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Irresponsible Exit: Exercising Force Majeure Provisions in Procurement Contracts

Published online by Cambridge University Press:  14 December 2020

John F. SHERMAN III Open the ORCID record for John F. SHERMAN III [Opens in a new window]
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Abstract

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Keywords

COVID-19Force majeurePandemicProcurement contractsSupply chain
Type
Developments in the Field
Information
Business and Human Rights Journal , Volume 6 , Issue 1 , February 2021 , pp. 127 - 134
Copyright
© The Author(s), 2020. Published by Cambridge University Press

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Footnotes

Conflicts of interest: The author performs work on a pro bono basis for Shift, a U.S. 501(c)(3) mission-driven nonprofit organization which, among other things, provides advice to fee-paying clients on busines and human rights issues.

*

The author is General Counsel and Senior Advisor to Shift, is a Senior Program Fellow at the Corporate Responsibility Initiative of the Center for Business and Government at the Harvard Kennedy School, and is an Executive Fellow at the Hoffman Center for Business Ethics at Bentley University. This piece reflects his personal views only.

References

1 Corina Ajder et al, European Center for Constitutional and Human Rights (ECHHR), ‘Garment Supply Chains in Intensive Care? Human Rights Due Diligence in Times of (Economic) Crisis’ (2020), https://www.ecchr.eu/en/publication/garment-supply-chains-in-intensive-care/ (accessed 30 October 2020).

2 Anna Triponel and John Sherman, ‘Moral Bankruptcy During Times of Crisis: H&M Just Thought Twice Before Triggering Force Majeure Clauses with Suppliers, and Here’s Why You Should Too’ (1 April 2020), https://www.business-humanrights.org/en/blog/moral-bankruptcy-during-times-of-crisis-hm-just-thought-twice-before-triggering-force-majeure-clauses-with-suppliers-and-heres-why-you-should-too/ (accessed 30 October 2020).

3 Human Rights Council, ‘Guiding Principles on Business and Human Rights: Implementing the United Nations Protect, Respect and Remedy Framework’, A/HRC/17/31 (21 March 2011), https://www.ohchr.org/Documents/Publications/GuidingPrinciplesBusinessHR_EN.pdf (accessed 30 October 2020). For a brief history of the background, content and uptake of the UNGPs, see Sherman, John F III, ‘Beyond CSR: The Story of the UN Guiding Principles on Business and Human Rights’ in Lindsay, Rae and Martella, Roger (eds.), Corporate Social Responsibility – Sustainable Business: ‘Environmental, Social and Governance Frameworks for the 21st Century’ (Wolters Kluwer, 2020), ch 20, sec 20.04, available at https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3561206 (accessed 28 November 2020)Google Scholar.

4 McDermott Will & Emery, ‘Force Majeure and COVID-19: Frequently Asked Questions’ (March 2020), https://www.mwe.com/insights/force-majeure-and-covid-19-frequently-asked-questions/ (accessed 30 October 2020).

5 International Labor Organization, Integrated Strategy on Fundamental Principles and Rights at Work, 2017–2023 (2019), https://www.ilo.org/wcmsp5/groups/public/@ed_norm/@ipec/documents/publication/wcms_648801.pdf (accessed 30 October 2020).

6 Mark Anner, ‘Abandoned? The Impact of Covid-19 on Workers and Businesses at the Bottom of Global Garment Supply Chains’ (20 March 2020), https://www.workersrights.org/research-report/abandoned-the-impact-of-covid-19-on-workers-and-businesses-at-the-bottom-of-global-garment-supply-chains/ (accessed 30 October 2020).

7 Mark Anner, ‘Unpaid Billions: Trade Data Show Apparel Order Volume and Prices Plummeted through June, Driven by Brands’ Refusal to Pay for Goods They Asked Suppliers to Make’, Center for Global Workers Rights) (6 October 2020), https://www.workersrights.org/wp-content/uploads/2020/10/Unpaid-Billions_October-6-2020.pdf (accessed 30 October 2020).

8 Andy Sumner et al, ‘Estimates of the Impact of COVID-19 on Global Poverty’, https://www.wider.unu.edu/publication/estimates-impact-covid-19-global-poverty (accessed 30 October 2020).

9 As of October 2020, H&M had been joined by 20 other companies who publicly committed to pay in full on orders completed and in production, Workers Rights Consortium, ‘Covid-19 Tracker: Which Brands Are Acting Responsibly toward Suppliers and Workers?’ (October 2020), https://www.workersrights.org/issues/covid-19/tracker/ (accessed 30 October 2020).

10 Mei-Ling McNamara, ‘Anger at Huge Shareholder Payout as US chain Kohl’s Cancels $150m in Orders: Retailer Paid $109m in Dividends Just Weeks After Cancelling Clothing Orders, Leaving Suppliers in Bangladesh Facing Financial Crisis’ (June 2020), https://www.theguardian.com/global-development/2020/jun/10/anger-at-huge-shareholder-payout-as-us-chain-kohls-cancels-150m-in-orders (accessed 30 October 2020). As of October 2020, about 19 companies, including Kohl’s, were reported not to have committed to pay in full for orders completed and in production. See Workers Rights Consortium, note 9.

11 OECD, ‘OECD Due Diligence Guidance for Responsible Business Conduct’ (2018), http://mneguidelines.oecd.org/OECD-Due-Diligence-Guidance-for-Responsible-Business-Conduct.pdf (accessed 30 October 2020).

12 Business & Human Rights Resource Centre, ‘France: Natl. Assembly Adopts Law Imposing Due Diligence on Multinationals to Prevent Serious Human Rights Abuses in Supply Chains’ (14 February 2017), https://www.business-humanrights.org/en/france-natl-assembly-adopts-law-imposing-due-diligence-on-multinationals-to-prevent-serious-human-rights-abuses-in-their-supply-chains (accessed 30 October 2020).

13 Joseph Wilde-Ramsing and Manon Wolfkamp, MVO Platform, ‘Going Dutch: Four Things You Should Know About the Netherlands’ New Law to Eliminate Child Labour’ (3 June 2019), https://www.business-humanrights.org/en/blog/going-dutch-four-things-you-should-know-about-the-netherlands-new-law-to-eliminate-child-labour/ (accessed 30 October 2020).

14 Stéphane Brabant et al, ‘2021 Law Will Make Human Rights Due Diligence Mandatory for EU Companies’ (May 2020), https://www.business-humanrights.org/en/latest-news/2021-law-will-make-human-rights-due-diligence-mandatory-for-eu-companies/ (accessed 30 October 2020).

15 Directorate-General for External Policies, ‘Human Rights Due Diligence Legislation – Options for the EU’ (June 2020), https://www.europarl.europa.eu/RegData/etudes/BRIE/2020/603495/EXPO_BRI(2020)603495_EN.pdf (accessed 30 October 2020).

16 See, e.g., Samantha Lamas, ‘Can Interest in ESG Investing Hold Up During a Pandemic? Morningstar’s Latest Behavioral Research Shows That Interest in Sustainable Investing Persists Despite the Coronavirus’ (26 August 2020), https://www.morningstar.com/articles/998953/can-interest-in-esg-investing-hold-up-during-a-pandemic (accessed 30 October 2020); Sabri Ben-Achour et al, ‘Sustainable Investing is Actually Up During the Pandemic Recession’ (3 August 2020), https://www.marketplace.org/2020/08/03/sustainable-investing-esg-covid-19-social-environmental-causes/ (accessed 30 October 2020); Investment News, ‘ESG Funds Outperformed Through the Pandemic, S&P Finds’ (14 August 2020), https://www.investmentnews.com/esg-funds-outperformed-through-pandemic-sp-finds-196098 (accessed 30 October 2020).

17 Fiona Reynolds and John Ruggie, ‘What Institutional Investors Need to Know About the ‘S’ in ESG, Responsible Investor (22 October 2020), https://www.responsible-investor.com/articles/f’iona-reynolds-and-john-ruggie-what-institutional-investors-need-to-know-about-the-s-in-esg (accessed 30 October 2020).

18 For example, the statement of 251 long-term investors representing US$6.4 trillion in assets under management with regard to the impact of the pandemic, ‘Investor Statement on Coronavirus Response’ (23 June 2020), https://www.domini.com/uploads/files/INVESTOR-STATEMENT-ON-CORONAVIRUS-RESPONSE-06.23.2020.pdf.

19 McKinsey Global Institute Report, ‘Risk, Resilience, and Balancing in Global Value Chains’ (6 August 2020), https://www.mckinsey.com/business-functions/operations/our-insights/risk-resilience-and-rebalancing-in-global-value-chains# (accessed 30 October 2020).

20 John G Ruggie, ‘Comments on Thun Group of Banks Discussion Paper on the Implications of UN Guiding Principles 13 & 17 in a Corporate and Investment Banking Context’ (21 February 2017), https://business-humanrights.org/sites/default/files/documents/Thun%20Final.pdf (accessed 30 October 2020).

21 Mark Anner, Abandoned? The Impact of Covid-19 on Workers and Businesses at the Bottom of Global Garment Supply Chains (27 March 2020), p 7, https://www.workersrights.org/wp-content/uploads/2020/03/Abandoned-Penn-State-WRC-Report-March-27-2020.pdf (accessed 30 October 2020).

22 Malena Wåhlin, Swedwatch, ‘No Business, No Rights: Human Rights Impacts When Land Investments Fail to Include Responsible Exit Strategies. The Case of Addax Bioenergy in Sierra Leone’ (8 November 2017), https://swedwatch.org/wp-content/uploads/2017/11/86_Sierra-Leone_NY.pdf (accessed 30 October 2020).

23 McDermott Will & Emery, note 4.

24 IHRB, ‘Respecting Human Rights in the Time of the Covid-19 Pandemic: Examining Companies’ Responsibilities for Workers and Affected Communities’ (April 2020), https://www.ihrb.org/focus-areas/covid-19/report-respecting-human-rights-in-the-time-of-covid19 (accessed 30 October 2020).

25 Better Buying Institute, ‘Better Buying: Special Report. Guidelines for “Better” Purchasing Practices Amidst the Coronavirus Crisis and Recovery’, pp 2–3 (2 April 2020), https://betterbuying.org/wp-content/uploads/2020/04/Better-Buying-Special-Report-COVID-19-Guidance-for-Brands-and-Retailers.pdf (accessed 30 October 2020).

26 John F Sherman, III, ‘The Contractual Balance Between “Can I?” and “Should I?”: Mapping the ABA’s Model Supply Chain Contract Clauses to the UN Guiding Principles on Business and Human Rights’ (11 April 2020), HKS Corporate Social Responsibility Initiative Working Paper No. 55, https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3574811. See also Sarah Dadush, ‘Contracting for Human Rights: Looking for Version 2.0 of the ABA Model Contract Clauses’ (2019) 68 American University Law Review, http://www.aulawreview.org/contracting-for-human-rights-looking-to-version-2-0-of-the-aba-model-contract-clauses/ (accessed 30 October 2020).

27 Ibid.