4 years ago

RMG needs to take some urgent actions right now

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Readymade Garment (RMG) industry of Bangladesh needs to take some urgent actions right now to secure orders of export in hand or obtain future orders. There are possibilities that now or after the COVID-19 regime, the foreign parties may say to Bangladeshi exporters that since they couldn't deliver orders on time or are likely to delay in delivering, contract with them is snapped. The possibility is that some of the foreign buyers will cancel existing contracts with Bangladesh exporters and will make contracts with China or other countries and buy goods from them at a quicker time and cheaper rate, as China has already reportedly contained the pandemic. Then the Bangladeshi parties will have no other option but to engage with them to secure their existing contracts or future possible contracts. If the foreign parties cancel the contracts with their Bangladeshi counterparts, Bangladeshi parties first can take resort to Negotiation (discussion aimed at reaching an agreement), then Mediation (the process of talking to two separate people or groups involved in disagreement to try to help them to agree or find a solution to their problems) or Arbitration (the procedure of using an arbitrator to settle a dispute).

 Whatever step is taken by the Bangladeshi party/s to resolve the dispute, they will have to take resort to some major legal defences for the delay that happened. Though the foreign parties know very well that the delay was due to  the pandemic, they will try to find excuses that Bangladeshi parties could mitigate the delay, but they did not take such steps to mitigate.  

To combat possible future disputes, Bangladeshi parties need to take some steps just now. Some of the defences are: Force Majeure, Doctrine of Frustration or Doctrine of Material Adverse Change.  Bangladeshi parties need to follow the following steps:

The first step is to look at whether there is any Arbitration clause or Mediation clause in the Contract or LC. If there is any, then Bangladesh party would be able to take the dispute to 'International Mediation' or 'International Arbitration'. If there is none, there is no bar to proceed on with 'Negotiation'. 'International Arbitration' may be conducted under 'United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards' (popularly known as 'New York convention') and 'International Mediation' may be conducted under 'The United Nations Convention on International Settlement Agreements Resulting from Mediation' (popularly known as the 'Singapore Convention').

Next step is to look at whether there is any clause named 'Force Majeure clause' in the Contract or LC. If this clause is not stipulated in the contract, we will not be able to take this as safeguard/defence. If there is any arbitration, the arbitral tribunal will only consider Force Majeure as a defence once this is stipulated in the contract. 

If there is no such 'Force Majeure clause' in the contract, we may rely on the 'doctrine of frustration'. To prove this defence, the requirements are to prove that the event was unenforceable, was not the fault of any of the parties and there was supervening impossibility to perform the contract. Further, if there is any clause in the contract named, Material Adverse Change (MAC Clause), any of the parties may terminate the contract. 

If there is a 'Force Majeure clause' in the contract or LC, we will have to look at whether this clause contains any defence such as 'epidemic' or 'pandemic'.  The word 'pandemic' in the Force Majeure clause is very unlikely to exist as a pandemic like COVID-19 comes at intervals of hundreds of years. At least the word 'epidemic' will be closer for this defence. If none of the words are present, we can seek for the defence by broader interpretation of the term 'Force Majeure clause'. A force majeure event refers to the occurrence of an event which is outside the reasonable control of a party and which prevents that party from performing its obligations under a contract. In the Singaporean case 'RDC Concrete Pte Ltd v Sato Kogyo (S) Pte Ltd and Another Appeal' [2007] SGCA 39, Act of God was termed as Force Majeure. A party affected by such an event of force majeure will typically be relieved from performing the obligation affected for the duration and to the extent affected. Then the Bangladesh party may be able to take the defence and can secure order/contract based on this defence.

To take the advantage of defence of Force Majeure, the Bangladeshi party has to show that the pandemic only caused the delay and they have taken all steps to mitigate the loss. Amid the lockdown, BGMEA has brought all the workers to Dhaka. This step was a mistake as it may help to spread coronavirus, but this can be an evidence of mitigation taken by the BGMEA. But the strikes at the street by the workers for their salary may hamper to get the defence.

Just now, Bangladesh government and BGMEA should continue dialogues with the foreign buyers.  News from an unauthentic source gives us hope that, giant organisations such as H&M, Marks & Spencer will continue business with Bangladesh. Bangladeshi private parties should also correspond with the foreign parties through email, Skype or through other means and should assure them that Bangladesh will perform the contracts expeditiously and without making any unreasonable delay. These correspondences will help Bangladesh at the time of future disputes, if they arise. Bangladeshi parties need to know that the WHO declared COVID-19 as a pandemic on March 11, 2020. Bangladesh may seek extension of reasonable time referring to the principles of Force Majeure or frustration or MAC and once they get some reasonable time, they should try their best to deliver by that time. These actions are to inform the foreign parties that we know our legal stand if any future dispute arises or if the existing orders are cancelled. Bangladesh even can offer reduced price of goods and can take the policy that they will not make any profit in next two/three consignments.

Bangladesh government should be careful that the privileged loan facilities are not consumed by giant sharks of the industry. Policy facilitating delayed payment of back-to-back LC is a good one.   We need to rethink the lengthy export processes and manufacturing cost. Technology dependency is a must for future. Bangladeshi parties need to be careful in future in forming the terms of contract.

Khandoker  M. S. Kawsar is a Barrister and the Regional Representative (North Asia) of ICC Young Arbitrators Forum (ICC YAF). 

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