Arbitrating Human Rights Disputes: The Proposal for Business and Human Rights Arbitration Rules and Lessons Learned from the Bangladesh Accord Arbitrations

Rumbidzai Maweni
July 10, 2019

The Bangladesh Accord and the New Proposal for Business and Human Rights Arbitration Rules

On 23 April 2013, the Rana Plaza building in Dhaka, Bangladesh started to show cracks. While other businesses in the building immediately closed, the garment workers who worked in the clothing factories—which manufactured apparel for major global brands including Benetton, Primark, and Walmart—were ordered to return to work the following day or else forfeit a month’s worth of pay. On the 24th of April, the building collapsed, killing 1,134 people and critically injuring over 2,000 more. It was later discovered that the floors housing the factories had been built without a valid permit. The collapse of the Rana Plaza building was not only the deadliest garment-factory accident ever—it was the deadliest structural failure accident in modern human history.

In response to the public outcry and political pressure that swiftly followed, the Accord on Fire and Building Safety in Bangladesh (“Bangladesh Accord” or “the Accord”), a legally binding agreement between global brands and retailers and trade unions, was conceived in the immediate aftermath.[2] The agreement was designed to make the Bangladeshi Ready Made Garment (“RMG”) industry safe and sustainable, and to prevent fires, building collapses, physical injuries, and other accidents that can be prevented through reasonable safety and health measures. Signatory companies bear the costs of improving fire and safety standards in the factories where they source their supplies. The Accord was voluntarily signed between over 220 global apparel brands and retailers in over 20 countries spanning Europe, North America, Asia, and Australia, and several trade unions, including two global trade unions and eight Bangladeshi trade unions. It covers more than 1,600 factories and 2 million workers in Bangladesh.

The Bangladesh Accord represents the first time an arbitration procedure has been integrated into a global framework agreement for the resolution of business and human rights (“BHR”) disputes. The Accord includes a two-step dispute resolution provision—the second step being binding arbitration. The signatory labor unions may bring claims against signatory corporations for failing to meet their obligations under the Accord to facilitate and/or maintain safe and non-hazardous working conditions. First, the claims are heard by a committee composed of representatives from global trade unions and brands and chaired by a representative from the International Labor Organization (“ILO”). Decisions by the committee are then appealable in arbitration under the UNICTRAL Arbitration Rules.

The entrance into force of the Bangladesh Accord was hailed as a watershed moment for the resolution and enforcement of BHR claims, and interest in resolving business-related human rights disputes through international arbitration has only grown since. In 2017, the Working Group on International Arbitration of Business and Human Rights (“Working Group”) assembled a Drafting Team—headed by Judge Bruno Simma of the International Court of Justice, and composed of other legal experts—to draft the Hague Rules on Business and Human Rights Arbitration (“BHR Arbitration Rules”).[3] Recognizing the significant legal and practical hurdles that victims of business-related human rights violations often face in bringing claims in national courts (due to, for example, inaccessibility of fair and competent courts, repressive State or corporate action, doctrines of forum non conveniens, or legal norms shielding parent companies from liability and assets from execution), as well as the severe gaps in existing business and human rights frameworks regarding enforcement of judgments,[4] the Drafting Team frames arbitration as an attractive alternative offering greater flexibility and accessibility.

Furthermore, BHR Rules would not only allow victims of corporate human rights abuses and their representatives (including NGOs and other civil society organizations) to bring claims against multinational enterprises (“MNEs”), they could also be included in intra-business contracts between corporate partners,[5] including in supply chain agreements between companies and their manufacturers. The BHR Arbitration Rules could be used to arbitrate a broad range of business-related human rights violations including those related to environmental and labor disputes.

While the general success of the Bangladesh Accords make it, in certain respects, a model, it is also important to keep in mind the critical differences between this and the BHR Arbitration Rule framework in order to draw on and learn from this existing mechanism.

Key Differences between the Bangladesh Accord and the Proposed BHR Arbitration Rules

First and foremost, for decades the garment industry has been under enormous political pressure to address business-related human rights-related impacts; a pressure of duration and intensity not always witnessed by other industries. There has long been social and political pressure on retailers in the RMG industry to address safety and working conditions throughout their supply chains, which reached its apogee with the collapse of Rana Plaza. Thus, the Bangladesh Accord is very much a demand-driven, sector-specific response. While MNEs in other industries have faced similar pressure to monitor and enforce human rights standards and provide remedies throughout their supply chains and in their business activities, it is unclear that this pressure has reached the sustained levels that may result in corporations agreeing to arbitrate such sensitive disputes on a global scale.

A second key difference regards consent to arbitrate. The Bangladesh Accord is strictly between the global fashion brands and retailers and the labor unions that signed on to the agreement. The global MNE, as opposed to merely the local subsidiary, has consented to be bound by the arbitral provisions in the Accord and to the substantive requirements set forth therein. In contrast, the BHR Arbitration Rules are not a comprehensive mechanism. While they may assist disputing parties to arbitrate under a set of rules designed to address the nuances of the BHR context, the parties will separately need to consent to arbitrate, and these rules do not provide or offer additional incentives for an MNE, or even a local entity, to give such consent. The substantive rules and law that would be applied will similarly be external to the BHR Arbitration Rules themselves.

A third key difference is in regards to the intended use. While the Bangladesh Accord sets forth a binding and enforceable agreement between corporates and labor, the BHR Arbitration rules are much broader in respect of categories of intended use. They would serve as both an avenue for redress for potential victims as well as a corporate social responsibility mechanism whereby MNEs can monitor and hold their own business partners and other entities within their supply chain accountable to objective standards. While the BHR Arbitration proposal envisions that the BHR Arbitration Rules could be used in international or multilateral agreements, it is largely assumed that MNEs will simply incorporate BHR arbitration clauses into supply-chain contractual agreements. There are, however, normative and practical difficulties to this application of BHR norms. First, whether and in what circumstances an inter-corporate dispute, likely also based in contractual obligations, would raise sufficient human rights issues that it should be arbitrated under rules designed for this purpose. Second, global brands often do not even know the extent of their own supply chain as supply chains are often not fully traceable. So, even if one mechanism is included as a contractual provision, providing third-party rights to sue under these rules throughout a supply chain (i.e. to permit victims to bring claims against these corporations), will in practice be difficult to achieve. Even if it is achieved, absent transparency of these contracts, it is unclear whether intended third-party beneficiaries would know about these rights or have the ability to act on them. Moreover, particularly outside of brands in certain industries that are particularly known for BHR sensitivities, the incentives necessary for companies to ensure the inclusion of these provisions, in a manner that is actually enforceable by those whose rights are violated, in supply-chain contracts remain unclear. The BHR Arbitration Rules seemingly face more obstacles with regards to feasibility than the Bangladesh Accord.

Lessons Learned

While there are key differences between the Bangladesh Accord and the proposed BHR Arbitration procedures as outlined above, there are still many lessons that can be gleaned from the Bangladesh Accord and the arbitrations conducted under its dispute resolution clause to-date that are relevant to the BHR Arbitration Rules proposal.

Consistency in the Interpretation and Application of International Law

A large part of the Bangladesh Accord’s success and viability is that it has a clearly defined scope. Specifically, it was created for the arbitration of sector-specific disputes and its applicable law and principles rely on international labor standards.

In contrast, the Drafting Team currently envisions that the BHR Arbitration Rules would allow parties to arbitrate disputes across a wide range of sectors and that parties would have autonomy to select the applicable law or rules of law, including domestic law and general rules of contract, which are not necessarily consistent with international human rights law. The Drafting Team should consider formulating applicable law or conflict of law provisions in order to ensure that relevant international legal standards may at the very least be consulted to inform interpretations of relevant domestic law and contractual rights and obligations, so that the processes and outcomes are consistent with internationally recognized human rights standards as they apply to business-related disputes.

Transparency as a Guiding Principle of BHR Arbitration

To date, two arbitration proceeding have been administered by the Permanent Court of Arbitration under the Accord. Both ended on 17 July 2018 when the Tribunal constituted for both issued termination orders following settlement by the Parties. While the identities of the Claimants are known, the identities of the two Respondent global fashion brands are confidential, as are the specific contents of the proceedings. Due to this lack of transparency, little can be gleaned about the outcome of these disputes and whether the Accord truly provides a mechanism that allows for reasonable and fair adjudication of business and rights-related disputes.

The BHR Arbitration Rules should, in line with broader trends toward transparency in arbitration contexts that apply public international law, apply transparency of disputes as a guiding principle and default rule (with exceptions for the protection of claimants and witnesses).[6] Given the potential of these proceedings to contribute to a developing body of law, as well as the fact that the violations in question are indisputably within the public interest, it would be difficult to justify a lack of transparency in such proceedings.

Precedent and Guiding Principles

Finally, it is important to remember that the Bangladesh Accord was never intended to be a permanent solution to hazardous working conditions in the Bangladeshi RMG industry. On the contrary, it was intended as a temporary way to improve safety and working conditions until national labor standards were improved and regulation of the RMG industry could be safely handed over to a national regulatory body. In light of this, a truly successful arbitration procedure under the Bangladesh Accord would not only be a means of enforcing the agreement itself, it would also create a body of guiding principles for adjudicating similar disputes translatable beyond the arbitration procedure provided for in the Accord.

Similarly, while one of the arguments for BHR Arbitration is that many national jurisdictions do not have the capacity to adjudicate business and human rights-related disputes, BHR Arbitration should not be conducted at the expense of failing to build up the capacity of national jurisdictions to adjudicate these disputes. Again, in order to meet all of these goals and objectives, the BHR Arbitration Rules must be feasible, facilitate truly transparent proceedings, and coherent with international legal norms and principles.

[1] Rumbidzai Maweni is a post-graduate research fellow with CCSI.

[2] The five-year accord was signed on 15 May 2013 and subsequently renewed by the 2018 Transition Accords which entered into effect on 1 June 2018, explicitly designating the Hague as the seat of arbitration and that all arbitrations will be administered by the Permanent Court of Arbitration.

[3] In November 2018, the Drafting Team published its Elements for Consideration in Draft Arbitral Rules, Model Clauses, and Other Aspects of the Arbitral Process (the “Elements Paper”) and invited submissions and commentary from various stakeholder communities. The Columbia Center on Sustainable Investment (CCSI) provided a submission which can be found here. A Draft of the BHR Arbitration Rules was published in June 2019.

[4] This issue will be addressed, in part, by the Convention of 2 July 2019 on the Recognition and Enforcement of Foreign Judgments in Civil or Commercial Matters (“Hague Judgments Convention”) governing the international jurisdiction of courts and the recognition and enforcement of their judgments abroad.

[5] According to the Drafting Team’s Elements Paper the BHR Arbitration Rules would provide three options for establishing consent to arbitration: (i) contracts imposing human rights-related obligations on business enterprises (e.g., employment, supply, or service contracts), or arbitration clauses broad enough to cover non-contractual human rights claims; (ii) later agreements to submit a dispute to arbitration (a “submission agreement” or “compris”); or (iii) multilateral, independent agreements, like the Bangladesh Accord.

[6] The larger international arbitration landscape is increasingly recognizing the need for transparency in arbitration as embodied in instruments such as the UNCITRAL Rules on Transparency in Treaty-Based Investor-State Arbitration (“UNCITRAL Transparency Rules”) and the United Nations Convention on Transparency in Treaty Based Investor-State Arbitration (“Mauritius Convention”).