The interaction between investment disputes and human rights due diligence

On 4 December 2019, the newly-established Human Rights Due Diligence Forum of the British Institute of International and Comparative Law convened its first meeting. The topic was the interaction between investment disputes and human rights due diligence.

The main focus of the meeting was on the implications of newly adopted or proposed laws on human rights due diligence. Such laws essentially place the responsibility of prevention of human rights violations on multinational enterprises, even if such violations occurred in other countries and were committed by their subsidiaries, suppliers or subcontractors. Failure to conduct human rights due diligence may result in incurring civil liability, which will disregard the principle of separation of different legal entities.

France adopted such law in 2017, based on the United Nations’ Guiding Principles on Business and Human Rights (UNGPs), which serves as the main international instrument on this matter. The potential interaction of international investment law and human rights due diligence laws leads to a number of complex questions, some of which I addressed at the event and summarised below.

Could mandatory human rights due diligence laws potentially be challenged in investment disputes?

  • Investor-state arbitration allows investors to assert direct claims against states and occasionally such disputes involve allegations of human rights violations
  • Investors often claim violations of fair and equitable treatment, which usually results from breaches by States of specific representations made to investors
  • As a general matter, adoption of laws requiring due diligence should not be challenged as long as these laws were adopted and applied in good faith, for a public purpose and in a non-discriminatory manner.
  • It is a sovereign right of states to regulate in the areas of human rights, environment, and formulate their public policy in these areas
  • Today the system investor-State dispute resolution is under pressure and one of the reasons for it is that developing states see it as favouring investors from developed states. As a result, international treaties  increasingly include obligations related to human rights, environment and corporate social responsibility

Will a corporate duty to undertake due diligence affect a company’s ability to bring such investment actions?

  • Human rights due diligence laws are likely to be treated by international tribunals like any other domestic laws, even though they may contain unusual characteristics, such as extraterritorial application or ignoring the principle of separate legal responsibilities of separate legal entities
  • Some treaties explicitly provide that investors need to comply with domestic laws, but this requirement is not strictly speaking necessary, as this is a normal expectation of any country
  • What may make a difference for jurisdiction or admissibility of claims is the requirement to invest in accordance with domestic law. Failure to do so may deprive tribunals of jurisdiction or make claims inadmissible.

Could a company be required to demonstrate that it has undertaken such due diligence before it may avail itself of investment treaty provisions?

  • In theory, the treaty may provide for such requirement, although I have not seen any such examples. Normally purely domestic law violations are dealt with by domestic courts. Not every violation of domestic law raises to the level of international law considered by investor-state tribunals.
  • Something more than a domestic law violation is normally required, for instance, the lack of fair and equitable treatment, denial of justice, or discrimination.
  • However, one can think of counterclaims asserted against companies for failure to comply with due diligence law. Jurisdiction could be difficult to establish as tribunals typically try to stay away from purely domestic law violations, but it depends on the language of the treaty
  • This, however, may change soon. The treaties increasingly include human rights/CSR/environmental violations provisions, although usually without binding formulations. For example:
The Netherlands Model BIT, 2018, art 7(2):
The Contracting Parties reaffirm the importance of each Contracting Party to encourage investors operating within its territory or subject to its jurisdiction to voluntarily incorporate into their internal policies those internationally recognized standards, guidelines and principles of corporate social responsibility that have been endorsed or are supported by that Party, such as the OECD Guidelines for Multinational Enterprises, the United Nations Guiding Principles on Business and Human Rights, and the Recommendation CM/REC(2016) of the Committee of Ministers to Member States on human rights and business.
Canada – Côte d’Ivoire BIT, 2014, art 15(2):91
Each Party shall encourage enterprises operating within its territory or subject to its jurisdiction to voluntarily incorporate internationally recognized standards of corporate social responsibility in their practices and internalpolicies, such as statements of principle that have been endorsed or are supported by the Parties. These principles
address issues such as labour, the environment, human rights, community relations and anti-corruption
Norway Model BIT, 2015, art 31:
The Parties agree to encourage investors to conduct their investment activities in compliance with the OECD Guidelines for Multinational Enterprises, the UN Guiding Principles on Business and Human Rights and to participate in the United Nations Global Compact.
Economic Community of West African States
ECOWAS Community Rules on Investment, 2008, art 14:
1. Investors of investments shall, in keeping with best practice requirements relating to their activities [sic] the size of their investments, strive to comply with on [sic] hygiene, security, health and social welfare rules in force in the host country.
2. Investors shall uphold human rights in the workplace and the community in which they are located. Investors shall not undertake or cause to be undertaken, acts that breach such human rights. Investors shall not manage or operate the investments in a manner that circumvents human rights obligations, labour standards as well as regional environmental and social obligations, to which the host State and/or home State are Parties.
3. Investors shall not by complicity with, or in assistance with others, including public authorities, violate human rights in times of peace or during socio-political upheavals.
4. Investors and investments shall act in accordance with fundamental labour standards as stipulated in the ILO Declaration on Fundamental Principles and Rights at Work, 1998
Southern African Development Community Model BIT, 2012, art 15(1):
Investors and their investments have a duty to respect human rights in the workplace and in the community and State in which they are located. Investors and their investments shall not undertake or cause to be undertaken acts that breach such human rights. Investors and their investments shall not assist in, or be complicit in, the violation of the human rights by others in the Host State, including by public authorities or during civil strife.

Could the investment claim in itself be construed as an admission that the company does not intend to undertake human rights due diligence?

  • It is important to distinguish between domestic law obligations and international law obligations
  • Counterclaims for failure to comply with human rights due diligence rules is a possibility but can be problematic, not many examples. Some investor-state tribunals asserted jurisdiction over counterclaims, but difficult to find favourable decisions on the merits
  • In ICSID proceedings, in addition to consent to arbitration, the ICSID Convention (Art 46) adds three prongs related to counterclaims, which should (1) arise directly out of the subject-matter of the dispute; (2) be within the scope of the consent of the parties and (3) otherwise be within the jurisdiction of the Centre.
  • In case of conflict of law between domestic and international law, international law should apply

Will human rights due diligence become more relevant to investment arbitration?

International investment agreements increasingly include provisions dealing with corporate social responsibility, human rights and environmental obligations. Some of such treaties include specific due diligence obligations. One example is Morocco – Nigeria BIT, 2016:

Article 14
1. Investors or the investment shall comply with environmental assessment screening and assessment processes applicable to their proposed investments prior to their establishment, as required by the laws of the host state for such an investment or the laws of the home state for such an investment, whichever is more rigorous in relation to the investment in question.
2. Investors or the investment shall conduct a social impact assessment of the potential investment. The Parties shall adopt standards for this purpose at the meeting of the Joint Committee.
3. Investors, their investment and host state authorities shall apply the precautionary principle to their environmental impact assessment and to decisions taken in relation to a proposed investment, including any necessary mitigation or alternative approaches of the precautionary principle by investors and investments shall be described in the environmental impact assessment they undertake.
Article 18:
1. Investments shall, in keeping with good practice requirements relating to the size and nature of the investment, maintain an environmental management system. Companies in areas of resource exploitation and high-risk industrial enterprises shall maintain a current certification to ISO 14001 or an equivalent environmental management standard. …
4. Investors and investments shall not manage or operate the investments in a manner that circumvents international environmental, labour and human rights obligations to which the host state and/or home state are Parties. …
Article 20:
Investors shall be subject to civil actions for liability in the judicial process of their home state for the acts or decisions made in relation to the investment where such acts or decisions lead to significant damage, personal injuries or loss of life in the host state.

The  Morocco – Nigeria BIT provides not only for specific due diligence requirements specific certification standards but also stipulates the applicability of “the laws of the host state for such an investment or the laws of the home state for such an investment, whichever is more rigorous.”

It is possible to imagine new treaties containing similar due diligence language related to human rights, labour rights or obligations related to combating corruption. That could potentially result in more claims and counterclaims alleging breaches of such due diligence obligations.

Prof Yarik Kryvoi

British Institute of International and Comparative Law 

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