The Hague Rules on Business and Human Rights Arbitration – An Opt-in Addition?
This guest post has been authored by Mr. Avineet Singh Chawla, Advocate, holding an LL.M in Dispute Resolution from the Queen Mary University of London.
On 12th December 2019, international arbitration community witnessed the launch of the Hague Rules on Business and Human Rights Arbitration[i] (The Hague Rules) at the Peace Palace in Hague. These rules are the result of a five-year long hard work by academicians, practitioners, and other stakeholders (the Working Group) led by Judge Bruno Simma, a former judge at the ICJ.
The arbitral tribunals, especially in investment arbitration, had been facing new issues mostly in the form of counterclaims by the weak-parties. The reason for the rise of such issues was the human rights abuse in many regions where courts and other mechanisms were corrupt and had failed. The tribunals had been able to establish their jurisdiction over such issues in some cases but had failed to act due to an absence of relevant set of rules and guidelines. Cases in point are the arbitral awards rendered in Urbaser v. Argentina[ii] and David Aven v. Costa Rica.[iii]
Thus, the Working Group, consisting of six members and a drafting team of fourteen members was formed to frame Rules on Business and Human Rights Arbitration, funded by the City of Hague and supported by the Ministry of Foreign Affairs of Netherlands.
The Hague Rules are based on the UNCITRAL Arbitration Rules, 2013 i.e. including the Rules of Transparency in Treaty-based Investment-State Arbitration. Nevertheless, the Hague Rules provide additional changes in order to reflect the issues and concerns related to business and human rights. The Introductory Note clarifies the purpose of the Rules. It further widens its scope by referring to the meaning of the terms “business”, “human rights” or “business and human rights” under the UN Guiding Principles on Business and Human Rights.
Article 1 addresses the most important concern which may arise in business and human rights cases i.e., enforcement of Award. Traditionally, the adjudication of human rights violation has been perceived to be an interest of a national court of the state as it is not of commercial nature. Therefore, adjudication of human rights violation by a private tribunal may not be acceptable to the national laws of a state which may lead to non-enforceability of the award on such grounds. Thus, Article 1 states, “The parties agree that any dispute that is submitted to arbitration under these Rules shall be deemed to have arisen out of a commercial relationship or transaction for the purposes of Article I of the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the “New York Convention”).” This provision develops a connection between human rights abuses and commercial disputes and further prevents any party from making an objection to the enforcement of the award rendered under the Hague Rules on the basis of a ‘commercial’ reservation made by relevant Contracting State to the New York Convention.[iv]The ‘commercial reservation’ according to the New York Convention means that the State applies New York Convention only to the issues which arise out of “legal relationships which are considered as commercial under the national law of the State making such declaration.”[v]Thus, it is an important waiver as it makes the enforcement of awards including human rights abuse easier.
Article 11 deals will the appointment of arbitrators. It states that persons appointed to serve as arbitrators under these rules shall be persons of high moral character and provides for them to be an expert in business and human rights law and practice. It further encourages the constitution of a diverse tribunal. The Rules further provide for a number of provisions that aim to address several issues which either of the parties may face in business and human rights cases. Article 5(2) provides that a party may face barriers in accessing remedies including lack of awareness of the mechanism, lack of adequate representation, language, literacy, costs, physical location or fears of reprisal, therefore, the tribunal shall ensure that such party is given an effective opportunity to present its case in fair and efficient proceedings.[vi] Generally, the party claiming the human rights abuses is the weaker one and may not be familiar with the procedural aspects of the dispute resolution mechanism. Therefore, this provision bounds the tribunal to deal with such inequalities and endeavour an overall fairness in the arbitral proceedings.
Article 18(5) empowers the tribunal to keep the identity of a person confidential depending on sensitivity of the case.[vii] Confidentiality is an important provision in human rights abuses and most national laws include this principle in such cases. Therefore, this point can lead to the acceptance of these rules by most of the states.
Article 19 deals with ‘multiparty claims’ and espouses the general principle of efficiency that the claims with significant common issues shall be heard together. A business and human rights disputes may include a host of people, therefore, this rule provides for multi-party procedures for the joinder of third parties.
The Hague Rules also talk about the conduct of the proceedings in compliance with the Business and Human Rights Standards. The general conduct of proceedings (Article 18), taking and production of evidence (Article 32) and organisation of hearing (Article 33) necessitate that the arbitration shall take place with “cultural appropriateness” and “rights-compatibility”.[viii]
Conclusion and Comments
The introduction of Hague Rules is surely a step in the right direction for promoting business and human rights arbitration. Each rule is accompanied by a commentary which manifests more clarity in dealing with business and human rights disputes. The rules are flexible in nature, as they provide for both, opting-out of certain provisions and sample model clause. That being said, it is hard to predict at this stage how well the rules will be received by practitioners and arbitral institutions when they are adopted. Moreover, these rules only deal with the procedural aspects of the business and human rights arbitration and not with the substantive part. Therefore, the success of these rules also depends on the viability with which the tribunals will deal with human rights abuses.
There is scepticism regarding the efficacy of Hague Rules in providing remedies to the victims of human rights abuse is when seen in conjunction with statutes of key jurisdictions. For Instance, the U.S Supreme Court did not establish the jurisdiction in Jesner v. Arab Bank[ix]stating that a non-US Company cannot be sued in the US Courts for violations relating to international law. Further, there may be jurisdictions where certain judicial remedies are unavailable. Thus, an alternative shall need to be introduced for such cases.
The Hague Rules have changed the focal point of international arbitration from state-centric or investor-oriented to more human rights oriented. Further, this approach will require investors to work in compliance with human rights statute of the hosting state. On one hand, it must be acknowledged that the Hague Rules provide an ideal framework to deal with human rights violations but on the other hand it must also be noticed that these rules would require a regular fine tuning by experts.
[i] The Hague Rules on Business and Human Rights Arbitration, 2019, Centre for International Legal Cooperation, Dec. 2019, available at: https://www.cilc.nl/cms/wp-content/uploads/2019/12/The-Hague-Rules-on-Business-and-Human-Rights-Arbitration_CILC-digital-version.pdf (hereinafter Hague Rules). [ii] Urbaser S.A. et. al. v. The Argentine Republic, ICSID Case No. ARB/07/26, Dec. 8, 2016. [iii] David Aven et al. v. Republic of Costa Rica, ICSID Case No. UNCT/15/3, Sep. 18, 2018. [iv] Hague Rules, supranote 1, Art. – 1 (Commentary). [v] United Nations Convention on Recognition and Enforcement of Foreign Arbitral Awards, 1958, June 10, 1958, 330 U.N.T.S. 3, art. 1(3). [vi] Hague Rules, supranote 1. [vii] Id. [viii] Id. [ix] Jesner Et Al. v. Arab Bank, PLC, , No. 16-499, 584 U.S. ___ (2018).