Letters Blogatory

The Blog of International Judicial Assistance
By Ted Folkman

At Last: A Draft UN Treaty on Business and Human Rights

Longtime guest poster Doug Cassel comments on the recently released draft of a treaty on business and human rights.

Drafting a viable, meaningful, United Nations treaty on business and human rights would be daunting in the best of circumstances. It is even more challenging in the context of the current effort underway in Geneva. The negotiating process began in 2014 when the UN Human Rights Council, split by geography and ideology, voted to initiate the drafting process by a bare plurality of the Council’s 47 member states. Since then, the process has crept along at a snail’s pace, with a first draft of a treaty emerging only now, four years later.

The process has been boycotted by the United States, rebuffed by Russia, and held at arm’s length by even most potentially supportive states (including the European Union). At times the treaty initiative has appeared to be on life support. Nonetheless, a continuing commitment by Ecuador, the principal state sponsor of the process, joined by South Africa and buoyed by the strong support of a broad coalition of civil society organizations, has kept it going.

If there is a realistic hope for a treaty that is both diplomatically viable and meaningful for human rights, the draft treaty text newly released by Ecuador in July 2018 is on the right conceptual track. Unlike the draft “elements” of a treaty Ecuador proposed last year, which largely reflected an NGO wish list, the new text focuses on human rights priorities – prevention and remedy – while
ensuring state control of implementation, and jettisoning some elements that most troubled the business community.

The new text zeroes in on what victims need most. To prevent human rights violations, states parties must commit to require their companies to exercise human rights due diligence. Due diligence must include (article 9.2):

  • monitoring and preventing the adverse human rights impacts of a company’s activities and those of its subsidiaries and entities it controls or to which it is directly linked [the extent of prevention required will need to be addressed];
  • identifying and assessing actual or potential violations;
  • reporting publicly and periodically on environmental and human rights, including “policies, risks, outcomes and indicators”;
  • conducting pre- and post-environmental and human rights impact assessments and integrating the findings into business operations;
  • including the above requirements in “all contractual relationships which involve business activities of transnational character”;
  • “meaningful consultations” with potentially affected groups; and, where needed,
  • financial guarantees such as insurance bonds to cover potential costs of compensation.

To remedy human rights violations, both home and host states of companies engaged in “business activities of a transnational character” will be required to provide remedies and to cooperate in
their enforcement (articles 5.1, 8, 10-11).

Among other remedies, failure to comply with due diligence duties “shall result in commensurate liability and compensation” in accordance with the treaty (article 9.4). [Negotiators will need to address the conditions and extent of such “commensurate” liability.

The new text also addresses the practical realities of access to justice (article 8). States must guarantee victims “appropriate access to information” relevant to remedies, court costs are to be minimized and waived where necessary to assure access to justice, states must determine needs for legal assistance to victims, and an international fund for legal aid to victims is to be created.

Following the traditional international law pathway, the treaty will be implemented and enforced by States parties. State laws are to mandate human rights due diligence by business and to afford victims access to judicial remedies. This conventional treaty approach – states agreeing on norms and undertaking to implement them by domestic legislation – should make it easier for wary states to join in serious treaty negotiations and, eventually, in a treaty.

Unlike last year’s “elements,” the new text contemplates no binding international enforcement mechanism. The treaty will create no international court where victims can sue companies or where business executives and corporations can be criminally prosecuted. It will not even establish a mechanism for complaints to an international treaty committee.

There will instead be international monitoring, oversight and prodding by a committee of experts (article 14.4). They are to receive and review progress reports by states and to make both general comments and state-specific recommendations for improvements. A conference of states parties will also review implementation — including any “further development” needed to fulfill the purpose of the treaty (article 14.5). International oversight will thus combine the self-reporting and non-binding review characteristic of early human rights treaties governing states, with the more recent innovation of a conference of states parties.

Many advocates for victims will find the absence of robust international enforcement disappointing. But if relying on enforcement by states parties proves to be the price of admission for a critical mass of states to join the treaty, then omitting international enforcement is likely a worthwhile concession. The value of broad state participation should outweigh the value added of an international court – witness the disappointing performance of the International Criminal Court.

States should find the draft treaty text appealing in concept. It puts them in the driver’s seat to adopt legislation of their own choosing to meet broadly stated treaty criteria, with no compulsory international override.

Global business organizations are not likely to welcome any treaty that imposes mandatory human rights due diligence and remedial obligations. Still, the business groups that emphatically rejected
last year‘s draft elements should take a fresh look. The preamble of the new text makes explicit, as business rightly insists, that the “primary responsibility” for human rights (including protecting people from abuses by business) remains with states. Gone is the reference in the “elements” to direct imposition of international law obligations on business. Gone also are the international courts or mechanisms for business to be sued or prosecuted. Gone, too, is the reference in the “elements” to the UN Sub-Commission “norms” of 2003 on business and human rights (which were widely rejected by states and business).

In contrast, a newly included provision (article 9.5) authorizes states to exempt small and medium size businesses from selected due diligence obligations, in order to avoid imposing undue administrative burdens.

Another major concern of business has been the relationship between this treaty and trade and investment treaties. The new text drops the claim in the “elements” that this treaty overrides trade and investment treaties. Instead, three more modest claims are made. The first should appeal to business: this treaty is “without prejudice” to state obligations under existing treaties (article 13.3). The second and third provisions (articles 13.6 and 13.7), for their part, are reasonable compromises: new trade and investment treaties should not conflict with this treaty and should uphold” human rights, and all trade and investment treaties, both existing and new, should be interpreted in a manner “least restrictive” of rights under this treaty.

Not that the new text is ready for signing tomorrow. Issues of both concept and language remain. If not satisfactorily resolved, they could derail the treaty process. Many have been helpfully noted by Carlos Lopez of the International Commission of Jurists in his blog at Opinio Juris.

This brief comment mentions only three. One involves what companies will be covered. Business organizations and most NGO’s argue that any treaty should cover all companies. South Africa advocates a treaty only for transnational corporations. Ecuador proposes a compromise by which application of the treaty would turn, not on the transnational nature of the company, but on the transnational nature of the business activity at issue.

Specifically, the treaty would apply to all “business activities of a transnational character.” These are defined (article 4.2) to include “any for-profit economic activity, including but not limited to productive or commercial activity, undertaken by a natural or legal person, including activities undertaken by electronic means, that take place or involve actions, persons or impact in two or more national jurisdictions.”

Ecuador’s approach has generated both substantive and definitional objections. Substantively, many human rights advocates criticize it for excluding companies whose business activities are exclusively national, but which can and do affect human rights. However, although further analysis is needed, the breadth of the foregoing definition – covering “actions, persons or impact” in two or more nations – may in practical effect cover all national companies of any significant size in today’s globalized economy.

There is also a definitional concern. While Ecuador’s definition may be adequate for purposes of imposing obligations of human rights due diligence, it might lack the precision required for criminal prosecutions under the treaty. This aspect deserves further examination.

A second issue arises from the treaty’s proposed imposition of civil liability (article 10.6) on companies in connection with the actions of their subsidiaries and business partners, depending on factors of control, foreseeable risk, or a “strong and direct connection” between the company’s conduct and the wrong. This language needs to be made more precise, and to make clear that the actionable act or omission must be that of the company itself, and not merely of its business partners, if the treaty is to avoid clashing with entrenched national law doctrines that limit piercing of the corporate veil.

Finally, the new text authorizes reversal of the burden of proof, subject to national law, “where needed” to assure the victim’s access to justice (article 10.4). While many national laws authorize reversal of the burden of proof in defined circumstances, this broad proposal would be less controversial if the circumstances were specifically defined in the treaty.

Overall, the new text seeks to strike a balanced compromise among the interests of human rights claimants, states and business. As a compromise, it will likely provoke significant objections, if not outright opposition, from human rights NGO’s. And it is not likely to persuade business organizations to drop their opposition to an expansive treaty. States, however, may find that it meets their concerns and respects their interests.

Taken as a whole, the preventive and remedial provisions of the new text actually go well beyond most (and perhaps all) current national laws. The treaty’s preventive provisions are broader than the most advanced national legislation today, namely the French loi de vigilance (due diligence law), which was adopted only in 2017. The treaty’s remedial provisions provide broader grounds of liability than current English case law on the business duty of care.

At the same time, although some provisions need to be clarified, the proposed text shows a degree of sensitivity to avoiding the imposition of unreasonable obligations on business.

The proposed treaty’s coming into force would not instantly revolutionize the world of business and human rights. But it would accelerate existing momentum for states to take more seriously their legal obligations to protect human rights from business abuse, and would encourage business to strengthen their human rights due diligence procedures. If widely ratified, the proposed treaty should
stimulate a proliferation of national laws imposing reasonable obligations on business to prevent human rights violations and, when violations occur, improving access to justice by victims.

Doug Cassel

19 responses to “At Last: A Draft UN Treaty on Business and Human Rights”

  1. Alessandro Spinillo

    Very informative work, congrats!

    I’m afraid that behind this initiative there is an intention to focus almost exclusively on companies carrying out business in the territories seized by Israel after the Six Days War.

    Reply
    1. Doug Cassel

      A worldwide coalition of hundreds of civil society NGOs supports the treaty. The initial impetus was Ecuador’s experience with oil companies. However, the focus since the outset of the treaty process has been on many industries and many nations. While Israel has been mentioned, it is far from the focus, let alone an almost exclusive focus, of the treaty initiative.

      Reply
  2. Ted Folkman

    Doug, thanks very much for this. As you note, Ecuador is the main state sponsor of this work, and my sense (which may be right or maybe not) is that at least part of the impetus for the project is the Chevron case and the perceived bad outcome for the indigenous plaintiffs. The proposal strikes me as a likely non-starter for the United States and probably many others, but I am curious to know what you think about this draft in the context of Chevron. What problem that arose in the Chevron case would this treaty solve? Here are some thoughts:

    Jurisdiction. The Ecuadoran plaintiffs originally brought their claims in New York, but the claims were dismissed in favor of litigation in Ecuador. The plaintiffs never sought recognition and enforcement of the Ecuadoran judgment in a US court. The draft treaty would “vest” jurisdiction in the courts of the state where the acts or omissions that resulted in a human rights violation occurred, or where the plaintiffs are domiciled. It seems to me that a provision like this would not have changed anything in the Chevron case, for the following reasons: (1) the dismissal of the US court case was not jurisdictional, but rather on account of the inconvenient forum; the treaty, as drafted, addresses jurisdiction but not venue; (2) both an appropriate US court and an appropriate Ecuadoran court would have had jurisdiction over the plaintiffs’ claims under existing law.

    Veil-piercing. As you note, the draft’s provisions on veil-piercing are problematic. You suggested that the language needed to be made more precise in order to avoid simply doing away with the doctrine. As I read Article 10(6), I wonder whether that isn’t the point of the proposal. This would mean a wholesale revision of corporate law, which is one of the reasons I think it’s a non-starter. Without the protection of limited liability, the outcome might well have been different in the enforcement cases in Canada and in Latin America. But thinking again just of the Chevron case, why would the case warrant such a drastic change in the law, when the plaintiffs never sought to enforce the judgment against the judgment debtor itself and where the judgment debtor had plenty of money to satisfy the judgment?

    Recognition and enforcement. The provision on recognition and enforcement eliminates several defenses now available under US law to recognition and enforcement of a foreign judgment, e.g., fraud in the foreign proceedings, or inadequacy of the foreign judiciary. As you’ll recall, I’ve argued before that fraud in the proceedings shouldn’t necessarily be available as a defense to recognition, assuming the foreign judiciary is adequate and provides a means to remedy fraud. But I don’t see how it makes sense to eliminate systemic inadequacy of the foreign judiciary as a basis for refusing recognition. Also, the claim preclusion rule in the draft is interesting: recognition and be refused where “the judgment is irreconcilable with an earlier judgment validly pronounced in another Party with regard to the same cause of action and the same parties.” In the context of the Chevron case, this is interesting, because it would not permit a collateral attack on the underlying judgment to serve as a basis for refusing recognition, even if, say, the collateral attack proves fraud. Also, only an earlier judgment of a party to the treaty would have preclusive effect. That is curious: why shouldn’t a judgment of a non-party be preclusive? And for that matter, why does the earlier judgment necessarily prevail in this context?

    I’m interested in your thoughts.

    Reply
    1. Doug Cassel

      Dear Ted,

      Thanks for your comments. A few initial observations:

      1. Jurisdiction. I agree that this draft treaty, had it been in effect, would not necessarily have changed the venue where the Chevron case was heard, because the remission of the case to Ecuador turned on an issue of forum non conveniens, not jurisdiction.

      2. Veil-piercing. It should be possible to write the language of the treaty in a way that makes clear that it focuses on the fault of a parent company, not the subsidiary, for harm resulting from business activities of the subsidiary which should have been foreseen and prevented by the parent company. Done in that way, with appropriate limitations, there is no piercing of the corporate veil.

      The English courts have already done this in several cases, which have also been followed in Canada and in The Netherlands (applying Nigerian common law, which generally follows English common law, under conflict of laws rules). One of those English cases, which the claimants lost below on a preliminary motion, because they could not show sufficient control by the parent company, is now on review before the UK Supreme Court. (Okpabi v Royal Dutch Shell, Ct Apps 2018). Review of another case, in which the claimants won below on preliminary motion, because they did show sufficient control by the parent company, is “on hold” by the UK Supreme Court pending its decision in the Shell case. (Lungowe v Vedanta, Ct Apps 2017.)

      I have argued elsewhere that the English approach is not the best, and I (and others, including Amnesty International) have suggested an alternative which, to my knowledge, has not yet been squarely presented to any court. D. Cassel, Outlining the Case for a Common Law Duty of Care of Business to Exercise Human Rights Due Diligence, 1 BUSINESS AND HUMAN RIGHTS JOURNAL 179-202 (2016).

      What the English approach and mine have in common is that they do not impose vicarious liability of the parent for the sins of the subsidiary; rather, the focus is on the parent’s breach of its own duty of care.

      3. Recognition and enforcement (R&E). Article 11(10) of the draft text allows a court to refuse R&E of a foreign judgment where the defendant did not have a “fair opportunity” to present its case or where the foreign judgment is contrary to the “public policy” of the State in which recognition is sought. The public policy exception, at least, should allow each State to determine its own rules on the circumstances in which fraud in the judgment, systemic deficiencies in a foreign judiciary, or the preclusive effect of a contrary judgment involving a different party, would preclude recognition of the foreign judgment. One may argue, I think, that these criteria are best left to the legislative discretion of each state party, since public policies on these points may differ from state to state.

      These, at least, are my initial reactions to your thoughtful comments.

      Reply
      1. Ted Folkman

        Doug, if the effect of the “veil-piercing” provisions is not to pierce the veil at all, but rather simply to say that the parent company is responsible for its own negligence, then I wonder whether it is really accomplishing a change in the law at all?

        I take your point about the public policy exception, except that I think that a US court would be likely to read the treaty in light of the Uniform Acts. The UFCMJRA has a public policy exception and an “inadequate foreign judiciary” exception, and it would be a typical approach for a US court to say that the inclusion of an exception on one list and its exclusion on the other list should be given effect.

        Reply
        1. Doug Cassel

          Thanks for this, Ted.

          On your first point, it is of course well established that any company is responsible for its own negligence. But the frontier of the law in the English cases has been in effect to define “own” negligence to include negligent supervision of subsidiaries, within certain limits, with regard to human rights, health and environmental impacts on third parties, such as employees of the subsidiary and community residents.

          Until now, none of those issues has reached the UK Supreme Court. Hence the forthcoming UK Supreme Court ruling in Okpabi (and possibly Vedanta) could be a landmark (one way or the other).

          I see and take your point with regard to US law on “public policy.” That may lead me to suggest revisions to the R&E provisions of the draft treaty. But lead sponsor Ecuador may resist adding exceptions for fraudulent judgments or systemic deficiencies, in light of the background of the Chevron litigation.

          Reply
          1. Ted Folkman

            Well, now you will have to give us a guest post about Okpabi when it arrives!

            Reply
            1. Doug Cassel

              With pleasure – doug

              Reply
  3. Florencia Wegher Osci

    I’m surprised by the jurisdiction article specially the absence of any mention to ADR mechanisms, but also with the article itself. It doesn’t look like a HR disposition but rather a PIL one, don’t you think?
    There’s no mention to denial of justice and no possibility to choose a different jurisdiction than the judicial one.
    Have they considered the HCCH Judgments Project? I think that would be thinking ahead, and the same applies to the NY convention if they decide to include arbitration or mediation as possible jurisdictions.

    Reply
    1. Doug Cassel

      The draft treaty indeed focuses on judicial remedies, in part because non-judicial remedies have until now proved insufficient. A separate initiative is underway in The Hague to draft a set of international arbitration and mediation rules for cases involving business and human rights.

      Reply
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  5. Alessandro Spinillo

    Interesting discussions on the draft treaty. For my part, I got to digest many of its tenets, but as an attorney with broad experience in litigation in developing countries I believe that Ecuador (and most countries in the region) should focus first and foremost on achieving a transparent and independent judiciary. To have made Chevron liable for the environmental damage caused, you didn’t need a new treaty on human rights, but rather fair and honest national courts whose judgments could be enforced worldwide without lingering suspicions of bias or fraud. Chevron has been a hard-won lesson. But please don’t get me wrong, I still think that the draft treaty may be a positive development in international law, though many refinements seems to be necessary.

    Reply
    1. Ted Folkman

      Well, you make a very good point.

      I hope that advocates do not say something like: “if only the treaty had been in effect, the Ecuadoran judgment would have been entitled to recognition in the United States!” It seems to me that that idea motivates much of the opposition to the treaty given the US courts’ findings about what happened in Ecuador, and surely it’s bad PR to say that the treaty will allow judgments to be recognized even if fraudulent.

      Reply
      1. Alessandro Spinillo

        Ted, a fraudulent judgment (or a fraudulent arbitration award alike) shall not be enforced in any jurisdiction as a matter of public policy, irrespective of whether or not the treaty had been in force.

        I wonder if Doug could kindly provide some more details about that initiative in the Hague to establish a set of international arbitration rules for disputes involving businesses and human rights.

        Reply
        1. Ted Folkman

          I know that’s the theory, but as I pointed out in an earlier comment to this post, US law currently provides exceptions to the ordinary requirement of recognition when judgments are contrary to public policy and when judgments are obtained by fraud. If the treaty has one exception but not the other, expect litigants to argue that the other exception no longer exists in US law—which is why I think it should be included in the treaty.

          Reply
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