UN Working Group publishes revised draft of business and human rights treaty: commentary on scope, prevention and legal liability

Hogan Lovells

Hogan Lovells

On 16 July, a UN working group published a revised draft of its business and human rights treaty (following the “Zero” Draft published in July last year). Our post looks at some of the key developments, with a particular focus on its scope and the provisions on prevention and legal liability. We conclude by asking what happens next and providing some practical guidance to business.


The mandate given to the Working Group by the Human Rights Council was to develop a treaty to regulate the activities of “transnational” corporations. Accordingly, the scope of the Zero Draft was restricted to “human rights violations in the context of any business activities of a transnational character”. Such business activities were defined as “any for profit economic activity […] that takes place or involve actions, persons or impact in two or more national jurisdictions”. This was a major point of contention. Concerns were expressed (including by the EU, Professor John Ruggie and in our post on the Zero Draft) that limiting the scope to transnational for profit business activity diverged from the UN Guiding Principles, created a dangerous loophole for state-owned entities and an uneven playing field for other actors who compete against them.

The Revised Draft adopts a different, albeit ambiguous, formulation. Article 3 provides that it shall apply to “all business activities, including particularly but not limited to those of a transnational character”, suggesting that the scope of the treaty has been expanded to cover all business activity. However, “business activities” is defined in Article 1 as “any economic activity of transnational corporations and other business enterprises, including but not limited to productive or commercial activity […]”, suggesting that purely domestic business activity remains out of scope. Given the broad definition of “transnational character” (which encompasses activity: undertaken in more than one national jurisdiction or State; undertaken in one state but substantially prepared, planned, directed, controlled, designed, processed or manufactured in another; or undertaken in one State with a substantial impact in another) this may be of little consequence. In a globalised and interconnected economy, it is hard to think of much business activity which would not be “transnational” according to this definition. Nevertheless, greater clarity on this issue would help to secure the support of States in the Global North and the EU.

Perhaps more significant is the decision to drop the requirement that “business activity” must be “for profit” for it to come within the scope of the treaty. This will prevent technical arguments, in particular by state owned enterprises, that their activity is carried out for some purpose other than “profit” and is therefore outside the scope of the treaty and goes some way to addressing the concerns raised about the limited scope of the Zero Draft. Given the (growing) significance of state owned enterprises in the global economy, particularly in high risk sectors and geographies, this is a welcome change.

Due diligence and prevention

The Zero Draft contained an obligation on States to introduce mandatory human rights due diligence under their domestic law. In principle, such an obligation is unproblematic. France has already legislated to make human rights due diligence mandatory and a number of other States are looking at taking similar measures. However, the due diligence envisaged by the Zero Draft would have required businesses to “prevent human rights violations within the context of [their] business activities”, including those which were directly linked to its operations products or services. This elided outcome and process, undermined the UN Guiding Principles and would have imposed an impossible burden on businesses to prevent outcomes over which they had no control or knowledge.

The Revised Draft is a marked improvement from this perspective. The primary obligation on States set out in Article 5 is to regulate business enterprises within their territory or jurisdiction so that they are required to “respect” human rights and “prevent human rights violations”. The subsequent paragraphs clarify that this means introducing legislation to make human rights due diligence mandatory and requiring enterprises to “take appropriate actions to prevent human rights violations or abuses in the context of its business activities, including those under contractual relationships”. On the one hand, this provision marks a convergence with the UN Guiding Principles. The inclusion of the wording “takes appropriate measures” to prevent confirms that human rights due diligence envisaged in the Revised Draft is a standard of process rather than outcome and alleviates some of the concerns about the impossible burden imposed by the Zero Draft. Further, the provision includes reference to impact assessments, integration and stakeholder engagement as envisaged under Pillar 2 of the Guiding Principles.

On the other hand, the human rights due diligence which it envisages is limited to “business activities” and “contractual relationships”, rather than applying to “business relationships”. This is a material divergence from the UN Guiding Principles which require that businesses, as part of their human rights due diligence, identify and address impacts to which they are directly linked through a business relationship (for example an adverse impact two or more tiers down a supply chain). There is a risk that such a divergence will undermine the fragile consensus on the responsibility of businesses to identify and address impacts beyond the first tier of their supply chains.

Legal liability – Failure to prevent human rights violations and abuses

Article 6 of the Revised Draft introduces a new provision which would require States to establish liability for failing to prevent another person with which it has a contractual relationship from causing harm to third parties, irrespective of where such harm takes place. Such liability would only arise where there is either control over the contract counter-party or where the human rights violation or abuse is reasonably foreseeable.

A similar, “failure to prevent” mechanism is used for bribery offences under the UK Bribery Act. This provision is an interesting addition to the Revised Draft and one which could, with a little further development, offer an appropriate balance between accountability for impacts in the value chain and legal certainty for business. Two, preliminary comments:

1. It is odd that the Revised Draft restricts the provision to contractual relations where it would seem equally appropriate to extend it to equity relationships, such as that between a parent and subsidiary (provided that the same control or foreseeability limitations apply);

2. Where a business has implemented human rights due diligence to an adequate standard but, nevertheless, a rogue employee or agent of the contract counter-party causes an unforeseeable adverse impact, it seems unfair to hold the business legally liable. In the UK Bribery Act, this concern is addressed by the inclusion of a statutory defence of “adequate procedures”. The same could apply in a human rights context; if the business can show that it has carried out adequate human rights due diligence, it could rely on this to extinguish liability (albeit that the rogue agent would still be open to liability). This would offer a measure of legal certainty to businesses who meaningfully engage in human rights due diligence.

Legal liability – Criminal

Like the Zero Draft, the Revised Draft requires that States take certain steps to establish criminal liability for involvement in human rights abuses which amount to criminal offences. Hogan Lovells made submissions to the Working Group that the relevant provisions in the Zero Draft (in particular a provision requiring States to exercise universal jurisdiction and a provision mandating that States prosecute international crimes on the basis of domestic modes of complicity) were inconsistent with public international law and the UN Guiding Principles and created unacceptable uncertainty for businesses.

The provision on universal jurisdiction has been removed and a new provision expressly providing for territorial, active and passive nationality jurisdiction has been introduced. This means that under the Revised Treaty, States will no longer be able to exercise jurisdiction over conduct which does not constitute a criminal offence under international law in circumstances where it has no conventional jurisdictional link to the crime.

Further, at Article 6(7), the Revised Draft sets out a closed list of crimes within the scope of the Treaty, including the core crimes (genocide, crimes against humanity and war crimes) as well as torture, enforced disappearance, forced labour, slavery and trafficking, forced eviction and sexual and gender based violence. This also helps to strengthen the treaty by establishing greater legal certainty.

The provision in the Zero Draft requiring that States prosecute complicity in international crimes according to domestic law on the modes of participation has been removed. However, the provision which appears to replace it (Article 6 (9)) seems to retain the deference to domestic law, providing that: “State parties shall provide measures under domestic law to establish legal liability […] for acts that constitute […] complicity in accordance with Article 6 (7) and criminal offences as defined by their domestic law.” It is not clear whether the reference to domestic law here refers to primary crimes or modes of complicity therein. To the extent that it is the latter, it is regrettable that the Revised Draft does not instead refer to modes of complicity under international law, such as those set out in Article 25 of the Rome Statute. Such a provision would improve legal certainty by avoiding the application of variable domestic modes of participation, facilitate international co-operation in prosecution of these crimes and reduce the potential for selective or politically motivated prosecutions.

Next steps

The Revised Draft addresses a number of critical problems raised by the Zero Draft which may make it easier for business stakeholders and States in the Global North to stomach. States and other stakeholders now have an opportunity to reflect on the Revised Draft before the next round of negotiations commences in October 2019. In the meantime, our recommendation to businesses is to take a close look at the systems and process which they have in place to identify and address adverse human rights impacts and ensure that they are being carried out in line with the UNGPs.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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