Hague Rules on Business and Human Rights Arbitration: What Lies Ahead?

Author: Abhisar Vidyarthi*

The overlap between human rights and international arbitration has always been a contentious debate. Recent practice evidences that the concrete lines separating human rights and international arbitration have been blurred.^[1] Contrary to traditional wisdom, the arbitration community is growingly accepting that international arbitration and human rights are no longer distinct and unallied facets of law and practice. The advent of human rights claims in the investor-state disputes has paved the way for more discourse about relying on international arbitration to resolve human rights cases.^[2] Recently, this overlap between international arbitration and human rights has intensified with the inception of the Hague Rules on Business and Human Rights Arbitration (“Hague Rules”), advanced to grapple with the insufficiency of access to an effective remedy for human rights violations by businesses. Adopted in December 2019, the Hague Rules have been introduced with the objective of imparting a set of rules for arbitration in relation to business and human rights disputes.^[3] This post discusses the object of the Hague Rules, and analyzes the practical problems that the Rules may face as a result of inadequate support from the host and/or enforcement states. To explain the proposition, this post takes the example of the Indian scenario.

OBJECT OF THE HAGUE RULES

The underlying intention of the Hague Rules is to subscribe to the third pillar of the United Nations Guiding Principles on Business and Human Rights (“UPGP”), which seeks to secure access to remedy against business-related human rights violations.^[4] It is evident from the drafting reports of the Hague Rules that the rationale of extending arbitration as a method to settle business-related human rights disputes is the failure of national courts to adequately address them.^[5] The Working Group on the Hague Rules has stressed the fact that such disputes originate in several regions that suffer from dysfunctional and corrupt judicial mechanisms, and the national courts in these regions are often politically influenced and thus incapable of effectively resolving the disputes.^[6]

Additionally, the constant jurisdictional obstacles, inordinate delays and overwhelming litigation costs warrant the inception of an internationally neutral mechanism, such that victims of business-related human rights abuses can be safeguarded, free from any domestic encumbrances. The Drafting Committee of the Hague Rules has pointed out that arbitration meets the requirements of the “effectiveness criteria,” stipulated in Principle 31 of the UNGP: legitimacy, accessibility, predictability, equitability, transparency, and rights compatibility.^[7] Therefore, the unique attributes of arbitration should provide a helpful mechanism to resolve human rights disputes that transpire in the supply chains and development projects of the businesses.^[8]

The Drafting Committee of the Hague Rules indulged in various rounds of deliberation to finalize the intricate details.^[9] As with the UNCITRAL Arbitration Rules, the Hague Rules are not restricted to any particular type of claimant or respondent; nor are they limited to any specific categories of dispute.^[10] The Introductory Note to the Rules points out that “[p]arties could thus include business entities, individuals, labor unions and organizations, states, state entities, international organizations and civil society organizations, as well as any other parties of any kind.”^[11] Similarly, the definitions of important elements such as “human rights,” “business and human rights” and “business” have not been defined, such that they can be widely interpreted in line with the UNGP.^[12]

The Hague Rules also reflect the need for a high degree of transparency in proceedings, which is evident in the preamble^[13] and Section IV^[14] of the Rules. Adopting a similar model to the UNCITRAL Transparency Rules,^[15]the Hague Rules govern areas such as public hearings, publication of information at the commencement of the arbitration, publication of documents, exceptions, and repository of published information.^[16] Article 28 of the Hague Rules also provides the mechanism for submissions by interested third parties.^[17] Importantly, the Hague Rules highlight the need to dilute the inequality of arms and power imbalances between the parties. Consequentially, due importance has been given to witness protection, collection of evidence, efficiency, cultural appropriateness, and rights-compatibility.^[18]

PROBLEMS THAT MAY ARISE OUT OF THE LACK OF STATE SUPPORT

Despite its noble intentions, the Hague Rules are still nascent, and at this point, more of an academic project. Therefore, their practical effectiveness shall only be evident with time. However, as the Rules venture into uncharted territory, it may likely face certain technical and practical challenges. In this regard, some of the most important challenges are (i) litigation funding and addressing the disparity of resources between parties, (ii) ensuring a level playing field in the arbitration clauses and safeguarding individuals or specific right holders, and (iii) balancing the burden of proof on the parties.^[19]

However, the focus of this post is on the problems that the Hague Rules may encounter on account of the lack of support from the host and/or enforcement states. While the Hague Rules aim to uphold the responsibility of businesses to conduct germane human rights due diligence within their supply chains, the onus to provide a conducive legal environment for such due diligence to happen would naturally be vested on the host and/or enforcement states. The same is also enshrined in the three pillars of UNGP, wherein a collaborative role has been conceived for states and corporations.^[20] Therefore, if states prefer to retain exclusivity over the adjudication of human rights disputes, or to diminish the standards of the domestically-regulated business and human rights framework, it is unlikely that the Hague Rules will be able to attain their objectives or potential. In this regard, the lack of support from the host and/or enforcement states is likely to give rise to the following two problems.

Firstly, the absence of a strong domestically-regulated business and human rights framework in the host state will leave the corporations with no incentive to consent or agree to resolve their disputes under the Hague Rules. Corporations commonly attempt to evade their liabilities by raising jurisdictional objections before the domestic courts; it is thus questionable that corporations would voluntarily submit to arbitration under the Hague Rules. The most probable reasons for the corporations to agree to consent to arbitration under the Hague Rules may be (i) to avoid the strict sanctions by the domestic courts, (ii) to avoid public adjudication of their disputes, or (iii) to bypass the pressure of litigious naming and shaming techniques deployed by human rights advocates. However, in the absence of a strict and sensitive domestic business and human rights framework, coupled with the lack of state support or referrals to arbitration under the Hague Rules, these reasons would not be very persuasive, thus leaving no reason for the corporations to accept arbitration pursuant to the Hague Rules in their arbitration clauses.

Secondly, for awards rendered under the Hague Rules to hold any credibility, the enforcement states must be readily willing to enforce them.^[21] The Hague Rules do not separately govern the recognition and enforcement of its awards, and therefore, its enforcement regime is governed by the 1958 New York Convention.^[22] In accordance with Article 5(2) of the New York Convention, the awards rendered under the Hague Rules will be subject to the public policy defense to enforcement.^[23] In this regard, lack of state support for the Hague Rules may cause the awards rendered under it to be susceptible to enforceability issues. These issues may particularly arise out of reservations of the states against (i) arbitrability of human rights claims, and (ii) the justiciability of human rights claims against corporations. Traditionally, absolute rights, such as human rights, have not been subject to the jurisdiction of contract-based arbitration tribunals,^[24] and therefore, relying on principles such as forum non conveniens, arbitration of human rights disputes may raise enforcement concerns.^[25] Additionally, human rights are still comparatively new on the business agenda, and most states have lacked the political will to strictly implement the UNGP as a policy priority.^[26] The lack of political backing to the UNGP is often rooted in the inclination of states to give primacy to commerce over human rights, as the low labor cost and flexible business and human rights framework correlate to more foreign investment.^[27] Therefore, states may be reluctant or hesitant to impose human rights obligations on corporations for fear of disincentivizing incoming investments. This issue may be heightened in the prevailing circumstances as states look to recover from the economic consequences of the COVID-19 pandemic.

ANALYZING THESE PROBLEMS FROM THE INDIAN PERSPECTIVE

The aforementioned hindrances to the Hague Rules are most apparent in developing countries. For instance, the Indian economy benefits significantly from incoming investments, and as a result, there has been a tendency to give primacy to foreign investments over a strictly regulated business and human rights framework.^[28] This tendency is evidenced in the recent overhaul of labor laws undertaken in several states of India, wherein ordinances have been passed to suspend most of the labor laws in all new production units for a period of three years.^[29] This trend can be seen as a clear departure from India’s commitment to the UNGP.

Additionally, India has been reluctant to extend liability for human right violations to corporations in its 2015 Model Bilateral Investment Treaty (“BIT”). The Model BIT of India does not prescribe a binding legal framework for the investors to comply with their business and human rights obligations.^[30] Another example of the lukewarm response of India to UNGP can be found in the form of the 2018 National Voluntary Guidelines on Social, Environmental & Economic Responsibilities of Business. Though the Guidelines require businesses to respect and promote human rights in India, it only stands as a mere lip service owing to its voluntary nature and lack of any accountability. As a result, corporations in India will have hardly any incentive to consent to arbitration under the Hague Rules owing to the lack of a strong domestic force in the country to obligate these corporations to fulfil their human rights obligations. Rather corporations may prefer domestic adjudication over arbitration. The reason being that the claims that may be raised before tribunals under the Hague Rules may not necessary draw flak domestically in India.

Similarly, India can also serve as a good example for the enforceability issues that may arise against awards rendered under the Hague Rules. India has a history of strict application of the public policy defense. The Supreme Court of India (SCI) in Renusagar v General Electric had observed that an award in contravention of the (i) fundamental policy of Indian law or (ii) the interests of India or (iii) justice or morality would be unenforceable on account of breach of public policy.^[31] Pursuant to the same, there has been a continuous evolution of the public policy defense in India, with attempts being made by the SCI to narrow down its ambit. However, recently, in NAFED v Alimenta S.A, the SCI re-opened the door for expansive interpretations of the public policy defense, setting aside the award for contravention of the respective export policy.^[32] This ghost of the ‘public policy defence’ in India must be seen in light of Booz Allen Hamilton v. SBI Home, an another important case that deals with the arbitrability of disputes in India.^[33] The SCI in this case marked down the categories of disputes that are not arbitrable in India. The SCI distinguished between “rights in rem” and “rights in personam,” and drawing from the same, had opined that disputes that concern “rights in rem” are reserved for adjudication only by public fora — that is, national courts. In doing so, the SCI narrowed down the disputes that can be subject to adjudication by arbitration in India. The same was later reiterated by the SCI in Shri Vimal Kishor Shah v. Jayesh Dinesh Shah.^[34] As human rights are “rights in rem” and erga omnes in nature, disputes concerning their adjudication may be understood as non-arbitrable in India. Therefore, unless the Indian government accords complete support to the Hague Rules, awards rendered under the same may face enforceability constraints in India.

CONCLUSION

The Hague Rules have been drafted on the pretext that states are sensitive to the needs of a strong business and human rights framework, and will therefore structure their actions, policies, and regulations accordingly. However, there may be several economic and political considerations that may hinder the states to accord their full support to arbitrations under the Hague Rules. That said, the Hague Rules delve into two evolving relationships: first, between business and human rights; and second, between human rights and international arbitration. As a result, it is an extremely exciting prospect for diverse stakeholders, and there is a lot to look forward to. Being an extremely well-intentioned and novel initiative, the Hague Rules coupled with a humanized outlook of states, can serve as an efficient forum for neutral resolution of business related human rights disputes. It may draw some encouragement from the success of the Bangladesh Accord,^[35] as arbitration under the same has shown promising signs for business and human rights arbitrations.

^[1] Nicholas J. Diamond & Kabir Duggal, ISDS Reform and Advancing All “Generations” of Human Rights, Kluwer Arbitration Blog (June 17, 2020) http://arbitrationblog.kluwerarbitration.com/2020/06/17/isds-reform-and-advancing-all-generations-of-human-rights/?doing_wp_cron=1598118460.6411108970642089843750.

^[2] See, e.g., Nicholas J. Diamond, 2019 in Review: International Investment Agreements and Human Rights, Kluwer Arbitration Blog (February 8, 2020) http://arbitrationblog.kluwerarbitration.com/2020/02/08/2019-in-review-international-investment-agreements-and-human-rights/. See also Urbaser S.A. v. Argentine Republic, ICSID Case No. ARB/07/26, Award, ¶¶1211-22 (Dec. 8, 2016) (The Urbaser Tribunal dealt extensively with the discourse surrounding human rights and its interaction with investment arbitration. Dealing with whether access to water was a human right, the Tribunal ruled that the investment treaties cannot be interpreted in vacuum, and thereby, moderately opened the door for human rights in arbitration).

^[3] The Hague Rules on Business and Human Rights Arbitration (“Hague Rules”), Centre for International Legal Cooperation (Dec. 12, 2019) https://www.cilc.nl/cms/wp-content/uploads/2019/12/The-Hague-Rules-on-Business-and-Human-Rights-Arbitration_CILC-digital-version.pdf.

^[4] Claes Cronstedt, Jan Eijsbouts and Robert C. Thompson, First Working Group paper on Business and Human Rights Arbitration, Center for International Legal Cooperation, 8-9 (Feb. 13 2017), https://www.cilc.nl/cms/wp-content/uploads/2018/03/INTERNATIONAL-ARBITRATION-TO-RESOLVE-HUMAN-RIGHTS-DISPUTES-INVOLVING-BUSINESS-PROPOSAL-MAY-2017.pdf.

^[5] Id. at 2.

^[6] Id.

^[7] Business and Human Rights Arbitration project Report | Drafting Team Meeting, Center for International Legal Cooperation, 2 (Jan. 25-26, 2018), https://www.cilc.nl/cms/wp-content/uploads/2018/03/BHR-Arbitration.-Report-Drafting-Team-Meeting-25-26-January-2018.pdf.

^[8] Elements for Consideration in Draft Arbitral Rules, Model Clauses, and Other Aspects of the Arbitral Process, Center for International Legal Cooperation, 4-5 (Nov. 2018), https://www.cilc.nl/cms/wp-content/uploads/2019/01/Elements-Paper_INTERNATIONAL-ARBITRATION-OF-BUSINESS-AND-HUMAN-RIGHTS-DISPUTE.font12.pdf.

^[9] Summary Paper on Sounding Board Consultation Round, Center for International Legal Cooperation  (June 2019), https://www.cilc.nl/cms/wp-content/uploads/2019/06/Summary-Paper-Sounding-Board-Consultation-Round-1-%E2%80%93-Results.pdf; Public Consultation on Business and Human Rights Arbitration, Center for International legal Cooperation (June 2019), https://www.cilc.nl/worldwide-public-consultation-on-the-hague-rules-on-business-and-human-rights-arbitration/ (second consultation round).

^[10] Introductory Note, Hague Rules at 3.

^[11] Id.

^[12] Id.

^[13] Preamble, Hague Rules ¶6(d) (emphasizing transparency).

^[14] Hague Rules § IV, Art. 38 – 43.

^[15] See generally UNCITRAL Rules on Transparency in Treaty-based Investor-State Arbitrations (“UNCITRAL Transparency Rules”) (2014), https://www.uncitral.org/pdf/english/texts/arbitration/rules-on-transparency/Rules-on-Transparency-E.pdf

^[16] Hague Rules § IV.

^[17] Hague Rules Art. 28 (“Submission by a third person”) (based on UNCITRAL Transparency Rules Art. 28).

^[18] See Hague Rules Art. 32 Commentary.

^[19] Shavana Haythornthwaite, The Hague Rules on Business and Human Rights Arbitration: Noteworthy or Not Worthy for Victims of Human Rights Violations? Kluwer Arbitration Blog (May 5, 2020) http://arbitrationblog.kluwerarbitration.com/2020/05/05/the-hague-rules-on-business-and-human-rights-arbitration-noteworthy-or-not-worthy-for-victims-of-human-rights-violations/.

^[20] U.N. High Commissioner for Human Rights, Introduction to the Guiding Principles on Business and Human Rights (Dec. 2013), available at https://www.ohchr.org/Documents/Issues/Business/IntroductionsGuidingPrinciples_en.pdf. (The three pillars of UNGP are (i) State duty to protect human rights, (ii) Corporate responsibility to respect human rights, and (iii) Need for greater access to effective remedy) See also Olivier De Schutter et. al, Human Right Due Diligence: The Role of State, Corporate Justice, (Dec. 2012), https://corporatejustice.org/hrdd-role-of-states-3-dec-2012.pdf.

^[21] Avineet Chawla, The Hague Rules on Business and Human Rights Arbitration – An Opt-in Addition?, RGNUL Financial and Mercantile Law Review, Feb. 11, 2020, available at https://www.rfmlr.com/post/the-hague-rules-on-business-and-human-rights-arbitration-an-opt-in-addition (discussing Hague Rules Art. 1’s stipulation to enforceability under the New York Convention).

^[22] Id.

^[23] Convention on the Recognition and Enforcement of Foreign Arbitral Awards (“New York Convention”), June 6, 1958, Art. 5(2)(b) (“Recognition and enforcement of an arbitral award may also be refused if the competent authority in the country where recognition and enforcement is sought finds that … [t]he recognition or enforcement of the award would be contrary to the public policy of that country.”).

^[24] Crina Baltag, Human Rights and Environmental Disputes in International Arbitration, Kluwer Arbitration Blog(July 24, 2018) http://arbitrationblog.kluwerarbitration.com/2018/07/24/human-rights-and-environmental-disputes-in-international-arbitration/. (Traditionally, human rights have been subject to the jurisdiction of national courts/tribunals or state-recognised intergovernmental mechanisms)

^[25] The principle of forum non conveniens has been previously used by the US Second Circuit court for staying or dismissing New York Convention awards in enforcement proceedings. See, e.g., Figueiredo Ferraz e Engenharia de Projeto v. Republic of Peru, (2011) 665 F.3d 384 (2d Cir.); Monegasque de Reassurances v. NAK Naftogaz, (2002) 311 F.3d 488 (2d Cir.). see also Shavana, supra note 19; see generally Jeffrey Baldwin, International Human Rights Plaintiffs and the Doctrine of Forum Non Conveniens, 40 Cornell Intl L. J. 749, 750 (2007).

^[26] Raphaela Lopes & Arnold Kwesiga, What the Zero Draft and Protocol Lack: Meaningful Access to Justice – a Global South Perspective, Business and Human Rights Resource Centre (Oct 2018), https://media.business-humanrights.org/media/documents/files/documents/Zero_Draft_Blog_Compilation_Final.pdf (discussing activists’efforts to establish a treaty enforcing the UNGP).

^[27] Anna Triponel, Business & Human Rights Law: Diverging Trends in the United States and France, 23 American U. Intl. L. R. 855, 866 (2007).

^[28] See, e.g., Surya Deva, Background Paper for India’s National Framework on Business and Human Rights, Ethical Trading Initiative (March 22, 2016), https://www.ethicaltrade.org/sites/default/files/shared_resources/india_national_framework_bhr_background.pdf

^[29] Call to action on Labour Law changes in India, Ethical Trading Initiative (May 18, 2020), https://www.ethicaltrade.org/sites/default/files/shared_resources/ETI%20Statement%20on%20Labour%20Law%20changes%20in%20India.pdf

^[30] Model Text for the Indian Bilateral Investment Treaty Art. 12 (2015) (voluntary compliance clause wherein it states that investor “shall endeavour to voluntarily” comply with their corporate social responsibilities).

^[31] Renusagar v General Electric, (1994) 1 SCC Supl. 644 (India).

^[32] NAFED v. Alimenta S.A., (2020) SCC OnLine SC 381 (India).

^[33] Booz Allen & Hamilton Inc. v. SBI Home Finance Ltd., (2011) 5 SCC 532 (India).

^[34] Vimal Kishor Shah & Ors. v. Jayesh Dinesh Shah, (2016) 8 SCC 788 (India).

^[35] The Bangladesh Accord is an agreement that was created in the immediate aftermath of the 2013 Rana Plaza factory collapse. It was signed between global brands, retailers and trade unions operating in Bangladesh, and it provided that disputes against brands could be brought via arbitration. Arbitration brought under the Accord to date shows that some corporations and claimants are willing to employ BHR Arbitration.

*Abhisar Vidyarthi is an Indian Advocate enrolled with the Delhi Bar Council. He is a 2020 law graduate of Maharashtra National Law University, Mumbai, with an honours in business law. He previously worked as a Research Assistant at the Asian Arb and ADR Alliance, Singapore and Corp Comm Legal, New Delhi. He can be reached at abhisar.v@mnlumumbai.edu.in