Introduction
Contracts are the central building blocks for many developments in the transnational sphere such as the global value chains (GVCs) where they become vehicles for distribution, participation, and equality, a role more far-reaching than a mere buyer-supplier relationship (Eller, 1408, 1410). In this regard, the European Union’s (EU) recent Corporate Sustainability Due Diligence Directive (CSDDD) has also given a prominent role to contracts both as preventive (art. 10) and corrective measures (art. 11) regarding adverse human rights impacts in the GVCs. However, the emphasis on contracts and contractual assurances has been criticized because of the possibility of shrinking human rights compliance to a tick-box activity (Lafarre, 236).
In the last couple of years, two significant projects have been initiated to explore the shortcomings of traditional contracting and to refashion contracts in GVCs that align with the principles of CSDDD and human rights protection. First, the American Bar Association created the Model Contractual Clauses (MCCs) 1.0 and then MCCs 2.0. Later in 2023, building upon the American Model Contractual Clauses, the European Working Group also released the draft European Model Contractual Clauses (EMCs). Moreover, the Responsible Contracting Project was also launched to transform the role of contracts in managing human rights and environmental risks. This recent interest in contracts in GVCs got me thinking about whether and how contracts can contribute to human rights protection in GVCs.
Ideally, What Functions Do Private Law & Contracts Have?
Private Law & Contracts
Pistor explains the power of law as being able to scale social relations beyond close-knit communities and assure strangers that they can risk transacting with each other significant amounts of money without ever having to meet face-to-face. This power of law comes from its two fundamental features: (i) law’s capacity to focus collective expectations that minimize deviant behaviour and encourage decentralized, private enforcement and, (ii) that law is backed by the coercive powers of a State, i.e. enforceability (Pistor, 17).
In the context of contracts in general, if we take contractual breach as one specific point in time, in the period before the contractual breach, the first feature of the law is prominent, i.e, it puts on paper the expectations of the parties from each other and the consequences of not fulfilling these expectations. In the period after the breach, the second feature of law comes into action, i.e, the pre-determined obligations are forced on the deviant party (sometimes through the authority of the State) and in cases where performance is not possible anymore or if there is damage resulting from this breach, certain further obligations regarding remedies or sanctions are also forced.
How Can or Can Not Contracts Fulfil the Above Functions in Relation to Human Rights Protection?
Setting the Relevant and Appropriate Standards and Obligations
In GVCs, the coordination between the actors and the agreement on prices, discounts, purchase quantities, lead times, product quality, and return policies are facilitated via contracts (Sluis & De Giovanni, 1). Furthermore, not only commercial matters but broader social matters such as the protection of vulnerable parties can, and are, also pursued in contracts (Collins). More and more, these broader social matters are considered as going to the root of the contract and constituting primary obligations (Cafaggi, 33). Today, companies pursue these aims by way of incorporating their codes of conduct or other corporate policies regarding their attitude towards human rights and environmental matters into their general terms and conditions (GTCs). Thus, contracts become a medium for communication and a compilation of expectations or standards of behaviour.
Contracts must accurately reflect the responsibilities and commitments to fulfil the standards that are set through them. However, the incorporation of boilerplate codes of conduct or corporate policies is not enough to responsibly identify and allocate the risks and responsibilities of GVC activities. Here is where relational contract theory (Macneil) and proactive contract theory (Haapio & Varjonen) comes into play.
Both theories acknowledge the circumstances surrounding the contracts and highlight the importance of noncontractual concepts such as trust and cooperation between the parties in fulfilling contractual obligations. Especially, now in the context of GVCs, prosocial contracting (as a reflection of proactive contracting in the context of GVCs and adverse human rights impacts) aims to operationalize a shared responsibility approach to the social performance of the contract and correctly identify the root causes of failure in social performance in business relationships and pre-emptively address them in contracts before problems arise (Dadush). To effectively address human rights concerns along GVCs, all actors must work in cooperation with one another (Saloranta & Hurmenrinta-Haanpää) and implement proactive and ongoing measures to identify, prevent, mitigate, account for and remedy the adverse human rights impacts of their operations, i.e., conduct human rights and environmental due diligence. (Responsible Contracting Project).
Issue of Enforcement of Contractual Clauses & Liability
In his empirical research, interviewing Wisconsin businessmen and lawyers in the ’60s, Macaulay confirmed that businesses reflect a high degree of planning of their exchanges in their contracts (Macaulay, 9). However, he also found out that (usually) the adjustment of business relationships and the settlement of disputes are more on a non-contractual basis. This means that lawsuits for contractual breach are rather rare and businessmen tend to believe that commitments are to be honoured in almost all situations and internal sanctions or concerns about reputation are more effective than filing a lawsuit (Macaulay, 13; See also more recent research reinforcing these findings, Macneil-1978, Bernstein-1992, Campbell & Collins & Wightman-2003, Suchman-2003, Hadfield-2015).
Today, there is still little will or belief that these obligations will be enforced (Uçaryılmaz Deibel, 19). The existence of this belief was iterated by the English court in the Begum v Maran case (2021). In the said case, the defendant, a shipping company incorporated in the United Kingdom (Maran Ltd) contracted for the sale of a ship to a demolition contractor. The demolition contractor had sent the ship to one of the shipbreaking yards in Bangladesh, notoriously known for its unsafe conditions. The plaintiff, the widow of the worker who died while working on the dismantling of the ship, alleged that the UK-incorporated lead company could have had control over where the ship was going to be recycled and thus owed a duty of care to the workers, working under ethical working conditions in dismantling the ship.
The Memorandum of Agreement (MoA) between the shipbreaking yard, the demolition contractor (the buyer), and the shipowner (seller) included a clause which imposed an obligation on the buyer to confirm that they would only sell to a yard that would perform the demolition in accordance with good health and safety working practices (para 68). The Court stated that the inclusion of such a clause was within the reasonable control of the defendant but all parties to the MoA knew that such clauses would be entirely ignored (para 69). None of the parties had pursued the enforcement of this clause, most probably because, as pointed out by the Court, they did not have any (financial) incentives for it.
Ultimately, the Court decided that there was a triable duty of care and in its assessment, the Court took stock of this clause. The existence of the clause was not the primary determinant for the Court in reaching its decision (for instance, the price for the sale and the amount of oil left were important factors, see para 9), as this clause can be a standard clause (para 68) in a boilerplate contract (see for boilerplate contracts and limits of contract designs, Gulati & Scott). Nevertheless, the Court also did not disregard the existence of such clause.
Therefore, the argument that I make here is that, considering the favourable outcome of the case to the plaintiffs, the existence of such clauses can serve as evidence or contributing factor to establishing the tort law duty of care. If proactive or prosocial contracting becomes the standard norm and instead of having static, boilerplate contracts, companies start to draft their contracts to purposefully accommodate human rights concerns, then these clauses can convey the control mother companies have or should have (See, Vedanta v Lungowe) over their operations in their GVCs. Consequently, plaintiffs can have an easier way to claim for the duty of care of mother/lead companies.
Appropriateness of Contractual Remedies
The bilateral nature of contracts (or the privity principle) obscures the inherent interconnectedness between the individual contracts in the network of contracts in GVCs and fails to address the effects of the chain of activities on the stakeholders that are not party to these contracts (Len, 140). Traditional contract law remedies aim to rectify the commercial relationship between the parties to the contract and not to rectify the adverse impacts of the contractual breach on third parties. Thus, depending on the circumstances of the breach, traditional contract law offers us a range of remedies such as rejection of the goods, substitute goods, price reduction, claim for damages, or termination of the contract.
Be that as it may, in relation to contracts enshrining the appropriate rights and remedies, contracts can also include commitments to remediation, restitution, and corrective actions (RCP Policy Brief). Through the addition of human rights remediation in contracts, contracts can better serve human rights protection. When contractual breaches have adverse impacts on third parties, then they can rely on tort law principles to hold the perpetrators accountable.
Conclusion
To conclude, contracts are an integral part of GVCs, facilitating the operation of businesses, from extraction to production and distribution. Contracts can serve as excellent mediums of communication, serving to compile sets of norms, rights, obligations, remedies, and sanctions. However, contracts must be used and drafted appropriately, with a human-rights lens and tailored to the purpose of human rights protection. They should appropriately allocate and share the social risks and responsibilities along the GVC and promote cooperation and support between GVC actors. Furthermore, contracts should also include human rights remediation.
When it comes to access to justice on part of the victims of corporate harm, the avenue to be used will be tort law principles. However, especially, in the context of business and human rights concerns, contract law and tort law, two seemingly distinct spheres of private law, are at an inherent interplay (Ulfbeck & Hansen, Chapter 7). Two spheres of private law constitute a more holistic response to adverse human rights impacts. Their norms and functions complement each other and though the victims cannot directly pursue the enforcement of contractual clauses themselves, the existence of human-rights aligned clauses can serve to find a duty of care towards the victims.
Art by Tomoko Nagao
Il quarto stato with motta, campari, firelli, armani, prada, chicco, alitalia and visa at piazza duomo
2016 Digital contents
© 2024 TOMOKO NAGAO
