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Focus on Regulation

Textile factory safety claims proceed to arbitration under the Bangladesh Accord

In a landmark ruling by an arbitration tribunal last month, claims against two global fashion brands under the 2013 Accord on Fire and Building Safety in Bangladesh (the “Bangladesh Accord“) were declared admissible and allowed to proceed to arbitration under the auspices of the Permanent Court of Arbitration in The Hague (the “PCA“).

The Bangladesh Accord was signed by global brands/retailers and trade unions in 2013 to improve fire and building safety for workers in the Bangladesh textile industry in the aftermath of the Rana Plaza disaster.  The disaster saw more than 1,000 people killed and 2,000 people injured as a result of the collapse of a building in Dhaka that contained five garment factories supplying major global brands/retailers.

The Bangladesh Accord is a unique example of private companies voluntarily submitting to legally binding obligations and enforcement mechanisms.  Indeed, it commits signatory companies to requiring suppliers to accept safety inspections and implement remediation measures in their factories and to resolving disputes by arbitration.  Click here for more information about the Bangladesh Accord.

In July and October 2016, two Swiss-based non-governmental labour groups (IndustriALL Global Union and UNI Global Union, both signatories to the Bangladesh Accord) filed arbitration claims against two global brands pursuant to the Bangladesh Accord. The parties later agreed, for efficiency, to have their claims heard together. The claims include that the respondent brands failed to (1) compel suppliers to remediate facilities within the deadlines imposed by the Bangladesh Accord and (2) negotiate commercial terms to make it financially feasible for their suppliers to cover the costs of remediation. The claimants seek a declaration that the brands violated their obligations under the Bangladesh Accord and an order that they contribute to remediation costs.

The respondent brands challenged the admissibility of the claims, on the basis that the pre-conditions to claims being referred to arbitration under Article 5 the Bangladesh Accord had not been met.  Interestingly, one of the respondents also alluded to “significant deficiencies” in Article 5 “that potential render it unworkable as a valid mechanism to arbitrate“, but did not go so far as to challenge the arbitrability of the dispute on that basis (a question that is therefore likely to remain open).  Instead, recalling its “firm support” for the objectives of the Bangladesh Accord, the respondent declared that it was prepared to agree to arbitrate this particular dispute (only).

In an order issued on 4 September 2017, the arbitration tribunal empowered (by the parties) to determine this dispute ruled that the claims were admissible.  The case will therefore proceed to a determination of the merits of the dispute, for which a hearing is scheduled for March 2018.

The tribunal was also required to rule on whether the proceedings should be kept confidential or made public, which the applicable arbitration rules and the provisions of the Bangladesh Accord left the tribunal wide latitude to decide. Noting the particularity of the case, as neither a classic “public law” arbitration against a State nor a commercial arbitration between private parties, the tribunal decided to balance both sides’ interests by ordering that certain basic information about the existence and progress of the arbitration proceedings be disclosed but that the identity of the Respondents be kept confidential.  Redacted copies of orders, decisions and awards are therefore available on the PCA website here.

This case will be watched closely by the business and human rights community as an example of an alternative way to resolve human rights claims.  It should also offer a useful case study for proponents of arbitration as a mechanism for resolving human rights disputes – see our recent blog post on “Arbitration: a new forum for business and human rights disputes?“.