The Launch Of The Hague Rules On Business And Human Rights Arbitration

Author:Ms Claudia Annacker, Laurie Achtouk‑Spivak, Caroline Hailey, Robert Garden and James Brady
Profession:Cleary Gottlieb Steen & Hamilton LLP
 
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Businesses are increasingly being evaluated by stakeholders on the basis of their overall impact on the economy, the environment and society, including on human rights. As scrutiny from stakeholders grows, disputes relating to the human rights impacts of business activities are likely to arise.

As we noted in our alert memorandum on " Navigating the ESG Landscape," Selected Issues for Boards of Directors in 2020, a number of jurisdictions have enacted legislation to strengthen transparency on the environmental, social and governance ("ESG") implications of business activities. Certain of these regimes provide for private rights of action against companies.1

Whilst certain claimants have engaged in innovative litigation strategies to bring human rights claims under existing tort and contract legal regimes, 2 the emerging field of business and human rights arbitration ("BHR arbitration") provides a bespoke forum for the settlement of disputes relating to the human rights impacts of business activities.

To this end, the Hague Rules on Business and Human Rights Arbitration (the "Hague Rules") were published in December 2019. The Hague Rules were developed by the Business and Human Rights Arbitration Working Group, a private group of international practicing lawyers and academics, assisted by the Center for International Legal Cooperation (the "CILC").

The Hague Rules aim to provide a viable non-State-based mechanism for the resolution of disputes related to the human rights impacts of business activities. Both disputes between affected rights-holders and businesses, and disputes between businesses, may fall within the scope of the Hague Rules, if the parties that consented to arbitration choose to apply them.

The potential of BHR arbitration for the resolution of disputes involving a range of businesses and stakeholders is significant. However, uncertainty persists regarding the appeal of BHR arbitration to potential users and how tribunals may apply the Hague Rules in practice.

This alert memorandum highlights the scope of the Hague Rules and outlines key legal and procedural considerations for users, as well as considering potential future directions for the emerging field of BHR arbitration.

Background to the Hague Rules

The Hague Rules aim to address a perceived "remedy gap" that existed in the UN Guiding Principles on Business and Human Rights (the "UN Guiding Principles"), a set of guidelines endorsed by the UN Human Rights Council in 2011, that aim to prevent and address the adverse impacts of business activities on human rights, and provide remedies to victims.3 The UN Guiding Principles encouraged States to "consider ways to facilitate access to effective non-State-based grievance mechanisms dealing with business-related human rights harms."4 To this end, the Business and Human Rights Arbitration Working Group and the CILC promoted the development of BHR arbitration to provide a forum for redress, and established a Drafting Committee in 2017 to begin drafting the Hague Rules. Following consultations with interested stakeholders in 2018, draft rules were published in June 2019. The Hague Rules were published on December 12, 2019, following further consultations.

The Hague Rules are based on the Arbitration Rules of the United Nations Commission on International Trade Law (as amended in 2013) (the "2013 UNCITRAL Arbitration Rules"), adapted to take into account the specificities of business and human rights disputes.

Scope of the Hague Rules

Consent to arbitrate

Arbitration under the Hague Rules is premised on the consent of the parties to resolve their disputes via arbitration. The Hague Rules shall apply "[w]here parties have agreed that disputes between them in respect of a defined legal relationship, whether contractual or not, shall be referred to arbitration under these Rules."5 The consent of the parties to submit their disputes to arbitration shall be evidenced in an arbitration agreement.6 The Hague Rules expressly recognize the competencecompetence principle, providing that "[t]he arbitral tribunal shall have the power to rule on its own jurisdiction, including any objections with respect to the existence or validity of the arbitration agreement."7

Parties may agree to include arbitration agreements within contracts entered into with businesses or stakeholders, particularly in supply-chain contracts, in circumstances where complex supply chains may pose human rights risks. Parties may also enter into separate arbitration agreements to submit certain disputes, such as those with interested stakeholders, to BHR arbitration.

A further possibility is that multiple parties may enter into multilateral agreements that provide for BHR arbitration within a business sector that poses a particular human rights risk. One such multilateral agreement, the Accord on Fire and Building Safety in Bangladesh (the "Bangladesh Accord"), was entered into between a number of multinational corporations and trade unions in the wake of the Rana Plaza catastrophe, which involved the collapse of a garment-factory building in Dhaka, Bangladesh in 2013.8 Two arbitrations...

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