Arbitrating Bangladesh Labor Rights (Part II)

by Roger Alford

As Peter noted yesterday, the recent tragedies in Bangladesh factories have resulted in a major breakthrough with the signing of the Accord on Fire and Building Safety in Bangladesh. Thus far, leading retailers such as H&M, Marks & Spencer, Tesco, Sainsbury’s, Benetton, and Calvin Klein are on board. Notably absent from the list are leading U.S. retailers such as Wal-Mart and Gap.

As noted in my previous post, I have been arguing for years that international arbitration could serve as an important procedural tool for promoting human rights in global supply chains. I applaud the commitment of these retailers to join with leading labor rights groups and enter into a binding agreement to improve working conditions in Bangladesh factories.

I do take issue with the drafting of the arbitration agreement, which clearly could have benefited from a quick review by a lawyer with international arbitration experience. Here’s the relevant language:

Any dispute between the parties to, and arising under, the terms of this Agreement shall first be presented to and decided by the SC [seven-member Steering Committee], which shall decide the dispute by majority vote of the SC within a maximum of 21 days of a petition being filed by one of the parties. Upon request of either party, the decision of the SC may be appealed to a final and binding arbitration process. Any arbitration award shall be enforceable in a court of law of the domicile of the signatory against whom enforcement is sought and shall be subject to The Convention on the Recognition and Enforcement of Foreign Arbitral Awards (The New York Convention), where applicable. The process for binding arbitration, including, but not limited to, the allocation of costs relating to any arbitration and the process for selection of the Arbitrator, shall be governed by the UNCITRAL Model Law on International Commercial Arbitration 1985 (with amendments as adopted in 2006).

Note the peculiarities. There is no governing law clause, no arbitration seat, and no arbitration rules. If a party refuses to arbitrate, there will be no obvious court for the petitioner to file a motion to compel arbitration. Instead the arbitration proceedings are to be governed by the UNCITRAL Model Law on International Commercial Arbitration as a sort of free-floating “anational” governing clause. I suppose that makes the UNCITRAL Model Law the chosen arbitration rules, but I’ve never seen the Model Law function in this fashion. If that’s what the clause does, then any court where an action is brought can compel arbitration and the arbitral panel will be empowered to fill in most of the gaps, including determining the arbitration seat, the governing law, and the scope of its jurisdiction (See Articles 8, 16, 20, 28). Not ideal, but it may do the trick.

Second, the arbitration clause has a peculiar scope. Only disputes “arising under” the Agreement are subject to arbitration, apparently limiting the scope to breach of contract and excluding disputes relating to third-party injuries that relate to the agreement. The scope appears to be further limited by the fact that arbitration is an appellate function only, which may mean that the arbitral tribunal is limited to reviewing legal or factual errors of the Steering Committee.

Third, there is a question as to whether decisions of the Steering Committee are subject to enforcement pursuant to the New York Convention. It appears that only the arbitration awards rendered following an appeal of the Steering Committee decision are subject to such enforcement. This may mean that an appeal is necessary simply to create a binding mechanism for enforcing the parties’ obligations.

My hunch is that despite these errors, if a dispute arises from this agreement the parties will muddle through and find a way to make the dispute resolution clause work. Perhaps in the near term they can clarify these ambiguities when they develop the Implementation Plan mandated by the agreement.

So it’s probably not a pathological arbitration clause, but it could have benefited from a good scrubbing.

http://opiniojuris.org/2013/05/15/arbitrating-bangladesh-labor-rights-part-ii/

2 Responses

  1. Roger, Very interesting. I wonder if this results from the non-participation of US lawyers. (Apparently one reason that Walmart and Gap are staying out is a concern that the accord will lead to a lot of litigation.) Perhaps some of these issues can be clarified in the “Implementation Plan” to follow.

  2. This clause is a sick cruel joke. Each “surmountable” problem is a dispute about process rather than on the merits of the claim.  The 21 day period is clearly an attempt to narrow the scope of any claims to ones manageable within a 21 day period. Getting seven members together already would be a complicated task. What is a decision? Adding in the UNCITRAL Model law like this is such a perversion – it is adding a draft in its unlegislated form that is somehow an expression of party autonomy and that will then be inserted into the arbitration legal regime of the country that is the place of arbitration.  I suspect there were Arbitration specialist lawyers who participated precisely to gum up the clause. One could go and look at the very simple arbitration clauses of all the international arbitration institutions and see what a disaster this clause is. I doubt there is going to be any meaningful relief through this process.  The initial procedural hurdles raise the cost of any arbitration before one could get to the merits – even if one could get to the merits.  I wonder if these matters are inarbitrable I’m the relevant country. Eisemann is turning over in his grave – this is greater pathology. Feels almost de facto terminal pathology. Seductive but not operative. Please revise to so that it can work. Or better yet – drop it. Let these tools face the music in the local courts for matters that should be subject matter inarbitrable. 

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