Commercial contracts during Covid-19: Experts for prudent invocation of 'force majeure' clause

FE REPORT | Published: July 29, 2020 09:42:29 | Updated: July 29, 2020 13:43:15

Commercial contracts: Experts for prudent invocation of 'force majeure' clause

Experts in a webinar on Monday emphasised prudent invocation of 'force majeure' clause in commercial contracts at this critical time of growing spread of Covid-19 pandemic throughout the globe.

They also urged upon entrepreneurs to forge unity among themselves. The webinar titled 'Application of Force Majeure Clause: Should COVID-19 Be Included?' was organised by Bangladesh International Arbitration Centre (BIAC).

The force majeure doctrine is a civil law concept, but it is also widely applied in common law jurisdictions, and usually used by the contracting parties during international supply contracts.

The clause is invoked by the contracting parties as a form of temporary measure to exempt one or both the parties to a contract from performing their part of the obligations of contract because of an event which is taking place beyond their reasonable control. These events may range from industrial disputes, change of law, natural disasters, act of God, etc.

Judges, business leaders, bankers, lawyers, ADR experts from home and abroad, academicians, corporate representatives and students of law and business participated in the webinar to discuss the possible impacts of the pandemic on the on-going ADR proceedings, applicability of force majeure clause, risk factors and how to manage risks arising out of commercial contracts, according to a statement.

Six reputed Panel Discussants took part in the discussion and viewed the issues of application of Force Majeure clause in the on-going COVID-19 scenario from their own perspectives.

Justice Md. Rezaul Hasan (M R Hasan), Judge of the High Court Division, Supreme Court of Bangladesh in his deliberation said that only unforeseeable circumstances that prevent someone from fulfilling a contract or irresistible compulsion come under the purview of force majeure, but proximate cause of non performance of contract is government order, not force majeure itself. In existing laws there are remedies of non performance of contract and Force Majeure clause is not applicable as a proximate cause, except in shutdown, lockdown, stoppage of traffic which are followed pursuant to government orders, he said. Justice Hasan emphasised prudent invocation of Force Majeure Clause in commercial contracts only under unforeseeable circumstances during COVID-19.

Speaking on the occasion, BIAC Chairman Mahbubur Rahman opined that commercial contracts are mainly based on mutual trust between the parties; unless there is any comprehensive contract, force majeure clause cannot be enforced. During the spread of COVID-19, in some cases force majeure may be applicable where flights and movement of sea going vessels and surface transport have been shut down or restricted by governments, he said.

Mahbubur Rahman, also Chairman of International Chamber of Commerce- Bangladesh, stressed the need of fixing favourable terms for our exporters in the Pro Forma Invoices, so that force majeure issues cannot be misinterpreted by the buyers for their own interest.

The online event was moderated by Barrister Sameer Sattar, Advocate of Bangladesh Supreme Court and Head of Firm, Sattar & Co.

Chief Executive Officer of BIAC Muhammad A. (Rumee) Ali in his address of welcome said that BIAC as the country's only licenced ADR institution and also recognised by the Permanent Court of Arbitration, the Hague, has been relentlessly trying to resolve business disputes through Arbitration, Mediation and other methods of ADR. In the wake of COVID-19, international trade is suffering a lot where performance of contract has become difficult in many cases, he said and added that in Bangladesh garments and textiles sectors are the worst hit areas during the ongoing pandemic. He opined that applicability of force majeure clause will largely depend upon awareness of business concerns, bankers and lawyers as well as coordinated response from the central bank and the concerned ministries. He offered BIAC's facilities under its virtual rules of arbitration and mediation to explore how contracts between the parties can be dealt with.

Taking part in the discussion, Miran Ali, Director, Bangladesh Garment Manufacturers and Exporters Association (BGMEA) said that contracts are not always negotiated with the foreign buyers properly which are based on trust and we have lack of negotiation skills. Buyers seek confidence in the market despite all untoward situations and an underlined contract can not be undermined, Ali opined. It is high time for the banking sector to determine that no contract should be without a logical dispute resolution clause, he maintained.

Rahel Ahmed, Managing Director and CEO of Prime Bank Ltd said that invocation of force majeure clause is very rare and banks are bound to go by terms and conditions of the Letter of Credit; either of the contracting parties can only enforce Force Majeure clause. He said that the central bank gave some regulatory relaxations to support banks. But COVID-19 should be covered under a force majeure clause, which has not been seen so far, Ahmed observed.

Dr. Md. Anowar Zahid, Dean, Faculty of Laws, Eastern University, saw the issue from an academic point of view and explained implications and possible application of Force Majeure clause in COVID-19 situation. Dr. Zahid opined that force majeure clause in commercial contracts on a COVID-19 plea is not applicable clause, it will only depend on special circumstances to be determined by courts of law.

Barrister Margub Kabir, Advocate of the Supreme Court of Bangladesh in his deliberations categorised that force majeure is something which stops or hampers performance of contracts and no contract can be terminated invoking Force Majeure clause due to economic hardship of a party.

Iram Majid, Director, Indian Institute of Arbitration and Mediation (IIAM) took part in the webinar as one of the panelists and opined that applicability of Force Majeure clause is case specific and courts are to determine whether either of the contracting parties can enjoy the benefit of such clause in COVID-19 situation.

"The recommendations from this webinar will help our exporters to negotiate with foreign buyers more efficiently," said the statement.

Director of BIAC M A Akmall Hossain Azad made introductory remarks.

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