On 4 September 2017, the Tribunal in two parallel arbitrations administered by the Permanent Court of Arbitration (“PCA”) issued a Procedural Order (“PO2”) in which it found that claims arising under the Accord on Fire and Building Safety in Bangladesh (the “Accord”) are admissible and within the Tribunal’s jurisdiction. The Tribunal also issued directions on confidentiality and transparency.

The Tribunal’s decision may lend support to those who promote international arbitration as a potential means of settling business and human rights (“BHR”) disputes between multinational corporations and individuals or groups in their supply chains. It also provides a valuable lesson regarding the importance of drafting arbitration agreements clearly and in line with best practice.

The Accord:

The Accord was reached between global apparel brands, retailers and trade unions in 2013 following the Rana Plaza building collapse. It is a legally binding agreement that establishes a fire and building safety programme for workers in Bangladesh’s textile industry. Signatories include the Claimants in the current arbitrations, IndustriALL Global Union and UNI Global Union, both labour union federations based in Switzerland (the “Claimants”), eight Bangladesh trade unions and over 200 apparel brands, retailers and importers from over 20 countries in Europe, North America, Asia and Australia.

The Accord establishes a system for independent safety inspections; disclosures about factories, inspection reports and corrective actions; and commitment of funds for remediation and funding the Accord’s operation. It also includes safety programmes for workers and complaint mechanisms. Overall, it aims to protect about two million Bangladeshi textile workers along the supply chain.

The Arbitrations:

The Accord includes a dispute resolution process that comprises a first-instance “Steering Committee”, composed in equal part of three representatives selected by the trade union signatories, company signatories, and a representative of the International Labour Organization (“ILO”). At the second instance, the Accord includes a uniquely worded arbitration agreement that provides, upon request of either party, for the first instance Steering Committee’s decision to be appealed to a final and binding arbitration process. The intention is that any arbitration award would be enforceable as a international commercial arbitration award under the 1958 Convention on the Recognition and Enforcement of Foreign Arbitral Awards (“New York Convention“). However, the arbitration agreement suffers from opaque language and deficiencies, including the absence of a governing law clause, a seat of arbitration and arbitration rules.

The Claimants commenced arbitration against two global fashion brands whose identities remain confidential (the “Respondents”) on 8 July 2016 and 11 October 2016. The Claimants alleged that the Respondents had breached the Accord’s Article 12, which concerns the remediation of factories, by failing to require their suppliers to remediate facilities within predetermined mandatory deadlines; and Article 22, which addresses supplier incentives, by failing to negotiate commercial terms that would make it financially feasible for suppliers to cover the cost of such remediation.

The Accord’s arbitration agreement immediately became an issue of contention as the Respondents argued that its deficiencies “potentially render it unworkable as a valid mechanism to arbitrate”. The disputing parties ultimately agreed to the 2010 UNCITRAL Arbitration Rules, The Hague as the seat of arbitration, the Secretary-General of the PCA as appointing authority and the PCA as Registry. However, the Respondent’s objection to admissibility remained pending following the composition of the Tribunal on 3 February 2017 (Donald Donovan (President), Graham Dunning QC and Professor Hans Graver).

Admissibility:

The admissibility objection arose out of the Steering Committee’s failure to reach a decision by majority on the merits of the charges filed against the Respondents. The question that ensued was whether being unable to reach a decision was itself a “decision” capable of satisfying the arbitration agreement’s preconditions.

In short, the Respondents argued that the Tribunal’s competence was limited to that of an appellate body and, because no underlying majority decision of the Steering Committee existed, the Tribunal could not assume the role of a first-instance decision maker. In response, the Claimants argued that no majority precondition existed because the Accord was silent on the content or form of Steering Committee decisions. The Claimants also pointed out that majority decisions were unlikely because the representatives elected to the Steering Committee tended to vote in blocs and the practice of the ILO chair was not to vote.

The Tribunal found that the Claimants had presented their disputes to the Steering Committee properly and, while the Steering Committee had been unable to form a majority view on the “merits” of each charge, it had gone through a deliberative process for each charge and had agreed on certain aspects of each charge. The Tribunal determined that this was sufficient to satisfy as a “decision” for each charge under the Accord. The Tribunal also found that the “majority vote” requirement did not operate to exclude non-majority decisions from being submitted to arbitration. Accordingly, the Claimants had fulfilled the necessary preconditions to arbitration set out in the Accord and the Respondents’ admissibility objection was dismissed.

Directions on Confidentiality and Transparency:

The confidentiality and transparency dispute arose because it was unclear whether the Accord’s provisions on transparency applied to arbitral proceedings (and the applicable law and UNCITRAL Rules were mostly silent). The Respondents urged the Tribunal to adopt an approach favouring confidentiality, raising issues such as fairness and potential reputational risk. The Claimants favoured greater transparency, arguing that it was consistent with the tenets of the Accord. Both parties were willing to compromise.

The Tribunal decided to balance both sets of interests by disclosing certain basic information about the arbitrations without identifying the Respondents. Applauding the parties’ willingness to compromise, it then invited them to confer and propose a protocol on confidentiality and transparency (which has yet to be made public).

Commentary:

The deficiencies in the Accord’s poorly drafted arbitration agreement appear to have been overcome for now. However, the considerable amount of time and presumably money that the disputing parties have spent wrangling over the clause should serve as a reminder of the importance of drafting arbitration clauses with care.

It also leads one to hope that the drafters of the Accord thoroughly researched the question of whether arbitral awards concerning the Accord will be enforceable under the New York Convention. Commercial arbitration is currently in the spotlight as a potential means to resolve BHR disputes according to a proposal by a group of lawyers who call themselves the Lawyers for Better Business. While the Tribunal’s admissibility decision will encourage these lawyers’ efforts, the Accord’s arbitrations still have a long road to travel before they can serve as definitive evidence of the viability and wisdom of arbitrating BHR disputes. The BHR and arbitration communities will be watching the cases with interest. Likewise, the protocol on transparency and confidentiality (if made public) could serve as a model in future BHR disputes.