Connect with us

News & Analysis

Court Annexed Alternative Dispute Resolution (ADR) in the Kenyan Context

Published

on

By Dr. Kariuki Muigua, PhD (Leading Environmental Law Scholar, Policy Advisor, Natural Resources Lawyer and Dispute Resolution Expert from Kenya), Winner of Kenya’s ADR Practitioner of the Year 2021, ADR Publication of the Year 2021 and CIArb (Kenya) Lifetime Achievement Award 2021*

Introduction Court annexed ADR arises where after parties have presented their case to court, the same is referred by the court to one of the ADR mechanisms for resolution. Prior to the enactment of the Constitution of Kenya 2010, Kenya did not have a comprehensive framework for the application of ADR in the resolution of disputes. Recently, the role of ADR in the expeditious resolution of disputes has been recognized and the gamut of legislation that has been passed hitherto makes specific reference to the use of ADR mechanisms to enhance access to justice and reduce backlogs in courts. Recognizing ADR as a one of the main conflict resolution mechanisms in Kenya is thus encouraging. The status of ADR has been elevated and its applicability to a wide array of disputes will thus be seen in the near future. In the ensuing discussion I will assess court annexed ADR in light of the current legal framework.

Provisions of the Constitution on ADR

Under article 159 of the Constitution, it is provided that alternative forms of dispute resolution including reconciliation, mediation, arbitration and traditional dispute resolution mechanisms shall all be promoted as long as they do not contravene the Bill of Rights and are not repugnant to justice or inconsistent with the Constitution or any written law. The scope for the application of ADR has also been extensively widened by the constitution with Article 189 (4) stating that national laws shall provide for the procedures to be followed in settling intergovernmental disputes by alternative dispute resolution mechanisms, including negotiation, mediation and arbitration. These are the key provisions that form the constitutional basis for the application of ADR in dispute resolution in Kenya, whose import is that ADR can apply to all disputes and hence broadening the applicability of ADR. It is also a clear manifestation of the acceptance of ADR as a means of conflict resolution in all disputes.

Provisions of the Civil Procedure Act on ADR

There are numerous provisions under the Civil Procedure Act, Cap 21, Laws of Kenya, on the use of ADR in conflict management. In July 2009, Parliament passed a raft of proposals for amendment to the Civil Procedure Act to introduce ADR. There were proposed amendments to sections 1 and 81 of the Civil Procedure Act which have so far been enacted into law. The upshot of these provisions is that, once the necessary practice notes and/or directions are issued, the practice of court-annexed mediation may take off in Kenya. Section 1A (1) of the Civil Procedure Act provides that the overriding objective of the Act is to facilitate the just, expeditious, proportionate and affordable resolution of civil disputes governed by the Act.

The judiciary is enjoined to exercise its powers and interpretation of the civil procedure to give effect to the overriding objective. In effect, this implies that the court in its interpretation of laws and issuance of orders will ensure that the civil procedure shall, as far as possible, not be used to inflict injustice or delay the proceedings and thus minimize the litigation costs for the parties. This provision can also serve as a basis for the court to employ rules of procedure that provide for use of Alternative Dispute Resolution mechanisms, to ensure that they serve the ends of the overriding objective.

Court-Annexed Arbitration

Court-annexed arbitration can arise as a result of the application of the Arbitration Act (As Amended in 2009) and also under supervision of the court under the Civil Procedure Act. Under the Civil Procedure Act, the courts involvement in the arbitral process is specifically provided for in Section 59 and Order 46 of the Civil Procedure Rules, 2010. Section 59 of the Act provides for references of issues to arbitration, which references are to be governed in a manner provided for by the rules. Order 46 rule 1 provides that; “Where in any suit all the parties interested who are not under disability agree that any matter in difference between them in such suit shall be referred to arbitration, they may, at any time before judgment is pronounced, apply to the court for an order of reference.”

Under Order 46 Rule 2, the arbitrator is to be appointed in a manner that the parties have agreed upon. However, where no arbitrator or umpire (under rule 4) has been appointed the court under rule 5 may, on application by the party who gave the notice to the other to appoint, and after giving the other party an opportunity of being heard, appoint an arbitrator or umpire, or make an order superseding the arbitration and in such case the court shall proceed with the suit. Where an award has been made pursuant to arbitration under the Rules, rule 10 requires that that the persons who made it shall sign it, date it and cause it to be filed in court within 14 days together with any depositions and documents which have been taken and proved before them.

A court has the power to modify or correct an award under rule 14 if it is imperfect or contains an obvious error, if a part of the award is upon a matter not referred to arbitration or if it contains a clerical mistake or error from an accidental slip or omission. The court also has power to remit an award for reconsideration by the arbitrator under rule 15. Rule 18 provides that the court shall, upon due notice to the other parties, enter judgment according to the award and upon such that judgment a decree shall follow thereof. No appeal shall lie from such decree except in so far as the decree is in excess of, or not in accordance with the award.

Order 46 rule 20 of the Civil Procedure Rules provides that; “Nothing under this Order may be construed as precluding the court from adopting and implementing, of its own motion or at the request of the parties, any other appropriate means of dispute resolution (including mediation) for the attainment of the overriding objective envisaged under sections 1A and 1B of the Act.” Order 46 Rule 20 read together with Sections 1A and 1B of the Civil Procedure Act therefore obligates the court to employ ADR mechanisms to facilitate the just, expeditious, proportionate and affordable resolution of all civil disputes governed by the Act. Court-annexed ADR will thus go a long way in tackling the problem relating to backlog of cases, enhance access to justice, and result in the expeditious resolution of disputes and lower costs.

Under Order 46 rule 20 (2) it is provided that a court may adopt any ADR mechanism for the dispute and may issue appropriate orders or directions to facilitate the use of that mechanism. Judges will thus need to be adeptly trained on ADR mechanisms so as to be in a position to issue directions and orders in relation to the particular mechanism and that will lead to the attainment of the overriding objective under sections 1A and 1B of the Act.

Mediation and other ADR

The clamor to introduce court-annexed mediation has borne fruit and is now evident under section 81 (2) (ff) of the Civil Procedure Act, as amended by the Statute Law (Miscellaneous Amendment) Act No. 6 of 2009. Section 81 (2) (ff) provides for the selection of mediators and the hearing of matters referred to mediation under this Act. Thus, parties who have presented their cases to court may have their matter referred to mediation by the court for resolution.

The Statute Law (Miscellaneous Amendments) Act amended sections 2 and 59 of the Civil Procedure Act to provide for mediation of disputes. Section 2 of the Civil Procedure Act has been amended to define mediation as an informal and non-adversarial process where an impartial mediator encourages and facilitates the resolution of a dispute between two or more parties, but does not include attempts made by a judge to settle a dispute within the course of judicial proceedings. This definition depicts mediation in the political process but then the context within which mediation is to take place makes the whole process legal. Section 59 of the Civil Procedure Act has also been amended to introduce the aspect of mediation of cases as an aid to the streamlining of the court process. This will involve the establishment of a Mediation Accreditation Committee to be appointed by the Chief Justice which will determine the criteria for the certification of mediators, propose rules for the certification of mediators, maintain a register of qualified mediators, enforce such code of ethics for mediators as may be prescribed and set up appropriate training programmes for mediators.

The law requires the court either at the request of the parties, where it deems appropriate to do so or where the law provides so, to refer a dispute presented before it to mediation. Where a dispute is referred to mediation under subsection (1), the parties thereto shall select for that purpose a mediator whose name appears in the mediation register maintained by the Mediation Accreditation Committee. Such reference is, however, is to be conducted in accordance with the mediation rules. Section 59B (4) provides that an agreement between the parties to a dispute as a result of mediation under this part shall be recorded in writing and registered with the court giving direction under sub section (1), and shall be enforceable as if it were a judgment of that court. No appeal shall lie against an agreement referred to in subsection (4).

Under Section 59C, a suit may be referred to any other method of dispute resolution where the parties agree or where the court considers the case suitable for referral. Under Section 59C (2), any other method of alternative dispute resolution shall be governed by such procedure as the parties themselves agree to or as the Court may, in its discretion, order. Any settlement arising from a suit referred to any other alternative dispute resolution method by the Court or agreement of the parties shall be enforceable as a judgment of the Court. No appeal shall lie in respect of any judgment entered under this section.13 Further, all agreements entered into with the assistance of qualified mediators shall be in writing and may be registered and enforced by the Court. Pursuant to Order 46 rule 20 (3) it is only after a court-mandated mediation fails that the court shall set the matter down for hearing and determination.

The aforesaid provisions of the Civil Procedure Act are not, in my view, really introducing mediation per se, but merely setting up a legal process where a court can coerce parties to mediate and the outcome of the mediation taken back to court for ratification. These provisions introduced a mediation process which is formal and annexed to the procedures governing the conduct of cases in the high court. Informal mediation which may not require the use of writing is not provided for. The codification of mediation rules in the Civil Procedure Act merely reflect the concept of mediation as viewed from a westerner’s perspective and not in the traditional, political and informal perspective.

Challenges and Opportunities for Court Annexed ADR

Despite the strides made in coming up with a framework for the use of ADR in Kenya, there still are certain challenges in the effective application of the same to enhance access to justice, reduce backlogs and expedite dispute resolution. These challenges relate to lack of capacity in terms insufficient personnel who can handle disputes using ADR mechanisms and lack of understanding on the working of some mechanisms such as mediation. Equally, parties may lose their autonomy when ADR is court-mandated; the fundamental quality of mediation, that is, its voluntary nature, is interfered with through the court order calling for mediation; enforcement of mediated agreements entered into with the assistance of unqualified mediators is excluded; the lack of a reimbursement system for legal fees and other expenses is likely to make litigants resistant to mediation as it implies extra costs to the litigants and there is no provision of taxation of costs even where a mediated agreement is reached.

Mediation in the legal process is temporal and may not deal with the negative elements of the underlying inter-disputant-relationship. Mediation also risks being a court process because even after the parties have negotiated and even reached a solution to the conflict, they nevertheless have to go back to court for enforcement of the mediated agreement. Power imbalances in mediation may cause one party to dominate the process with the result that the outcome largely reflects that party’s needs and interest and may also affect the legitimacy of the process itself. The effective operationalisation of the Arbitration law and court supervised ADR faces challenges as there is an overlap of some provisions. Moreover, the public have not been fully made aware of ADR methods of conflict management and their usefulness. Nevertheless, the adoption of ADR may have the effect of lowering the costs of accessing justice as ADR mechanisms are cheaper compared with the court process. Some ADR methods such as negotiation and mediation address underlying psychological dimensions which cannot be addressed in courts and hence where ADR mechanisms are utilized, the dispute may not flare up again.

Conclusion

There is now in place a comprehensive legal framework governing ADR in Kenya. With the passage of the constitution of Kenya 2010, ADR has now been explicitly recognized by Kenyan law. ADR mechanisms can now be effectively applied in resolving a wide range of commercial disputes, family disputes and natural resource based conflicts, among others thus easing access to justice. It is essential that in the application of ADR and to achieve a just and expeditious resolution of disputes, the Bill of rights as enshrined in the constitution must at all times be kept in mind and upheld. The future of Alternative Dispute Resolution in Kenya is bright and really promising in bringing about a society where disputes are disposed of more expeditiously and at lower costs, without having to resort to judicial settlements.

*This is article is an extract from an article by Dr. Kariuki Muigua, PhD, Kenya’s ADR Practitioner of the Year 2021 (Nairobi Legal Awards), ADR Publisher of the Year 2021 and ADR Lifetime Achievement Award 2021 (CIArb Kenya): Muigua, K., Court Annexed ADR in the Kenyan Context, Available at: http://kmco.co.ke/wp-content/uploads/2018/08/Court-Annexed-ADR.pdf. Dr. Kariuki Muigua is Kenya’s foremost Environmental Law and Natural Resources Lawyer and Scholar, Sustainable Development Advocate and Conflict Management Expert. Dr. Kariuki Muigua is a Senior Lecturer of Environmental Law and Dispute resolution at the University of Nairobi School of Law and The Center for Advanced Studies in Environmental Law and Policy (CASELAP). He has published numerous books and articles on Environmental Law, Environmental Justice Conflict Management, Alternative Dispute Resolution and Sustainable Development. Dr. Muigua is also a Chartered Arbitrator, an Accredited Mediator, the Africa Trustee of the Chartered Institute of Arbitrators and the Managing Partner of Kariuki Muigua & Co. Advocates. Dr. Muigua is recognized as one of the leading lawyers and dispute resolution experts by the Chambers Global Guide 2022. 

News & Analysis

The Nexus between Environmental Social and Governance (ESG) and Arbitration

Published

on

By

By Hon. Prof. Kariuki Muigua, OGW, PhD, C.Arb, FCIArb is a Professor of Environmental Law and Dispute Resolution at the University of Nairobi, Member of Permanent Court of Arbitration, Leading Environmental Law Scholar, Respected Sustainable Development Policy Advisor, Top Natural Resources Lawyer, Highly-Regarded Dispute Resolution Expert and Awardee of the Order of Grand Warrior (OGW) of Kenya by H.E. the President of Republic of Kenya. He is the Academic Champion of ADR 2024, the African ADR Practitioner of the Year 2022, the African Arbitrator of the Year 2022, ADR Practitioner of the Year in Kenya 2021, CIArb (Kenya) Lifetime Achievement Award 2021 and ADR Publisher of the Year 2021 and Author of the Kenya’s First ESG Book: Embracing Environmental Social and Governance (ESG) tenets for Sustainable Development” (Glenwood, Nairobi, July 2023) and Kenya’s First Two Climate Change Law Book: Combating Climate Change for Sustainability (Glenwood, Nairobi, October 2023), Achieving Climate Justice for Development (Glenwood, Nairobi, October 2023) and Promoting Rule of Law for Sustainable Development (Glenwood, Nairobi, January 2024)*

Arbitration is form of Alternative Dispute Resolution (ADR) mechanisms. ADR refers to a set of mechanisms that are applied in management of disputes without resort to adversarial litigation. It has been described as a private and consensual process where parties to a dispute agree to present their grievances to a third party for resolution. It is argued that ESG principles have become a model for sustainable business development through which a corporations’ goal for solving environmental, social and governance problems is achieved. Consequently, ESG considerations have an increasing impact in international business as evidenced by the incorporation of sustainability clauses in investment contracts. In such contracts, investors are required to adhere to the concept of sustainable development as envisaged under the contracts and failure to do so may result in ESG related disputes.

In the wake of the climate change debate, there have been calls for responsible business practice towards climate change mitigation through measures such as reduction of carbon emissions. The Paris Agreement on Climate Change has raised the awareness of the need for global efforts to combat climate change and the role of responsible and ethical corporate behavior towards achieving this goal. Further, corporations are increasingly required to safeguard human rights as envisaged by ‘S’ pillar of ESG.

However, some corporations have been accused of violating these ESG concerns as a result of their business practices. Some corporations have been accused of failing to promote climate change mitigation through reduction of carbon emissions and transitioning to cleaner energy production. Further, some corporations have been accused of violating fundamental human rights such as the right to a clean and healthy environment especially in the investment sphere in Africa. These instances have resulted in an increasing number of ESG-related disputes. The growth of ESG concerns has seen corporations being increasingly required to embrace ESG principles in their business practices. Consequently, ESG clauses are being adopted in commercial and investment contracts.

In case of violation of such clauses, ESG related disputes are bound to occur. It has been asserted that adoption of ESG related practices into pre-existing social and governance models adopted by corporations would be disruptive. The inclusion of ESG clauses in commercial contracts not only points to the importance of ESG concerns to companies but it also serves as potential source of disputes where such considerations are not complied with. ESG issues are not only reshaping corporate behavior across the globe but can also be a potential battleground in international disputes25. This creates the need for an effective mechanism of management of such disputes in order to enhance ESG principles in the quest for Sustainable Development.

Arbitration has for a long time been the most viable mechanism for management of international commercial and investment disputes. It offers a neutral forum for the management of disputes and addresses some of the concerns that parties may have in relation to the other parties’ legal system. In international commercial and investment arbitration, parties are reluctant to submit to the jurisdiction of the other party due to the likelihood of favoritism by the host judicial system. Further, arbitration has the potential of facilitating expeditious management of disputes.

In international commercial and investment arbitration, there is need to manage disputes expeditiously in order to preserve the commercial interests of parties. The viability of arbitration in management of international commercial disputes is further enhanced by the availability of a legal framework for the recognition and enforcement of foreign arbitral awards. The New York Convention provides the legal framework for the recognition and enforcement of foreign arbitral awards across different jurisdictions. Consequently, the adoption of ESG elements in international commercial and investment agreements has resulted in the use of arbitration to manage disputes arising from such agreements.

ESG concerns have become prominent in investor-state arbitration with arbitral tribunals having to determine issues relating to climate change, corruption and human rights. It has been asserted that the growth of ESG will redefine the practice of arbitration as it seeks to adapt to the new concerns created by ESG. However, the flexibility of arbitration and its ability to adapt to emerging concerns means that it is well positioned to manage ESG disputes. However, there is need for reform in order to enhance the role of arbitration in managing ESG disputes.

*This article is an abridged version of the Article The Place of Environmental, Social and Governance (ESG) in Arbitration (Available for download at Kariuki Muigua & Co. Advocates Website, follow the link) by Hon. Prof.  Kariuki Muigua, OGW, PhD, Professor of Environmental Law and Dispute Resolution, Senior Advocate of Kenya, Chartered Arbitrator, Kenya’s ADR Practitioner of the Year 2021 (Nairobi Legal Awards), ADR Lifetime Achievement Award 2021 (CIArb Kenya), African Arbitrator of the Year 2022, Africa ADR Practitioner of the Year 2022, Member of National Environment Tribunal (NET) Emeritus (2017 to 2023) and Member of Permanent Court of Arbitration nominated by Republic of Kenya and Academic Champion of ADR 2024. Prof. Kariuki Muigua is a foremost Environmental Law and Natural Resources Lawyer and Scholar, Sustainable Development Advocate and Conflict Management Expert in Kenya. Prof. Kariuki Muigua teaches Environmental Law and Dispute resolution at the University of Nairobi School of Law, The Center for Advanced Studies in Environmental Law and Policy (CASELAP) and Wangari Maathai Institute for Peace and Environmental Studies. He has published numerous books and articles on Environmental Law, Environmental Justice Conflict Management, Alternative Dispute Resolution and Sustainable Development. Prof. Muigua is also a Chartered Arbitrator, an Accredited Mediator, the Managing Partner of Kariuki Muigua & Co. Advocates and Africa Trustee Emeritus of the Chartered Institute of Arbitrators 2019-2022. Prof. Muigua is a 2023 recipient of President of the Republic of Kenya Order of Grand Warrior (OGW) Award for his service to the Nation as a Distinguished Expert, Academic and Scholar in Dispute Resolution and recognized among the top 5 leading lawyers and dispute resolution experts in Band 1 in Kenya by the Chambers Global Guide 2024 and was listed in the Inaugural THE LAWYER AFRICA Litigation Hall of Fame 2023 as one of the Top 50 Most Distinguished Litigation Lawyers in Kenya and the Top Arbitrator in Kenya in 2023.

Hamilton. J & Coulet-Diaz. M., ‘Arbitration & the ESG Era’ available at https://www.whitecase.com/news/media/arbitration-esg-era (accessed on 28/09/2022).

International Arbitration in 2022., ‘The Rising Significance of ESG and the Role of International Arbitration’ available at https://www.freshfields.com/en-gb/our-thinking/campaigns/internationalarbitration-in-2022/the-rising-significance-of-esg-and-the-role-of-international-arbitration/ (accessed on 28/09/2022)

Mazhorina. M.V., ‘ESG Principles in International Business and Sustainable Contracts’ available at https://aprp.msal.ru/jour/article/view/3223?locale=en_US (accessed on 28/09/2022).

Moses. L.M, ‘The Principles and Practice of International Commercial Arbitration’ 2 nd Edition, 2017, Cambridge University Press 28 Ibid 29Muigua. K., ‘Promoting International Commercial Arbitration in Africa’ available at http://kmco.co.ke/wp-content/uploads/2018/08/PROMOTING-INTERNATIONAL-COMMERCIALARBITRATION-IN-AFRICA.pdf

Muigua. K., ‘International Investment Law and Policy in Africa: Human Rights, Environmental Damage and Sustainable Development’ available at http://kmco.co.ke/wpcontent/uploads/2018/11/International-Investment-Law-and-Policy-in-Africa-AILA-Conference-Paper5-11-2018.pdf (accessed on 28/09/2022)

Muigua. K., ‘Realising Environmental, Social and Governance Tenets for Sustainable Development’ available at http://kmco.co.ke/wp-content/uploads/2022/07/Realising-Environmental-Social-andGovernance-Tenets-of-Sustainable-Development-Kariuki-Muigua-July-2022.pdf (accessed on 28/09/2022)

Muigua. K., ‘Settling Disputes Through Arbitration in Kenya’ Glenwood Publishers Limited, 4th Edition, 2022

Ross. A., ‘We need talk about ESG’ available at https://globalarbitrationreview.com/we-need-talkabout-esg (accessed on 28/09/2022)

The ALP Review., ‘The Importance of ESG and its effect on International Arbitration’ available at https://www.alp.company/sites/default/files/ALP%20Review%20- %20The%20Importance%20of%20ESG %20and%20its%20effect%20on%20International%20Arbitration.pdf (accessed on 28/09/2022).

United Nations Conference on International Commercial Arbitration, ‘Convention on the Recognition and Enforcement of Foreign Arbitral Awards’ United Nations, 1958

Von Wobeser., ‘The Role of Arbitration in ESG Disputes’ available at https://www.vonwobeser.com/index.php/publication?p_id=1650 (accessed on 28/09/2022)

Continue Reading

News & Analysis

Enhancing the Role of Arbitration in Management of ESG Disputes

Published

on

By

By Hon. Prof. Kariuki Muigua, OGW, PhD, C.Arb, FCIArb is a Professor of Environmental Law and Dispute Resolution at the University of Nairobi, Member of Permanent Court of Arbitration, Leading Environmental Law Scholar, Respected Sustainable Development Policy Advisor, Top Natural Resources Lawyer, Highly-Regarded Dispute Resolution Expert and Awardee of the Order of Grand Warrior (OGW) of Kenya by H.E. the President of Republic of Kenya. He is the Academic Champion of ADR 2024, the African ADR Practitioner of the Year 2022, the African Arbitrator of the Year 2022, ADR Practitioner of the Year in Kenya 2021, CIArb (Kenya) Lifetime Achievement Award 2021 and ADR Publisher of the Year 2021 and Author of the Kenya’s First ESG Book: Embracing Environmental Social and Governance (ESG) tenets for Sustainable Development” (Glenwood, Nairobi, July 2023) and Kenya’s First Two Climate Change Law Book: Combating Climate Change for Sustainability (Glenwood, Nairobi, October 2023), Achieving Climate Justice for Development (Glenwood, Nairobi, October 2023) and Promoting Rule of Law for Sustainable Development (Glenwood, Nairobi, January 2024)*

Arbitration represents a viable mechanism for management of ESG disputes. The following are proposals for interventions towards embracing arbitration in management of ESG disputes for Sustainable Development towards enhancing the use of arbitration in ESG disputes:

Enhancing Knowledge in ESG Concerns

Statistics show that many ESG related disputes are being managed through arbitration. According to the International Chamber of Commerce, engineering, construction and energy disputes represent the highest number of cases handled representing 38% of all cases registered so far. Such disputes entail ESG components such as renewable energy projects, environmental protection and human rights concerns. This demonstrates that ESG and arbitration are inextricably linked. Arbitration practitioners thus need to equip themselves with knowledge in ESG related matters in order to be better placed to manage ESG related disputes.

Promoting Sustainable Development

Sustainable Development has been defined as development that meets the needs of the present generation without compromising the ability of future generations to meet their own needs. This concept entails a combination of elements including environmental protection, economic development and social issues. The importance of Sustainable Development has seen the adoption of the Sustainable Development Goals as the global blueprint of development. Most of the Sustainable Development Goals entail aspects of ESG such as clean water and sanitation, affordable and clean energy, industry, innovation and infrastructure and climate action. Arbitration practitioners should therefore promote the principles of sustainable development when managing ESG related disputes. This could entail requiring investors to comply with the host country environmental laws and ESG standards in mining, energy and construction disputes which have an ESG bearing.

Upholding Human Rights

The ‘S’ pillar in ESG seeks to promote responsible and ethical corporate behavior through aspects such as respect for human rights. However, corporate behavior especially in the investment sphere in Africa has resulted in gross violation of human rights. Some corporations which have invested in oil exploration have been accused of human right abuses, environmental degradation and unsustainable peace due to their business culture. In Kenya, a multinational corporation that has invested in the agricultural sector has been accused of human right abuses such as killings, rape, and other forms of sexual and gender-based violence allegedly committed by its guards, bad labour practices and land injustices against the neighbouring communities. Some of these disputes have ended up in arbitration where tribunals are called upon to adjudicate on human rights issues. Arbitrators should thus seek to uphold human rights in such disputes by rendering awards that are in line with human rights standards. By promoting human rights, arbitrators will be embracing the ‘S’ pillar that is fundamental in the ESG debate.

Promoting Good Governance

The Governance pillar in ESG seeks to achieve good financial and accounting standards as well as legal and regulatory compliance, such as transparency, corporate structures and ethics in corporate conduct. It also seeks to align Governance with the Sustainable Development Goals where governance issues include industry, innovation and infrastructure (Goal 9); peace, justice and strong institutions (Goal 16); and partnerships with public and private institutions (Goal 17). Good governance can be promoted through arbitration by rendering awards that adhere to good governance practices such as transparency, accountability, reporting and disclosure.

Seeking Expert Assistance in Complex ESG Matters

Arbitration has a significant role in promoting ESG tenets in areas such as climate change. Arbitrators play a significant role in shaping and adapting international law to respond to the climate crisis. However, in some instances, arbitration has been slow to act to act in response to the climate crisis. Some climate change concerns such as determining adherence to climate change commitments through low carbon transition requires arbitrators to be fully informed and engaged in such concepts. This may require expert analysis and guidance from persons with requisite knowledge in environmental matters. Arbitrators should therefore seek expert assistance in such issues in order to be fully informed and render awards that promote ESG principles.

Conclusion

The relationship between Environmental, Social and Governance (ESG) and arbitration continues to grow. Adoption of ESG by corporations as a means of promoting responsible and ethical business practices and the wide use of arbitration in management of international commercial and investment disputes points to increased use of arbitration in management of ESG related disputes. In managing such disputes, arbitrators should promote ESG considerations whilst balancing the needs and interests of parties involved in issues such as climate change. Arbitration represents a viable mechanism for managing ESG disputes while simultaneously promoting Sustainable Development. There is need to enhance the viability of arbitration in management of ESG related disputes.

*This article is an abridged version of the Article The Place of Environmental, Social and Governance (ESG) in Arbitration by Hon. Prof.  Kariuki Muigua, OGW, PhD, Professor of Environmental Law and Dispute Resolution, Senior Advocate of Kenya, Chartered Arbitrator, Kenya’s ADR Practitioner of the Year 2021 (Nairobi Legal Awards), ADR Lifetime Achievement Award 2021 (CIArb Kenya), African Arbitrator of the Year 2022, Africa ADR Practitioner of the Year 2022, Member of National Environment Tribunal (NET) Emeritus (2017 to 2023) and Member of Permanent Court of Arbitration nominated by Republic of Kenya and Academic Champion of ADR 2024. Prof. Kariuki Muigua is a foremost Environmental Law and Natural Resources Lawyer and Scholar, Sustainable Development Advocate and Conflict Management Expert in Kenya. Prof. Kariuki Muigua teaches Environmental Law and Dispute resolution at the University of Nairobi School of Law, The Center for Advanced Studies in Environmental Law and Policy (CASELAP) and Wangari Maathai Institute for Peace and Environmental Studies. He has published numerous books and articles on Environmental Law, Environmental Justice Conflict Management, Alternative Dispute Resolution and Sustainable Development. Prof. Muigua is also a Chartered Arbitrator, an Accredited Mediator, the Managing Partner of Kariuki Muigua & Co. Advocates and Africa Trustee Emeritus of the Chartered Institute of Arbitrators 2019-2022. Prof. Muigua is a 2023 recipient of President of the Republic of Kenya Order of Grand Warrior (OGW) Award for his service to the Nation as a Distinguished Expert, Academic and Scholar in Dispute Resolution and recognized among the top 5 leading lawyers and dispute resolution experts in Band 1 in Kenya by the Chambers Global Guide 2024 and was listed in the Inaugural THE LAWYER AFRICA Litigation Hall of Fame 2023 as one of the Top 50 Most Distinguished Litigation Lawyers in Kenya and the Top Arbitrator in Kenya in 2023.

References

Amao. O., ‘Corporate Social Responsibility, Human Rights and the Law: Multinational corporations in Developing Countries.’ Routledge, 2011.

Cummins. T et al., ‘ESG Litigation – How Companies Can Get Ready, Respond and Resolve Claims’ available at https://www.emerald.com/insight/content/doi/10.1108/JOIC-07-2021-0032/full/html (accessed on 29/09/2022)

Fitzmaurice, M., ‘The Principle of Sustainable Development in International Development Law’ International Sustainable Development Law, Vol. 1.

Greenwood. L., ‘The Canary is Dead: Arbitration and Climate Change’ Journal of International Arbitration, Volume 38, Issue 3 (2021).

Miles. W., ‘BVI: A Frontline Focus for Resolving Future Climate Change Related Disputes’ available at https://www.bviiac. org/Portals/0/Files/Publications/Wendy%20 Miles %20QC_BVI_ A%20Frontline%20Focus%20for%20Resolving%20Future%20Climate%20Change%20Related %20Disputes.pdf (accessed on 29/09/2022)

Krajewski, M. ‘Human Rights in International Investment Law: Recent Trends in Arbitration and Treaty-Making Practice.’ Available at SSRN 3133529 (2018).

Maiangwa.B & Agbiboa.D., ‘Oil Multinational Corporations, Environmental Irresponsibility and Turbulent Peace in the Niger Delta’ Africa Spectrum 2/2013: 71-83

Kenya Human Rights Commission., ‘Heavy price for… egregious human rights violations’ available at https://www.khrc.or.ke/2015-03-04-10-37-01/press-releases/737-heavy-price-for-kakuzi-s-egregioushuman-rights-violations.html (accessed on 29/09/2022).

RL360, “Governance-The G in ESG,” Available at: https://www.rl360.com/row/funds/ investmentdefinitions/g-in-esg.htm (accessed on 29/09/2022)

Sustainable Development’ available at https://sdgs.un.org/goals (accessed on 29/09/2022)

The ALP Review., ‘The Importance of ESG and its effect on International Arbitration’ available at https://www.alp.company/sites/default/files/ALP%20Review%20- %20The%20Importance%20of%20ESG %20and%20its%20effect %20on%20International%20Arbitration.pdf

United Nations., ‘Sustainable Development Goals’ available at https://sdgs.un.org/goals (accessed on 28/09/2022)

World Commission on Environment and Development, Our Common future. Oxford, (Oxford University Press, 1987).

Continue Reading

News & Analysis

Way Forward in Managing Risk and Liability of ESG Litigation

Published

on

By

By Hon. Prof. Kariuki Muigua, OGW, PhD, C.Arb, FCIArb is a Professor of Environmental Law and Dispute Resolution at the University of Nairobi, Member of Permanent Court of Arbitration, Leading Environmental Law Scholar, Respected Sustainable Development Policy Advisor, Top Natural Resources Lawyer, Highly-Regarded Dispute Resolution Expert and Awardee of the Order of Grand Warrior (OGW) of Kenya by H.E. the President of Republic of Kenya. He is the Academic Champion of ADR 2024, the African ADR Practitioner of the Year 2022, the African Arbitrator of the Year 2022, ADR Practitioner of the Year in Kenya 2021, CIArb (Kenya) Lifetime Achievement Award 2021 and ADR Publisher of the Year 2021 and Author of the Kenya’s First ESG Book: Embracing Environmental Social and Governance (ESG) tenets for Sustainable Development” (Glenwood, Nairobi, July 2023) and Kenya’s First Two Climate Change Law Book: Combating Climate Change for Sustainability (Glenwood, Nairobi, October 2023), Achieving Climate Justice for Development (Glenwood, Nairobi, October 2023) and Promoting Rule of Law for Sustainable Development (Glenwood, Nairobi, January 2024)*

In order for companies to manage the risk and liability associated with ESG litigation, it is imperative for them to strengthen their ESG reporting and disclosure requirements. It has been observed that recent ESG trends have driven the requirement by businesses to report on ESG aspects such as human rights and environmental standards as evidenced by emerging legal frameworks requiring companies to report on human rights and environmental issues, emerging mandatory human rights due diligence legislation, and increased legal enforcement and litigation risks.

As a result, it is important for companies to treat public disclosures in relation to ESG matters seriously and consider taking independent auditing and verification steps, particularly for annual ESG-related reports and/or other material ESG disclosures. Such an approach can help companies effectively manage and reduce the risk of ESG related litigation.

In addition, it has been argued that there is need for companies to embrace best practices in order to mitigate the risks of ESG litigation and also address such litigation when it arises. For example, it has been suggested that companies should conduct risk assessments in order to determine the likelihood of ESG related suits and deal with such concerns immediately; undertake public engagement to order to ensure openness and transparency in ESG matters; build knowledge on ESG issues in order to be well equipped to handle ESG claims when they arise; and strengthen their management systems and internal practices in order to enhance compliance with ESG standards.

It has been observed that ESG litigation is associated with several risks to companies including regulatory and enforcement risk, reputational risk, damage to brand, potential disruption by activists and financial risks such as loss of access to capital and financial losses as a result of damages, fines and other forms of monetary compensation. It is also imperative to strengthen access to justice in ESG matters. It has been pointed out that in order for litigants to be given the right of access to courts in ESG matters, whether individually, collectively, or as a third party or amicus curiae, the criteria pertaining to standing, which differ from jurisdiction to jurisdiction, must be followed.

It is also necessary to widen and strengthen the jurisdiction of courts on ESG issues such as climate change. Further, it has been pointed out that there is need to embrace techniques such as litigation funding in order to provide the financial stability and support needed to pursue legal action without compromising on the quality of representation or legal strategy in ESG matters. It has been argued that litigation funding can be an effective strategy for needy claimants to pursue claims against a company that they may ordinarily not be able to afford, enabling them to ultimately to hold companies to account for ESG failures.

Finally, it is imperative for companies to think creatively and strategically in order to effectively resolve ESG claims. It has been pointed out that ESG claims may significantly differ from other types of litigation companies have previously faced, hence the need for creative solutions towards these claims. For example, in ESG claims, there is need to bear in mind both the litigation aspects of a dispute, and broader ESG concerns including those around reputation and access to capital. As a result, it has been suggested that there is need for companies to be alive to the potential for resolving ESG claims outside the court room, and what mitigation strategies could be deployed to avoid litigation.

Alternative Dispute Resolution (ADR) mechanisms are ideal in managing ESG disputes by fostering privacy, cost effective and expeditious management of disputes while also allowing parties to select experts to hear and determine contentious ESG matters. In addition, it has correctly been observed that businesses would normally prefer to have their disputes managed in a private manner in order to prevent ruining their image in public and also in an expeditious and cost-effective manner in order to protect business interests.

It has also been pointed out that the use of ADR mechanisms such as mediation in managing ESG related disputes is a practical demonstration of a sustainability-oriented business culture since mediation can offer a quick, flexible, consensual and win-win solution based on the mutually accepted interests of the parties. ADR mechanisms can therefore be an effective tool to enable companies manage the risks associated with ESG litigation.

*This is an extract from the Article: Fostering Environmental, Social and Governance (ESG) Litigation for Sustainability, Available at: https://kmco.co.ke/wp-content/uploads/2024/02/Fostering-Environmental-Social-and-Governance-ESG-Litigation-for-Sustainability.pdf (Accessed 2nd March 2024) by Hon. Prof.  Kariuki Muigua, OGW, PhD, Professor of Environmental Law and Dispute Resolution, Senior Advocate of Kenya, Chartered Arbitrator, Kenya’s ADR Practitioner of the Year 2021 (Nairobi Legal Awards), ADR Lifetime Achievement Award 2021 (CIArb Kenya), African Arbitrator of the Year 2022, Africa ADR Practitioner of the Year 2022, Member of National Environment Tribunal (NET) Emeritus (2017 to 2023) and Member of Permanent Court of Arbitration nominated by Republic of Kenya and Academic Champion of ADR 2024. Prof. Kariuki Muigua is a foremost Environmental Law and Natural Resources Lawyer and Scholar, Sustainable Development Advocate and Conflict Management Expert in Kenya. Prof. Kariuki Muigua teaches Environmental Law and Dispute resolution at the University of Nairobi School of Law, The Center for Advanced Studies in Environmental Law and Policy (CASELAP) and Wangari Maathai Institute for Peace and Environmental Studies. He has published numerous books and articles on Environmental Law, Environmental Justice Conflict Management, Alternative Dispute Resolution and Sustainable Development. Prof. Muigua is also a Chartered Arbitrator, an Accredited Mediator, the Managing Partner of Kariuki Muigua & Co. Advocates and Africa Trustee Emeritus of the Chartered Institute of Arbitrators 2019-2022. Prof. Muigua is a 2023 recipient of President of the Republic of Kenya Order of Grand Warrior (OGW) Award for his service to the Nation as a Distinguished Expert, Academic and Scholar in Dispute Resolution and recognized among the top 5 leading lawyers and dispute resolution experts in Band 1 in Kenya by the Chambers Global Guide 2024 and was listed in the Inaugural THE LAWYER AFRICA Litigation Hall of Fame 2023 as one of the Top 50 Most Distinguished Litigation Lawyers in Kenya and the Top Arbitrator in Kenya in 2023.

References

African Development Bank Group., ‘Environmental, Social and Governance (ESG).’ Available at https://www.afdb.org/en/topics-and-sectors/topics/environmental-social-and-governance-esg (Accessed on 05/02/2024).

Ahurst., ‘ESG Litigation – Get Ready Respond and Resolve.’ Available at https://www.ashurst.com/en/insights/esg-litigation—get-ready-respond-and-resolve/ (Accessed on 05/02/2024).

Banda ML and Fulton CS, ‘Litigating Climate Change in National Courts: Recent Trends and Developments in Global Climate Law’ (2017) 47 Environmental Law Reporter.

Barbosa. A et al., ‘Integration of Environmental, Social, and Governance (ESG) Criteria: Their Impacts on Corporate Sustainability Performance.’ Humanit Soc Sci Commun 10, 410 (2023). Available at https://doi.org/10.1057/s41599-023-01919-0 (Accessed on 03/02/2024).

British Business Bank., ‘What is ESG – A Guide for Businesses.’ Available at https://www.britishbusiness-bank.co.uk/finance-hub/business-guidance/sustainability/what-is-esg-aguide-for-smallerbusinesses/ (Accessed on 03/02/2024).

Fitzmaurice. M., ‘The Principle of Sustainable Development in International Development Law.’ International Sustainable Development Law., Vol 1.

Giovannoni. E., & Fabietti. G., ‘What Is Sustainability? A Review of the Concept and Its Applications.’ In: Busco, C., Frigo, M., Riccaboni, A., Quattrone, P. (eds) Integrated Reporting. Springer, Cham. Available at https://doi.org/10.1007/978-3-319-02168-3_2 (Accessed on 03/02/2024).

Global Campus of Human Rights., ‘Rethinking Environmental, Social, and Governance (ESG) Investing for Successful Sustainability and Human Rights.’ Available at https://gchumanrights.org/gcpreparedness/preparedness-development/article-detail/rethinkingenviron mental-social-andgovernance-esg-investing-for-successful-sustainability-and-human-rights5039.html (Accessed on 05/03/2024).

Gramatidis.B & Emvalomenos. D., ‘Sustainability in Dispute Resolution -Mediation as an ESG Practice.’ Available at https://www.bahagram.com/sustainability-in-dispute-resolution-mediation-as-anesgpractice/ (Accessed on 05/02/2024).

Hackett. D et al., ‘Growing ESG Risks: The Rise of Litigation.’ Available at https://www.bakermckenzie.com/- /media/files/insight/publications/2020/10/growing_esg_risks _the_rise_of_litigation.pdf (Accessed on 05/02/2024).

Heinberg. R., ‘What Is Sustainability?.’ Available at https://cdn.auckland.ac.nz/assets/arts/documents/What%20is%20Sustainability.pdf (Accessed on 03/02/2024).

Kemp. B et al., ‘The Rise of ESG Litigation and Horizontal Human Rights Enforcement.’ Available at https://www.lexology.com/library/detail.aspx?g=07a94453-f2aa-490a-a7e1-f6c25256cbf9 (Accessed on 05/02/2024).

Latham & Watkins LLP., ‘ESG Litigation Roadmap.’ Available at https://www.lw.com/admin/upload/SiteAttachments/ESG-Litigation-Roadmap.pdf (Accessed on 05/02/2024).

Li. T., et al., ‘ESG: Research Progress and Future Prospects.’ Available at https://pdfs.semanticscholar.org/0dd4/941ebea33330210daff5f37a1c8cdd0547d7.pdf (Accessed on 03/02/2024).’

Li. T., et al., ‘ESG: Research Progress and Future Prospects.’ Op Cit 24 Ahmad. H., Yaqub. M., & Lee. S. H., ‘Environmental-, Social-, and Governance-Related Factors for Business Investment and Sustainability: A Scientometric Review of Global Trends.’ Available at https://link.springer.com/article/10.1007/s10668-023-02921 (Accessed on 03/02/2024).

Mathis. S., & Stedman. C., ‘Environmental, Social and Governance (ESG).’ Available at https://www.techtarget.com/whatis/definition/environmental-social-and-governanceESG#:~:text= Environmental%2C%20social%20and%20governance%20(ESG)%20is%20a%20framework%2 0used,and%20opportunities%20in%20those%20areas (Accessed on 03/02/2024).

May. S., & Radcliffe. M., ‘The Evolving ESG litigation Landscape.’ Available at https://www.grantthornton.co.uk/insights/the-evolving-esg-litigation-landscape/ (Accessed on 05/02/2024).

McKenzie. S., Philippides. M., & De. Meyer., ‘A Look to the Future: Litigation Risks Faced by the Financial Sector in Relation to ESG Statements.’ Available at https://www.investafrica.com/insights-/a-look-to-thefuture-litigation-risks-faced-by-the-financial-sector-in-relation-to-esg-statements (Accessed on 05/03/2024).

Mikhaeel. M., ‘How Human Rights Due Diligence Affects the ‘E’ in ESG.’ Available at https://www.financierworldwide.com/how-human-rights-due-diligence-affects-the-e-in-esg (Accessed on 05/02/2024).

Muigua. K., ‘(Re) Examining Environmental, Social and Governance (ESG) and Human Rights.’ Available at https://kmco.co.ke/wp-content/uploads/2024/01/Re-Examining-Environmental-Social-andGovernance-ESG-and-Human-Rights.pdf (Accessed on 05/02/2024).

Muigua. K., ‘Greenwashing: A Hindrance to Achieving Sustainability?’ Available at https://kmco.co.ke/wp-content/uploads/2023/08/Greenwashing-A-hindrance-to-AchievingSustainability -Kariuki-Muigua-August-2023.pdf (Accessed on 05/02/2024).

Muigua. K., ‘Promoting Climate Litigation in Kenya for Sustainability.’ Available at https://kmco.co.ke/wp-content/uploads/2023/08/Promoting-Climate-litigation-in-Kenya-forSustainability-Kariuki-Muigua-August-2023.pdf (Accessed on 05/02/2024).

Norton. C., ‘Growing ESG Litigation Is Advancing Thinking on New Practices Needed.’ Available at https://www.linkedin.com/pulse/growing-esg-litigation-advancing-thinking-new-practicesnorton?utm_source=share&utm_medium=member_android&utm_campaign=share_via (Accessed on 03/02/2024).

Peterdy. K., & Miller. N., ‘What is ESG?’ Available at https://corporatefinanceinstitute.com/resources/esg/esg-environmental-social-governance (Accessed on 03/02/2024).

Runyon. N., ‘How Litigation Funding Drives Progress in the ESG Agenda.’ Available at https://www.thomsonreuters.com/en-us/posts/esg/litigation-funding-esgagenda/#:~:text=A%20driving %20force %20in%20access%20to%20justice&text=Litigation%20funding%2 0also%20provides%20the,of %20representation%20or%20legal%20strategy. (Accessed on 05/02/2024).

Stuart. L.G et al., ‘Firms and Social Responsibility: A Review of ESG and CSR Research in Corporate Finance.’ Journal of Corporate Finance 66 (2021): 101889.

Thailand Arbitration Center., ‘Alternative Dispute Resolution: Significance of ESG in Arbitration.’ Available at https://thac.or.th/alternative-dispute-resolution-significance-esg-arbitration/ (Accessed on 05/02/2024).

The 3 pillars of Sustainability: Environmental, Social and Economic., Available at https://www.enel.com/company/stories/articles/2023/06/three-pillars-sustainability (Accessed on 03/02/2024).

United Nations General Assembly., ‘Transforming Our World: the 2030 Agenda for Sustainable Development.’ 21 October 2015, A/RES/70/1., Available at https://sustainabledevelopment.un.org/content/documents/21252030%20Agenda%20for%20Sustainabl e%20Development%20web.pdf (Accessed on 03/02/2024).

United States Environmental Protection Agency., ‘What is Sustainability.’ Available at https://www.epa.gov/sustainability/learn-about-sustainability (Accessed on 03/02/2024).

World Commission on Environment and Development., ‘Our Common Future.’ Oxford, (Oxford University Press, 1987).

Xia, F., Chen, J., Yang, X., Li, X. and Zhang, B., ‘Financial Constraints and Corporate Greenwashing Strategies in China’ (2023) 30 Corporate Social Responsibility and Environmental Management 1770.

Continue Reading

Trending