I am very pleased to share Part II of this post on the draft business and human rights treaty by Nilsun Gursoy, a lawyer qualified to practice in Turkey and currently based in Ireland. Part I of the post is available here.
In an effort to address one of the most pressing governance gaps in business and human rights, the Draft Treaty sets the basic principles in relation to criminal and civil liability. With respect to civil liability, it provides various grounds on which companies may be held responsible for violations arising in the context of their business activities. Article 10.6 reads as follows:
All persons with business activities of a transnational character shall be liable for harm caused by violations of human rights arising in the context of their business activities, including throughout their operations (i) to the extent it exercises control over the operations, or (ii) to the extent it exhibits a sufficiently close relation with its subsidiary or entity in its supply chain and where there is strong and direct connection between its conduct and the wrong suffered by the victim, or (iii) to the extent risk have been foreseen or should have been foreseen of human rights violations within its chain of economic activity.
The grounds for liability are more comprehensive then the parent company’s liability based on a breach of duty of care, and the provision is carefully drafted to include every possible way that a company may be involved in or have contributed to human rights violations that occurred throughout its business activities. For this reason, the provision is likely to cause controversy during the negotiations and may be subject to further changes.
Establishing criminal liability under domestic laws was another source of controversy during the negotiations. In accordance with Article 10.8, States are required to establish criminal liability in their domestic law “for all persons with business activities of a transnational character that intentionally, whether directly or through intermediaries, commit human rights violations that amount to a criminal offence.” In the event that the legal system of a party does not recognize criminal liability of legal persons, the relevant party is required to ensure that “legal persons are subject to effective, proportionate and dissuasive non-criminal sanctions, including monetary sanctions or other administrative sanctions.” Thus, the Draft Treaty dropped the Draft Elements’ proposal to require States to establish criminal liability of legal persons in their domestic law.
Similar to the general scope of the Draft Treaty, the scope of criminal liability is limited to offenses committed by persons with “business activities of a transnational character.” As noted by Carlos Lopez in his recent blog, the personal scope of the provisions related to criminal liability will inevitably cause fundamental rule of law problems if not properly addressed.
The Draft Treaty also includes a general and open-ended provision on the reversal of the burden of proof for the purpose of ensuring victims’ access to justice. It is subject to domestic law and the discretion of the court asserting jurisdiction under the treaty. No further conditions are imposed with regard to the application of this provision.
Human Rights Due Diligence
The Draft Treaty provides guidance on another pressing but less controversial issue, which is the prevention of human rights violations in the context of transnational business activities. Under Article 9, States are required to ensure that all persons with transnational business activities under their jurisdiction exercise human rights due diligence. The article provides a list of measures to be taken at minimum by companies. These minimum measures are: monitoring the human rights impacts of their business activities including their subsidiaries and other entities related to its operations, products or services, identifying and assessing any actual or potential human rights violations, prevention of such violations, reporting on non-financial matters, conducting environmental and human rights impact assessments, reflecting such human rights requirements in all contractual relationships, carrying out meaningful consultations with affected groups, and establishing financial guaranties to cover potential claims of compensation.
However, as noted by Carlos Lopez, those minimum measures divert companies away from the four-step human rights due diligence process provided under the UN Guiding Principles. In accordance with the UN Guiding Principles, human rights due diligence is a process carried out by businesses in order to identify, prevent, mitigate and account for how they address their adverse human rights impacts. The measures like establishing financial guaranties to cover potential claims of compensation and reflecting human rights obligations in all contractual relationships do not fall within the scope of human rights due diligence, and Article 9 needs to be aligned with the UN Guiding Principles.
The Draft Treaty takes a step further and requires States to put in place effective national procedures to enforce compliance with the above human rights due diligence requirements. Moreover, it provides that failure to comply with these requirements will result in liability and compensation. On the other hand, States are allowed to exempt certain small and medium-size undertakings from selected obligations to avoid causing undue administrative burdens.
International Cooperation and Mutual Legal Assistance
In an effort to reinforce victims’ access to justice and remedy, the Draft Treaty provides a series of State obligations on international cooperation and mutual legal assistance. Under Article 11, States are required to cooperate in good faith to enable the implementation of the treaty and fulfillment of the obligations thereunder. Article 11 also requires States to afford one another “the widest measure of mutual assistance” in initiating and carrying out investigations, prosecutions and judicial proceedings in relation to those cases falling under the scope of the treaty. Mutual legal assistance includes such measures as taking evidence or statements from persons, executing searches and seizures, providing original or certified copies of relevant documents and records including government, bank, financial corporate and business records, facilitating the freezing and recovery of assets, assistance to protection of victims, their families, representatives and witnesses etc.
Those measures will reinforce victims’ access to justice; particularly in cases where they need to obtain documents held by the parent company located in another jurisdiction or to collect evidence in the jurisdiction where the act in question has occurred. In theory, the provisions on mutual legal assistance are welcome; however, it is hard to imagine how those provisions will be implemented by States in the absence of effective compliance mechanisms. Implementation of the above stated provisions may be easily avoided by States, in particular, in cases where a State is unwilling to cooperate because it was involved in the human rights abuses or has any other ulterior motive to protect the corporate abuser.
With respect to the recognition and enforcement of foreign judgments, the Draft Treaty establishes an unconventional and simplified mechanism of recognition and enforcement. Accordingly, any judgment of a court having jurisdiction in accordance with the treaty, which is enforceable under the State of origin of the judgment, will be recognized and enforced upon the completion of formalities required by that party. Those formalities should not be more burdensome and costly than the formalities required for the enforcement of domestic judgments.
On the other hand, the defendant may request the refusal of recognition and enforcement by showing that (i) the defendant was not given reasonable notice and a fair opportunity to present his or her case, (ii) the judgment is irreconcilable with an earlier judgment validly pronounced in another State party, or (iii) the judgment is contrary to the public policy of the State party in which recognition is sought. Those grounds do not explicitly include the cases where the judgment was obtained by fraud. However, it is possible to argue that the fraud exception is already embedded in the public policy exception. Moreover, the Draft Treaty does not require the judgment to be manifestly incompatible with public policy, unlike the Hague Convention on the Recognition and Enforcement of Foreign Judgments on Civil and Commercial Matters. However Article 13 of the Draft Treaty provides that the treaty will be applied in conformity with agreements on mutual recognition and enforcement of judgments in force between parties. Thus the public policy exception under the Draft Treaty may be interpreted in conformity with the Hague Convention, on civil matters.
The Draft Treaty compromises on effective implementation of the above stated obligations by providing an exception to the requirement of mutual legal assistance. Accordingly, mutual assistance under the treaty may be refused by a State if it would be contrary to its legal system. Therefore, States are allowed to assert their domestic law to refuse any request of legal assistance to another party.
The Draft Elements’ proposal to recognize the primacy of human rights obligations over trade and investment agreements, is partially dropped by the Draft Treaty. The Draft Treaty adopts a more moderate position and provides that the treaty is without prejudice to any obligation incurred by States under relevant treaties or rules of customary international law. However, it further emphasizes that any future trade and investment agreements shall not contain any provisions that conflict with the implementation of the treaty and shall ensure the upholding of human rights in the context of business activities. In addition, all existing and future trade and investment agreements will be interpreted in a way that is least restrictive, in order to respect and ensure the fulfillment of obligations under the Draft Treaty.
The Draft Elements recognized the State Parties’ duty to conduct a human rights impact assessment prior to the conclusion of trade and investment agreements, to identify inconsistencies and refrain from entering into such agreements where such inconsistencies are found. This mechanism is not included in the Draft Treaty, so States have the freedom to determine how to comply with this abstract obligation to ensure that future trade and investment agreements are in line with pre-existing human rights obligations.
The Draft Elements also included a provision on the obligations of international organizations. Accordingly, States were required to strive to ensure that international organizations, including international and regional economic, financial and trade institutions, in which they are members, do not adopt or promote any norm or decision which may hinder the objectives of the treaty and affect the capacity of the parties to comply with the treaty obligations. This provision is unfortunately excluded from the Draft Treaty. Instead, Article 12 of the Draft Treaty provides that State parties recognize the importance of international cooperation for the realization of the treaty and undertake to implement appropriate and effective measures in this regard, between and among States, and in partnership with relevant international and regional organizations and civil society. Clearly, this formulation is less strong than the provision included in the Draft Elements. International organizations, particularly international financial institutions and development banks play a significant role as the financiers of many projects that cause or contribute to severe human rights violations. There have been many allegations against international financial institutions including labor rights violations in Uzbekistan in the areas with World Bank funded cotton sector projects, destruction of livelihoods, loss and damage to property, and health threats caused by the IFC-funded coal-fired power plant in Gujarat, India. The role of international organizations needs to be properly addressed in the Draft Treaty in order to prevent their involvement in and contribution to future violations in the context of transnational business activities.
Committee of Experts
The Draft Treaty does not provide an effective mechanism for the oversight of compliance with treaty obligations. It creates no international court or grievance mechanism for victims. Instead, a Committee of Experts will monitor compliance with the treaty obligations. In accordance with Article 14, the Committee will receive and review progress reports by States on the measures they have taken to give effect to their undertakings under the treaty. The Committee will make general comments on the understanding and implementation of the treaty based on the examination of those reports and information submitted by States and provide observations and recommendations on those reports. The Committee’s mandate does not go as far as accepting complaints from victims, even in exceptional circumstances. Absence of robust international enforcement is understandable at this stage because such provisions are likely to trigger strong oppositions from some of the negotiating parties. However, as noted by Surya Deva in Part II of his recent blog, the victims should not be left without any remedial recourse, in cases where States are unwilling to comply with treaty obligations.
The Draft Treaty strives to strike a balance between addressing the essential governance gaps in the field of business and human rights and achieving a treaty that would be ratified by a significant number of States. Despite many compromises, the Draft Treaty is a step forward to addressing pressing issues like access to remedies and the prevention of further violations. It proposes considerable improvements in comparison to previous efforts, particularly the Draft Elements released last year. The text is likely to get the support of many States, which have been persistently opposing the idea of a binding treaty, while also being likely to be criticized by many human rights group who were supporting the treaty negotiations. The formal negotiations on the Draft Treaty will start at the fourth session of the Open-Ended Intergovernmental Working Group on 15-19 October 2018, and States should continue negotiations in good faith and strive to address the several gaps pointed out by the practitioners and civil society.