Source: https://www.jdsupra.com/legalnews/time-for-construction-to-step-up-to-its-38054/
Timestamp: 2019-04-18 13:14:44+00:00

Document:
Developments continue apace in human rights responsibilities for businesses. A UN Working Group has published its first draft treaty to regulate the activities of transnational corporations regarding human rights (the Zero Draft).
Those in the construction sector face particular challenges in safeguarding rights to life, health and safety. Large-scale international projects, delivered to tight timescales and using complex, widespread supply chains, exacerbate the risk of human rights violations, worker exploitation and environmental damage. The construction industry is thus, unsurprisingly, subject to ever-increasing scrutiny in this area.
This article examines the key proposals of the Zero Draft and considers their practical implications for construction businesses.
The Zero Draft would require signatory governments to implement a series of laws aimed at ensuring businesses respect human rights. Of particular significance are the proposals for civil and criminal liability for corporations that commit human rights violations – whether directly or indirectly – and for concrete legal requirements to carry out due diligence as to potential impacts on human rights.
The impact of corporate behaviour on human rights has shot up the global legislative and policy-making agenda in recent years. This is largely thanks to the implementation of the UN Guiding Principles on Business and Human Rights (the UNGPs), which impose non-binding duties upon businesses to respect human rights through their own actions and to avoid complicity in violations by those in their supply chain. Governments' expectations of corporations in this field are evident from the introduction of legislation imposing binding obligations, such as the UK Modern Slavery Act, France's Due Diligence Law and the Modern Slavery Bill under consideration in Australia.
The construction industry faces particular challenges in this field. Both domestic and international projects involve multiple contracts and complex supply chains. This complexity and the widespread use of sub-contractors makes it difficult to achieve transparency across the entirety of a project's supply chain. The scale of many international infrastructure projects, remote locations and reliance upon migrant and temporary workers create acute risks of human rights violations. For instance, spills from pipelines and infrastructure operated by major energy companies have given rise to claims by affected populations alleging that the operator's negligence caused environmental and human rights violations. Against this backdrop, many supply contracts now include provisions requiring respect for human rights.
Negotiations at UN level for a comprehensive, legally binding international treaty are thus receiving significant attention across the business community. The Working Group's first proposal – the Zero Draft – was published in July 2018. Although many of its provisions require significant clarification and refinement, it provides an initial indication of the likely broad structure and content of businesses' obligations.
The Zero Draft's preamble states that "all business enterprises … shall respect all human rights, including by avoiding causing or contributing to adverse human rights impacts through their own activities and addressing such impacts when they occur". However, the draft does not purport to impose direct obligations upon businesses, thus avoiding the controversial question of the existence of corporate obligations in public international law. Rather, it requires states to implement measures creating concrete legal obligations for businesses, to investigate human rights violations and ensure access to remedies for victims. To the latter end, the draft has provisions aimed at allowing victims to enforce applicable corporate obligations, such as information rights, jurisdiction for national courts, disapplication of limitation periods and access to compensation and restitution.
What business activities are covered?
The draft covers "human rights violations in the context of any business activities of a transnational character", defined as "any for-profit economic activity, including but not limited to productive or commercial activity, undertaken by a natural or legal person, including activities undertaken by electronic means, that take place or involve actions, persons or impact in two or more national jurisdictions" (Articles 3(1) and 4(2)).
The treaty thus has the potential to apply to any activity with an international element. The business in question need not, it seems, have any physical presence in the second jurisdiction – if it (for instance) purchases materials in another state, that potentially has an "impact" in that state. Almost all construction projects across the globe (particularly in remote locations) source materials and/or services from elsewhere and thus would be captured by the draft.
The draft's non-applicability to purely domestic business activities creates a possible asymmetry between businesses' obligations depending on whether they are conducting "transnational" activities or otherwise. This aspect has proved controversial (including at the recent working group session)1 and is at odds with the UNGPs' application to all business activities. One can envisage some states during implementation extending the treaty's provisions to domestic activities to avoid inconsistent or arbitrary situations for victims.
Which human rights are protected?
Article 3(2) provides that the treaty applies to "all international human rights and those rights recognized under domestic law". This suffers from uncertainty given the absence of a concrete touchpoint as to what are "international human rights" and the potential variation in rights "recognized under domestic law". Future drafts are likely to elaborate on the definition of "international human rights", but it can be safely presumed to include the rights to life, health, water and basic labour rights.
Arguably the crux of the Zero Draft is Article 10, requiring that businesses can be held "criminally, civilly or administratively liable" for human rights violations within the treaty's scope.
to the extent risk have [sic] been foreseen or should have been foreseen of human rights violations within its chain of economic activity."
The consequence of this would be legal liability for businesses for foreseeable human rights violations committed not only by their subsidiaries but by any other entity in their contractual or supply chain where there is a "strong and direct connection" between their conduct and the violation. In the parent-subsidiary context, this may give rise to doctrinal difficulties regarding the piercing of the corporate veil (an issue with which the English courts have recently grappled in a series of cases testing their jurisdiction over UK-incorporated parent companies for human rights violations committed by their subsidiaries abroad).2 But it also engages difficult factual analysis of what is "control" over operations (in particular, can the imposition of codes of conduct evidence control?) and what is a sufficiently "strong and direct connection" between the lead company's conduct and the harm.
Moreover, liability for risks that are foreseeable gives new teeth to the due diligence obligations in the draft (discussed below), since conceivably risks that are (or should have been) anticipated and recorded, but not eventually avoided, could give rise to legal sanction. Given that the limbs of Article 10(6) are separate, where a human rights risk is foreseeable victims appear not to need to establish a "close relation" or "strong and direct connection".
Article 10(8) obliges signatories to establish criminal liability for businesses that "intentionally, whether directly or through intermediaries, commit human rights violations that amount to an offence, including crimes recognized under international law, international human rights instruments, or domestic legislation". This extends to secondary liability, to be defined by domestic law. Again, the divergence in views as to the content of both international and domestic corporate crimes means this provision will need significant refinement.
Corporate human rights due diligence is nothing new, with the UNGPs already imposing "soft-law" obligations upon businesses and many voluntary corporate responsibility initiatives focusing squarely on due diligence. However, Article 9 of the Zero Draft would constitute a significant development.
First, it requires states to make human rights due diligence compulsory. Businesses would be obliged to monitor their human rights impacts and those of related entities on an ongoing basis, report on environmental and human rights matters, consult with stakeholders and carry out impact assessments, integrating the findings into their functions.
Second, and as Professor Ruggie (the principal architect of the UNGPs) has observed,3 the draft purports to convert due diligence requirements into obligations of result. Article 9(2)(c) envisages due diligence obligations as including "prevent[ing] human rights violations within the context of … business activities". Ordinarily, due diligence obligations are framed in terms of "seeking to" prevent violations. Again, such an unlimited obligation is likely to be refined.
Third, businesses would be required to reflect due diligence requirements in all relevant contractual relationships. If implemented, this should result in every international business contract requiring both parties to prevent human rights violations, meaning any violation could potentially result in a series of contractual claims.
What practical action can be taken now?
The Zero Draft is, as its name portrays, an early step in the process towards a binding treaty on business and human rights, the culmination of which is likely to be several years away. However, its aspirational provisions highlight that the international community continues to move towards stricter regulation and wider corporate accountability.
The nature of the construction process, with its complex supply chains, exposes the industry's players to the risk of liability for the actions of those down the chain. The very real prospect of legal liability and reputational damage dictates that UK construction businesses should scrutinise their supply chains and incorporate human rights due diligence into their procedures. For maximum protection, businesses should consider inserting clauses requiring respect for human rights in all contractual documentation.
1. Draft report on the fourth session of the open-ended intergovernmental working group on transnational corporations and other business enterprises with respect to human rights, available at https://www.ohchr.org/en/HRBodies/HRC/WGTransCorp/Session4/Pages/Session4.aspx, para. 14.
2. AAA & Others v. Unilever PLC and Unilever Tea Kenya Limited  EWCA Civ 1532; Lungowe and Ors. v. Vedanta Resources Plc and Konkola Copper Mines Plc  EWCA Civ 1528; Okpabi and others v. Royal Dutch Shell Plc and another  EWCA Civ 191. The issue is likely to be considered by the Supreme Court in the near future, with permission to appeal having been granted in Lungowe v. Vedanta.
3. Professor John G. Ruggie, Comments on the "Zero Draft" Treaty on Business & Human Rights, available at https://www.business-humanrights.org/en/comments-on-the-%E2%80%9Czero-draft%E2%80%9D-treaty-on-business-human-rights.

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