On 22 March, a Dutch Court found G-Star Raw (G-Star) liable for damages after cancelling capacity with its Vietnamese supplier Vert in 2021. The court’s decision was based on G-Star’s long-term relationship with Vert, the fact that G-Star represented the majority of Vert’s production, the foreseeability of the harm, G-Star’s code of conduct and the lack of measures by G-Star to mitigate the impact.
About the case
- In 2021, the Hong Kong and Vietnam based manufacturer Vert brought a legal case in the Netherlands against Dutch garment brand G-Star for losses due to cancelled orders during the Covid-19 pandemic from 2019-2021. Vert claimed US$ 17,550,453.44 in damages due to loss of turnover.
- According to the court, Vert was a long-term supplier of G-Star. In 2018, G-Star and Vert agreed to produce G-Star’s Whistler jackets exclusively with Vert from 2019 to 2021, an expected volume of 100,000 pieces per year. In 2021, G-Star did not place orders with Vert and instead placed an order for 56,000 Whistler jackets with a different supplier.
About the ruling
- On 22 March, the Court issued an interim judgement finding G-Star liable for damages. The exact damages are still being determined and will be calculated based on (i) loss of profit from the cancelled capacity (ii) missed regular orders (iii) missed orders from other clients and (iv) damages due to the closure of a factory.
- The Court gave the following rationale for its ruling.
- G-Star and Vert had a long-term relationship and G-Star filled almost all of Vert’s production capacity for years.
- G-Star committed to decent work in its code of conduct and knew that a large proportion of Vert’s employees worked partly or wholly on a piece rate basis and that this required a constant supply of work, otherwise the employees would be underpaid and look for other work.
- G-Star informed Vert that it would look for options to reduce redundancies in the factory but according to the court, it did not do that.
- There was a causal connection between G-Star’s actions and the damages suffered by Vert.
- The court found that it was irrelevant to the case that G-Star had not guaranteed 100,000 pieces per year and had not placed any purchase orders.
- The judgement is based on Dutch contract law.
- The ruling in the case against G-Star is significant because it goes beyond how the sector agreed to address cancelled orders resulting from the pandemic.
- In 2020, garment companies committed to pay for goods already in production in an agreement facilitated by the ILO and negotiated between the International Organisation of Employers, the International Trade Union Confederation, and IndustriALL Global Union.
- This generally meant that companies committed to pay for goods where a purchase order had been made. The agreement was endorsed by over 80 global businesses in North America and the EU as well as employers associations, including the International Textile Manufacturers Association and the Bangladesh Garment Manufacturers and Exporters Association (BGMEA). G-Star did not sign the agreement, but the agreement was generally recognised as the industry standard.
- In the court case, G-Star had not placed purchase orders for the goods cancelled and the goods were not in production, meaning that the Dutch court upheld a higher standard than the afore-mentioned industry agreement. The court stated that it did not feel that G-Star had cancelled orders because of the pandemic and we do not know if the court would have made a different ruling if G-Star had been a signatory to the above sector agreement.
- Companies will also want to be aware of the increasing broader pressure on company purchasing practices. For example, in March a case was filed by 20 garment sector unions and Asia Floor Wage Alliance (AFWA) and Global Labour Justice – International Labor Rights Forum with the US OECD National Contact Point against Nike related to cancelled orders. In April, shareholder activist group Tulipshare filed a shareholder proposal requesting that Nike issue a report on whether its policies, including in relation to responsible purchasing practices, effectively address its stated equity goals and human rights commitments.
This alert is not legal advice.