ARBITRATION OF BUSINESS AND HUMAN RIGHTS DISPUTES
Author: Sakshi Rathore, IV year of B.A.,LL.B.(Hons.) from Institute of Law, Nirma University
Globalization has connected markets and consumers all over the world. As a consequence economic activities in one state have an impact on the people of other states. International Investment Agreements (IIAs), primarily aimed at protecting the interests of investors but they also create duties for corporate actors to respect human rights and ensure environmental protection. The continued violation of human rights by corporate actors caused various business and human rights disputes. Urbaser v Argentina[i] was the first case where the tribunal accepted jurisdiction in a human rights claim concerning the violation of the right to water. The tribunal held that Argentina was under an obligation to fulfil its investment as well as human rights obligations. It further opined that IIAs do not constitute a closed system so the state is obliged to invoke legal obligations beyond the treaty. Due to the increasing number of human rights claims, a working group[ii] on Business and Human Rights Arbitration headed by Judge Bruno Simma was formed. After 5 years of deliberations and research, a drafting team was created in 2017 to draft Rules on Human Rights Arbitration. Subsequently, the Hague Rules on Business and Human Rights Arbitration [the Rules] were adopted on 12 December 2019.
THE HAGUE RULES - SALIENT FEATURES
The Hague Rules were drafted with an intent to provide a set of procedures for the arbitration of disputes related to the impact businesses have on human rights.[iii] They are based on the UNCITRAL Rules[iv] but deviate from them in certain respects to specifically address issues of human rights. Unlike UNCITRAL, Hague rules are not limited in scope i.e they are not restricted to a particular party or any subject matter of the dispute. Consequently, any dispute irrespective of its characterization as a business and human rights dispute, where all the parties have agreed to settle it under these rules, shall be governed by it.[v] However, the Hague Rules do not provide definitions of “business”, “human rights'' or “business and human rights'' and such terms have to be interpreted broadly by the UN Guiding Principles on Business and Human Rights [UN Guiding Principles].
Further, while appointing the arbitrator the parties or the appointing authority are supposed to ensure that the arbitrator has the required level of expertise[vi] and the tribunal is diverse.[vii] The tribunal is supposed to abide by the code of conduct mentioned in the Rules that lay down the eligibility and responsibilities for any arbitrator such as their duties,[viii] rules regarding independence, impartiality[ix] and confidentiality.[x] Additionally, section 4 of the Rules talks about transparency and sets out procedures for the publication of documents[xi] and public hearings[xii].[xiii] Furthermore, the Rules specify guidelines concerning submission by third parties,[xiv] the appointment of emergency arbitrators,[xv] inclusion of evidence[xvi] and appointment of experts.[xvii] Lastly and most importantly, the Rules stipulate that the award should be human rights - compatible.[xviii] The aforementioned obligation flows from Principle 31(f)[xix] of the UN Guiding Principles which requires non-judicial grievance redressal mechanisms to ensure that remedies accord with internationally recognized human rights. Subsequently, the tribunal is advised to state the reasons for rendering the award and explain how it upholds human rights.[xx]
ARBITRATING BUSINESS AND HUMAN RIGHTS DISPUTES
The core of any arbitration is consent. Similarly, to invoke arbitration in Business and Human Rights Disputes, all the parties must consent to it which can be ascertained through contractual clauses, compromise, etc. This consent shall imply that the dispute has arisen out of a commercial relationship or transaction.[xxi]
The advantages[xxii] of referring business and human rights disputes to arbitration are as follows -
1. Arbitration aids in maintaining privacy and confidentiality which is preferred by businesses while addressing claims of human rights violations.
2. The arbitrators are experts in the field and the tribunal is neutral.
3. Since everything in arbitration is consent-based, it provides procedural flexibility to parties.
4. This form of dispute resolution is cheaper and quicker than litigation.
5. The awards are binding, enforceable across borders and subject to limited judicial scrutiny.
Following are the challenges encountered in arbitrating such disputes -
1. The Rules fail to define “business”, “human rights” and “business and human rights” which can create ambiguities.
2. The obligations stated are based on the standards mentioned under the UN Guiding Principles and OECD Guidelines for Multinational Enterprises which were never intended to be binding.
3. The remedy provided in pure human rights cases will be different from the remedy in human rights claims arising out of commercial relationships.
4. Corporations are hesitant in incorporating human rights obligations in their contracts as it creates additional responsibilities.[xxiii]
5. Arbitration might be disadvantageous to victims who, in a lot of cases might be poor and would not be able to compete with their opponent, a well-established business. Thus, the victims will not be able to bear arbitration costs and legal fees.[xxiv]
Arbitration is a convenient and efficient way to amicably solve any dispute. Likewise, it can prove to be beneficial in resolving business and human rights disputes as well. The enormous impact that corporate actors have on human rights has created a need for resorting to quick and hassle-free methods to resolve human rights disputes. Moreover, tribunals have time and again reiterated the responsibility of corporations to uphold their human rights obligations along with investment law obligations. Furthermore, the formulation of various rules and guidelines such as the UN Guiding Principles, OECD Guidelines for Multinational Enterprises and the Hague Rules has created a conducive environment for arbitration of such disputes. Therefore, if the above-mentioned problems are eradicated, then the arbitration of business and human rights disputes can be successful.
[i] Urbaser v Argentina  (ICSID).
[ii] Cilc.nl. 2021. The Hague Rules on Business and Human Rights Arbitration | CILC website. [online] Available at: https://www.cilc.nl/project/the-hague-rules-on-business-and-human-rights-arbitration/ [Accessed 10 April 2021].
[iii] Hague rules, Preamble, ¶1
[iv] Ibid. ¶6.
[v] Article 1
[vi] Article 11(1)(c)
[vii] Article 11(3)
[viii] Code of conduct ¶ 1, 2 and 4
[xi] Article 40
[xii] Article 41.
[xiii] Sec 4.
[xiv] Article 28
[xv] Article 31
[xvi] Article 32.
[xvii] Article 34.
[xviii] Article 45(4)
[xix] UN Guiding Principles on Business and Human Rights, Principle 31(f).
[xx] Commentary to Article 45(3)
[xxi] Ibid. Article 1(3)
[xxii] Hughes-Jennet, J., Berthet, A. and Gidda, E., 2021. Arbitrating business and human rights disputes: uncharted territory. [online] Arbitration Blog. Available at: http://arbitrationblog.practicallaw.com/arbitrating-business-and-human-rights-disputes-uncharted-territory/ [Accessed 10 April 2021].
[xxiv] Duval, A., 2021. Doing Business Right Blog | International Arbitration of Business and Human Rights Disputes: Part 2 - Advantages and challenges - By Catherine Dunmore. [online] Asser.nl. Available at: https://www.asser.nl/DoingBusinessRight/Blog/post/international-arbitration-of-business-and-human-rights-disputes-part-2-advantages-and-challenges-by-catherine-dunmore [Accessed 10 April 2021].