By Martin Doe Rodríguez and Emilie de Haas
Preamble
On December 12, 2019, the Hague Rules on Business and Human Rights Arbitration (“the Hague Rules”) were launched at the Peace Palace in The Hague, the Netherlands. Developed by a Drafting Team led by Judge Bruno Simma, with the support of the Center for International Legal Cooperation, the City of The Hague and the Netherlands Ministry of Foreign Affairs, the Hague Rules provide a set of arbitration procedures tailored for disputes relating to the impact of business activities on human rights. They are based on the UNCITRAL Arbitration Rules with modifications to address particular issues that arise in such disputes, such as the potential imbalance of power between disputing parties in business and human rights disputes.
Why the Hague Rules?
Beginning in 2013, the Business and Human Rights Arbitration Working Group, composed of international practitioners and academics, had been considering whether international arbitration could provide a method to resolve disputes over obligations and commitments arising out of business-related human rights abuses. The project for the Hague Rules was sparked by the idea that international arbitration could overcome some of the legal and practical barriers faced when bringing human rights claims through the existing mechanisms of legal redress, particularly national courts. Some of these barriers include weak legal regimes, structural complexities within business enterprises, insufficient funding for private law claims and lack of enforcement.
Moreover, a set of business and human rights arbitration rules could provide a non-judicial remedy for victims of business-related human rights impacts, as encouraged in Pillar III of the United Nations Guiding Principles on Business and Human Rights (Access to Remedy). The Hague Rules could also provide a strategy for business to mitigate and respond to human rights risks within its supply chains, as called for in Pillar II of the Guiding Principles (the Corporate Responsibility to Protect).
In particular, arbitration in this context would offer: (i) a neutral forum for dispute resolution, independent of both parties and their home states; (ii) the opportunity for the parties to select competent and expert adjudicators for their disputes; (iii) the possibility for the parties to obtain binding awards subject only to limited judicial review, and enforceable across borders; (iv) potentially cheaper and speedier means of dispute resolution than litigation; and (v) broad autonomy for the parties to agree upon the substantive laws and procedures applicable to their arbitrations.
Finally, business and human rights arbitration could involve victim claims against businesses or claims between different businesses within a supply chain, with consent to arbitrate provided ex ante in contracts or other agreements, or ex post through a compromis.
With this in mind, the Working Group began its work.
The drafting process
Under the direction of the Working Group, a Drafting Team was created to draft the Hague Rules, gathering members with relevant expertise from around the world. The Drafting Team was chaired by Judge Bruno Simma, former Judge at the International Court of Justice and current Judge at the Iran-US Claims Tribunal. A Sounding Board of some 220 individuals was also assembled to facilitate consultations during the drafting process with various stakeholders, including NGOs advocating on behalf of victims, the business community, arbitrators and arbitration institutions, and national and international governmental organisations.
From the very beginning of the drafting process, the Drafting Team elicited as much input from relevant stakeholders as possible. In November 2018, the Drafting Team published an Elements Paper containing a compilation of issues for discussion, on which it sought comments from contributors. It followed up with the publication of a summary of these consultations in June 2019. It also circulated the first draft of the Rules for comments and actively considered all comments received from the Sounding Board and others that responded to its published material.
The Drafting Team’s diligent work cumulated with the launch of the Hague Rules on December 12, 2019 at a symposium hosted by the Permanent Court of Arbitration at the Peace Palace in The Hague, the Netherlands.
Key Innovations
The Hague Rules were drafted with several objectives in mind. Chief among them was to strike a balance between flexibility and clear guidance for specific situations related to business and human rights arbitration.
The flexible nature of the Rules is apparent from the outset in the Preamble, which states that the Rules can serve multiple kinds of proceedings, such as disputes between businesses to enforce contractual human rights commitments vis-à-vis their business partners (e.g. in supply chains and development projects) or disputes between those affected by the human rights impacts of business activities and the businesses in question. The Rules also provide for inclusion of one or more third persons to the arbitration if they are a party or a third party beneficiary of the underlying legal instrument that comprises the arbitration agreement. To this effect, they offer a Model Clause to help parties with the procedural issues that can arise with multiparty claims.
Despite their capacity to adapt to diverse proceedings, the Hague Rules distinguish themselves from other arbitration rules for the guidance they provide to arbitral tribunals in specific instances. For example, Article 5(2) instructs the tribunal to ensure that an unrepresented party be given an effective opportunity to present its case in fair and efficient proceedings, while Article 32(4) directs the tribunal to take into consideration the difficulty that certain parties may face in collecting evidence or making precise document requests. Article 32 also equips the tribunal with tools to address these difficulties, such as document production procedures, the ability to limit the scope of evidence produced, and the power to sanction non-compliance with production orders through adverse inferences or a reversal of the burden of proof. These provisions were drafted with a concern for the potential inequality of arms between parties in the context of business and human rights arbitration.
Similar to the balance struck between flexibility and guidance, the Drafting Team also sought to preserve party autonomy wherever possible while also establishing default rules when necessary.
Article 46, which follows the four-step approach of the UNCITRAL Arbitration Rules in determining the applicable law, illustrates this juxtaposition. Paragraphs 1 and 3 of Article 46 provide for an agreed choice of law or an express agreement of the parties for an ex aequo bono decision by the tribunal, and paragraph 2 contains a default rule on applicable law. Paragraph 4 lists various additional binding rules that the tribunal may draw upon in the context of business and human rights arbitration (such as a usage of trade) in determining the applicable law. What distinguishes the Hague Rules from the UNCITRAL Rules are the normative sources from which the parties may choose the applicable law under paragraph 1 or from which the tribunal may determine as appropriate under paragraph 2.
Under paragraph 1, parties may designate “law, rules of law or standards” that are applicable to the substance of the dispute. These could include industry or supply chain codes of conduct, statutory commitments or other business and human rights norms. Paragraph 2 refers to the “law or rules of law” that the tribunal deems appropriate. The addition of “rules of law” allows for the application of rules emanating from different national legal systems or non-national sources. Yet, the applicable law or rules of law determined by the tribunal under Paragraph 2 only include rules binding upon corporations under national or international law, which may include human rights obligations.
Novel to the Hague Rules is their default section on transparency, which draws on the UNCITRAL Transparency Rules. The scope of transparency under the Rules is broad, covering the publication of key documents such as the notice of arbitration and reply, the statements of claim and defence, and the tribunal’s decisions and awards. The Permanent Court of Arbitration is the designated repository for all published information under the Rules.
Nevertheless, under Article 42(2)(f), the Rules also anticipate situations in which the sensitivity of the interests at play warrant a designation of certain information as confidential if necessary to protect the physical and psychological well-being of those involved.
The Drafting Team acknowledged that in business-to-business arbitration, transparency may neither be required nor desirable. As such, the Rules contain a provision under which the tribunal may exercise its discretion to modify the transparency regime to the case before it. The parties may also opt out of the transparency rules by way of the Model clause for confidentiality annexed to the Rules.
Another objective the Drafting Team took into account while drafting the Hague Rules was the distinguishing goal of BHR arbitration as vindicating human rights first and foremost as opposed to investor rights.
This objective is apparent in Article 11 on the selection of arbitrators. One of its key innovations is the requirement of demonstrated expertise by the presiding arbitrator or sole arbitrator in international dispute resolution as well as in one or more fields relevant to the arbitration. Article 11 also mandates that the arbitrators comply with a new Code of Conduct, included in the Rules, based on best practices modelled on and exceeding the IBA Guidelines on Conflicts of Interest in International Arbitration.
The Rules also contain an obligation for the arbitration to be carried out in a human rights-compatible manner, as prescribed in Guiding Principle 31(f) of the UN Guiding Principles on Business and Human Rights. Article 45(4) outlines this obligation, specifically that the tribunal must satisfy itself that its award is human rights-compatible and incorporates such considerations in the reasoning of the award. This requirement also assists the tribunal in fulfilling its duty to render an enforceable award. By including such an analysis in its reasons, the tribunal may demonstrate that is has considered issues of compliance with public policy that are susceptible to arise in business and human rights arbitration, with a particular attention to public policy considerations in the legal seat of the arbitration and the likely place of enforcement of the award.
Finally, the Hague Rules include provisions on the protection of parties, their representatives and/or witnesses. Article 18(5) empowers the tribunal to protect the confidentiality of the identity of a party or its representatives vis-à-vis other parties. With respect to witnesses, Article 33(3) provides for their protection in situations of demonstrable genuine fear, to be assessed on an individual basis according to the subjective fear of harm to the person or their livelihood.
Conclusion
The Hague Rules are fresh off the press. However, business and human rights arbitration is not. Between 2016 and 2018, the Permanent Court of Arbitration successfully administered the first business and human rights arbitration cases between two global trade unions and two global brands under the Accord on Fire and Building Safety in Bangladesh, concluded in the aftermath of the Rana Plaza building collapse in 2013. Building on their success, it is hoped that the Hague Rules may help usher in a new era for business and human rights arbitration.
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Martin Doe is a Senior Legal Counsel at the Permanent Court of Arbitration in The Hague, the Netherlands. He was an active member of the Drafting Team for the Hague Rules on Business and Human Rights Arbitration.
Emilie de Haas is an Assistant Legal Counsel at the Permanent Court of Arbitration in The Hague, the Netherlands. She assisted in the final stages of drafting the Hague Rules on Business and Human Rights Arbitration and the organization of the launch symposium.
The Working Group and Drafting Team at the launch of the Hague Rules on December 12, 2019.
From left to right: Ms. Saskia Bruines, Deputy Mayor of the City of The Hague, Judge Bruno Simmar, Chair of the Drafting Team, and Dr. Bahia Tahzib-Lie, Human Rights Ambassador, Netherlands Ministry of Foreign Affairs.