“Culturally Appropriate and Rights-Compatible”: The Esprit De Corps Of the United Nations Guiding Principles on Business and Human Rights & the Hague Rules on Business and Human Rights Arbitration

Concluding a long journey of consultations and elaborations, the Hague Rules on Business and Human Rights Arbitration (the “Hague Rules” or “the Rules”) were launched on 12 December 2019 at the Peace Palace in The Hague, Netherlands. The Hague Rules – the first of their kind— serve to provide a concrete framework for arbitrating business and human rights (“BHR”) disputes and are the manifestation of over five years of efforts involving the elaboration of the concept of business and human rights arbitration, consultation with numerous stakeholders and drafting of the text (see, e.g., here and here).

While ground-breaking in their own right, the Hague Rules join an elaborate framework of legislation in the rapidly evolving field of BHR. While a full overview of the hard and soft legal framework surrounding BHR would exceed the parameters of this post (for example, the Draft UN Treaty on Business and Human Rights is already the source of ample media attention) any conversation on business and human rights would be amiss without mentioning the United Nations Guiding Principles on Business and Human Rights (the “UNGPs” or “UN Guiding Principles”). As the authoritative global standard on BHR, the UNGPs are imperative to preventing and addressing the adverse human rights impacts linked to business activity, and the interlinkages between the UNGPs and the Hague Rules shed light on coherence in this field.

Overview of the UNGPs

Unanimously endorsed by the United Nations Human Rights Council on 16 June 2011, the UNGPs are the first globally accepted standard articulating States’ duty to protect human rights from impacts of business activities, while recognizing companies’ responsibility to respect human rights throughout their operations and their business relationships. The UN Human Rights Council established the UN Working Group on business & human rights in the same resolution. More specifically, the UNGPs are based on three pillars, outlining how states and business should implement the framework:

• Pillar I: The state duty to protect human rights;
• Pillar II: The corporate responsibility to respect human rights;
• Pillar III: Access to remedy for victims of business-related abuses.

Since being endorsed in 2011, the UNGPs have received wide support from civil society, the corporate sector, and states and frequently serve as the standard for various policy commitments.

The UNGPs in The Hague Rules

The Hague Rules are based on the 2013 UNCITRAL Arbitration Rules, with modifications to account for the specific context of BHR arbitration. Like the UNCITRAL Rules, the Hague Rules include no restrictions on which entities may be party to disputes. As the introductory note indicates, parties could include businesses, individuals, labour unions, States, international organizations and NGOs, among others. Moreover, like the UNCITRAL Rules, the Hague Rules do not address the modalities by which parties may consent to arbitration.

From the outset, the Hague Rules mention the UNGPs in the introductory note, noting that the terms “business”, “human rights” or “business and human rights” should be understood “at least as broadly” as within the UNGPs. The note then goes on to caveat that in most cases, no definition of the terms should be necessary. In doing so, the Hague Rules implicitly acknowledge the primacy of the UNGPs within the realm of BHR, even when common sense would normally be the only standard.

The Hague Rules otherwise make eleven additional references to the UNGPs of varying significance. Most importantly, the Hague Rules give credence to the UNGPs as early as section 2 of the Preamble, which notes that arbitration under the Hague Rules can provide:

(a) For the possibility of a remedy for those affected by the human rights impacts of business activities, as set forth in Pillar III of the United Nations Guiding Principles on Business and Human Rights […] serving as a grievance mechanism consistent with Principle 31 of the UN Guiding Principles; and

(b) Businesses with a mechanism for addressing adverse human rights impacts with which they are involved, as set forth in Pillar II and Principles 11 and 13 of the UN Guiding Principles.

Further, the commentary to this section clarifies “two key purposes” of BHR arbitration:

First, it can provide a remedy for those affected by the human rights impacts of business activities in situations where more traditional remedies, such as judicial proceedings, are not available or effective. Second, business and human rights arbitration can assist businesses to meet their responsibilities under the UN Guiding Principles, both to respect human rights (Pillar II) and to provide a remedy to victims (Pillar III) […]. Business and human rights arbitration could be relied upon by businesses to enforce contractual human rights commitments vis-à-vis their business partners (e.g., in supply chains and development projects) and thereby prevent or resolve business and human rights harms. These Rules thus intend to provide both a means for access to remedy for rights-holders affected by business activities and a human rights compliance and risk management strategy for businesses themselves. […] [F]or States, the encouragement, facilitation or even requirement to use business and human rights arbitration would also constitute an additional tool to fulfil their responsibilities under Pillars I and III of the UN Guiding Principles.

The significance of the above two sections cannot be overstated, in that they project fulfilment of the UNGPs as the highest aspiration of the Hague Rules — on par with providing a more flexible and expeditious alternative to judicial dispute resolution, the primary purpose of arbitration — and in doing so both further solidify the UNGPs as the gold standard and establish the relationship between the Hague Rules and the UNGPs.

The UNGPs otherwise appear in the Hague Rules as a resource within commentary to various articles, including those on representation and assistance, general provisions for arbitral proceedings (in particular, the provision that proceedings be culturally appropriate and rights-compatible are pulled from UNGP 28), repository of published information, and form and effect of the award. In such provisions, the UNGPs are additionally treated as a clarifying standard and a means of rights fulfilment.

Beyond explicit references, several features of the Hague Rules demonstrate important interlinkages between the Rules and the UNGPs. Two, in particular, merit highlighting: (1) the Rules’ approach to applicable law, and (2) the Rules’ attempts to ensure equality of arms.

Applicable Law

The Hague Rules and commentary address both the law applicable to the substance of a dispute and the law of the seat of arbitration (lex arbitri). Regarding the former, Article 46 of the Rules calls for the arbitral tribunal to apply “the law, rules of law or standards designated by the parties.” The Hague Rules thus go beyond the UNCITRAL Rules, which refer only to “the rules of law” designated by the parties. The commentary to Article 46 makes clear that this change was intended to provide parties “with the broadest possible flexibility in choosing the normative sources from which the applicable law is drawn”.

The Rules therefore appear to envision a “contractualization” of human rights standards, whereby relevant parties incorporate substantive human rights obligations for corporate actors (e.g., those in the UNGPs) into their private contracts. As some commentators have observed, “contractualization” may be a way to overcome the scarcity of binding international legal instruments that explicitly create human rights obligations for businesses. [See Ioana Cismas & Sarah Macrory, The Business and Human Rights Regime under International Law: Remedy without Law?, in Non-State Actors and International Obligations: Creation, Evolution and Enforcement (J. Summers and A. Gough, eds., 2018), p. 224.]

The Hague Rules, if successfully implemented, might therefore serve to further enhance the influence of the UNGPs in the realm of international dispute settlement. This phenomenon has already been observed in the decisions of international tribunals which have referred to the UNGPs in finding a corporate obligation to respect and protect human rights, including the 2016 Award in Urbaser v. Argentina (para. 1195), the Inter-American Court of Human Rights’ 2014 decision in Kaliña and Lokono Peoples v. Suriname (para. 224), and a 2014 ruling by the Special Tribunal for Lebanon (paras. 46-47). While the choice by private parties to incorporate the UNGPs into their contracts would not convert those Principles into sources of international law within the meaning of Article 38(1)(d) of the ICJ Statute, a proliferation of arbitral awards discussing and applying the UNGPs could certainly help familiarize the broader business and international law communities with the norms contained therein.

As to the lex arbitri, Article 20 of the Hague Rules (“Place of Arbitration”) leaves intact the wording of its counterpart in the UNCITRAL Rules. However, the commentary urges parties and the tribunal to seat arbitrations in a jurisdiction where BHR disputes are arbitrable, and where the local arbitration law allows for the set-aside of awards on public policy grounds where such awards violate human rights. This reflects the drafters’ intent to ensure that arbitral awards are “rights-compatible” within the meaning of the UNGPs. These comments also indicate how choices made by the parties, such as the seat of arbitration, will be vital to the success of BHR arbitration. By preserving the wording of the original UNCITRAL provision, but exhorting parties in the commentary to choose particular “rights-compatible” seats of arbitration, the Hague Rules attempt to strike a balance between concerns of flexibility and party autonomy on one hand and rights-compatibility on the other. This is a recurring theme throughout the Rules.

Equality of Arms

Several provisions of the Hague Rules aim to ensure equality of arms (e.g., a fair balance between the opportunities afforded the various parties to an arbitration). This is particularly important when alleged victims of human rights abuses confront well-resourced corporate actors, and is necessary to fulfil the requirements for non-judicial remedies spelled out in Principle 31 of the UNGPs. Article 5(2) of the Rules establishes that:

“[w]here a party faces barriers to access to remedy…the arbitral tribunal shall […] ensure that such party is given an effective opportunity to present its case in fair and efficient proceedings.”

Interestingly, the commentary to this provision suggests that a tribunal may fulfil this obligation (with respect to unrepresented parties) by adopting “more proactive and inquisitorial, as opposed to adversarial, procedures.”

Other examples include Article 26, which establishes an expedited procedure for ruling on claims that are “manifestly without merit,” envisions the use of such a procedure to obtain early dismissal of frivolous defences or counterclaims that “might be used to discourage a claim or even intimidate claimants.” The commentary to this provision urges tribunals to “take account of the possible inequality of arms and of access to evidence among the parties” in ruling upon objections of manifest lack of merit. Article 32 requires the tribunal to “order the production of documents to the extent necessary to enable each party to have a reasonable opportunity of presenting its case,” explicitly allowing the tribunal to draw adverse inferences and reverse the burden of proof in cases of non-compliance. Finally, Articles 52 through 54 enable the tribunal to depart from the “loser pays” principal and apportion costs in a manner that takes into account “the financial burden on each party and the public interest”.

Conclusion

Some commentators have expressed considerable scepticism about the ability of the Hague Rules to improve access to remedies for human rights victims. On the other hand, other forms of recourse, such as transnational tort suits in domestic courts, may not always be available in key jurisdictions. For instance, the U.S. Supreme Court’s 2018 decision in Jesner v. Arab Bank, holding that non-U.S. corporations cannot be sued for violations of international law in U.S. courts under the Alien Tort Statute, is the latest in a series of rulings that have substantially narrowed the Statute’s scope of applicability. Arbitration could represent an alternative means for human rights plaintiffs to seek legally-binding recourse vis-à-vis corporations where judicial remedies are unavailable.

What is clear is that the Hague Rules represent an attempt to synergize the supposed advantages of the arbitral process with the norms embodied in the UNGPs. A number of potential impacts within the broader business and international law communities might ensue, including further promotion of the influence of the UNGPs within the realm of international dispute settlement. While indubitably mutually supportive with the UNGPs on face, time will reveal whether the Rules will yield a useful means of human rights recourse and the overall impact that they will have on the notoriety and influence of the UNGPs.