Clifford Chance

In July 2019, an intergovernmental working group appointed by the UN Human Rights Council published a revised draft treaty, aiming to make businesses more accountable to victims of business-related human rights abuses. The developing draft treaty has ramifications for businesses as they consider both their human rights due diligence processes and their litigation and regulatory risk.

On 19 July 2019, the UN Human Rights Council's open-ended intergovernmental working group on transnational corporations and other business enterprises with respect to human rights (the "OEIGWG") published a revised draft of the business and human rights treaty (the "Revised Draft"), following the release of a 'Zero Draft' in July 2018. Over 14-18 October, representatives of governments, NGOs, and business met in Geneva for the fifth round of negotiations in the treaty process. Clifford Chance has featured the earlier developments in this process in its briefings.

The draft treaty aims for countries to implement a number of law and policy reforms to address the perceived global accountability gap in human rights impacts of business. Once effective, it would place obligations upon countries who enter into the treaty to implement laws and measures that would apply to business. These laws and measures, among other things, would:

• require businesses in their territory to respect human rights and prevent their violations, by implementing due diligence processes (Art. 5);
• establish civil, administrative and/or criminal legal liability for business-related human rights violations or abuses (Art. 6);
• seek to address other perceived barriers to remedy for victims of business-related human rights impacts, including by: liberalising the rules regarding jurisdiction, limitation periods and applicable law, reversal of the burden of proof in certain cases, providing for early disclosure/discovery and limiting the recoverability of legal costs from impecunious claimants (Arts. 4, 7-9);
• implement mutual legal assistance arrangements between countries to assist with securing evidence and recognising and enforcing judgments overseas in administrative, criminal or judicial proceedings involving transnational businesses, and foster international cooperation in preventing and addressing business-related human rights impacts (Arts. 10-11).

The 2018 Zero Draft had been hotly debated by NGOs, academics, business representatives and governments. The Revised Draft has also been met with both criticism and optimism, and States along with various interested parties discussed it at the October negotiations in Geneva.

The Revised Draft touches on many areas of law and policy and a proper discussion of many of them is outside the scope of this post, which instead discusses on two aspects of the draft treaty.

Scope

The scope of the Zero Draft was limited to "violations in the context of any business activities of a transnational character" (Art. 3). By contrast, the Revised Draft aims to be comprehensive in applying "except as Stated otherwise, to all business activities, including particularly but not limited to those of a transnational character". Some ambiguity remains however; for example the pivotal definition of 'business activities' refers to "transnational corporations and other business enterprises", which a footnote in the OEIGWG's mandate suggests is a reference to other transnational business enterprises. Among other things, this key definition sets the application of the operative mandatory due diligence and legal liability provisions.

Overall, the Revised Draft's position is perhaps preferable to the lack of clarity surrounding the Zero Draft's reliance on the broad defined term of 'transnational character'. It is possible that the ambiguity is intended to be constructive, in order to permit countries on both sides of the fierce debate over scope to read what they like into the provisions. This debate came to dominate the previous rounds of negotiation of the Zero Draft in 2018 and of the Program of Work in 2017, with the EU and other countries from the Global North refusing to engage with the draft on the basis that it omitted the business-related abuses taking place within a solely domestic context. However, in the recent October 2019 negotiations, experts, States and the EU representative welcomed the widened scope of the Revised Draft (although others suggested it fell outside the OEIGWG's mandate, on account of the footnote referred to above).

Another potentially politically important change to the scope of the draft is the removal of the words "for-profit" from the definition of business activities. The Zero Draft's use of this qualifier would have enabled State-owned enterprises or public/private joint ventures whose purpose may not be wholly profit-driven to evade the measures envisaged by the treaty.

Both these changes appear to make broad international agreement on a future draft of the treaty, although impossible to predict, more likely.

Due diligence and liability

The Revised Draft's key operative provisions would require State parties to the treaty to pass domestic legislation that:

• obligates all businesses to conduct human rights due diligence on their business activities and contractual relationships;
• permits extra-territorial claims against business people and entities for their failure to prevent subsidiaries, suppliers and other business partners from committing human rights violations; and
• makes businesses or staff liable in civil, administrative or criminal law for attempt, participation or complicity in relation to certain international law crimes and other rights violations.
  

These provisions touch on a range of contentious legal and policy issues. In their detail, they relate to indigenous peoples' consent, corporate obligations at international law, corporate influence on governmental policy, judicial application of foreign law, extra-territorial jurisdiction, national sovereignty, litigation 'floodgates' concerns, limitation periods, the 'loser pays' litigation costs rule, SME regulation, financial and non-financial reporting, attribution of liability to legal persons and many more issues.

Compared to the Zero Draft, the mandatory due diligence provisions in Art. 5 have been brought more in line with the UNGPs, a move that was welcomed by many States at the recent negotiations. Under Art. 5, businesses would be required to identify and assess potential violations, take appropriate actions to prevent them, monitor their human rights impact and communicate to stakeholders and account for their due diligence policies. This process would extend throughout their business activities and contractual relationships (which is widely defined to include subsidiaries and indirect relationships through subsidiaries and suppliers). There remains issues of inconsistency between the UNGP approach and the Revised Draft. For example, the due diligence requirements are not qualified by business size, risk of impacts, nature and context of business operations or extent of its leverage as the UNGPs are (see UNGPs 14, 19). This type of detail may have been left for State parties to implement.

However, the more fundamental difference between the regulatory framework envisaged by the Revised Draft and the UNGPs is the approach taken to remedying business-related human rights violations. Under the UNGPs, businesses' responsibility to respect human rights is framed as an exhortation both to "avoid infringing on the human rights of others" and to "address adverse human rights impacts with which they are involved" (UNGP 11). Businesses are seen to have a fundamental role, alongside States, in remedying and mitigating human rights violations, including through operational-level grievance mechanisms (see UNGPs 19(b), 20, 22, 24 and 29).

In the Revised Draft, the mandatory due diligence provisions do not mention business' role in remedy. It instead appears that remedy is dealt with by the provisions relating to legal liability, which aim to make businesses liable for their "failure to prevent" others causing adverse human rights impacts and to make it easier in various procedural respects for claimants to litigate against businesses, including (via the mutual legal assistance provisions) transnationally. The draft liability provisions do not clarify what kind of failure to prevent would result in liability, leaving State parties to choose the content of these operative provisions. At the October negotiations, States and others raised the unclear delineation between these 'secondary' liability provisions and the other provisions for corporate liability for attempt, participation and complicity in international and other crimes.

This 'failure to prevent' liability relates more broadly to the question of the appropriate interrelation between due diligence processes and corporate liability. The effect of this interrelation in the Revised Draft is unclear. For example, would UNGP-compliant human rights due diligence processes operate as a defence to failure to prevent liability under laws promulgated pursuant to Art. 6? Or merely as a criteria for assessing damages? Or should legal liability be predicated on causation alone? States focussed on these questions at the October negotiations.

The OHCHR has noted the need for approaches to legal liability to be informed by "a thorough understanding of the linkages involved" between due diligence and liability and has warned of the perceived risks that "over-regulation" would discourage proactive corporate behaviour and encourage 'check box' compliance practices that comply in form but not in substance. In October 2019, the OHCHR again highlighted "the importance of viewing issues of prevention and liability holistically". See here and here. At the October negotiations, States flagged the ambiguity over the connection between due diligence and liability. Some participants proposed a distinction between administrative liability to enforce due diligence and a private law (civil or tort) liability to address harm caused by businesses. Although a balance must be struck between specificity and flexibility for domestic implementation, a treaty that leaves such central issues to individual governments is perhaps undesirable. It may result in domestic regimes that impose unworkable or unjust liability and perpetuate the absence of a regulatory level playing field internationally.

These and other issues tend to suggest that the developing treaty work remains some way from a finalised draft, let alone entry into force at international law and subsequent implementation into domestic law applicable to businesses. The OEIGWG's report on the October negotiations sets out a timetable of written comments, expert advice and consultation to the production of a third draft in summer 2020 for the sixth round of negotiations.

At the same time, corresponding national and regional measures continue apace. To take one example, the EU representative at the October 2019 negotiations on the treaty draft emphasized that the European Commission will be working on due diligence proposals at the European level.

For the time being, the draft treaty does however serve as an evolving list of potential measures relevant to both due diligence processes and in particular litigation and operational risk that businesses can expect governments to be considering, and increasingly, implementing.*

*For a recent development, see the California Assembly Bill No. 5, which reverses the burden of proof in cases regarding labour protections, by legislating for a rebuttable presumption that purported contractors of the type favoured in the 'gig' economy are treated as employees, eligible for employment benefits.