Doing Business Right – Monthly Report – February 2018 - By Catherine Dunmore

Editor's Note: Catherine Dunmore is an experienced international lawyer who practised international arbitration for multinational law firms in London and Paris. She recently received her LL.M. from the University of Toronto and her main fields of interest include international criminal law and human rights. Since October 2017, she is part of the team of the Doing Business Right project at the Asser Institute.

Introduction

This report compiles all relevant news, events and materials on Doing Business Right based on the daily coverage provided on our twitter feed @DoinBizRight. You are invited to complete this survey via the comments section below, feel free to add links to important cases, documents and articles we might have overlooked.

The Headlines

Okpabi v Royal Dutch Shell: Court of Appeal finds Shell not liable for Nigerian oil spills

On 14 February 2018, the Court of Appeal in London handed down its Approved Judgment in Okpabi and others v Royal Dutch Shell Plc and another [2018] EWCA Civ 191. The claimants are 40,000 Nigerian farmers and fisherman from the Ogale and Bille communities in the Niger Delta who allege they have suffered from decades of pollution from pipelines belonging to Shell Nigeria, a subsidiary of the British-Dutch multinational oil and gas company Shell. Indeed, in 2011 the United Nations Environmental Programme published an Environmental Assessment of Ogoniland which reported serious contamination of agricultural land and waterways in the community as well as its groundwater at rates 1,000 times higher than permitted under Nigerian law, exposing Ogale’s inhabitants to serious health risks. Meanwhile the Bille community suffered the largest loss of mangrove habitat in the history of oil spills at 13,200 hectares. In its split decision, the Court of Appeal upheld the High Court ruling that it lacks jurisdiction as London headquartered parent company Shell could not be liable for any oil pollution in the Niger Delta caused by its wholly autonomous subsidiary. The villagers now plan to seek permission to take the case to the Supreme Court, with King Okpabi of the Ogale Community stating “We have lost our environment, our farmland and our dignity because of Shell’s operations in our community. The English Courts are our only hope because we cannot get justice in Nigeria. So let this be a landmark case, we will go all the way to the Supreme Court”.

Philippines Commission on Human Rights holding overseas hearings for oil majors

The Republic of the Philippines Commission on Human Rights is set to confront oil majors over their climate change impact through hearings in Manila, New York and London. The hearings are in response to a petition lodged in 2015 which seeks to hold forty-seven companies accountable for Philippine communities suffering from extreme weather. Human Rights Commissioner Roberto Cadiz explained that holding hearings overseas will make the process inclusive, affording all carbon companies the best chance to confront the impact of their businesses. To date, half of the companies, whose products generated around a fifth of historic greenhouse gas emissions, have not responded to the Commission. Those which have responded, questioned the Commission’s jurisdiction or argued that it was for governments and not private companies to tackle climate change. Several international law experts have also filed amicus curiae briefs in support of the petition which back the Commission’s mandate to investigate private companies over harm experienced by Filipinos. The hearings are due to commence in Manila in March 2018, with the overseas sessions following later in the year. The Commission cannot directly impose penalties on any of the respondents; however, it could recommend ways that the companies might alleviate their future operations’ human rights impact.

Tomasella v Nestlé: Consumers sue Nestlé for child labour chocolate

On 12 February 2018, consumer Danell Tomasella filed a Class Action Complaint in Case No. 1:18-cv-10269 in the Massachusetts federal court. The lawsuit against Swiss food and beverage conglomerate Nestlé USA Inc. alleges that the company regularly imports cocoa beans from suppliers in the Ivory Coast and engages in deceptive marketing by hiding that this chocolate supply chain utilises child and slave labour. The plaintiffs claim that in violation of Massachusetts Consumer Protection Law, Nestlé does not disclose its Ivory Coast suppliers’ reliance on the worst forms of child labour which is of material interest to American consumers. They state that “Nestlé has not required its suppliers to remedy this human tragedy” and that it instead continues to be unjustly enriched by the profits from chocolate sales. The allegations highlight that much of the world’s chocolate is “quite literally brought to us by the backbreaking labor of children, in many cases under conditions of slavery”. Nestlé has responded that such consumer class actions “are not the way to solve such a serious and complex issue as forced child labor”, rather “class action lawyers are targeting the very organizations trying to fight forced labor”. More...

Transnational legal development and the platform economy - Part 1: Uber’s foray into transnational regulation - By Morshed Mannan and Raam Dutia

Editor's note: Morshed Mannan is a Meijers PhD candidate at the Company Law department of Leiden Law School. He received his LL.M. Advanced Studies in International Civil and Commercial Law (cum laude) from Leiden University and has previously worked as a lawyer and lecturer in Dhaka, Bangladesh. Raam Dutia is currently an intern with the Doing Business Right team at the Asser Institute. He recently received his LL.M. Advanced Studies in Public International Law (cum laude) from Leiden University and has worked at an international law firm in London on a range of debt capital markets transactions.

 

For many, Uber epitomises the "move fast and break things" ethos of successful Silicon Valley start-ups. The company enters new markets before regulators are ready, capitalising on regulatory bottlenecks and uncertainties in numerous jurisdictions – only to enlist its enthusiastic customer base and other means to challenge regulators when they catch up. The backlash against this mode of operation has been severe, and boycotts and a litany of lawsuits appear to have dented Uber's image and plunged the company into crisis.[1] Elisa Chiaro’s recent blogpost discussed the implications of platform economy enterprises, such as Uber, on the rights and protections of workers. In this, the first of a series of blogposts, we will take a broader view by exploring whether the company’s concerted efforts to conduct operations in a way that avoids or attempts to undermine local, state and national regulations shapes the law across the markets in which it operates. This will be done by appraising the growing literature on the effect of its regulatory arbitrage[2] and evaluating whether the company’s use of algorithms, in conjunction with standardized service agreements, rider agreements and other contracts to govern the relationships between various stakeholders, establishes it as a source of transnational lawmaking within a large network of well-defined stakeholders: drivers, riders and civil society. Uber’s business practices and litigation in the UK will be used as a case study that is illustrative of broader trends. By doing so, we hope to contribute a deeper understanding of the patterns that have emerged through Uber’s local activities in several jurisdictions. In later entries, we will examine the response to these attempts at regulatory arbitrage and private ordering as well as the repercussions this has on the contemporary regulation of the platform economy. More...

Doing Business Right – Monthly Report – January 2018 - By Catherine Dunmore

Editor's Note: Catherine Dunmore is an experienced international lawyer who practised international arbitration for multinational law firms in London and Paris. She recently received her LL.M. from the University of Toronto and her main fields of interest include international criminal law and human rights. Since October 2017, she is part of the team of the Doing Business Right project at the Asser Institute.

Introduction

This report compiles all relevant news, events and materials on Doing Business Right based on the daily coverage provided on our twitter feed @DoinBizRight. You are invited to complete this survey via the comments section below, feel free to add links to important cases, documents and articles we might have overlooked.


We are looking for a new intern! More information here.


The Headlines

Landmark High Court case against UK mining company over alleged Sierra Leone worker abuse

On 29 January 2018, a landmark six week hearing began at the High Court in London in a case brought by 142 claimants from Sierra Leone against Tonkolili Iron Ore, a subsidiary of the UK based African Minerals. The case involves allegations of worker abuse in 2010 and 2012 at the Tonkolili Iron Ore Mine in Sierra Leone, including complicity in rape, assault, false imprisonment and the police murder of a protestor complaining over pay and conditions. Human Rights Watch previously reported how the government and African Minerals forcibly relocated hundreds of families from verdant slopes to a flat, arid area, thereby removing their ability to cultivate crops and engage in income generating activities. The claimants’ lawyers, Leigh Day, stated that the case “demonstrates that those companies headquartered in the UK that operate abroad in rural and isolated environments can be held to account when their operations face serious allegations of human rights abuses”. Tonkolili Iron Ore denies responsibility for the incidents against workers and villagers and claims full responsibility lies with the Sierra Leone police. Unusually, the trial will see the judge, Mr Justice Turner, travelling to Freetown for two weeks so that evidence can be taken from witnesses in person, after some witnesses were unable to obtain visas for the United Kingdom.

West Kalimantan villagers file complaint against the Roundtable on Sustainable Palm Oil

On 23 January 2018, a complaint was filed with the Organization for Economic Cooperation and Development’s national contact point in Switzerland by an Indonesian community rights group against the Roundtable on Sustainable Palm Oil for its failure to address complaints made by residents of two West Kalimantan villages. The indigenous Dayak community in Kerunang and Entapang villages had previously filed an urgent complaint with the RSPO accusing one of its members, Malaysian palm oil giant Sime Darby, of stealing their tribal land through its subsidiary Mitra Austral Sejahtera. They allege that Mitra Austral Sejahtera breached the RSPO Principles and Criteria for the Production of Sustainable Palm Oil relating to commitment to transparency, compliance with applicable laws and regulations and responsible consideration of employees, and of individuals and communities affected by growers and mills. It is alleged that the RSPO failed to respond to the request for the return of tribal lands and accordingly failed to meet its obligations under the OECD Guidelines for Multinational Enterprises. Sime Darby has stated that the land dispute has been discussed at the RSPO's annual meetings since 2012, and that it looks “forward to the cooperation of the communities towards ensuring that the eventual return of their land is socially, environmentally and economically viable”. More...




Internship in Business and Human Rights - Apply by 15 February

We are looking for an intern starting1 March 2018 for a period of at least three months, preferably full-time.


Main tasks:

  • Contribute and develop research outputs within the Asser research project ‘Doing Business Right’, especially for the blog;
  • Assistance in day-to-day maintenance of social media accounts linked to the ‘Doing Business Right’ project;
  • Assistance in organizing upcoming events (workshops, lectures);
  • Assist in legal research and analysis in the frame of academic publications.

Interested candidates should have:

  • Demonstrated interest in legal issues lying at the intersection of transnational business, human rights, private international law, and global value chains regulation. An interest in transnational law and private regulations are an advantage;
  • Solid academic and non-academic writing skills, research and analytical skills;
  • A master degree in EU law, private or public international law or international relations;
  • Excellent command of written and spoken English, preferably at a native speaker level;
  • Experience with managing websites and social media communication is of an advantage.

What we offer:

  • A stipend, based on the level of education completed;
  • Exposure to the academic activities of the research strand ‘Advancing public interests in international and European law’, and the T.M.C Asser Instituut, a leading research centre in International and European law;
  • An inspiring, dynamic and multicultural working environment.

Interested candidates should apply by email, sending a motivation letter and CV in English, a sample of academic writing (master’s thesis or paper from a course relevant to the topics of the research project ‘Doing Business Right’) to directiesecretariaat@asser.nl Deadline for application is 15 February 2018, 12.00 PM CET.

Please note: We cannot offer assistance in obtaining residence and work permits for the duration of the internship.

Corporate Responsibility for Climate Change: Litigation and Other Grievance Mechanisms - By Elisa Chiaro

Editor’s Note: Elisa Chiaro is a legal consultant focussing on Business and Human Rights and International Criminal Law. In 2016 she completed an LL.M. at SOAS, University of London. Before that she worked for five years as international corporate lawyer both in Italy and UK. She is admitted to the Bar in Italy.


1.      Introduction

According to the Intergovernmental Panel on Climate Change (“IPCC”) climate change is real: “[h]uman influence on the climate system is clear, and recent anthropogenic emissions of greenhouse gases are the highest in history.”[1]

From a scientific point of view, it is well established that the concentration of greenhouse gases (“GHGs”), which are present in nature and essential for the survival of human beings and plants, is linked to the Earth’s temperature, which has been rising steadily since the Industrial Revolution. From the perspective of public health, according to the WHO, an effect of climate change will be an increase of approximately 250,000 deaths per year between 2030 and 2050 due to malnutrition, disease (such as malaria and diarrhoea) and heat stress.

As will be explained in the following section many international agreements and initiatives have emerged to tackle the problem. However the main goal of this post is to analyse some examples of civil judicial and quasi-judicial means that have been used to hold companies accountable for the effects of climate change. The first category under scrutiny will be litigation brought against private companies, such as in the case Lliuya v. RWE AG brought before the German Court and in American cases brought by public institutions (cities or counties) against oil companies. The second category encompasses other grievance mechanisms, such as the notification to the OECD National Contact Points of violation of the OECD Guidelines for Multinational Enterprises (“OECD Guidelines”) by corporations (Dutch NGOs v. ING Bank). More...





Doing Business Right – Monthly Report – December 2017 - By Catherine Dunmore

Editor's Note: Catherine Dunmore is an experienced international lawyer who practised international arbitration for multinational law firms in London and Paris. She recently received her LL.M. from the University of Toronto and her main fields of interest include international criminal law and human rights. Since October 2017, she is part of the team of the Doing Business Right project at the Asser Institute.

Introduction

This report compiles all relevant news, events and materials on Doing Business Right based on the daily coverage provided on our twitter feed @DoinBizRight. You are invited to complete this survey via the comments section below, feel free to add links to important cases, documents and articles we might have overlooked. More...

International Arbitration of Business and Human Rights Disputes: Part 3 - Case study of the Accord on Fire and Building Safety in Bangladesh’s binding arbitration process - By Catherine Dunmore

Editor's Note: Catherine Dunmore is an experienced international lawyer who practised international arbitration for multinational law firms in London and Paris. She recently received her LL.M. from the University of Toronto and her main fields of interest include international criminal law and human rights. Since October 2017, she is part of the team of the Doing Business Right project at the Asser Institute.

Background

At the United Nations Forum on Business and Human Rights from 27-29 November 2017 in Geneva, discussions focused on the central theme of Realizing Access to Effective Remedy. With an increasing focus on this third pillar of the United Nations Guiding Principles on Business and Human Rights, a working group of international law, human rights and conflict management specialists (Claes Cronstedt, Jan Eijsbouts, Adrienne Margolis, Steven Ratner, Martijn Scheltema and Robert C. Thompson) has spent several years exploring the use of arbitration to resolve business and human rights disputes. This culminated in the publication on 13 February 2017 of a proposal for International Business and Human Rights Arbitration. On 17 August 2017, a follow-up Questions and Answers document was published by the working group to address the principal questions raised about the proposal during the three-year consultation with stakeholders. Now, a drafting team is being assembled, chaired by Bruno Simma, to prepare a set of rules designed specifically for international business and human rights arbitration (the Hague International Business and Human Rights Arbitration Rules) in consultation with a wide range of business and human rights stakeholders. Once drafted, the rules will be offered to the Permanent Court of Arbitration and other international arbitration institutions and could be used in arbitration proceedings managed by parties on an ad hoc basis.


Introduction

Part 1 of this three-part blog series gave an overview introduction to the proposal for international business and human rights arbitration. Part 2 focused on the potential advantages of using international arbitration to resolve such disputes, as well as the substantial challenges the proposal will face in practice. This Part 3 now provides a case study of the Accord on Fire and Building Safety in Bangladesh’s binding arbitration process. More particularly, it will provide (1) a brief background to the Accord on Fire and Building Safety in Bangladesh, as well as (2) an analysis of its binding arbitration process, before (3) discussing the arbitrations brought by IndustriALL Global Union and UNI Global Union against two global fashion brands under the Accord on Fire and Building Safety in Bangladesh. More...




International Arbitration of Business and Human Rights Disputes: Part 2 - Advantages and challenges - By Catherine Dunmore

Editor's Note: Catherine Dunmore is an experienced international lawyer who practised international arbitration for multinational law firms in London and Paris. She recently received her LL.M. from the University of Toronto and her main fields of interest include international criminal law and human rights. Since October 2017, she is part of the team of the Doing Business Right project at the Asser Institute.

Background

At the United Nations Forum on Business and Human Rights from 27-29 November 2017 in Geneva, discussions focused on the central theme of Realizing Access to Effective Remedy. With an increasing focus on this third pillar of the United Nations Guiding Principles on Business and Human Rights, a working group of international law, human rights and conflict management specialists (Claes Cronstedt, Jan Eijsbouts, Adrienne Margolis, Steven Ratner, Martijn Scheltema and Robert C. Thompson) has spent several years exploring the use of arbitration to resolve business and human rights disputes. This culminated in the publication on 13 February 2017 of a proposal for International Business and Human Rights Arbitration. On 17 August 2017, a follow-up Questions and Answers document was published by the working group to address the principal questions raised about the proposal during the three-year consultation with stakeholders. Now, a drafting team is being assembled, chaired by Bruno Simma, to prepare a set of rules designed specifically for international business and human rights arbitration (the Hague International Business and Human Rights Arbitration Rules) in consultation with a wide range of business and human rights stakeholders. Once drafted, the rules will be offered to the Permanent Court of Arbitration and other international arbitration institutions and could be used in arbitration proceedings managed by parties on an ad hoc basis.

Introduction

Part 1 of this three-part blog series gave an overview introduction to the proposal for international business and human rights arbitration. This Part 2 focuses on (1) the potential advantages of using international arbitration to resolve such disputes, as well as (2) the substantial challenges the proposal will face in practice. Part 3 will then provide a case study of the Accord on Fire and Building Safety in Bangladesh’s binding arbitration process. More...

International Arbitration of Business and Human Rights Disputes: Part 1 - Introducing the proposal - By Catherine Dunmore

Editor's Note: Catherine Dunmore is an experienced international lawyer who practised international arbitration for multinational law firms in London and Paris. She recently received her LL.M. from the University of Toronto and her main fields of interest include international criminal law and human rights. Since October 2017, she is part of the team of the Doing Business Right project at the Asser Institute.

Background

At the United Nations Forum on Business and Human Rights from 27-29 November 2017 in Geneva, discussions focused on the central theme of Realizing Access to Effective Remedy. With an increasing focus on this third pillar of the United Nations Guiding Principles on Business and Human Rights, a working group of international law, human rights and conflict management specialists (Claes Cronstedt, Jan Eijsbouts, Adrienne Margolis, Steven Ratner, Martijn Scheltema and Robert C. Thompson) has spent several years exploring the use of arbitration to resolve business and human rights disputes. This culminated in the publication on 13 February 2017 of a proposal for International Business and Human Rights Arbitration. On 17 August 2017, a follow-up Questions and Answers document was published by the working group to address the principal questions raised about the proposal during the three-year consultation with stakeholders. Now, a drafting team is being assembled, chaired by Bruno Simma, to prepare a set of rules designed specifically for international business and human rights arbitration (the Hague International Business and Human Rights Arbitration Rules) in consultation with a wide range of business and human rights stakeholders. Once drafted, the rules will be offered to the Permanent Court of Arbitration and other international arbitration institutions and could be used in arbitration proceedings managed by parties on an ad hoc basis.

Introduction

Part 1 of this three-part blog series will give an overview introduction to the proposal for international business and human rights arbitration. It will discuss particularly (1) considerations for the drafters of new arbitration rules for business and human rights disputes. Part 2 will focus on the potential advantages of using international arbitration to resolve such disputes, as well as the substantial challenges the proposal will face in practice. Part 3 will then provide a case study of the Accord on Fire and Building Safety in Bangladesh’s binding arbitration process. More...


Doing Business Right – Monthly Report – November 2017 - By Catherine Dunmore

Editor's Note: Catherine Dunmore is an experienced international lawyer who practised international arbitration for multinational law firms in London and Paris. She recently received her LL.M. from the University of Toronto and her main fields of interest include international criminal law and human rights. Since October 2017, she is part of the team of the Doing Business Right project at the Asser Institute.

Introduction

This report compiles all relevant news, events and materials on Doing Business Right based on the daily coverage provided on our twitter feed @DoinBizRight. You are invited to complete this survey via the comments section below, feel free to add links to important cases, documents and articles we might have overlooked. More...

Doing Business Right Blog | The unequal impact of COVID-19 in the global apparel industry - Part I: The contractual roots - By Mercedes Hering

The unequal impact of COVID-19 in the global apparel industry - Part I: The contractual roots - By Mercedes Hering

Editor’s note: Mercedes is a recent graduate of the LL.B. dual-degree programme English and German Law, which is taught jointly by University College London (UCL) and the University of Cologne. She will sit the German state exam in early 2022. In September 2020 she joined the Asser Institute as a research intern for the Doing Business Right project.

 

The Covid-19 pandemic is straining global supply chains and exposes the inequality that underlies them. As many countries entered lockdowns, the economy was brought to a rapid halt. This caused demand for apparel goods to plummet. Global apparel brands, in turn, have begun to disengage from business relationships with their suppliers. Lead firms cancelled or even breached their contracts with suppliers (often relying on force majeure or hardship), suspended, amended or postponed orders already made. This practice had a devastating effect on suppliers.

This situation again shows that the contractual structure of global supply chains is tilted towards (often) European or North American lead firms. In this blog, I will first outline the power imbalance embedded in global supply chain contracts. Secondly, I will outline how order cancellations impact suppliers and their workers. In Part II, I will go through four approaches to mitigate the distress of suppliers and their workers and to allow the parties to reach solutions which take into account their seemingly antagonistic interests.

 

Power imbalance in the garment supply chain: Key economic drivers

Global value and supply chains suffer from a power imbalance, tilted in favour of apparel brands and retailers. Power is defined as the ability of an actor to influence another to act in the manner that they would not have otherwise.[1] This brand power has two main sources: first, the significance of design and marketing activities in terms of value addition and second, the dependence of suppliers on buyers (buyer-driven supply chain contracts).

The most valuable activities in the apparel GVC are not related to manufacturing,[2] but are found in the design, branding, and marketing of the products. These activities are generally carried out by so-called lead firms – retailers, brand marketers, and brand manufacturers.[3] They usually benefit from their size, huge sales and thus significant market power.

Additionally, suppliers are dependent on a limited number of buyers. An ILO report shows that 24% of all suppliers depend on their main buyer, who takes half of the production. In the case of 54% of all suppliers, the main buyer takes 35% of the garment production.  Furthermore, 52% of suppliers in the garment industry accepted orders below cost, 81% of which reported to do so in order to secure future orders. In particular, 52% of the suppliers based in Bangladesh reported having been pressured by buyers to do so. Thus, suppliers are generally highly dependent on their buyers and have very little bargaining power. It seems the economic structure of the garment sector is tilted in favor of the buyer.

The fashion industry is built on short-term adversarial trading relationships, characterized by multiple sourcing, price orientation and competitive bidding.[4] According to Raworth and Kidder, buyers exert three kinds of pressure on suppliers: First, time and speed (faster delivery, shorter lead times), second, flexibility (quick changes in order size and rapid switches between product designs), and third, costs and risks (lower price, higher quality).

For example, according to the ILO, only 17% of suppliers in the Bangladeshi garment sector considered to have enough lead time. Such ‘predatory purchase practices[5] allow buyers to act opportunistically and make agreements that favor their interests and force suppliers into unfair contractual arrangements. Suppliers respond by squeezing workers’ wages and production targets.

 

Power imbalance in the garment supply chain: Contractual translation

This economic power imbalance is translated contractually. Suppliers are confronted with take-it-or-leave-it agreements. In practice, lead firms draft contract clauses and provide them to the suppliers. Suppliers are pushed to assume all financial risk – as evident from the situation suppliers find themselves in after the outbreak of Covid-19. Moreover, buyers do not only impose strict deadlines, but also include penalty clauses in their contracts if suppliers fail to meet those deadlines. According to the ILO, 35% of suppliers in the textile industry face such penalties. Buyers also benefit from one-sided cancellation clauses, to which they increasingly took recourse during the pandemic.

For example, Kohl’s Inc.’s contract with their suppliers contains the following clause which secures such a discretionary right to withdraw their order in a wide range of situation:

„We may cancel our Purchase Order in whole or in part without your authorization and at Kohl’s sole and absolute discretion in the event of any of the following, each of which it is agreed will substantially impair the value of the whole Purchase Order to us: ... (g) in the event of acts of God (including, but not limited to, natural disasters, fire, flood, earthquake and disease outbreaks), lock-out, strike, war, civil commotion or disturbances, acts of public enemies, government restrictions, riots, insurrections, sabotage, blockage, embargo, or other causes beyond our reasonable control ... Cancellation by Kohl’s for any of the foregoing reasons shall constitute “for cause” and shall not subject us to any liability, cost, or charge whatsoever. In the event of such cancellation, or any cancellation for cause, Kohl’s may take possession of the Merchandise and any materials and equipment being used by you and may cause the Merchandise to be completed in such manner as Kohl’s shall determine and you shall reimburse Kohl’s for the cost of completion.“

 

These clauses allow buyers to disengage from their contractual relationships at their discretion. This is often the case even where orders had already been made and shipped. Buyers are generally under no obligation to adhere to a time limit or reimburse the costs of orders already completed or shipped.

Typically, the brands’ bargaining power also allows the renegotiation of payment terms. As highlighted in a report of the ECCHR, in the midst of the covid-19 pandemic both Marks and Spencer and PHV Corp amended payment terms to extend the payment period. While Asda and Debenhams each demanded 40 to 90% discounts as condition to accept the goods they had ordered.

Where supply chain contracts did not include such unilateral cancellation clauses, suppliers try to invoke force majeure to get out of their contractual obligations. Force majeure, a concept derived from Roman law, relieves a party from its contractual obligations if an unforeseen event renders performance impossible. The concept of force majeure has to be distinguished from ‘hardship’, which allows a party to walk away from its contractual obligations if the circumstances surrounding the performance of the contract changed in such a way as to render performance of the contract significantly more burdensome.[6] Both concepts constitute a good faith exception to the cornerstone of contract law, the principle of pacta sunt servanda.

The interpretation of force majeure clauses and the question if COVID-19 constitutes a force majeure event is governed by the law applicable to the contract. All private law regimes have different concepts to deal with changed circumstances; all with different nuances. To some extent at least it is nevertheless possible to discern some commonalities between the different approaches to force majeure. Today, some even speak of an internationally accepted concept of force majeure,[7] requiring a party to prove that (1) an external event; (2) which was unavoidable; (3) and unforeseeable; (4) caused the obligor’s non-performance.

Much (see for example here, here and here) has been written on whether COVID-19 does indeed constitute a force majeure event. This will depend on the drafting of the agreement, and the contractual obligation in question. One can readily accept that COVID-19 (or to be more precise: its side-effects) renders the performance of a contractual obligation impossible if we are concerned with a manufacturer whose employees are all in lockdown and must therefore abstain from work. Global apparel brands, however, ‘only’ need to pay money. It is much less obvious to assume that it is impossible to fulfil a payment obligation. The fact that some countries issued – or consider issuing – force majeure certificates does not change this. Such a force majeure certificate only serves as supporting evidence before a court or tribunal.[8] The court will still take other factors, including the wording of the contract, into account.

If force majeure is of limited help to them, companies will instead turn to hardship. Due to the covid-19 lockdowns brands are prevented from selling their apparel and would have to store the excess clothing. The contract becomes commercially impracticable – but not impossible to perform. As argued by the ECCHR, it is difficult to see how companies will be able to claim that the measures governments took in response to the pandemic constitute events that render their payment obligation significantly more burdensome. Indeed, the risk that they might not be able to sell their products seems to be an economic risk generally borne by companies engaging in a cyclical economy.

However, even where force majeure clauses were triggered falsely, suppliers will often lack the resources to bring a claim. Moreover, contracts often include clauses stipulating that the supplier bear buyer’s legal costs if their claim fails and obliging  suppliers to sue the buyer in the country in which the buyer is domiciled, not where the contract is performed.

 

Covid-related cancellation of garment contracts: Effects on suppliers and workers

According to the International Labour Organisation, looking at Bangladesh alone, the cancellation of contracts in the garment industry caused a loss of $USD 6 billion since the beginning of the pandemic. Half of Bangladeshi garment suppliers had the majority of their contracts cancelled; around 1,136 factories and 2.26 million workers are said to be affected. In Bangladesh, the garment industry, which amounts for 80% of all exports, employs 4.5 million workers. As of April 2020, more than one million garment workers were fired or furloughed, often without pay. Consequently, 80% of Bangladeshi families suffered from income loss. Cambodia, Indonesia, India, Myanmar, Sri Lanka and Vietnam have been similarly affected.

Furthermore, according to Clean Clothes Campaign, over 60% of the poor and low-income population who suffered income losses because of Covid did not receive any support from the public and private sectors and 30% of garment workers report that their children had gone without food. Most factories operate on very thin profit margins and lack access to loans; the pandemic pushed many producers into or near to bankruptcy. Having to lay off workers, employers are left with no room to provide their employees with severance packages. Workers’ wages are often squeezed to produce garments as cheaply as possible, thus depriving them of the possibility to plan for unforeseen events. Finally, home states with prevalent supplier industry often lack capital or access to capital to set up rescue schemes for corporate nationals and citizens. And when these states do set up support schemes, they often lack effective enforcement mechanisms, leaving those affected in financial distress. Workers, who before had struggled to make ends meet, now cannot pay for mere necessities: housing, food, schooling. As a survey from India revealed, migrant workers are at particular risk. They often fall outside the coverage of support schemes and lack support networks.

Where contractual clauses are favourable to brands with disproportionate bargaining power, they might be allowed to walk away from their contractual obligations. This is because under the dominant interpretation of the principle of party autonomy, the courts tend to respect the “autonomous” will of the parties when agreeing to contractual terms, no matter how onerous (or unfair) they appear to be. Yet, contrary to this abstract ideal of party autonomy, the parties to supply chain contracts are rarely of comparable strength. Instead, buyers tend to set the terms of the contracts unilaterally; no real negotiation occurs. Benefits and burden of the contracts are not distributed in a fair manner. In other words, global supply chain contracts are by design favouring European or North American brands. Thanks to them they can externalize unexpected costs, such as the fall in sales caused by the Covid-19 pandemic to their contractual partners in the Global South. Yet, in light of the unequal resources of the different parties to the apparel supply chain, it would seem reasonable to shift a considerable share of the economic losses triggered by the pandemic onto the strongest links in the chain: the brands. In Part II, I will discuss four potential solutions to achieve such a rebalancing.


[1] Hingley, M.K. (2005), "Power imbalanced relationships: cases from UK fresh food supply", International Journal of Retail & Distribution Management, Vol. 33 No. 8, pp. 551-569.

[2] Gereffi, Gary. (2018). Global Value Chains and Development: Redefining the Contours of 21st Century Capitalism.

[3] Ibid.

[4] Perry, P. and Towers, N. (2013), "Conceptual framework development: CSR implementation in fashion supply chains", International Journal of Physical Distribution & Logistics Management, Vol. 43 No. 5/6, pp. 478-501

[5] Anner, M. (2019), Predatory purchasing practices in global apparel supply chains and the employment relations squeeze in the Indian garment export industry. International Labour Review, 158: 705-727. https://doi.org/10.1111/ilr.12149.

[6] Frustration (UK), impracticality (US), imprévision (FR), Wegfall der Geschäftsgrundläge (GER)

[7] This is because most international contracts contain force majeure clauses. Furtermore, the force majeure doctrine was recognized as ‘a general principle of law’ by the Iran-US Claims Tribunal. Lastly, both the CISG (Article 79) and the UPICC contain provisions on force majeure; the IBA and ICC provide model force majeure clauses. Berger, Klaus Peter and Behn, Daniel, Force Majeure and Hardship in the Age of Corona: A Historical and Comparative Study, 6 McGill Journal of Dispute Resolution (2019/2020) 79.

[8] Berger, Klaus Peter and Behn, Daniel, Force Majeure and Hardship in the Age of Corona: A Historical and Comparative Study (April 20, 2020). 6 McGill Journal of Dispute Resolution (2019/2020) Number 4, pages 79-130,

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