, thereby encompassing commercial (ie B2B), investor-state and mass claimant claims. 
• Flexible resolution (Article 1): at their very outset, the rules allow parties to resolve their disputes using whichever means are best suited to their needs. Accordingly, Article 1(6) provides that ‘the parties shall endeavour to resolve any dispute in good faith through negotiation, conciliation, mediation, facilitation or other collaborative settlement mechanisms. Such settlement may be agreed at any time, including after arbitral proceedings under these Rules have been commenced’. 
• Appointment of arbitrators (Article 11): given the nascence of business and human rights litigation and the industry-specific nature of disputes, the rules contain a number of provisions that ensure the appointment of suitably qualified and impartial panelists. Article 11(1)(c) provides that the presiding or sole arbitrator must have expertise relevant to the dispute including, to the extent required, business and human rights law, applicable national and international law, and knowledge of the relevant field or industry. In B2B disputes, these rules operate to ensure that arbitrators have the sector-specific knowledge required to properly determine the dispute. Significantly, the rules also contain a separate code of conduct comprised of general ethical duties and disclosure requirements. The code is derived from various sources of best practice in international arbitration and seeks to ensure the legitimacy and efficient administration of business and human rights disputes.
• Applicable law (Article 46): the Hague Rules recognise that, in addition to the terms of underlying agreements and the governing law selected by the parties, there may be a number of other binding rules, regulations, guidelines or codes that are relevant to the determination of business and human rights disputes. Accordingly, Article 46(4) provides that, in all cases, tribunals must take in account ‘any usage of trade application to the transaction, including any business and human rights standards instruments that may have become usages of trade’. The language is deliberately broad and is intended to grant parties the flexibility to identify the normative sources governing their dispute. 
• Transparency (Articles 38–43): in view of the public interest underpinning business and human rights disputes, the Hague Rules contain extensive provisions on transparency, the publication of documents and the public nature of hearings. These provisions are subject to the discretion of the tribunal, which is required to consider the compatibility of such measures with the fair and efficient resolution of the proceedings, the safety and privacy of participants, and the need to avoid aggravating disputes further. To provide the protections necessary in B2B disputes, Article 42 sets out specific exceptions to the transparency regime to safeguard confidential, protected and commercially sensitive information. 
• Costs (Articles 51–54): the Hague Rules contain mechanisms through which tribunals can lower the financial barriers to arbitration and accommodate parties’ limited financial resources. These include a review mechanism through which the PCA can oversee and control costs (Article 52), the Tribunal’s ability to take public interest considerations into account when issuing costs awards (Article 53), and flexibility with respect to deposits to allow parties to contribute different amounts in accordance with their financial means (Article 54).
• Non-exhaustion & ADR (Article 56): unlike other human rights forums, the Hague Rules do not require parties to exhaust domestic remedies. Instead, they provide that parties may resolve disputes through mediation or other forms of collaborative settlement. The availability of alternative dispute resolution mechanisms allows for the rules to be used in a non-exclusive manner alongside the parties’ previously agreed or preferred dispute resolution procedures. 

The supply chain agreements in place between parties will contain dispute resolution clauses that govern the mode and forum in which claims commenced under those agreements must be brought. To the extent that those clauses are unsatisfactory for the resolution of business and human rights disputes, parties are free to amend them to alter the applicable arbitral rules. To this end, the Hague Rules contain a number of model clauses, which parties can adopt wholesale or modify, to allow their disputes to be arbitrated under the Hague Rules. 

With the continued rise of business and human rights on the international commercial agenda and mounting state and social pressure on businesses to ensure that their operations are compliant with human rights, the need to find effective ways of settling business and human rights disputes is essential. This imperative is heightened by the lockdown, as the ways in which companies decide to respond to the pandemic—particularly with respect to commercial disputes and the adverse human rights consequences of their business activities—is likely to have lasting reputational consequences. The Hague Rules may offer one such means to deal with business and human rights disputes arising from the pandemic.  

Julianne Hughes-Jennett is a partner in Quinn Emanuel’s London office.

Ram Mashru is an associate in Quinn Emanuel’s London office.