Bangladesh Accord arbitrations signal new beginnings for the settlement of business and human rights disputes through arbitration

By Will Thomas, Monika Hlavkova and Farouk El-Hosseny

In April 2013, the Rana Plaza building in Bangladesh, which housed several garment production factories, collapsed killing 1,138 people. In the aftermath of the disaster, workers’ unions, fashion brands, retailers and NGOs came together to discuss the future of the garment industry in Bangladesh, leading to the launch of the Accord on Fire and Building Safety in Bangladesh in May 2013.

The Accord’s signatories, which include global fashion brands and retailers such as Adidas, Hugo Boss, H&M, Benetton, Primark, Marks and Spencer or Tesco, committed to a programme of inspections, remediation and training, with a view to improving health and safety standards throughout the garment industry in Bangladesh. The Accord, which is legally binding, represented a major development in an industry which had, until then, been reliant on voluntary compliance and audits. Disputes arising under the Accord are to be decided by its Steering Committee in the first instance, with the possibility to refer any outstanding disputes to binding arbitration.

Since the launch of the Accord, inspections have been carried out at over 1,600 supplier factories and remedial plans put in place to address identified shortcomings. Several brands terminated their business relationship with suppliers who refused to fully participate in the inspection and remediation programme, as required by Article 21, arguably one of the most potent provisions of the Accord.

The arbitration mechanism under the Accord was triggered for the first time when two arbitrations were commenced under the 2010 United Nations Commission on International Trade Law (UNCITRAL) Arbitration Rules on 8 July and 11 October 2016. The claims were submitted by two Switzerland-based global union federations – IndustriALL Global Union and UNI Global Union – against two global fashion brands.

IndustriALL Global Union and UNI Global Union allege that the fashion brands failed to (i) require suppliers to remediate facilities within the mandatory deadlines imposed by the Accord; and (ii) negotiate commercial terms to make it financially feasible for their suppliers to cover the costs of remediation.

An ad hoc tribunal, composed of Professor Hans Petter Graver (Norway), Graham Dunning QC (United Kingdom) and Donald Francis Donovan (United States) found on 4 September 2017 that the claims were admissible and within its jurisdiction. The Permanent Court of Arbitration in The Hague is providing the tribunal administrative support and a hearing on the merits is expected to take place in the first half of 2018.

The tribunal recognised the need to protect the business reputation and information of the respondent fashion brands. It thus maintained the general confidentiality regime under the UNCITRAL Arbitration Rules by ordering the non-disclosure of the identity of the global fashion brands. The tribunal also noted that the Rules provide that hearings are to be held in private and awards can only be made public with the consent of the parties. That said, the tribunal ordered that certain basic information about the case may be made public, and that case documents can be published following redaction, in light of the public interest at stake.

IndustriALL Global Union and UNI Global Union announced on 15 December 2017 that they have reached a settlement agreement with one of the two respondent fashion brands. They claim that: “This settlement will ensure that the supplier factories associated with this leading fashion brand are remediated and that substantial funds are available for that remediation work consistent with the 2013 Bangladesh Accord”. The exact content of the settlement agreement as well as the name of the brand remain confidential. The remaining arbitration against the second fashion brand is scheduled to proceed in the first half of 2018, unless it is settled as well.

The Bangladesh Accord Arbitrations signal a key change in the arbitration of business and human rights disputes – it has now shifted from theory to practice. The flexibility of arbitration, including the ability to protect businesses’ reputation and confidential information whilst sharing certain selective information in the public domain, make it a compelling choice for disputes of this kind.

See also Update on Bangladesh Accord on Freshfields' Risk Blog