Human Rights in International Arbitration

In summary

Human rights guide arbitral proceedings in international arbitration by sometimes prescribing procedural safeguards. Human rights can also be considered in commercial arbitration, through reference to trade practices involving the corporate responsibility to respect human rights. Business and human rights arbitration involves procedures designed for arbitrating human rights impacts in the global supply chain. Finally, investor-state arbitration may involve allegations of state or investor human rights abuse.

Discussion points

• Access to court and sports arbitration
• Human rights as trade usage in commercial arbitration
• Business and human rights arbitration
• Human rights violations by foreign investors and host states
• Human rights protection and investor rights under BITs

Referenced in this article

• Mutu and Pechstein v Switzerland
• Ali Riza v Turkey
• 2019 Hague Rules on Business and Human Rights Arbitration
• Urbaser v Argentina
• Netherlands Model BIT
• Bear Creek v Peru
• India Model BIT
• Suez v Argentina
• Eco Oro Minerals v Colombia
• Al-Warraq v Indonesia

Arbitration is a private form of justice mostly associated with commercial disputes. The introduction in that setting of a public set of norms – human rights – may seem like a strange fit. International human rights laws aspire to provide human beings with inalienable rights beyond the rights associated with citizenship – a feature that makes human rights capable of protecting the individual against their own state. We tend to associate such rights with restrictions on the state’s authority out of respect for the physical person’s dignity, whereas arbitration is most commonly associated with the resolution of commercial, or at least civil, disputes between parties of commensurate strength.

However, human rights law can be relevant to arbitration in a number of ways. Human rights may apply to arbitral proceedings per se, for example in relation to the impartiality and independence of the tribunal. Recourse to arbitration may come into tension with human rights norms guaranteeing the right of access to court, due process and the right to a public hearing. Human rights can be considered in commercial arbitration as established trade practices involving the corporate responsibility to respect human rights. There is also the notion of business and human rights arbitration, specifically designed to arbitrate human rights impacts or failures to respect human rights in the global supply chain. Finally, human rights are sometimes invoked in arbitration between states and foreign investors, through allegations of either state or investor infringements of such rights or through state defences based on having regulated in the protection of human rights albeit to the detriment of investors.

Human rights applied to arbitral proceedings

Arbitration may be a private form of justice, but it is a form of justice just the same. The conduct of arbitral proceedings should meet expectations under international human rights law on due process, procedural fairness and the right to a fair trial.

It is increasingly recognised that human rights-based procedural safeguards are relevant in arbitration and accepted that human rights courts assume powers to protect them.^[1]

Human rights courts, such as the European Court of Human Rights (ECtHR), exercise some supervision of the arbitral community related to their territorial jurisdiction and will enforce human rights that arise within the conduct of proceedings. For example, in BEG SpA v Italy, the ECtHR found that one of the parties to an arbitration between two Italian power companies had suffered an infringement of its right to fair trial as guaranteed under the European Convention on Human Rights (ECHR), because an arbitrator hearing their private dispute failed to disclose ties to the other party in the course of the proceedings, thus affecting the arbitrator’s lack of impartiality and independence.^[2]

The right to court enshrined in article 6(1) of the ECHR does not necessarily guarantee parties access to a ‘court of law of the classic kind, integrated within the standard judicial machinery of the country’.^[3] A ‘tribunal’ within the meaning of the provision may be a body ‘set up to determine a limited number of specific issues’, so long as it offers ‘the appropriate guarantees’.^[4] In Mutu and Pechstein v Switzerland, discussed further below, the ECtHR held that dispute settlement through arbitration is not incompatible with the article 6(1) right of access to a court.^[5] This was confirmed in BEG SpA v Italy, where the court held that ‘[a]rbitration clauses, which have undeniable advantages for the individuals concerned as well as for the administration of justice, do not in principle offend against the Convention’.^[6]

However, the choice of arbitration represents a waiver of certain rights under the ECHR, in particular the right to a public hearing. To waive one’s right to access to court in favour of arbitral proceedings should not equate a waiver of the right to due process and the right to engage in a dispute resolution procedure that is conducted efficiently and effectively.^[7]

The fact that resorting to arbitration implies a waiver of rights under article 6 has also led the ECtHR to distinguish in its practice between ‘voluntary’ and ‘compulsory’ submission to arbitration.^[8] A waiver of an ECHR right must be made ‘willingly, lawfully and unequivocally’ and attract ‘minimum safeguards commensurate with its importance’.^[9] Where a party has thus not given a ‘free and unequivocal’ waiver of its rights under article 6(1) of the ECHR, the conduct of a private hearing in arbitration may violate the right to a public hearing under that provision. Where the applicant had no real choice but to agree to arbitration, the guarantees of article 6 will therefore apply with full force.^[10]

The world of sports, in particular, has drawn attention to instances where arbitration agreements have not been entered into freely by athletes, because the consequences of not entering into the agreement were such that arbitration was effectively forced; or situations where arbitral bodies set up to deal with sports disputes have not been sufficiently independent from sports organisations to ensure impartiality.

The ECtHR has in its case law addressed how the structural imbalance between sports governing bodies and athletes may impact the integrity of the arbitration agreement. In Ali Riza v Turkey, the ECtHR found that there had been a violation of article 6(1) of the ECHR because of the structural imbalance between athletes and governing bodies, the lack of independence of the arbitral body (in this case, the arbitral committee of the Turkish Football Federation), an insufficient mechanism to challenge arbitrators and the inability to set aside the award.^[11] In Mutu and Pechstein v Switzerland, the ECtHR held with regard to one applicant that when acceptance of the arbitration clause was in practice a necessary condition for participating in organised competitions and thus effectively for pursuing a career in sports, the athlete could not be said to have consented to arbitration freely.^[12] By contrast, in the case of the other applicant, a mere imbalance in leverage in contract negotiations did not mean that consent was compelled in the same way, but nor had the applicant given his unequivocal consent. As a result, the safeguards under article 6(1) had to be respected with respect to both applicants. The ECtHR then scrutinised the procedures of the Court of Arbitration for Sport (CAS), concluding that it qualified as a ‘tribunal established by law’ and was not lacking in impartiality and independence.^[13] However, because article 6(1) did apply and had not been waived, the absence of a public hearing before the CAS amounted to a violation of the ECHR.

These examples show how the ECtHR assumes a supervisory role of sorts in relation to procedural decisions of arbitral tribunals from the perspective of article 6(1), while leaving a certain amount of discretion to tribunals, as long as the basic safeguards are met. In Ali Riza v Switzerland, the ECtHR considered whether there was a violation of article 6(1) when the CAS declined jurisdiction without a hearing, finding that no violation had occurred because the applicant’s arguments had been the subject of a real and effective examination and the CAS had adequately substantiated the reasons on which its decision was based.^[14] Similarly, outside the world of sports, the ECtHR in Tabbane v Switzerland, found no violation where an arbitral tribunal had refused a request to appoint an expert.^[15]

Human rights in commercial arbitration

Respect for human rights as trade usage

As business enterprises increasingly commit to the United Nations Guiding Principles on Business and Human Rights (UNGP), the corporate responsibility to respect human rights may come to qualify as a trade usage. Arbitral rules may, explicitly^[16] or implicitly, require tribunals to consider trade usage in their determination of liability, underscoring how arbitration seeks to resolve disputes in accordance with commercial expectations and practices. Where the UNGP apply to the contract, compliance with the obligation to respect the International Bill of Rights^[17] could arguably be considered analogous to trade usage.^[18]

Although the application of the UNGP in commercial arbitration would not necessarily benefit non-party victims, tribunals might conceive of ways, for example, to allow victims to join the proceedings as beneficiaries or necessary parties. It has even been suggested that ‘[g]iven tribunals’ broad power to fashion remedies, evidence of UNGP violations could even in some cases lead to an order directing the breaching party to correct its wrong and/or compensate victims.’^[19]

If this is not possible, a finding by a tribunal that a company has violated the UNGP could, arguably, nonetheless have evidentiary value in subsequent or parallel proceedings brought by victims of human rights impact, either in courts or before arbitral tribunals.

However, commercial arbitration is often subject to confidentiality. As a result, victims of human rights abuse may not have any means of learning about a proceeding relating to the impact they have suffered. If this is the case, they will not know about opportunities for intervention. To address this, commentators have proposed that ‘arbitral rules could include a carveout allowing evidence of human rights violations a higher degree of transparency in the proceedings’.^[20] Similar calls for further transparency in treaty-based investor–state arbitration, with reference to the impact such disputes have on governance and human rights issues, resulted in the adoption in 2014 of two instruments: the UNCITRAL Rules on Transparency in Treaty-based Investor-State Arbitration; and the United Nations Convention on Transparency in Treaty-based Investor-State Arbitration, also known as the Mauritius Convention.

The marrying of human rights norms with best practice for business seems to have considerable untapped potential for bringing human rights onto the agenda – and into arbitration.

Business and human rights arbitration

In the same vein, the Working Group on Business and Human Rights recently launched the 2019 Hague Rules on Business and Human Rights Arbitration (the Hague Rules), with a view to customising arbitration processes to disputes with human rights elements.

There are a number of reasons why arbitration would offer a relatively attractive alternative for the resolution of human rights-related disputes involving businesses.

Human rights disputes involving businesses may occur in regions where national courts are dysfunctional, corrupt, politically influenced or simply unqualified to resolve them.^[21] Access to arbitration may correct for this, as well as offer a neutral forum for dispute resolution. The fact that arbitral proceedings allow parties to participate in selecting adjudicators with the relevant competence and expertise is also helpful to ensure that human rights issues are well understood. Another benefit of arbitration is that the 1958 New York Convention allows the recognition and enforcement of arbitral awards in 170 states party to the convention, widely exceeding the opportunities under international treaties for the recognition of judgments in other states, should successful claimants wish to enforce the decision in some other jurisdiction, such as that where a responsible parent company is seated. Furthermore, parties to arbitration can agree upon the substantive laws and procedure by which they propose to settle their dispute, permitting the process to be tailored to the bespoke needs of human rights disputes. Finally, the fact that arbitral proceedings, unlike most court litigation, can usually be kept confidential may induce corporate respondents to engage more meaningfully in arbitration regarding alleged human rights impacts. However, confidentiality is controversial in the context of human rights-related disputes. Perhaps even more usefully, arbitration can be used to resolve disputes between commercial partners over compliance with supply chain requirements for the respect for human rights.

The Hague Rules adapt the UNCITRAL Arbitration Rules so as to be better suited to address human rights-related arbitration. A key difference between the Hague Rules and other arbitral rules lies in the degree of transparency. The Hague Rules also acknowledge that in human rights disputes, large classes of people may be affected, allowing numerous victims to aggregate their claim. The Hague Rules also address the specific expertise needed for human rights disputes by requiring that the arbitrators chosen are prominent experts in business and human rights matters and furthermore stresses the benefits of diversity among the appointed arbitrators.^[22] The Hague Rules provide for third parties to file written submissions, drawing in this respect on article 4 of the UNCITRAL Rules on Transparency in Treaty-Based Investor-State Arbitration. Finally, highlighting the importance of arriving at amicable settlement in the type of relationships where human rights may be jeopardised owing to corporate conduct, the Hague Rules encourage parties to seek to resolve disputes in good faith through collaborative settlement mechanisms, not only before resorting to arbitration but also at any time after proceedings have commenced.

Principle 28 of the UNGP requires that any remediation of human rights impacts must involve a fair, efficient, culturally appropriate and rights-compatible process. The arbitral process envisaged by the Hague Rules must comply with this and be based on inclusion, participation, empowerment, transparency and attention to vulnerable people. The process should not undermine any one party or group of parties and should also give due regard to the urgency of addressing the alleged human rights impacts.^[23]

The project by which they were drafted also resulted in the development of contract clauses providing for the use of business and human rights arbitration, for inclusion in supply chain contracts.^[24]

To date, and as far as known, the Hague Rules have yet to be used for arbitration. However, with the forthcoming EU directive on corporate sustainability due diligence, enterprises are likely to intensify their review of value chains and seek to find ways to formalise effective leverage over business partners. A tailored process for human rights arbitration may prove a valuable tool for resolving an increasing volume of legal issues that may arise as a result of such developments.

Human rights and investment arbitration

Human rights issues have also been raised in treaty-based arbitration between foreign investors and host states. Human rights are raised in such cases in three different ways:

• allegations of human rights violations by investors, raised by host states in the course of counterclaims in investment arbitration;
• allegations of human rights violations by host states, raised by investors in connection with an investment claim, either separately or as a means of demonstrating a breach of the standards of treatment imposed by an investment treaty; and
• as a defence launched by respondent states in the course of investment arbitration to justify, for example, changes to the regulatory environment to the detriment of foreign investors or particular measures targeting the investors and their operations.

Alleged human rights violations by investors

A number of tribunals have accepted jurisdiction over human rights-based counterclaims in investment arbitration, where it is alleged that investors have engaged in corporate human rights abuse.

The case with the most far-reaching application in this regard is Urbaser v Argentina. Like the majority of investment cases addressing human rights, this was a case dealing with water and sewage concessions, bearing on the human right to potable water and sanitation. In the course of an investment claim brought by Urbaser in response to tariff changes imposed by Argentina, Argentina maintained that Urbaser had failed to respect human rights by failing to provide the necessary level of investment to ensure that the operations were successful and ensured the respect for the human right to water.

The tribunal found itself competent to decide on the host state’s counterclaim, having concluded that it was sufficiently linked to the facts of Urbaser’s main claim to establish its jurisdiction.^[25]

The reasoning of the tribunal in the Urbaser case is markedly progressive and controversial. It maintained, for example, that investors are granted rights under bilateral investments treaties (BITs) and, therefore, could be deemed subjects of international law. The Urbaser tribunal explicitly held that BIT-based investor-state arbitration does not exist exclusively for the benefit of investors^[26] and was reluctant to agree that ‘guaranteeing the human right to water is a duty that may be borne solely by the State, and never borne also by private companies like the Claimants’. It maintained that the principle ‘according to which corporations are by nature not able to be subjects of international law and therefore not capable of holding obligations’ had ‘lost its impact and relevance’.^[27] The tribunal consequently confirmed an ‘obligation on all parts, public and private parties, not to engage in activity’ infringing human rights.^[28]

Previous tribunals have been less creative in their consideration of human rights law. The tribunal in EDF v Argentina affirmed that human rights norms were not per se excluded from the ambit of applicable law and could well have significance or relevance in connection with international investment law. However, the tribunal did not see, as a matter of principle, how a failure to renegotiate the concession contract tariff amounted to a human rights violation.

A more relaxed standard for considering counterclaims may empower states to enforce investors’ compliance with regulatory standards.

In recent years, a number of states have sought to rebalance the rights and obligations set out in modern investment treaties, negotiating BITs that more expressly require investors to respect environmental, social and human rights norms, and make investment protection conditional on investor conduct in this respect. For example, the 2019 Netherlands Model BIT includes a specific requirement that ‘[i]nvestors and their investments shall comply with domestic laws and regulations of the host state, including laws and regulations on human rights, environmental protection and labor laws’.^[29]

The capacity of BITs to confer direct obligations on investors is subject to serious doubt, as investors are not formally party to such treaties. Nevertheless, the regulation conveys an expectation on investor conduct and the model adopted by the Dutch Model BIT could certainly see tribunals considering corporate human rights abuse by investors as part of their overall assessment of the case.

The scope for counterclaims in investment arbitration may also increase as national laws impose more stringent requirements with regard to the corporate responsibility to respect human rights. In European states, the development over the next few years will likely be dictated by the coming EU directive, referenced above.

Investment treaties and national laws requiring corporate compliance with human rights standards may not only give right to counterclaims but also affect the jurisdictional defences of states in investment arbitration, invoking legality requirements under investment agreements to disqualify investments associated with adverse human rights impacts from protection under the treaty and from access to arbitration under its investor–state dispute resolution clause.

The traditional place of human rights in investment arbitration is, to put it briefly, on the side-lines. The following statement of the tribunal in Bear Creek v Peru shows well how human rights concerns traditionally have failed to enter the equation, in part because governments are often as reluctant as investors to engage with concerns of local communities over human rights issues or environmental harm:

[T]he Tribunal notes that those members of the indigenous population that opposed the Santa Ana Project have achieved their wishes: the Project is well and truly at an end. However, this does not relieve Respondent from paying reasonable and appropriate damages for its breach of the FTA. The Project was supported by the Government until the end when the Government panicked and arbitrarily put it at an end.

In the Bear Creek case, dissenting arbitrator Philippe Sands proposed that the failure to respect environmental standards and engage with the concerns of local communities over the investment project’s operations should lead to a reduction by half of the damages owed to the investors.^[30] The majority of the tribunal stated that it could not agree with Professor Sands’ approach.^[31]

The opportunity for reducing damages does appear to offer a viable way to increase the impact of human rights in investment arbitration. This feature is included in certain treaties. For example, the India Model BIT directs tribunals to reduce damages to reflect mitigating factors, including ‘unremedied harm or damage that the investor has caused to the environment or local community or other relevant considerations regarding the need to balance public interest and the interests of the investor’.^[32] Tribunals may be amenable to rely on such provisions to reduce damages where human rights impacts caused by the investor has a factual nexus with the claim brought by the investors.

In some instances, tribunals have also acknowledged that their decisions may impact the human rights of local populations and have, therefore, accepted the submission of amicus curiae briefs highlighting human rights considerations bearing in concrete ways on the dispute. In Suez v Argentina, a dispute over a water and sewage concession, the tribunal observed that ‘[e]ven if its decision is limited to ruling on a monetary claim, to make such a ruling the Tribunal will have to assess the international responsibility of Argentina’ and ‘will have to consider matters involving the provision of basic public services to millions of people, [and] resolve complex public and international law questions, including human rights considerations’ (internal citations omitted).^[33]

Amicus curiae briefs are another way to introduce issues such as sustainable development, the environment, human rights and governmental policy.^[34] Amicus briefs on human rights must, however, relate concretely to the dispute. The tribunal in Eco Oro Minerals v Colombia confirmed that ‘relevance to the actual scope of the dispute is a fundamental requirement for admission as amicus curiae’ and consequently rejected the amicus submission as the petitioners had not ‘sought to show how generalised issues of human rights, and particularly the right to live in a healthy environment’ related to the scope of the specificities to the dispute.^[35]

Alleged human rights violations by host states

Where investors have alleged human rights abuses by host states, tribunals have been careful to point out that they are not human rights courts and are not competent to decide on the application of regional or international human rights law in the host state, either to natural persons or to corporate entities.^[36] Arbitrators have been adamant that the governing law for investment disputes is the BIT under which the tribunal is constituted.^[37] Potentially, however, standards such as fair and equitable treatment of the investor may include certain conduct that is also required under international human rights law.

In the Yukos v Russia cases, for example, the tribunal underlined that it was not a human rights court but that it was ‘within the scope of the Tribunal’s jurisdiction to consider allegations of harassment and intimidation as they form part of the factual matrix of Claimant’s complaints that the Russian Federation violated its obligations under Part III of the ECT’, in particular whether Russia in any way impaired by unreasonable or discriminatory measures the claimant’s maintenance, use, enjoyment or disposal of its investment, or subjected the claimant’s investment to measures having the effect equivalent to an expropriation.^[38]

Nevertheless, in assessing standards under the BIT, tribunals have agreed, in cautious and couched language, to consider ‘in appropriate circumstances’ the ‘common standards under other international regimes (including those in the area of human rights), if and to the extent that they throw useful light on the content of fair and equitable treatment in particular sets of factual circumstances’.^[39]

In Al-Warraq v Indonesia, the investor in an investment treaty arbitration invoked article 14 of the International Covenant on Civil and Political Rights (ICCPR) in relation to charges levied against him by the host state. The relevant treaty, the Organisation of the Islamic Conference Investment Agreement, refers to ‘basic rights’.^[40] The tribunal, however, found this reference delimited to rights with regard to ownership, possession or utilisation of property and did not incorporate a general reference to civil and political rights such as the right to a fair trial pursuant to article 14.^[41] Nevertheless, the tribunal was prepared to ‘deal with the contention that the Claimant’s rights guaranteed by the ICCPR form an element of the guarantee of fair and equitable treatment by the Respondent under Article 14(2) of the ICCPR to which Convention Indonesia is an acceding party.’^[42] Based on a finding that the ICCPR could be regarded as part of general international law, the Al-Warraq tribunal found that the ICCPR was now regarded as a part of general international law and relied on human rights standards regarding the right to be present at trial, to defend oneself and the presumption of innocence in the context of its analysis of whether or not the investor had received fair and equitable treatment by the host state.^[43]

In a similar vein, the tribunal in Tecmed v Mexico drew on the jurisprudence of the ECtHR for its analysis of the proportionality between ‘the charge or weight imposed to the foreign investor and the aim sought to be realized by any expropriatory measure.’^[44]

Human rights protection by states as a defence

Finally, states sometimes present the need to regulate in favour of human rights as a defence or justification to an alleged breach of investment protection standards.

Where international human rights are engaged in this way, tribunals have been more willing to defer to state authorities in planning, supervising, policing, sanctioning and intervening to protect this general interest.^[45]

Most investment tribunals have, however, been sceptical to allow human rights issues to impact decisively on the resolution of investment disputes, arguing that investment protection standards and human rights operate ‘on difference planes’. Several tribunals have rejected that host state obligations under human rights law justify departure from investment obligations. For example, the tribunal in CMS v Argentina declined to find that there was any ‘question affecting fundamental rights when considering the issues disputed by the parties’.^[46] Similarly, in Siemens v Argentina, the respondent state argued, without particularising the argument much further, that the property rights claimed in the arbitration, if upheld, would have entailed a breach of international human rights law. The tribunal rejected this argument, finding that prima facie and without further development, this argument was not relevant to the assessment of the case on its merits.^[47] The tribunal in Rompetrol v Romania held, poignantly, that:

much of the detailed argument about the application of specific provisions of the ECHR in the jurisprudence of the European Court of Human Rights, interesting and illuminating as it has been, is beside the point when it comes to the issues under the Netherlands-Romania BIT which form the subject of the dispute before the Tribunal.^[48]

Notably, BITs and other investment treaties do not prohibit host states from taking measures to safeguard crucial interests such as protection of the environment, labour standards or human rights – they prohibit conduct that treats investors unfairly. One may of course envisage situations where a state finds that it must breach a commitment to a foreign investor (eg, a concession) to safeguard the human rights of its population or part thereof. But such true normative conflicts will in practice be rare. In reality, states will in many situations have at their disposal multiple ways to resolve a perceived conflict between investment protection and human rights protection. BITs, meanwhile, are ultimately instruments chiefly allocating the economic risk when circumstances, priorities or policies change in ways that are detrimental to foreign investments. If measures imposed by the state to protect human rights entails that the investor is treated unfairly or inequitably, the investor is entitled to compensation in accordance with the terms of the investment treaty.^[49]

However, legitimate expectations cannot be measured solely by contractual rights in isolation but must be viewed in light of the entire legal, social and economic framework, including the protection of universal basic human rights.^[50] Furthermore, some of the tendencies outlined above may come to influence not only what those substantive expectations can rightfully be but also how one can assess and address the instances where investors and corporations are not only affected by the problem but are part of it.

Footnotes