SOUTH AFRICA: DRAFT TREATY TO REGULATE ACTIVITIES OF TRANSNATIONAL CORPORATIONS MAY HAVE FAR-REACHING CONSEQUENCES

By John Paul Ongeso,Daniel Pretorius Wednesday, March 30, 2022
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There is a growing multilateral consensus in the international community that it is necessary to monitor corporations and hold them to higher standards of accountability in order to prevent and address any human rights violations that may occur as a result of their activities.

To this end, various iterations of a draft treaty to regulate the activities of transnational corporations (TNCs) and other business enterprises have been published by an Intergovernmental Working Group established by the United Nations Human Rights Council (UNHRC).

TNCs and other business enterprises would be well-advised to familiarise themselves with the most recent revised draft treaty titled ‘Legally binding instrument to regulate, in international human rights law, the activities of transnational corporations and other business enterprises’ (Draft Treaty) because, if adopted, it will introduce a range of obligations applicable to these entities, as well as consequences for failure to comply with them.

Background

In June 2011 the UNHRC endorsed the United Nations Guiding Principles on Business and Human Rights (UN Guiding Principles) proposed by the late United Nations Special Representative on business and human rights, John Ruggie.

The UN Guiding Principles are a set of non-binding guidelines for states and companies designed to prevent, address and remedy human rights abuses committed in business operations. The UN Guiding Principles rest on three pillars:

  • a state’s duty to protect human rights;
  • the corporate responsibility to respect human rights; and
  • access to remedies for victims of business-related abuses.

The Intergovernmental Working Group, whose mandate, from June 2014, was to ‘elaborate an international legally binding instrument to regulate, in international human rights law, the activities of transnational corporations and other business enterprises’, proposed the Draft Treaty based on a series of consultations and inter-state negotiations since 2014.

Draft Treaty published

In August 2021, the Intergovernmental Working Group published a third revised Draft Treaty. The Draft Treaty aims to:

  • clarify and ensure respect and fulfilment of the human rights obligations of business enterprises;
  • prevent and mitigate the occurrence of human rights abuses in the context of business activities by effective mechanisms of monitoring and enforceability; and
  • ensure access to justice and effective, adequate and timely remedies for victims of human rights abuses in the context of business activities.

The scope of the Draft Treaty is broad. It is intended to apply to all business activities, including business activities of a transnational character. The subject matter of the Draft Treaty is equally broad and includes all internationally recognised human rights and fundamental freedoms binding on states that ratify or accede to it, such as those recognised in the Universal Declaration of Human Rights, the ILO Declaration on Fundamental Principles and Rights at Work, all core international human rights treaties and fundamental ILO Conventions and customary international law.

The Draft Treaty proposes to introduce liability for natural persons and juristic entities for human rights abuses that may arise from their business activities, including those of transnational character, or from their business relationships, and proposes that states must adopt legal measures to ensure that their domestic jurisdictions provide for effective, proportionate, and dissuasive criminal, civil and/or administrative sanctions.

Importantly, for multinational corporate groups in particular, the Draft Treaty proposes that states must remove legal obstacles, including the doctrine of forum non conveniens (a doctrine that inhibits civil action against TNCs in the courts of their home states where the harm occurred in the host state) in appropriate cases of human rights abuses resulting from business activities of a transnational character. This may mean that parent companies operating in one jurisdiction may be liable for human rights abuses associated with the activities of their subsidiaries in other countries.

The Draft Treaty further proposes that states must ensure that their domestic laws provide for the liability of corporations for their failure to prevent an entity or natural person that they control, manage or supervise from causing or contributing to human rights abuses. Liability also extends to circumstances where the controlling legal entity should have foreseen risks of human rights abuses in the conduct of the business activities of other entities that they control, including those of a transnational character, but failed to take adequate measures to prevent the abuse.

It appears that this is intended to create a legal duty on the part of controlling entities in multinational corporate groups to foresee risks of abuses that may arise from the business activities of the corporate group and to take steps to prevent such risks from materialising. Failure to do so would attract liability under the Draft Treaty.

Next steps

Once the Draft Treaty is finalised and adopted, it will be binding upon its signatories and must be implemented in good faith. If South Africa ratifies the final Treaty, it will be obligated to develop domestic legislation as set out in the Treaty. The principles, particularly the principles on the liability of legal persons, included in the Treaty are likely to be contested in domestic deliberations given their novelty.

The failure of corporations to comply with corporate responsibility obligations may not only result in adverse reputational harm but also in liability and litigation risks. To this end, corporations are encouraged to take proactive steps to ensure that they comply with the obligations proposed under the Draft Treaty, by, for example:

  • implementing policies to address human rights abuses in their business operations;
  • conducting human rights due diligences in order to determine, amongst other things, the risks of any human rights abuses and the nature and context of a corporation’s business activities and operations;
  • implementing human rights impact assessments in contracts, projects, or feasibility studies;
  • conducting meaningful engagements with clients, employees, or other relevant stakeholders in respect of the corporation’s commitment to protecting human rights; and
  • implementing various monitoring mechanisms and compliance systems to inspect, monitor, and remediate any human rights abuses that occur in corporations.

On a global front, several jurisdictions already have legislation in place that requires corporations to report on the impact of their activities on human rights. These include the Modern Slavery Act, 2015 (United Kingdom) and the European Commission’s proposal of mandatory human rights due diligence legislation; The Corporate Duty of Vigilance, 2017 (France); and the Modern Slavery Act, 2018 (Australia).