New Binding Treaty draft provides companies a glimpse into the future of legal liability for human rights abuses

By Jonathan Drimmer, Paul Hastings

August 26, 2020

With little fanfare, an Intergovernmental Working Group (IGWG) released the Second Revised Draft of a proposed binding treaty on business and human rights.  This is third iteration of the proposed treaty, which has been steadily progressing since June 2014, when the UN Human Rights Council adopted a resolution by Ecuador and South Africa to create an international legally binding instrument to regulate Transnational Corporations and Other Business Enterprises with respect to human rights.

While the draft treaty has evolved from the zero draft of 2018, it still maintains a handful of provisions that companies may cause great alarm for companies and many prospective states who might become party to the treaty in the distant future once it is finalized, adopted and ratified.  For example,

• It includes within the definition of “Human rights abuse” environmental issues, along any harm committed by a business enterprise that impedes “the full enjoyment of internationally recognized human rights and fundamental freedoms.”  Consistent with that, the panoply of remedies can include environmental remediation and ecological restoration, which can be extremely costly and challenging.

• It also precludes defenses in civil cases based on forum non conveniens, commonly asserted in transnational tort cases, and allows states to shift the burden of proof to defendants where appropriate.

• It largely dismisses the corporate form and creates exposure for acts in a company’s supply chain, mandating that states create domestic laws establishing the liability for companies “for their failure to prevent” harms caused by an entity with whom it has a “business relationship” where the company fails to put in adequate measures to prevent a foreseeable harm.

• It requires that companies conduct human rights due diligence to identify potential human rights risks and impacts, take steps to prevent and mitigate those risks and impacts, monitor the effectiveness of those steps, and report publicly on how they address actual or potential abuses.  The draft also includes a penalty provision for failing to meet these requirements, regardless of whether they are related to a human rights violation, but when a company does conduct relevant diligence, it does necessarily create a defense to liability.

• It permits cases to be filed in a wide range of jurisdictions, including any country where an act or omission contributing to the human rights abuse occurred, and against individuals who are not domiciled in a jurisdiction if the claim is connected to an individual who is domiciled there.

• And perhaps most significantly, it mandates that states create laws providing for criminal liability against companies “for human rights abuses that amount to criminal offences under international human rights law binding on the State Party, customary international law, or their domestic law.”  In other words, it opens the possibility of broad corporate criminal exposure for alleged human rights abuses, including as defined by domestic laws and interpreted by domestic courts.

To be clear, it seems like finalization of the draft treaty process is still several years away, and then domestic laws implementing the treaty still must be adopted.  But to the extent companies may wish to peer into a telescope and see what the future holds, mandatory diligence, broad potential civil and criminal exposure, liability for failing to prevent harms caused by subsidiaries and suppliers, litigation in attenuated jurisdictions, and potential corporate criminal prosecutions are appearing on a distant horizon.