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As Norges Bank pushes back, could contract law strengthen the OECD Multinational Guidelines?

Might companies and investors using international arbitration for investment agree to the same channel for human rights controversies?

When it comes to seeking redress for human rights abuses caused by multinational corporations, the OECD National Contact Points (NCP) are pretty much the only game in town. In recent years, it has been increasingly difficult to find legal routes to remedy. The UK government has withdrawn legal aid for people in other countries wanting to bring cases of human rights violations against multinationals. In the US, judges have curtailed the use of the Alien Tort Statute by foreigners seeking remedy in the US from global corporations. The problem with the OECD system is that its adoption has been patchy and there is no standard practice for how the NCP deals with complaints. NCP decisions have no legal clout and an NCP cannot recommend any compensation to victims.
The OECD Guidelines for NCPs have taken on board the voluntary UN Guiding Principles on Business and Human Rights (UNGPs). But in 2013 John Ruggie, architect of the UNGPs, acknowledged the shortcomings of NCPs: “If that process says that the company was in violation of the guidelines, what happens? Nothing. That company can go next day and apply for investment insurance and export credit from the same government. Absolutely absurd,” he told an audience in Madrid.
The difficulties facing NCPs have been highlighted by the POSCO case. The Dutch and Norwegian NCPs have both considered a complaint related to minority investments in Korean steelmaker POSCO. The issue is the extent to which investors should take responsibility to mitigate human rights harm in companies they invest in. The Dutch NCP and Norwegian NCP both said that minority shareholders must take action. But Norges Bank Investment Management (NBIM), the arm of the central bank that runs the country’s giant wealth fund, has refused to accept the Norwegian NCP decision.. NBIM argues that the role of minority investors in companies is different from the responsibilities of the companies themselves. Ruggie has intervened, telling Responsible Investor in February that the issue is not whether the UNGPs apply to institutional investors, but how they are applicable.Recognising the limitations of the NCP system, lawyers concerned at the lack of access to remedy for corporate harm have been trying to find new routes to hold multinationals to account. Claes Cronstedt, a former international partner at Baker Mackenzie and a member of the Swedish bar, is among them. He is a member of the advisory group of my organisation, Lawyers for Better Business. In late 2013 he suggested that L4BB set up a working group to investigate establishing an international arbitration tribunal that could hear cases of human rights harm, wherever in the world they had occurred. The aim was to provide cheaper and faster access to remedy, through a tribunal that could make legally binding decisions and award compensation to victims. The working group published the first draft of its proposal on the L4BB website a year ago, inviting feedback. The proposal explained that a tribunal could employ arbitration and mediation and would maintain a roster of highly respected arbitrators with expertise in human rights law. Academics, human rights lawyers and NGOs responded with enthusiasm and constructive criticism, helping the working group to evaluate what legal routes to remedy an arbitration tribunal might be able to use. The biggest stumbling block is that there is currently no overarching international law that can be applied. Laws relating to access to remedy are enforced at national level, but multinationals operate across borders. Multinationals can argue that they are not responsible for the behaviour of subsidiaries that are incorporated as a separate legal entity. If courts are not willing or able to handle cases of corporate human rights harm in the country in which the abuse occurred, victims have few legal routes to remedy.
Arbitration experts then came up with a solution, which was to insert human rights clauses into contract law. Companies frequently use international arbitration to settle cross border disputes in areas like investment, and agree to be bound by arbitration tribunal decisions. Contracts could include a clause under which a multinational agrees to take allegations of human rights
harm to arbitration, with those seeking redress brought into the contract as a third party. There is potential to spread the use of human rights clauses in contracts. Companies that adopt these clauses could require them to be introduced throughout their supply chain. Governments could insert such clauses into procurement contracts, while investors could make it a criterion for investing in corporations. The OECD could integrate the tribunal into the NCP system, particularly since some NCPs already urge parties to seek mediation of their dispute.
The latest (fifth) version of the tribunal proposal has just been published. It recommends the Permanent Court of Arbitration in The Hague should house the tribunal, although the mediation and arbitration could take place almost anywhere in the world. All the stakeholders who would use the tribunal could participate in setting its rules and establishing the criteria by which arbitrators are selected. An assistance fund could help victims of corporate abuses to bring cases.While this proposal has been taking shape, a group of countries and NGOs have lost patience with voluntary mechanisms for access to remedy from corporate harm, such as the NCP system. Last June Ecuador and South Africa spearheaded a demand from 20 countries to the UN Human Rights Council, to look into a legally binding international treaty to bring multinationals to account for human rights abuses. The UN has adopted the resolution, but it will take many years to get an international agreement, particularly as many countries where major global corporations are headquartered have not backed the demand. But if a binding treaty were agreed, it would provide an overarching international law governing corporate abuse of human rights, which the arbitration tribunal could also apply.
In the meantime, with sufficient support from governments, corporations and NGOs, the tribunal could be set up and start operating. The working group and its growing band of supporters are under no illusions about the complexity of the task. But it offers a glimmer of hope to victims of corporate human rights abuse seeking remedy, and it may also help to strengthen the NCP system.

Adrienne Margolis is the Founder of Lawyers for Better Business
Note: Version 5 of the arbitration tribunal proposal can be found at Lawyers for Better Business