Towards an International Convention on Business and Human Rights (Part II)

[Carlos Lopez is a Senior Legal Advisor at the International Commission of Jurists.]

(This is Part II of the blog on the recently released zero draft of a legally binding instrument on Transnational Corporations and human rights. The first part can be found here.)

Prevention

The draft treaty takes a somewhat sweeping approach to the issue of preventative measures to be required by States from business enterprises (article 9). What States are asked to require from businesses is framed as a sort of (human rights) due diligence that significantly departs from what is generally known as such. As it is, those requirements maybe better seen as “responsible business” measures than only human rights due diligence.

As formulated in the United Nations Guiding Principles on Business and Human Rights, human rights due diligence is a four-step process whereby business enterprises should identify, prevent, mitigate and account for how they address their adverse human rights impacts. The draft treaty splits some of those steps into two steps and adds “meaningful consultation” with affected groups, the requirement of financial security to cover potential compensation claims, and the incorporation of some measures into businesses’ transnational contracts. Failure to comply with such due diligence measures would entail legal liability under domestic law for the concerned company. The draft makes a positive point by providing for “effective national procedures” to “enforce compliance” – something that is always week everywhere- although both businesses and governments will find hard to comply or monitor compliance respectively with such far reaching and imperfectly defined obligations of due diligence.

Given that preventative measures are usually regarded by States as important and preferable to the need to provide remedies after the fact, and that substantial sectors of organized civil society are advocating for mandatory business human rights due diligence, it is foreseeable that this section of the draft treaty will attract special attention and support. For those reasons, this section is likely to remain in a final draft, though likely in a revised form.

Legal liability and access to remedy

The core of the draft treaty is perhaps its provisions on legal liability for transnational corporations and the rights of victims to remedy and reparation. Although it is not strictly needed, draft Article 8 starts with a restatement of the rights of victims to access to justice and remedies. However, how the various forms of reparation (restitution, compensation, rehabilitation, satisfaction and guarantees of non-repetition) -originally from the law of State responsibility- relate to companies, to States or to both may need to be explained somehow and somewhere. In addition, references to “environmental remediation” and “ecological restoration” are also in need of clarification if they are different from other generally accepted forms of reparation.

Among some of the rights of victims spelled out in the draft convention, the sweeping provision that “in no case shall victims be required to reimburse any legal expenses of the other party to the claim” stands out as potentially controversial since it may be seen as an incentive to frivolous litigation. The draft treaty also makes provision for the establishment of a Fund for Victims but leaves its details for a later definition.

Rights of victims to justice and reparation are assorted with provisions for the legal liability of business enterprises and that is what Article 10 of the draft treaty does, focussing on civil and criminal liability. The provision requires the enactment of civil, criminal or administrative legal liability for abuses committed in the context of transnational business activity, and that liability applies to both legal and natural persons.

A key issue in the discussion of civil liability is the parent-subsidiary company relationship and the corresponding legal responsibilities in the event that harm is caused or contributed to in the context of business operations. Draft Article 10.6 makes an attempt to tackle this complex and contested issue by mandating certain parameters whereby a “person with business activities of transnational character” (presumably a business corporation) will be liable for harm caused in the context of those operations, “including” when it controls “the” operations or it has “close relation” with its subsidiary or entity in its supply chain and its own conduct is closely connected to the wrong produced, or the risk have been foreseen or should have been foreseen. The various grounds under which the liability of parent companies may be established in relation to wrongs by their subsidiaries are remarkable for their flexible definition and their alternative application, which suggests an effort to cover all possible ways in which a company may be involved in the harm caused by others. But there is a need for careful analysis to ascertain to what extent these clauses will be effective in clarifying the link between parent and subsidiary or, on the contrary, will provide an incentive for parent companies’ hands-off strategies to avoid “strong” or clear connections with other companies.

The provision is likely to be the subject of heated debates during negotiations. Many corporations remain keenly attached to the doctrine of separation of legal entities (the corporate veil) as laid down in Salomon v Salomon and Co., by the United Kingdom House of Lords in 1897 and many States and legal practitioners are reluctant to accept loosely defined theories that would do away with they perceive as a sacrosanct doctrine of separation of legal entities. It is to be hoped that the emergence of doctrines of enterprise risk liability and enterprise liability in certain developed countries would be the basis to overcome the likely stalemate on this point. In any case, this is going to be one of the treaty sections that will attract heightened attention from legal experts but also by groups and communities from around the world who often complaint that subsidiaries of large companies in the extractive sector cause damage to their livelihoods, environments and health, among others.

The provisions on criminal legal liability are similarly formulated in loose fashion. It should be said for starters that a special provision on corporate criminal liability is a step forward and should be maintained until the end, but the language needs serious work to address difficulties in precision and feasibility of objectives. The draft treaty not only calls for criminal liability for all human rights violations amounting to criminal offences under international law and “domestic law” (leaving open a large window for divergent and potentially arbitrary approaches) but also continues to limit the definition and sanction of those offences only when committed by “persons with business activities of a transnational character”. I addressed this major flaw in the first part of this blog, it suffices here to reaffirm the need to correct the definition of the scope of the treaty to avoid major disruptions to fundamental rule of law principles.

International institutional arrangements

It may be the subject of a separate blog, but here it may also be helpful to briefly address the institutional arrangements proposed in the draft treaty. The draft treaty would create a committee of experts to monitor and promote the implementation of the treaty and a conference of State Parties, but regrettably confines their functions to the traditional functions performed by existing similar bodies. The limitations in terms of effectiveness of the current international system of monitoring and supervision based on expert committees are well known. This system is already insufficient in examining State compliance with classic human rights treaties and may be even less effective in relation to business enterprises practices and policies. There is still a chance that the new treaty on business and human rights will innovate the practices, strengthen functions and enhance the effectiveness of the international system of treaty monitoring and supervision.

All things considered, it may be said that the draft treaty is a step forward. Many doubted the process would advance to the stage of having a full draft for negotiations that can only be improved. The process is in its fourth year and moving forward despite the many challenges. But treaty drafting needs considerable work to measure up to the high expectations and needs expressed by the international community and especially those people in need of justice and reparation.