Legal Aspects of Procurement

What is it?

Healthcare procurement is an international affair and involves buying pharmaceuticals, medical supplies and medical equipment from a number of different countries. Each of these countries has its own legal practices and legislation relating to contracts. It is therefore important for procurement practitioners that trade internationally to be clear about which governing law applies to their contracts.

Although all countries’ laws are different, there are five common groupings which have a common legal ideology at their core.[1]

• The mixed common/civil law group. This comprises such jurisdictions as China, Japan, Jersey, Scotland and South Africa. All are anglicised by English common law.

Between them, these groupings cover more than 80 per cent of the world’s jurisdictions. Yet, for historical reasons, French and German law (with an emphasis on statutes and codes) are very different from English law (emphasising case law and precedence).

The law applicable to the contract will be the law chosen and nominated by the parties to that contract.   It is usual for the contract to state what applicable law governs it. If the contracting parties are based in different countries, they may benefit from a common international code of practice. This is where the United Nations Convention on Contracts for the International Sale of Goods (CISG) plays a part.

The CISG is a binding agreement or contract between nations. It establishes a set of rules governing certain aspects of the making and performance of everyday commercial contracts between sellers and buyers who have their places of business in different countries. By adopting it, a nation undertakes that it will treat the Convention's rules as part of its law.[2]

The purpose of the CISG is to make it easier and more economical to buy and sell goods (services are not included) in international commerce. Without the Convention, there is greater room for uncertainty and disputes. The sales law of one country often differs from that of another. In international transactions, there is often doubt about which nation's law applies. Where there is doubt about the rules that apply, the parties cannot be sure of their rights and obligations. Such uncertainty breeds inefficiency and ill will. The CISG provides a careful balance between the interests of the buyer and of the seller. It has also inspired contract law reform at the national level.[3]

The CISG contains rules governing the development and interpretation of international contracts for the sale of goods. It also provides rules governing obligations and remedies of the parties to such transactions. The CISG does not deprive sellers and buyers of the freedom to mould their contracts to their own requirements. Generally, one is free to modify the rules established by the Convention or to agree that the Convention is not to apply at all.[4]

Procurement practitioners are not expected to be legal experts. However, they need to have a general understanding of contract law, be aware of potential risks and be prepared to seek legal advice when necessary.

What does it look like?

 CISG MEMBER STATES

94 countries have ratified, acceded to, approved, accepted, or succeeded to the CISG.[5] However, there are some notable exceptions, such as the United Kingdom, the Middle East, most of Africa and Southern and Far East Asia. Twelve of the CISG countries are in Africa: Benin, Burundi, Cameroon, Egypt, Gabon, Lesotho, Liberia, Madagascar, Mauritania, Republic of Congo, Uganda, and Zambia.[6]

 How does it work in practice?

English contract law today is one of the most popular in the world and is widely used even in cases where the parties to the contract do not have geographical connection with Great Britain. This popularity is due to the high-level development of English legal doctrine, as well as effective case law, allowing parties to anticipate decisions in a case with a significant level of probability.[7]

Kenya, Nigeria and Ghana are the leading African contenders within this grouping.[8]

In Francophone Africa, The Organisation for the Harmonisation of Business Law in Africa (known by its French acronym of OHADA) was established in order to develop a common system more in line with French law. OHADA’s Mission is to harmonise business law in Africa in order to guarantee legal and judicial security for investors and companies in its member states. To date, seventeen countries are members of the OHADA: Benin, Burkina Faso, Cameroon, Central African Republic, Côte d’Ivoire, Congo, Comoros, Gabon, Guinea, Guinea Bissau, Equatorial Guinea, Mali, Niger, Democratic Republic of Congo, Senegal, Chad, and Togo.

Much of South African law is based on laws from other countries.  South African companies must be aware that agreeing to be bound by foreign law will result in, not only any conflict being resolved according to the foreign law, but also the actual deliberations will have to take place in the foreign legal system of courts, unless expressly stated otherwise.  The cost implications of this for a South African company are significant.[9]

It may be wise for a South African company to consider agreeing to be bound by whatever legislation is being proposed but to insist by way of compromise that an arbitration clause nominating that the rules and procedures of an international arbitration body based in South Africa be followed and inserted into the contract.  The result of this will be that all conflicts will be resolved by arbitration in South Africa (which is internationally recognised) subject to the law stated in the contract.  Holding the conflict proceedings outside the realms of the courts and in South Africa will mitigate the potential cost concerns significantly.

Even if the applicable foreign law is chosen in the contract, this is still subject to the overriding mandatory provisions of the law of the country where the contract is being performed.  This means that, no matter what is agreed in the contract, local statutory rights and obligations may be applicable as one cannot contract out of the law of that country.

Nigerian law is derived from four main sources. These are English law, Nigerian legislation, Nigerian case law and customary law; however only the first three sources are relevant to the subject of commercial law. The Courts, through interpretation, have created a body of legal principles which reflect the application of English law and concepts to Nigerian circumstances and within the limitations of Nigerian legislation. With the growth of foreign trade, a substantial part of commercial contracts now has a foreign element.[10]

[1] https://www.ibanet.org/Article/NewDetail.aspx?ArticleUid=1a3ef62c-4d40-4b25-8002-00e6b9e8224c

[2] https://www.cisg.law.pace.edu/cisg/guides.html

[3] https://uncitral.un.org/en/texts/salegoods/conventions/sale_of_goods/cisg

[4] https://www.cisg.law.pace.edu/cisg/guides.html

[5] https://treaties.un.org/Pages/ViewDetails.aspx?src=TREATY&mtdsg_no=X-10&chapter=10&clang=_en

[6] https://iicl.law.pace.edu/cisg/page/cisg-list-contracting-states

[7] https://iqdecision.com/en/general-principles-of-english-contract-law

[8] https://www.ibanet.org/Article/NewDetail.aspx?ArticleUid=1a3ef62c-4d40-4b25-8002-00e6b9e8224c

[9] https://www.dingleymarshall.co.za/law-and-jurisdiction-considerations-for-south-african-companies-contracting-with-an-international-company/

[10] https://www.mondaq.com/nigeria/contracts-and-commercial-law/763164/overview-of-general-commercial-laws-in-nigeria