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This piece is part of the American Branch’s first blogging symposium, examining the ILW 2024 theme of ‘Powerless law or law for the powerless?’ from an International Environmental and Energy Law perspective.

Lessons from the Rana Plaza: Arbitrating Human Rights Claims against Transnational Companies

by Galo Martín Márquez Ruíz*

     I.         Introduction

In 2013, as a consequence of the massive collapse of a building in Bangladesh, the international community convened to establish a legal framework allowing workers to file complaints directly and anonymously to the International Accord for Health and Safety in the Garment and Textile Industry (“Bangladesh Accord”).

The Bangladesh Accord was introduced to settle disputes before the Permanent Court of Arbitration (“PCA”), which is a milestone in itself since the PCA rarely addresses claims directed against companies.

Despite the Bangladesh Accords, direct access for claims due to human rights violations against companies have faced similar jurisdiction and transnational hurdles. But the Rana Plaza Arbitration, a landmark case in the responsibility of transnational enterprises, may constitute a tipping point in the way that we understand that a business and human rights law (“B&HR”) claim may be resolved, as a specialized field of international human rights law (“IHRL”).

The Rana Plaza factory building collapsed on 24 April 2013, killing 1,133 people and critically injuring thousands more. Reminiscing on the devastating consequences of the collapse, a legally binding instrument was set up to benefit over 2 million workers, 1,600 factories, and 190 brands.

This blog aims to sustain the idea that foreign stakeholders and enterprises have incentives to establish ad hoc arbitration agreements to regulate their offshore operations. Stemming from these new practices, a new generation of arbitral awards may produce a quasi-judicial case law for human rights enforceability. Unlike judicial judgments, these decisions benefit from efficient enforceability through the New York Convention in places where companies maintain their assets.

Slowly, the benefits of the Bangladesh Accords extended to industrial activities in Pakistan and the Sindh and Punjab provinces. However, similar disputes have arisen in other jurisdictions, which may seize the cross-fertilization of arbitration for B&HR disputes by incorporating local ad hoc arbitration agreements that extend an offer to arbitrate human rights violations.

The structure of this blog is threefold. First, I briefly discuss the joint development of IHRL and arbitration, which may serve as a common ground to justify the arbitrability of B&HR disputes. Second, I address the central claim of the suitability of arbitration to resolve B&HR disputes. Finally, the last section considers that the balancing point for the arbitrability of B&HR cases is for companies to establish ad hoc arbitration agreements.

  II.         The Point of Intersection between Human Rights and Arbitration

A.   Arbitration criticism to adjudicate human rights disputes

There is a tension between human rights and businesses. However, a common interest may arise when capital growth stagnates because of human rights abuses caused by said companies’ operations.

This tension runs both ways and fuels a broader discussion on whether human rights can be adjudicated through arbitration or should be left to State-backed authorities. The effects of arbitration in public policy exceed the scope of this blog, which solely centers on the incentives for companies to implement arbitration for B&HR claims.

Recently, United Nations Experts have been interested in the intersection of arbitration and B&HR. Mr. David Boyd, the UN Special Rapporteur on human rights and the environment, remarked at the end of 2023 that “[f]oreign investors use the [arbitration] process to seek exorbitant compensation from States that strengthen environmental protection.” This prompted a decrease in support for a relationship between arbitration and the protection of human rights, prompting NGOs to brand the system of arbitration as a “[a] system of secret arbitration tribunals […] undercutting climate action worldwide.”

This author believes, at first hand, arbitration may provide for alternative routes to access to justice¾a clear goal set under SDG 16. Arbitral tribunals are also seeing an increase in human rights claims. In the recent advisory opinion by the International Tribunal for the Law of the Sea, the Tribunal noted that States’ obligations concerning transboundary pollution have been “[d]eveloped through arbitral and judicial decisions,” such as the Chagos Marine Arbitration before the PCA (Advisory Opinion, ¶246).

B.   Access to justice through arbitration

Commercial arbitrations enjoy less oversight from the public eye, as State participation is not necessary throughout the procedure. The primary criticism of commercial arbitration comes from academics and NGOs; the Columbia Center on Sustainable Investment claims that efforts to develop non-judicial mechanisms to address companies’ conduct “does not yet adequately address the risk that arbitration may in some cases thwart, rather than advance, access to justice” (CCSI Briefing Note, September 2019).

An open discussion is required to identify the virtues and misuses of arbitration as an adjudication system. Still, none of these comments address why the Bangladesh Accord has become a successful dispute resolution mechanism.

In short, arbitration provides accessibility for the adjudication mechanism for human rights violations, which is often subject to restrictions of forum non conveniens, which define where a company group may be sued. Ad hoc arbitration agreements allow for direct claims between victims and companies.

Alternatively, without the benefit of arbitration, claimants have still successfully utilized extra-territorial adjudication in cases such as Vedanta v. Lungowe, where the English Supreme Court accepted that residents of Zambia could bring a claim against a mining company in the United Kingdom. In the Court’s rationale, even if the Zambian jurisdiction was also the proper jurisdiction to do so, it might not provide “substantial justice.”

While the Vedanta case is remarkable for its advancement of accessibility for B&HR reparations, some justice systems may still set several hurdles for the claimants to bring a claim. Legal costs, judges’ lack of specialism, and the territory itself may impede the victims from triggering a dispute.

III. States’ interest in promoting direct access to arbitration to remedy human rights claims

States are also encouraged to promote ad hoc mechanisms for B&HR reparation to delegate responsibility for actions taken by companies in their jurisdictions. Several examples exist, including the Odyssey v. Mexico dispute which reflects the complications that might arise for States and State-delegated parties.

In this case, an investor brought a claim against Mexico for canceling the Don Diego, a seabed mining project off Mexico’s Baja California Peninsula. The Centre for International Environmental Law submitted an amicus curiae to highlight the project’s environmental risks and explain the damage the project might bring against locals.

Prof. Philippe Sands, a co-arbitrator in the case who dissented, stated “it is incumbent upon arbitrators to have regard to the […] impact on the legitimacy of the final award in light of […] specific local community interest.” In this type of case, without participation in the main proceedings of the affected communities, different, biased, and potentially incorrect narratives may be generated before different legal instances.

A similar case was raised in Bear Creek v. Peru, where a silver mine in Santa Ana, Peru, was halted because of the “[m]istrust of the local population toward the project.” The communities disrupted the project, and Peru was sued and eventually sanctioned before an arbitral tribunal.

All in all, these cases indicate a tendency in international law, namely, that states refrain from arguing for diplomatic protection while accepting direct claims by individuals. (See D. Desierto, et al. submission before the UN-WGIII, 2023).

IV. Incentives for Companies

Companies may not want to offer arbitration for fear of mass claims. Much like Pandora’s box, providing a blank letter arbitration agreement pending to be signed by the victim opens the door to the uncertainty of future lawsuits. This post, however, posits several reasons for enterprises to opt-in for ad hoc arbitration agreements to settle B&HR disputes.

First, companies need to comply with new B&HR laws, including the UN Guiding Principles on Business and Human Rights, the OECD Guidelines for Multinational Enterprises, and local efforts such as the French Corporate Duty of Vigilance Law (Loi relative au devoir de vigilance). States have already begun delegating these obligations to foreign investors. For instance, the 2019 Netherlands Model BIT, which contains a regulation on ‘corporate social responsibility,’ clarifies that companies shall abide by some of the prior principles.

Former ICJ Judge Bruno Simma, one of the drafters of the Hague Rules on Business and Human Rights Arbitration, signals that similar norms are underway in Germany, Netherlands, and Norway, which may prompt investors to ensure that they are complying with B&HR obligations by means of arbitration (B. Simma, et al, p. 408).

Quasi courts or international tribunals, in cases such as Okpabi v. Royal Dutch Shell, and the La Oroya Case before the Interamerican Court of Human Rights, have also stressed that foreign enterprises are not detached from the responsibility of their off-shore operations.

Second, multinational companies may also reduce legal risks by requiring that companies – through supply and production chain of their operations – grant access for evaluation and jurisdiction to remedy human rights violations. This constitutes an open-letter offer to arbitrate which victims may opt to accept.

Third, by extending an offer to arbitrate B&HR claims, foreign companies might increase their own accessibility to investor-state arbitration (“ISDS”). ISDS cases are not detached from human rights, as reflected in the Urbaser v. Argentina dispute. There, the tribunal openly rejected the investor’s view that ensuring human rights are obligations solely falling upon the State (Final Award, ¶1193). By providing for arbitration to address B&HR issues, investors may avoid invalidating the unclean hands doctrine and reducing their possibility of access to ISDS.

V. A proposal for ad hoc arbitration agreements for human rights claims

As initially conveyed, mechanisms such as the Hague Rules claims may reduce criticism by providing for greater transparency, third-party participation, evidence taking, and cost allocation.

States have already begun to adopt these rules, as evidenced by the Sustainable Investment Facilitation & Cooperation Agreement for The Gambia (See, R. Houston, 2021). Other contractual mechanisms, including state contracts, may incorporate the Hague Rules to encourage direct claims, similar to the approach in the Rana Plaza Arbitration.

Much like the Rana Plaza Arbitration, where the full tribunal possessed expertise in international commercial disputes, there is a compelling argument that laws governing human rights and corporate transnational responsibility will evolve through the input of businesspersons, including commercial arbitrators. Consequently, while human rights practices have historically progressed from domestic to international law (See, S. Besson, p. 237), the Rana Plaza Arbitration illustrates how B&HR case law could originate at the international level and influence local practices.

The full impact of the Rana Plaza Arbitration remains to be seen, but the trend toward arbitrating human rights disputes is steadily growing. A shift in the development of IHL may follow, necessitating oversight of arbitral tribunals to effectively incorporate the lessons learned from the Rana Plaza case.

*Galo Márquez is an Associate at Creel, García-Cuellar, Aiza y Enríquez specialized in  International Arbitration, Legal Assistant to former ICJ Vice-President, Judge B. Sepulveda  Amor, and Professor at Tec de Monterrey University in Mexico City. Galo is a Member of the Academic Forum on Investor-State Dispute Settlement and the   CAM/CANACO Forum Chair for Arbitration Practitioners. In 2024, he was awarded the Johnny  Veeder International Arbitration Scholarship.