Paper presented at the AfAA 2nd Annual International Arbitration Conference, 15th - 16th April 2021

Summary

Concerns for business’ accountability for inter alia the human rights incidence of their commercial activities are neither new nor undeserved. Arbitration is increasingly perceived as the most appropriate independent and impartial venue to adjudicate and seek redress for BHR infringements. Whilst arbitration may indeed offer some positive features, many weaknesses remain that considerably undermine its efficiency and legitimacy on BHR disputes. A thorough reflection is required on the means, stakes and risks. This presentation sets out to discuss some of these weaknesses. This summary discussion is the result of the author's personal reflections in the context of an adversarial debate within the framework of Panel 8A - Protecting Human Rights through Arbitration The Hague Rules on Business and Human Rights Arbitration. It is the sole responsibility of its author and not that of the institutions employing her or which she is related, and does not exhaustively reflect the author's position on a subject whose sensitivity and complexity she appreciates.

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Concerns for business’ accountability for inter alia the human rights incidence of their commercial activities are neither new nor undeserved. These are not new echoed in the acute debate over the necessary interaction between investment and non-investment obligations such as indigenous and human rights, labour, and environmental laws[2]. They are not undeserved as illustrated by the relative helplessness of the system to integrate them efficiently as increasingly reflected in investment cases and discussions to reform foreign investment treaties and enforcement mechanisms. It is defiantly submitted, however, that international arbitration is not the panacea for the resolution of business-related human rights (BHR) disputes, on account of intrinsic arbitration features, namely its consensual basis (below 1), its private essence and anationality (below 2), its flexible approach to material applicable law (below 3), its structural lack of transparency (below 4), its prevailing reliance of parties to argue and finance it (below 5) and the limited effect of ensuing awards and remedies (below 6). We submit by ways of conclusions that, whereas arbitration might be no silver bullet for the adjudication of business-related human rights, there are other more efficient leads to pursue to ensure a proper integration of human rights (and other public interest issues, in particular environmental matters) in business activities and ensure full accountability in case of breach (below 7).

1.        Illusory consent to arbitrate BHR disputes

By contrast to a state judge, who draws his legitimacy from the social contract and is the guardian thereof for the entire society, an arbitrator derives his authority and powers from a private contract and not from the authorities of a state and must proceed and decide the case on the basis of such an agreement[3]. Consent is also a necessary prerequisite to secure enforcement of any arbitral award[4]. Transposed to BHR disputes, chances are that business-side parties will be reluctant to offer their consent to arbitrate a BHR claim, particularly when it could open the floodgates for similar claims. This consent issue has been flagged by the Hague Rules but consent modalities have not been defined[5]. A practical illustration of consent-generated difficulties is provided for instance by the delicate never-ending coordination in the multi-fora Texaco Petroleum-Chevron / Ecuador disputes over charges of toxic waste waters release incidental to mining activities in estuaries and rivers, massive deforestation of tropical forests and abandonment non decommissioned wells on the one side[6], and allegations of breaches of the terms and conditions of the concession agreements on the other side[7].

2.        Inappropriateness of forum to resolve BHR disputes

Another fundamental feature inherent in the private essence of arbitration is that it vests decision-making powers in private individuals[8] operating in tribunals related to no specific national or international legal order (autonomous arbitral legal order)[9]. Transposed to BHR disputes, it is debatable whether a private forum operating in a business setting would be apposite to resolve human rights issues, as “corporate arbitrators are not natural guardians of the public interest, but of business interests and of a new “industry” that, as experience shows, has privileged investors over the public interest […]”[10]. It is also debatable whether private forums related to no particular legal order should have any legitimacy to ensure human rights compliance.

3.        Applicable law dilemma related to BHR disputes

As a matter of principles, arbitrators would decide disputes based on the terms of contract, the chosen law and subsidiary of most appropriate law(s) as well as possibly in equity. Transposed to BHR disputes, the attention given to human rights laws in arbitration would be aleatory to say the least. Firstly, human rights tend to be an exogenous variable to most international investment / commercial laws and contracts. Secondly, human rights instruments are prevalently meant to govern the State-to-individuals relationship with limited business-to-individual incidence, thus exposing per se primarily State liability and only incidental business liability. Human rights standards applying to business activities are mostly derived from non-binding external or internal code of conduct hence hardly enforceable. Thirdly, there are also no agreed conflict of law principles to resolve inevitable conflicts between human rights standards and investment/commercial laws, the jus cogens qualification being reserved only to a limited number of core human rights. The Occidental Petroleum v Ecuador case is cited one among many salient examples of this tension between investment law and human and indigenous rights and the misapprehension an arbitral ruling may generate[11].

4.        Transparency deficit of arbitration inapposite for BHR disputes

Inherent to their private essence, arbitration proceedings are held strictly inter partes and confidential[12]. Transposed to BHR disputes, confidentiality would be inconsistent with the transparency requirement generally expected in public interest matters such as human rights, raising suspicion of behind closed-door arbitration process keeping human rights abuses outside media coverage, ultimately altering the sense of justice being administered (“Not only must Justice be done; it must also be seen to be done.”[13]) instructs that justice should be seen to be done) and undermining the exemplarity and deterrent effect. Whereas the BHR Arbitration Rules endeavor to address this concern with enhanced transparency provision (BHR Arbitration Rules, sect. IV), said adjustment is limited in scope and subject to tribunal’s discretion. Such provision could incidentally be a further disincentive to consent to BHR arbitration (above 1).

5.        Parties’ asymmetrical legal and financial resources

As an all-inclusive private adjudication mechanism (private dispute resolution process, voluntary essence of arbitration, private individuals acting as arbitrator – secretary to arbitral tribunals, private infrastructure and logistics), arbitration remains fully independent from state apparatus, including on financial issues, and arbitrators lack the imperium necessary to instruct the case independently from the parties. It thus leaves it on the parties to designate the arbitrators, to argue their case in compliance with the agreed arbitration rules, and to advance and assume the entirety of arbitration costs (including arbitrators’ fees and expenses, hearing and expert report costs) without any temporary exemption of arbitration costs and outside any public legal aid mechanism based on the understanding that in line with the nature of the institution the State does not have to facilitate access to courts that do not depend on it[14].

Transposed to BHR disputes, these features would inevitably create serious imbalances between human rights victims and commercial or state entities, ultimately undermining effective access to the remedies BHR arbitration is supposed to be serving. These disparities may arise, inter alia, in relation to mastering arbitration technicalities and strategies, access to legal and financial resources (unlikely (financial) interest of third-party funders in directly supporting even high-profile human right cases), and possibly even finding arbitrators/experts available and willing to sit in sensitive cases. Whilst BHR Arbitration Rules provide a costs-containment provision, its efficiency remains to be tested in cases most likely to be long and complex (BHR Arbitration Rules art. 52).

6.    Inappropriateness of remedies to BHR disputes and limited enforcement means

As the outcome of a private, consent-based proceeding issued by arbitrators appointed by the parties to state the law on a particular dispute, arbitral awards would only dispose of the specific issued referred to the arbitrators (saisine limitée), are final and binding only on the parties (no erga omnes effect)[15], and can be enforced only by the parties bound by the arbitration agreement exclusive any third-party enforcement.

Transposed to BHR disputes, even leaving aside the dubious arbitrability of human rights issues, arbitration most likely constitutes no satisfactory remedy for victims of human rights abuses, with the possibility of monetary compensation but limited prospects of long-term change in business practices. Incidentally, it is submitted that there is a certain paradox in claiming bypassing state judiciary to adjudicate human rights claims and suggesting as an alternative thereto to include such claim in investment or even contract arbitration involving, as a party, that same State. Besides, depending on their procedural status in the arbitration, BHR affected parties might have limited or no means of enforcing the ensuing awards. There are numerous examples showing that human rights enforcement cannot be (solely) left in the hands of private parties and companies, the dilemmas triggered by the current Burma/Myanmar situation being only the latest illustration of a long list of similar controversies.

7.        Conclusions

By way of conclusion, it is argued that there are possible alternative leads to be explored to increase businesses’ exposure to BHR accountability. These would include the opening of existing human rights institutions to include individual v companies claims rather than creating yet new dedicated BHR arbitration institutions, it being unlikely that BHR claims could be part of strictly commercial arbitrations. An upstream option would be to ensure the proper internalization of human rights in international investment agreements (which efficiency would still, possibly unrealistically, lie within the hand of host governments)[16] and to provide for a possible denunciation of international investment agreements intended to perpetuate a system that violates human rights, social rights, indigenous rights, minority rights, and environmental laws. 

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* Dr Isabelle Fellrath is a Swiss qualified and registered Attorney at Law, holding an LL.M. and Ph.D. from the University of Nottingham, UK. She represents parties in domestic and international arbitral proceedings and before state courts, and serves as an arbitrator with accreditation from various arbitral institutions (Hong Kong International Arbitration Centre, Lagos Court of Arbitration, Kigali International Arbitration Centre, General List of Arbitrators of the Court of Arbitration for Sport, Member of the Swiss Swimming Arbitral Tribunal for aquatic sports). She also has particular expertise in environmental and energy laws. She regularly publishes in her areas of expertise, which she has been teaching for many years at the Universities of Glasgow and Lausanne as well as at the Swiss Federal Institute of Technology in Lausanne. She is counsel at SwissLegal Rouiller & Associés, in Lausanne and Geneva, Switzerland.

[2]    Publications are numerous ; cf. e.g. P.-M. Dupuy, E.-U. Petersmann, and F. Francioni (eds), Human Rights in International Investment Law and Arbitration, 2009; J. Hepburn, Domestic Law in International Investment Arbitration, 2017; P.-M. Dupuy, J. E. Viñuales (eds), Harnessing Foreign Investment to Promote Environmental Protection, Incentives and Safeguards, 2015; I. Feichtner, Markus Krajewski et al. (eds), Human Rights in the Extractive Industries: Transparency, Participation, Resistance, 2019;  L. W. Mouyal, international Investment Law and the Right to Regulate: A human rights perspective, 2016.

[3]    L. Gouiffès, L’arbitrage international propose-t-il un modèle original de justice?, in Recherches sur l’arbitrage en droit international et comparé, 1997, 1 at 49 ; R. David, Arbitration in International Trade, 1985, at 5 as quoted in W.L. Craig, ‘Uses and Abuses of Appeal from Awards’, 4 Arb. Intl (1988) 174, at 179; Premium Nafta Products Ltd (20th Defendant) & Ors v. Fili Shipping Company Ltd & Ors [2007] UKHL 40 (17 October 2007) ¶ 5.

[4]    E.g. United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards of June 10, 1958, art. IV.

[5]    BHR Arbitration Rules, 2019, Introductory note p. 3.

[6]    Maria Aguinda et al. v. Texaco, Inc., 945 F. Supp. 625 (S.D.N.Y. 1996), 142 F. Supp. 534 (S.D.N.Y. 2001), 93 Civ. 7527, 2000 WL 122143 (S.D.N.Y. Jan. 31, 2000), 303 F.3d 470 (U.S. Court of Appeals for the Second Circuit, Aug. 16, 2002), dismissing liability claim on basis of forum non conveniens, Ecuador, resulting in liability litigation before Ecuadorian courts.

[7]    Texaco’s successor Chevron successfully proceeded against Ecuador before Ecuadorian courts (in vain) and eventually arbitral tribunals operating under UNCITRAL to obtain compensation for various breaches of the terms and conditions of concession agreements; e.g. arbitration award March 30, 2010 (“2.The Respondent has breached Article II(7) of the BIT through the undue delay of the Ecuadorian courts in deciding TexPet’s seven court cases and is liable for the damages to the Claimants resulting therefrom); 3.The Claimants have not committed an abuse of process and are not estopped from bringing the present claim against the Respondent.” and PCA CASE N° 2009-23.

[8]    B. G. Poznanski, The Nature and Extent of an Arbitrator’s Powers in International Commercial Arbitration, 4/3 JIA (1987) 71 at 71.

[9]    E. Gaillard, Legal Theory of International Arbitration, 2010, Chap. 1(C).

[10] Report of the Independent Expert on the promotion of a democratic and equitable international order to the UNGA, 14 July 2015, A/HRC/30/44, ¶15.

[11] Occidental Petroleum Corporation and Occidental Exploration and Production Company v. The Republic of Ecuador, ICSID Case No. ARB/06/11.

[12] Oxford Shipping Co. Ltd v Nippon Yusen Kaisha (Eastern Saga) [1984] 3 All ER 835 (QB, 1984), at 842 ¶ B: “The concept of private arbitration derives simply from the fact that the parties have agreed to submit to arbitration particular disputes arising between them and only between them”; Justice Toohey (dissenting) in Esso/BHP v Plowman case: “[Privacy and confidentiality] are, to a considerable extent, two sides of the same coin”; Justice Colman, in Hassneh Insurance case, at 225-26 ¶ 8: “The disclosure to a third party of such documents [which are created for the purpose of private arbitration hearing] would be almost equivalent to opening the door of the arbitration room to that third party”; L.Y. Fortier, The Occasionally Unwarranted Assumption of Confidentiality, 15/2 Arb. Intl (1999) 131, at 132: “[…] [I]t has been the experience of the members of this Tribunal and their colleagues whom they have consulted who often act as ICC arbitrators that, as a matter of principle, arbitration proceedings have a confidential character which must be respected by everyone who participates in such proceedings […]”.

[13] Lord Chief Justice Hewart in R v Sussex Justices ex parte McCarthy ([1924) 1 KB 256, [1923] All ER Rep 233.

[14] Swiss Supreme Court in ATF 99 Ia 325 g. 3.

[15] Samsung Logix Corporation, Deval Denizeilik VE Ticaret A.S. v Oceantrade Corporation, EW High Court (Queen's Bench Division), 18 October 2007 [2007] EWHC 2372 (Comm).

[16]   Cf. e.g. Netherlands model Investment Agreement of March 22, 2019; further : Ch. Blair, E. Vidak-Gojkovic, M.-A. Meudic-Role, The Medium Is the Message: Establishing a System of Business and Human Rights Through Contract Law and Arbitration, 35/ 4 JIA (2018) 379.