The pandemic resulted in a great many order cancellations and poor purchasing behavior of many brands and retailers. However, these problems have existed for a long time; the pandemic only revealed the harsh realities of the sector. As a result STTI has been working towards
“Deliver a major contribution towards purchasing practices that allow textile and garment manufacturers to run a socially, economically and environmentally sustainable operation, taking strongly into account the concept of commercial compliance.”
Part of this contribution is a substantive conversation around recourse in case such poor purchasing behaviour is seen. During the pandemic many producers did not have any recourse: many purchase orders are oral contracts, and written contracts are typically one-sided and shift the costs of cancellation to producers.
And where do you go if there is a dispute? Local courts are too costly and take too long; enforcement of court orders is inconsistent and not very effective; and arbitration centres, which could be faster, are usually far away. Anyway, going to litigation disrupts commercial relations: what’s the point of winning a case if you lose your biggest client?
To answer this questions we want to offer a few resources to producers and sector stakeholders a like. First a quick dictionary on the topic of purchasing practises and supplier complaints.
Mediation: Mediation is voluntary and non-adversarial ways of resolving disputes. If there is a disagreement about a contract and bilateral negotiations don’t settle the dispute, parties engage the services of a third person. This mediator can be either an expert in the sector or a specialised mediator – to help them negotiate and come to agreement. Where mediation is available to disputing parties, about 80% of disputes are settled in this way. And parties typically continue their commercial relations.
Arbitration: Arbitration is a mandatory and binding form of private litigation. It has fewer rules than courts, and the arbitrators are more specialised in commercial transactions than domestic judges. As well, most countries are party to an international treaty that allows for enforcement of arbitration awards in one party that is issued in another party. But, arbitration requires the involvement of lawyers, which is costly; it is adversarial, so it disturbs the business relationship. And many arbitration centres are far away from producers.
STTI would like to provide some resources for the avenues that a producer would wish to take, mediation and/or arbitration. Information and or access on funding can be found via the Impact funding grant program, The rise of impact litigation funds, Aristata capital, The Power of Litigation Funding or the Asian Dialogues online seminar on Arbitration. A number of resources online provide a directory for lawyers in the region, for example Legal 500 directory. Should you look for some commercial arbitration centers you may contact the International Chamber of Commerce; Singapore International Arbitration Centre; Hong Kong International Arbitration Centre; London Centre for International Arbitration; and the International Centre for Dispute Resolution.
The textile sector in many topics is a pioneering sector. As contractual disputes always have existed and will most likely remain, the sector was one of the early adopters of sector-specific mediation and arbitration centres. However due to the cost and time involved the sector that pioneered international commercial arbitration eventually abandoned it.
STTI recognised that the pandemic highlighted long-standing problems in the sector and existing institutions were not up to the task. But it is time for the sector to lead the way in innovative institutions again. Thus STTI explores the feasibility of an establishment of a specialised venue comprising brands, purchasers, and producers – and supported by participating governments – with the following three mandates:
- Conciliation and mediation of commercial or contractual disputes with emphasis on expert-driven, non-adversarial processes, and arbitration with mix of lawyers and sectoral experts as last resort.
- A secretariat with a light footprint with the responsibility and mandate to:
– collect and analyse data, and engage in trilateral convening
– enter into agreements for venue use with national arbitration centres
– engage in outreach, technical assistance, and training.
- A complaints or ombuds mechanism to hear and resolve non-contractual and third-party complaints.
BENEFITS TO PRODUCERS
Resolution and maintaining relations: experience in sectoral and international mediation frameworks is that 80% of disputes are resolved through mediation, and in 10% of cases, mediation narrows down considerably the issues in dispute, making arbitration less complex and disruptive.
Efficient: mediation timeframes are significantly shorter than arbitration and litigation. Depending on the complexity of a dispute, mediation can result in effective resolution within 30-60 days.
Cost-and-resource effective: there are different models of “mediation” services. Some are funded through membership subscriptions, others on as-use basis. Mediation typically costs less than $2500, or about 10% of the costs of arbitration. This figure does not include the commitment of internal resources by a company to managing a dispute: for mediation, this would be about 30 days, for arbitration, on average 22 months.
COMPLAINTS MECHANISM PILOT
STTI is exploring the creation of an industry complaints mechanism potentially leading up to dispute resolution in several ways. We have commissioned research on the modalities of such a system. But through are our upcoming participation in an upcoming pilot with a group of large brands and retailers, we also will be able to directly trial a complaints mechanism. In this pilot, which will last for three months, manufacturers will be able to lodge complaints specifically on fair payment terms and on responsible exit. More information to follow soon!
Due to the exploration phase of the pioneering approach we are not yet able to issue any recommendations to brands, purchases and producers at this time. Nevertheless, we canoffer some resources on the alternatives right now.
- Factsheet GIZ – summary study by Rambod Behboodi
- Study of Dispute Resolution in the Textile Sector by Rambod Behboodi
- Impact funding grant program
- The rise of impact litigation funds
- Aristata capital
- The Power of Litigation Funding
- Asian Dialogues online seminar on Arbitration
- Legal 500 directory
- International Chamber of Commerce
- Singapore International Arbitration Centre
- Hong Kong International Arbitration Centre
- London Centre for International Arbitration
- International Centre for Dispute Resolution