Business and Human Rights: Arbitration Can Provide Access to Effective Remedies

Arbitration is often criticised as being incapable of providing effective remedies to those affected by the human rights impacts of business activities.

One example is a recent Report published by the European Law Institute (ELI) entitled ‘Business and Human Rights: Access to Justice and Effective Remedies’ (ELI Report). The ELI Report proposes a range of possible regulatory and/or soft-law options, which are intended to increase access to remedies in the EU and Member and non-Member States and to ensure compliance with human rights by business enterprises. The ELI Report does not address the possibilities offered by both mediation and arbitration. While the authors of the Report view developments as the Bangladesh Accords and the The Hague Rules on Business and Human Rights Arbitration as ‘impressive and welcome’, they dismiss them because they ‘ultimately depend on party consent’.

Moreover, the authors of the ELI Report go as far as to posit that human rights breaches are so fundamental that any consensual system of dispute resolution such as mediation or arbitration ‘is open to capture by the stronger party unless effectively and externally controlled’. They conclude that in a report dealing with access to effective remedy for human rights breaches by corporates, ‘the emphasis should be on stronger public facing options with the necessary coercive powers’.

Contractual cascading

The ELI Report’s dismissal of arbitration as a means to provide access to remedies and to ensure compliance with human rights by business enterprises is belied, however, by its recommendation concerning the use of contract to oblige a principal company to enforce due diligence in its supply chain and enable it to be held responsible for non-compliance. The authors of the ELI Report explain that this is designed to create a contractually enforceable duty of care/devoir de vigilance covering specific issues, with the result that the victims of human rights abuses may bring an action in the courts having territorial jurisdiction over the principal company against that company jointly with its subsidiaries and suppliers.  

In addition, the ELI Report proposes model rules, which provide that in the event that the company has an intermediary, supplier or contractor in a third country, it shall ensure that it has a formal contract with such intermediary, supplier or contractor which contains a clause incorporating due diligence provisions into the contract. Further, it is proposed that the contract and the ensuing duty of care would be governed by the law of the Member State in which the company has its seat, and the courts of that Member State would have sole jurisdiction in the event of any dispute. This role of model cascading contract clauses ‘to facilitate companies’ compliance with their due diligence requirements through their value chain’ also features in the Proposal for an EU Directive on Corporate Sustainability Due Diligence and amending Directive (EU) 2019/1937.

The foregoing proposals beg the question as to why such a cascading contractual structure could not equally specify arbitration as a means of resolving business and human rights disputes between victims of human rights abuses and the principal company (including its subsidiaries). The answer is a resounding ‘yes’, especially considering the existence of the The Hague Rules on Business and Human Rights Arbitration (to which the ELI Report refers).

As the drafters of the The Hague Rules have observed, the procedures of the Hague Rules, with their flexibility for parties and finality of an award, ‘can allow for a more rapid and effective resolution of the dispute than domestic courts’. Indeed, the drafters foresaw that in keeping with the UN Guiding Principles on Business and Human Rights, businesses might demand that their own suppliers and business partners accept arbitration in order to mitigate and address human rights risks throughout their operations.

The UN Guiding Principles set standards for business regarding respect for human rights (Pillar II) and recognize the imperative of a remedy for those affected by business-related human rights abuses (Pillar III). Beyond national courts, Pillar III specifically contemplates other remedies, such as arbitration. Pillar III also stipulates criteria for fair and effective remedial mechanisms, including legitimacy, accessibility, predictability, transparency, and rights-compatibility, which the Hague Rules were specifically designed to meet.

Arbitration under the Hague Rules can thus assist businesses to meet their responsibilities under Pillar II: through contractual commitments to observe human rights and a willingness to submit to arbitration to address allegations of human rights violations, businesses are incentivized to meet their human rights responsibilities under Pillar II; and an arbitral award against a business can promote the remediation that it is required to undertake when it causes or contributes to human rights violations. And considering that the The Hague Rules were specifically drafted to take account of special concerns surrounding human rights-related claims, claimants can have confidence that arbitration under the Hague Rules will be legitimate, fair, and effective.

Conclusion

This article is not intended to suggest that arbitration under the Hague Rules is a panacea for the resolution of business and human rights disputes, or indeed a substitute for national courts (a point emphasised by the drafters of the Hague Rules, who accept that those affected by business-related human rights violations would typically have recourse to national courts so long as they are functioning effectively and can provide victims of human rights abuse with a genuine remedy). However, it would be just as misconceived to believe that national courts should be the exclusive forum for the resolution of business and human rights disputes to the exclusion of arbitration, especially where contract is used to afford remedies to those affected by the human rights impacts of business activities in a given supply chain.

John Gaffney is an Adjunct Professor at University College Cork and a dispute resolution lawyer with Al Tamimi, Abu Dhabi.