Why Bangladesh needs force majeure clauses
RMG retailers in the West rely on timely shipments to fulfil time-sensitive customer orders that impose penalties on Bangladeshi garments exporters for late delivery. Bangladesh is not a party to the UN conventions on international sales contracts to safeguard the interests of exporters.
In the coronavirus situation, some Western buyers of RMG expressed that they are in economic hardship, and there is no space in the warehouses. They are asking for either cancellation of orders or delayed/deferred shipment until their warehouses are vacant to intake the cargo.
Usually, international supply chain contracts have a force majeure clause that excuses or extends performance upon the occurrence of certain unforeseen contingencies. But the RMG supply contracts hardly contain any force majeure clauses. In many cases, even RMG supplies have no formal contract.
In Bangladesh, there is no statute that directly governs the doctrine of force majeure or gives effect to it in express terms. Under English Common Law, the applicability of force majeure is purely contractual. Therefore, Bangladeshi exporters may also rely on the parties’ agreement and the respective terms of the contract entered into between the contracting parties.
Under public procurement law, clause 38-41 of General Conditions of Contract (GCC) of Standard Tender Document (STD), PG-4 published by the Central Procurement Technical Unit (CPTU) at the Implementation, Monitoring, and Evaluation Division IMED of the Ministry of Planning defines the modality of application of the force majeure clause. This document is applicable for international government purchase. The rule has defined the force majeure in our jurisdiction.
If a contract does not have a force majeure clause, the RMG exporters may find some comfort in the doctrine of commercial impracticality codified in some laws. It is not easy to take advantage. The first question is which law applies. The contract may specify the origin of the laws to be applicable for the contract. There is the other challenge of enforcement of judgment of one legal system in other jurisdictions. In order to meet the challenges of different laws in different jurisdictions, there are some international conventions to resolve these issues. The United Nations Convention on Contracts for the International Sale of Goods (CISG) governs supply agreements and international sales contracts between countries that have adopted the UN convention, unless another governing law is expressly stated in the contract and/or the CISG is expressly excluded.
The Principles of International Commercial Contracts (PICC) of 2010 is another document prepared by the UNIDROIT that intends to assist in the harmonization of international laws used in commercial contracts.
Most of Western countries are parties to these UN conventions. If a contract is governed by the laws of Western countries and does not explicitly disclaim application of the CISG or PICC, these conventions are deemed to supplant that laws of the countries ratified and adapted, since the CISG is a treaty that overrides national law. If, on the other hand, the contract is governed by the law of another country, the exporters must look to the laws of that country. Unfortunately, Bangladesh has yet to ratify both the conventions: The United Nations Convention on Contracts for the International Sale of Goods (CISG) and the Principles of International Commercial Contracts (PICC) are missing the opportunity to avail the force majeure under these conventions.
Therefore, in the absence of an appropriately worded force majeure clause in a contract, the parties in Bangladesh may have the option of relying on the existing provisions of Bangladeshi law -- in particular, Section 56 of the Act of 1872 -- in order to excuse itself from the timely performance of their respective obligations under the contract. It is common practice in international commerce to insert a force majeure clause in sales contracts that precisely defines the applicable circumstances. A properly drafted force majeure clause has the potential to minimize a dispute. The parties can agree on the contingencies that will excuse performance. If the contingencies are mentioned clearly, the party bearing the economic loss is less likely to bring legal action.
Other countries that have decided to avoid any ambiguity on the subject have already issued circulars clearly stating that Covid-19 is to be treated as a force majeure event. For example, the government of India has issued a notice on February 19, 2020, that Covid-19 was a natural calamity and facilitated the force majeure clauses in contracts for such events. The China Council for the Promotion of International Trade (CCPIT), a quasi-governmental entity, issued a few thousand force majeure certificates to exempt Chinese companies from their contractual obligations. These certificates are proof of the existence of relevant events that may constitute force majeure and impinge the company’s capacity to perform the contract. These certificates, however, are not legal documents and do not have direct executive or legal effects. They only attest the factual details instead of certifying that those events are indeed force majeure in law.
Bangladeshi RMG exporters should sign contracts of export with properly drafted clauses of force majeure, and the Bangladeshi government should ratify The United Nations Convention on Contracts for the International Sale of Goods (CISG) and The Principles of International Commercial Contracts (PICC) at an early date.
MS Siddiqui is a legal economist. He can be contacted at [email protected]