Progress in the Newest UN Draft Treaty on Business and Human Rights
The newest draft of a UN treaty on business and human rights, dated August 6, is a major improvement. It increases the chances that a critical mass of States may take part in constructive negotiations, defuses several key business objections, and yet offers important advances for victims. Although not ready for adoption, it is ripe for serious, good faith negotiation.
The Second Revised Draft was released by the Ecuadorian Chair of the UN Working Group on the treaty. It offers carrots to all three major constituencies: victims, States, and business. While advocates for victims may be disappointed by some pro-business changes, they may also be attracted by the express inclusion of State-owned enterprises; new victim-friendly provisions on where companies can be sued and under what laws; and requirements to include in mandatory human rights due diligence a gender perspective and free, prior and informed consent by Indigenous Peoples, along with sanctions for inadequate due diligence.
The inclusion of State-owned enterprises may give some governments pause. However, a new definition of human rights which respects their sovereignty, and an express reference to State immunity, should give them comfort.
Business, and States which pay close attention to business views, should be pleased by the inclusion of State-owned enterprises, greater flexibility for small and medium enterprises, the replacement of business “violations” of human rights by “abuses,” the reduction in the number of States with jurisdiction to hear claims, a new human rights due diligence defense, and new limits on reversal of the burden of proof.
The following are among the more important changes:
State-owned enterprises (SOEs): SOEs were not expressly covered by prior drafts. Their activities are now expressly included in the definition of “business activities” (art. 1.3). This should allay the concerns of private transnational corporations (TNCs) that the treaty would regulate only private companies, thereby giving SOEs an unfair competitive advantage. Victims will now also have a remedy against SOEs.
Including SOEs is a major breakthrough. For example, State-owned oil companies are important in countries ranging from Saudi Arabia to Norway to several Latin American countries (including Ecuador). Chinese State-owned banks are among the largest in the world. As of May 2020, SOE assets worldwide total some US $45 trillion, equivalent to half of global GDP.
Small and Medium Business Enterprises (SMEs): States may now allow SMEs greater flexibility in preventing abuses. State laws on human rights due diligence may differentiate among companies based on their “size, sector, operational context and severity of impacts on human rights” (art. 3.1).
Human Rights: Human rights are internationally protected mainly by dozens of treaties. For each treaty, some States are parties, while others are not. The prior draft, covering “all” human rights, provoked objections by States that they should not be subject to treaties they have not joined. The new draft (art. 3.1) covers human rights only in core UN and ILO treaties joined by the State in question, or which are universally recognized by the Universal Declaration of Human Rights or customary international law (such as freedom from systematic race discrimination and torture).
This clarification should avoid sovereignty objections, making it easier for States to join the treaty. However, in some States, important rights may be left uncovered, unless recognized by the UDHR or customary international law. Yet many such States would probably not join a treaty on business and human rights in any event.
Violations: The previous draft referred to business “violations or abuses” of human rights. The new draft drops the concept of business “violations,” and now refers only to business “abuses,” and then only when they impede the full enjoyment of human rights (art. 1.2). This may be more rhetorically palatable to business. But it may also have more than cosmetic effects. In other legal contexts, the question sometimes arises whether business can “violate” existing human rights treaties. If this new treaty refers only to “abuses,” it may become more difficult to argue elsewhere that business can “violate” human rights.
Jurisdiction: Better for Business:
(a) Out: Substantial Business Interests: The previous draft would allow courts to exercise jurisdiction, not only in a TNC’s home State or the State where the alleged violations or abuses took place, but also in any State where the TNC had “substantial business interests.” Large TNCs could have been sued in any of scores of countries where they or their subsidiaries operate, regardless of any connection to the alleged abuse. TNCs feared a tsunami of forum shopping. The new draft drops this concept.
(b) In: Contributing Acts: In its place, TNCs can be sued in States where “an act or omission contributing to the human rights abuse occurred” (art. 9.1(b)). This provides a logical connection between the forum and the abuse, while greatly reducing the number of States where a TNC can be sued for a given abuse (while still leaving victims a choice of fora, as shown below).
Jurisdiction: Better for Victims: Jurisdiction is expanded in other ways helpful to victims.
(a) In: Closely Connected: A foreign subsidiary or business partner can now be sued in the home State of a TNC, so long as the claims against the two companies are “closely connected” (art. 9.4). Being able to sue both companies in one court greatly reduces duplication, costs, and litigation risks for victims.
This goes beyond even the landmark 2019 ruling of the British Supreme Court in Vedanta v UK. That Court required, not only a “close connection” between the claims, but also an unlikelihood of fair trial in the subsidiary’s country. Moreover, Vedanta dealt only with jurisdiction over a parent and subsidiary, whereas the new draft treaty also covers jurisdiction over a company and other business partners such as suppliers and joint venture partners.
(b) In: Forum Necessitatis: Victim-friendly jurisdiction is further expanded by allowing jurisdiction in a State if no other State would provide a fair trial, so long as there is a “sufficiently close connection” to the forum State (art. 9.5). This doctrine of forum necessitatis is recognized in a score of mostly European States, but rarely used.
(c) Out: Forum Non Conveniens: Victims further benefit from the rejection of the doctrine of forum non conveniens (art. 9.3). Using this doctrine, TNCs persuade courts in their home States to send cases to the country where an abuse took place, where courts may lack the independence or resources to afford victims a real opportunity. Even if victims win in those courts, they may find it difficult to collect a judgment against the TNC. Rejecting forum non conveniens is consistent with the law of the EU, which barred the doctrine in 2005, and with the recent trend toward narrower interpretation of the doctrine by Canadian courts.
Human Rights Due Diligence: The prior draft already mandated human rights due diligence. New provisions add a gender perspective, and “free, prior and informed consent” by Indigenous Peoples, to the elements which must be considered (art. 6.3). A new enforcement provision requires “commensurate sanctions, including corrective action where applicable,” for failure to conduct adequate due diligence (art. 6.6).
Legal Liability and Defense: The draft makes a business liable for failing to prevent human rights abuses by a person with whom it has a business relationship, if it legally or factually controls or supervises the person, or if it should have foreseen the risk of abuse. In 2019 businesses objected to such a provision as requiring them to prevent any foreseeable risk – an impossible task.
The new draft allows business a due diligence defense. They are liable only if they “failed to put [sic] adequate measures to prevent the abuse” (art. 8.7). Although due diligence does not “automatically absolve” the business, courts will decide on liability after examining “compliance with applicable human rights due diligence standards” (art. 8.8).
This will be a relief to business, but remains unclear. Does a business which conducts due diligence in compliance with applicable standards have a complete defense? Or only a partial defense? What if a business mitigated risk, but did not avoid risk altogether by abandoning the investment? Negotiators will need to clarify both the defense and its limits.
Reversal of Burden of Proof: The 2019 draft allowed reversal of the burden of proof to fulfil the victim’s access to remedies “where needed” and subject to “domestic law.” Although many national laws allow reversal of the burden in limited circumstances in civil and regulatory cases, and for affirmative defenses in criminal cases, business rightly objected to this vague and open-ended provision as contrary to the rule of law, which requires a claimant to prove her case.
The new draft permits reversal of the burden only when “consistent with the rule of law requirements” (art. 7.6). However, the language remains vague. Negotiators should explore concrete circumstances. For example, where only internal company documents can reveal or confirm the extent of due diligence conducted, a company should be required to prove the extent of its own due diligence.
Choice of Laws: In general, the applicable law is that of the forum State (art. 11.1). However, the draft now allows victims to choose instead the substantive law of the State where the acts that resulted in the abuse occurred, or where the alleged perpetrator is domiciled (art. 11.2). This important change allows the victim to choose the body of national law most favorable to the victim.
The next session of the UN Working Group is scheduled for October 2020. It will not likely be decisive. Among other reasons, COVID may hamper negotiations and participation; the EU will not develop its internal human rights due diligence directive until 2021; and there remain challenging issues on which to seek consensus (not only those listed above). Nonetheless, the 2020 session will be an opportunity to continue the progress in the latest draft toward a treaty which helps to prevent human rights abuses and affords victims real access to justice, while also being diplomatically realistic and within the bounds of fairness to business.