What Has the Third Draft of the UN Binding Treaty Introduced For Businesses To Consider

Many of the key themes of the second UN binding treaty draft are present within its third iteration, however, the third draft rewrites some of the wording so as to expand the scope of protection.

Expanded Scope of Operation

The obligation that states “regulate the activities of businesses” to ensure respect for human rights in Art 6.1 has been expanded. Previously state parties only had to regulate corporations “domiciled” in their territory, the third draft envisions states needing to regulate all business “within their territory, jurisdiction, or otherwise under their control, including transnational corporations and other business enterprises that undertake activities of a transnational character”. Businesses that are not operating within a country in a narrow sense, but only supply goods or services, are now clearly covered by the treaty, whereas the second draft’s wording arguably did not account for such scenarios.

In terms of what effective due diligence rules should look like, Art 6.3 proposes that signee states are obligated to “introduce laws or regulations to make human rights due diligence mandatory for businesses”. Art 6.4 broadens the scope of the impact assessment necessary for satisfactory due diligence laws by requiring states to mandate impact assessments which consider “human rights, labour rights, environmental and climate change impact assessments”. This is an expansion upon the second draft which only mandated assessments on human rights and environmental issues, so companies must be sure to make note of the increasing number of rights they are expected to protect in the course of business.

Access To Remedy

While access to remedy after a human rights violation is a fundamental human right in itself. Art 7, and the complementary articles within Arts 9-11, talk in detail about what this should look like in states with an effective due diligence regime. Art 7.1 sets out that states must take measures to ensure victims can guarantee access to remedies in the court and via state-based judicial mechanisms.

Adjudicative jurisdiction relates to the competence of courts to hear a case. In line with its wider trend of centring the protection of human rights, the third draft envisions expansive provisions in relation to this matter. Art 9.1 enshrines the usual provision of jurisdiction being enshrined in the country where the harm occurred and/or where the defendant is domiciled. But the third draft provides the additional option for victims to bring a case where they are domiciled.

This is notwithstanding the provision that allows a victim to bring a case to a court of any third-party state if they feel none of the options above can guarantee “a fair judicial process is available”. To bring a case through this avenue the claimant must be present in the third party’s territory and the defendant must also have assets or engage in substantial activity in the third-party country in question. Furthermore, as per Art 9.2, the key legal challenge of forum non-conveniens (which normally allows courts to reject a case if another forum seems more appropriate) is seen as irrelevant in cases that fall within the scope of the third draft.

Parameters Of Legal Liability

The final core concept of the UN binding treaty that should be of particular interest to businesses is the provisions relating to corporate liability. Article 8.1 obliges states to ensure “domestic law provides for a comprehensive and adequate system of legal liability of persons conducting business activities within their territory, jurisdiction or otherwise under their control.”

Art 8.6 addresses the important question of liability for companies over harm caused by actors outside of their central company but with “whom they have a business relationship with”, such as a company’s supply chain manufacturers. It obliges states to create laws that facilitate companies to be held liable for harm caused if it “controls, manages or supervises such person or the relevant activity that caused or contributed to the human rights abuse”.  Or when the company “should have foreseen risks of human rights abuses in the conduct of their business activities…but failed to take adequate measures to prevent the abuse.”

This creates two avenues of liability.

The first, relating to harm caused when the company controls, manages or supervises the actor in question, suggests a strict causation consideration. This means negligence is irrelevant and the only consideration for a company’s liability is if they had a close enough relationship with the third actor that caused the harm. The second avenue which assesses if a company should have foreseen a risk and acted upon it would likely involve a consideration of a company’s due diligence procedures to assess if there were negligent to the dangers of potential harms. Companies should seek expert advice to ensure their procedures are beyond satisfactory, as Art 8.7 makes clear the mere existence of due diligence procedures “does not automatically” absolve liability from harm caused by an actor with which a company has a business relationship.

Why Should Your Business Keep An Eye On This?

The October negotiations relating to the third draft suggest full-scale adoptions of this treaty may not be in the immediate future, but for the first time in its nearly seven-year mandate, the IGWG is making significant progress on the adoption of a tangible treaty. The big players such as the EU, US, and China are also finally at the negotiation table and steps are clearly being made in moving towards a global consensus.

These developments follow the ever-increasing proliferation of mandatory due diligence regulations and linked climate/human rights litigations seen at the regional and domestic level. Companies should keep an eye on this draft of the UN binding treaty because as more states follow the trend of mandatory due diligence regulations, they will likely follow the ideals being set out and discussed in the draft treaty and its various rounds of negotiations.

Finally, if such a trend continues and develops into a ‘widespread and consistent practice’, the protection of human rights through due diligence regulations could begin to be seen as a customary international (or jus cogen) law. So, the need to keep an eye on holistic developments of due diligence regulations in the near- and long-term future remains vital.

Ardea supports organisations to address their legal obligations and develop best practice procedures to manage their sustainability, business and human rights and modern slavery risk by providing training, on line guidance and consultancy services.

Drawing on our combined experience of environmental law and human rights law, we can help organisations to develop a range of resources to help meet their legal and compliance obligations and to develop best practice processes.

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