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J U D G M E N
T
DR.
DATE-BAH, J.S.C.
The
facts
The Plaintiff
is a limited liability company
incorporated under the laws of
Ghana. It carries on the
business of waste collection,
disposal and management and also
provides landfill services. The
Defendant is a statutory body
whose existence as a District
Assembly was continued by the
Local Government Act 1993 (Act
462). By an agreement of 4th
December 1997, the Defendant
engaged the Plaintiff to render
waste disposal services,
including landfill services,
within the city of Accra. The
agreement was to last 7 years
from the date of its execution.
The agreement further provided
that both Parties had the option
of renewing it for a further 7
years. The Plaintiff averred
that it commenced work under the
agreement on 13 July 1999 and
continued to perform its
obligations under it until 29th
June 2001, when the Defendant
terminated the agreement by a
letter of that date. The
Plaintiff contends that this
termination constituted a breach
of contract and has therefore
brought this action, by a Writ
dated 25th June 2002,
claiming the following reliefs:
“(a) An
order compelling the Defendant
to pay to the Plaintiff the sum
of the equivalent in cedis of
US $ 10,207,718.51 at the
prevailing forex bureau rate on
the date of actual payment being
the cost of services provided by
the Plaintiff for the Defendant
pursuant to the Service
Agreement executed by the
parties on 4th
December 1997 less any amount
adjudged upon independent
valuation to be owing to the
Defendant for the use by the
Plaintiff of the Defendant’s
waste management depot.
(b)
Interest on the sum mentioned in
paragraph (a) above from June
28, 2001 until the date of
judgment;
(c)
Damages for breach of contract;
(d)
Loss
of profit;
(e)
Further or other relief;
(f)
Costs.”
The
Defendant, in response,
challenged the enforceability of
the agreement, pleading in its
Amended Statement of Defence
that the agreement was executed
under duress and in breach of
section 67(1) of the Defendant’s
Standing Orders and sections 39,
87 and 88 of the Local
Government Act, 1993. The
Defendant further contended that
the Memorandum of Understanding
which gave rise to the agreement
and the decision of the
Defendant to hold shares in the
Plaintiff Company was never
debated and approved by the
General Assembly of the
Defendant, as required by law.
The Defendant maintained that it
was not obliged to continue
operating under an illegal
contract which contained
unconscionable terms and
conditions. Furthermore, the
Defendant contended that the
agreement sued on could only
become effective after the
execution of the Financing
Agreement between the Ministry
of Finance and the Defendant, as
stated in paragraph 3 of the
Recitals of the Agreement and
defined in clause 1.16 of the
agreement, with prior
Parliaamentary approval and in
accordance with the Loans Act
1970 (Act 335). The Defendant
also pleaded in its Amended
Statement of Defence that prior
Parliamentary approval was
required for the grant of a
sovereign guarantee with respect
to all financial obligations of
the Defendant, but this had not
been obtained.
The statutory
provisions referred to above and
other related relevant statutory
provisions are set out below.
Section 39 of
the Local Government Act:
“(1) A
District Assembly shall have a
district tender board which
shall advise the Assembly on the
award of contracts in the
district that
(a)
are to
be financed exclusively from the
resources of the Assembly; or
(b)
have
been approved by the Government
and are not in excess of the
limits determined by the
Minister responsible for
Finance.
(2)
A
district tender board shall
comprise of the persons
determined by the Minister by
legislative instrument.
(3)
A
person appointed as a member of
a district tender board shall
within three months after the
appointment, declare the assets
of that person to the
Auditor-General.
(4)
The
Minister shall, by legislative
instrument, prescribe the
procedure for the business of
the district tender boards.”
Section 87:
“(1)
Subject to this Act, a District
Assembly may incur the
expenditure necessary for, or
incidental to, the performance
of a function conferred on it
under this Act or any other
enactment, or by the instrument
by which it is established,
where the expenditure is
included in the approved budget
of the district for the relevant
year.
(2)
The
moneys received by a District
Assembly from the District
Assemblies Common Fund shall be
expended only on projects which
form part of the approved
development plan for the
district.”
Section 88:
“(1)
Subject to article 181 of the
Constitution and to subsection
(2), a District Assembly may
raise loans or obtain overdrafts
within the Republic of the
amounts, from the sources, in
the manner, for the purposes and
on the conditions approved by
the Minister in consultation
with the Minister responsible
for Finance.
(2) An
approval is not required where
the loan or overdraft does not
exceed twenty million cedis and
the loan or overdraft does not
require a guarantee by the
Government.”
Section 67(1)
of the Standing Orders of the
Defendant:
(1)
“For
the purpose of entering into any
contract necessary for the
discharge of its functions a
District Assembly shall have a
District Tender Board.
(2)
The
composition and procedures of
the District Tender Board shall
be as prescribed by the Minister
responsible for Local Government
by the legislative instrument.
(3)
The
District Tender Board shall
advise the Assembly on the award
of contracts in the District
which are to be financed
exclusively from the resources
of the Assembly or which have
been approved by the Government
and are not in excess of such
limits as may be set by the
Minister of Finance.”
Section 67 of
the Standing Orders is repeated
by section 2 of the Local
Government (District Tender
Boards) (Establishment)
Regulations 1995 (L.I. 1606)
Section of 6
of this L.I. 1606 requires every
District Assembly to establish a
Technical Evaluation Team to
evaluate Tenders.
Section 7 of
L.I. 1606 provides that the
functions of the Technical
Evaluation Team are to:
a)
“evaluate the responsiveness of
each tendered bid in the context
of conditions prescribed for the
tender
b)
evaluate the technical
feasibility of the tendered bid
c)
evaluate the financial
competitiveness of a tendered
bid
d)
make
summary recommendations
accompanied by a detailed
evaluation report to the
District Tender Board
concerned.”
Section 11 of
L.I. 1606 requires that every
tender be advertised and
prescribes what the tender
notice should specify.
Section 19(4)
of L.I. 1606 provides that:
“The District Tender Board shall
recommend the best evaluated
tender for the award of the
contract.”
Section 20 of
L.I. 1606 is in the following
terms: “The District Assembly
may ratify the award of the
contract if satisfied that all
the conditions of these
regulations have been complied
with.”
The Defendant
counterclaimed for the following
declarations:
a)
“A
declaration that the procedure
adopted in awarding the Contract
to the Plaintiff was improper,
irregular, against public policy
and illegal as being in
contravention of the 1992
Constitution, Local Government
Act, 1993 (Act 462) Loans Act
1970 (Act 335) and Order 67 of
the Defendants’ Standing Orders
and therefore the Agreement is
null and void.
b)
A
declaration that the lack of
Parliamentary approval for the
financing agreement between the
Ministry of Finance and the
Defendants under the Loan
Agreement and under Clause 13.1
rendered the Service Agreement
ineffective, unenforceable and
therefore null and void.
c)
A
declaration that Plaintiff
Company was formed purposely for
the award of the contract with
the Defendants resulting in
conflict of interest which
improperly benefited some
shareholders, staff and agents
of the Plaintiff.
d)
A
declaration that monies
transferred abroad by the
Plaintiff were in contravention
of the Ghana Investment
Promotion Centre Act, 1994 (Act
478).
e)
A
declaration that the notice of
the purported Board meeting held
on 19th December,
2001 which gave rise to this
Suit was improper and in
contravention of the Companies
Code, 1963 (Act 179).”
In the
alternative, the Defendant
counterclaimed for an order that
the Plaintiff should renegotiate
the clauses that were inimical
to the Defendant, including but
not limited to those relating to
tonnage fees. It also sought an
order that the Plaintiff should
pay for the use of the
Defendant’s vehicles, equipment,
offices, Depot and landfill
sites and for the cost of the
Defendant’s spare parts, garage
tools, office equipment and
furniture in the Plaintiff’s
possession. It also claimed
interest on any amount due from
the Plaintiff to it and an order
that the Plaintiff should
reconcile its accounts with the
Defendant.
The Plaintiff
filed the following issues for
trial with its Summons for
Direction and they were accepted
by the High Court:
a)
“Whether or not the Agreement of
4th December, 1997
executed by the parties herein
(“the Agreement”) was signed by
the Defendant under duress;
b)
If the
Agreement was signed by the
Defendant under duress whether
the same becomes void or
voidable;
c)
Whether or not the Agreement was
executed in breach of Section
67(1) of the Defendant’s
standing orders;
d)
Whether or not the Agreement was
executed by the parties in
breach of Sections 39, 87 and 88
of Act 462;
e)
If the
Agreement was executed by the
parties in breach of the Section
67(1) of the Defendant’s
Standing Orders and Sections 39,
87 and 88 of Act 462 whether or
not the Agreement is thereby
void or becomes voidable;
f)
Whether or not the Defendant can
lawfully rely on the breach by
it of its own Standing Orders as
a ground for terminating the
Agreement;
g)
Whether or not the Defendant can
rely on a breach of sections 39,
87 and 88 of Act 462 as a ground
for terminating the Agreement;
h)
Whether or not Sections 67(1) of
the Defendant’s Standing Orders
and Sections 39, 87 and 88 of
Act 462 are applicable to the
Agreement;
i)
Whether or not the termination
of the Agreement by the
Defendant was lawful;
j)
Whether or not the Defendant is
estopped by conduct from denying
the validity of the Agreement;
k)
Whether or not Plaintiff paid
and/or made provision for user
fees for the Defendant’s
vehicles in accordance with the
Agreement;
l)
Whether or not the Plaintiff
suffered loss and damage as a
result of the termination by the
Defendant of the Agreement;
m)
Whether or not the Plaintiff
submitted invoices during the
currency and after the
termination of the Agreement by
the Defendant;
n)
Whether or not the Plaintiff is
entitled to the reliefs indorsed
on its Writ of Summons;
o)
Whether or not the Defendant is
entitled to its counterclaim;
p)
Any
other issues arising out of the
parties’ pleadings.”
The
additional issues filed by the
Defendant after it had been
granted leave to amend its
original defence and
counterclaim were also admitted
by the High Court for trial.
They were:
a)
“Whether or not the Agreement of
4th December, 1997
could only become effective upon
the execution of the Financing
Agreement referred to in
paragraph 3 of the recitals as
defined in Clause 1.16 of the
Agreement with prior
Parliamentary approval.
b)
Whether or not Parliamentary
approval was a condition
precedent to the enforcement of
Clause 13.1 of the Agreement.
c)
Whether or not people who
purported to transfer the
Defendants monies paid on
account had the capacity to do
so.
d)
Whether or not the notice of the
purported Board meeting held on
19th December, 2001
was properly issued and served
on the Defendants in compliance
with the Companies Code, 1963.”
All these
issues were set down for trial
before His Lordship Justice Ofoe
at the Fast Track High Court in
Accra from 30th
October 2003. At the conclusion
of the trial, the learned trial
judge came to the following
significant conclusions.
He held,
after assessing the evidence
adduced at the trial, that the
agreement was not executed under
duress.
Regarding
compliance with the statutory
provisions set out supra,
he said (at p. 366 of the
Record) that:
“The Contract
Exhibit H was executed in utter
disregard to these regulations.
It was only the then Chief
Executive of AMA and a few of
the technical men who proceeded
with this contract. The Chief
Executive personally carrying
around a contract document
soliciting for its review. The
Assembly to which the Executive
was responsible was not aware
of the Service Contract. The
memorandum of Understanding
which was signed by AMA and
which was a forerunner to the
Service Contract was signed on
the 3rd of July,
1997. The Service Contract
itself was signed on on 4th
December, 1997. Between the 30th
July 1997 and 4th
December, 1997, what prevented
Mr. Amarteifio from putting the
matter of Garbage Collection
Disposal and Landfill Services
of Solid Waste before the
Assembly? He gave the answer.
It is that the Assembly will
reject it. So we have a
situation where AMA as a body
knew nothing about the contract
and those who knew of it found
themselves under some form of
pressure to enter the said
contract and therefore did not
give it the needed evaluation
before executing it.”
Ofoe J. went
on (at p. 368 of the Record) to
make a finding of illegality in
the following words:
“Are we not
here concerned with the
plaintiff, a company, having
entered into a contract in
breach of rules and regulations
of a state organization and
therefore the country and
against public policy? Is it
being contended that a company
like the plaintiff company has
no duty knowing the laws of
Ghana before doing business in
Ghana? I am of the opinion that
such an assertion will be
violative of our socio-economic
and legal order. It is expected
and it is my view that a company
operating in Ghana will seek
legal advise (sic) in every step
necessary in its business
dealing. Where it enters into
any business relations in
violation of Ghanaian Laws such
that certain incident of the
relationship cannot be legally
sustained the company stands to
suffer accordingly. The
contract between the plaintiff
and the defendant I find
offensive and against public
policy. On grounds of public
policy this is a contract that
should be frowned upon and
categorized as illegal. But
from the common law authorities
it is not all illegal contracts
that are unenforceable.”
The learned
trial judge then went on to
enforce certain of the
obligations in the contract that
he had declared illegal. Ofoe
J. said (at p. 370 of the
Record):
“On the
evidence I do not see the
plaintiff in any gross wrong
entering into negotiations and
subsequent contract, Exhibit
‘H’, with the defendants. I do
not also see any gross wrong by
the plaintiff in the performance
stage of the contract. It is my
view that this is case (sic)
the circumstances should
allow me to exercise my
discretion in making some award
to the plaintiff. I am talking
about discretion here because I
have found that the contract was
entered into in breach of
certain statutes and regulation
resulting in the defendant not
having had the opportunity to
discuss in full the tonnage
fee.”
Accordingly,
he exercised his discretion to
vary the fee payable under the
contract for every ton of waste
disposed of and to order the
payment of what was, in effect,
damages, on the basis of what he
considered to be a fair rate per
ton. The learned trial judge
did not adequately explain the
basis of the discretion he
purported to exercise. From the
context, however, it can be
deduced that he was purporting
to exercise a discretion to make
an award under the contract,
even though he had declared it
illegal. This is not an
orthodox common law position.
What the learned trial judge did
was in effect to purport to
revise the parties’ contract and
conclude a new amended contract
for them. This is anathema to
orthodox common law contract
doctrine.
It was not
surprising, therefore, that the
defendant appealed to the Court
of Appeal from the decision of
the learned trial judge. The
principal ground of appeal put
forward by the Defendant was
ground (h), which stated:
“That having
found that the contract was
entered into in breach of
statues (sic), the Learned Trial
Judge erred in law by failing to
declare the contract void and
unenforceable and erred further
by proceeding to enforce the
same in making awards in favour
of the Plaintiff/Respondent.”
The Court of
Appeal not only dismissed the
appeal, but even went further to
reverse the trial judge’s
finding that the contract sued
on was illegal. It is against
this decision that the Defendant
has lodged a further appeal to
this Court. The two main
grounds of appeal filed by the
Defendant before this Court are:
a)
“Having regard to the fact that
the contract which is the
subject matter of this dispute
was entered into in breach of
the provisions of the Local
Government Act, 1993, Act 462,
the Local Government (District
Tender Board)(Establishment)
Regulations 1995 L.I. 1606 and
the Standing Orders made by the
Minister of Local Government
pursuant to section 18(6) of the
Local Government Act 1993, Act
462, the Learned Court of Appeal
erred in law by holding that the
said contract was legal and
enforceable.
b)
Having
regard to the fact that the
contract which is the subject
matter of this dispute is one
that is impliedly prohibited by
the statutes referred to in
ground (a) above, the Learned
Court of Appeal erred in law on
its alternate holding that even
if the said contract was illegal
it was nevertheless
enforceable.”
Was the
contract sued on illegal?
The common
law doctrine of illegality of
contract is complex and its
effect often unjust.
Consequently, some common law
jurisdictions (such as New
Zealand, through its Illegal
Contracts Act 1970) have
undertaken legislative reform of
the effects of the doctrine.
The facts of this case pose
the issue whether this Court
should, in this jurisdiction,
wait for such legislative reform
or whether it would be
appropriate for this final Court
to take a decision which
constitutes a step in a stepwise
judicial reform of the law to
achieve a just result on the
facts of this case. The
doctrine of illegality of
contract offers a defence
against the enforcement of the
obligations of a contract. This
proposition is often expressed
in the latin maxims: ex turpi
causa non oritur actio; and
in pari delicto potior est
conditio defendentis.
However, the rules relating to
when a claim of illegality will
be upheld by the courts as such
a defence are complicated and
confusing. The particular
sub-set of these rules on
illegality which are relevant to
this case are those concerning
contracts rendered unenforceable
by statute. These rules, in
short, prescribe that a contract
that is expressly or impliedly
proscribed by statute is
illegal. These rules are in
fact not as difficult as some of
the other rules in the general
area of illegality of contract.
On the facts of this case, what
is difficult is not the
determination of whether the
contract sued on was illegal or
not. Rather, the difficulty is
with determining the legal
consequences of such
determination. It is with
regard to the effect of a
determination of illegality that
this Court will need to be
creative in order to serve the
needs of justice.
The facts
narrated above raise the issue
of whether the contract entered
into between the plaintiff
company and the defendant was
impliedly prohibited by
statute. In Curragh
Investments Ltd. V Cook
[1974] 1 WLR 1559 at p. 1563,
Megarry J (as he then was) said:
“[W]here a
contract is made in
contravention of some statutory
provision then, in addition to
any criminal sanctions, the
courts may in some cases find
that the contract itself is
stricken with illegality. … If
the statute prohibits the making
of contracts of the type in
question, or provides that one
of the parties must satisfy
certain requirements (eg by
obtaining a licence or
registering some particulars)
before making any contract of
the type in question, then the
statutory prohibition or
requirement may well be
sufficiently linked to the
contract for questions to arise
of the illegality of any
contract made in breach of the
statutory requirement.”
In this
passage, Megarry J. enunciates
what is generally known as the
doctrine of “implied statutory
prohibition.” While statutes
may expressly prohibit contracts
which infringe their provisions,
they will often also be silent
on the consequences for a
contract which is in breach of
any their provisions. In such
situations of silence, it
becomes a matter of statutory
construction for the courts to
determine whether the purpose of
the statute is such that the
statute impliedly prohibits a
contract whose formation,
purpose or performance entails a
breach of any of its
provisions. Harman LJ sheds
some light on this matter in
Shaw v Groom [1970] 2QB 504
at p. 512:
“The question
whether a statute impliedly
prohibits the contract in
question is one of public
policy, as to which, in his
speech to the House of Lords in
Vita Food Products Inc. v
Unus Shipping Co. Ltd [1939]
A.C. 277, Lord Wright said, at
p. 293:
“Nor must it
be forgotten that the rule by
which contracts not expressly
forbidden by statute or declared
to be void are in proper cases
nullified for disobedience to a
statute is a rule of public
policy only, and public policy
understood in a wider sense may
at times be better served by
refusing to nullify a bargain
save on serious and sufficient
grounds.”
The principle
would thus seem to be that,
before a statute is construed to
have impliedly prohibited a
contract, a purposive
interpretation of the statute
must have yielded a serious and
sufficient public policy reason
for the prohibition. The need
for a public policy reason for
the prohibition is the broad
criterion, in the application of
which the courts apply various
subsidiary tests, none of which
is by itself decisive. These
subsidiary tests engaged the
attention of counsel in this
case. For instance, counsel for
the Plaintiff expressed the
following thoughts in the
Statement of Case (paragraphs 66
and 67) that he filed for the
Plaintiff:
“66. The
question therefore as to whether
the contract would be held to be
impliedly prohibited would
depend on considerations of
public policy discernible from
several factors including but
not limited to the
interpretation of the statute
itself, its language, scope,
intent, the mischief sought to
be cured as well as the
consequences that arise from a
determination of illegality.
67. As
regards the principles of
statutory interpretation in this
area the authorities show that:
1.
Where
without expressly forbidding a
transaction the statute imposes
a penalty, the courts will
consider whether or not the
purpose of the penalty is merely
to impose a charge on the
wrongdoer or to prohibit the
contract. (Smith v Mawhood)
(1845) 14 M. & W 452.
2.
The
courts are slow to hold bargains
unenforceable where there is no
proportionality between the
breach of the statute and the
loss ensuing from
non-enforcement of the contract
(St. John Shipping case).
3.
The
courts have been sensitive to
situations where non-enforcement
leads to unjust enrichment of
the party who has failed to
perform his side of the bargain
(per Devlin J. in the St.
John Shipping case).
4.
There
has been appreciation by the
courts of the growth in the
volume of legislative control of
conduct and transactions, which
may lead to unwitting breach of
those legislation. In such
circumstances the courts would
endeavour to ensure that
additional forfeitures are not
created contrary to the
intention of the legislature (Shaw
v Groom).
5.
The
courts would aspire to enforce
legislation but would always
take into consideration the
effect of driving an innocent
party from the judgment seat as
a counter factor. (St. John
Shipping case).
6.
In all
these the single most important
question is whether or not the
legislation intends to prohibit
the transaction. (Cope v
Rowlands 91836) 2 M & W 149).”
This is quite
a helpful summary of some of the
subsidiary factors to be taken
into account by a court when
construing a statute to
determine whether it impliedly
prohibits a particular
contract. Relying on this
general summation, counsel for
the Plaintiff then proceeds to
argue that the statutory
provisions in issue in this case
did not impliedly prohibit the
agreement sued on by the
Plaintiff. His argument is set
out in paragraphs 71 to 78 of
the Statement of Case filed on
behalf of the Plaintiff.
71.
“On
the face of it, there is no
prohibition contained in these
provisions. They do not forbid
or seek to forbid the formation
and execution of a contract by
the Defendant/Appellant with any
third party to collect and
manage solid waste within the
Accra Metropolitan Area. All
that they seek to do are to
provide the basis for the
creation of District Tender
Boards in all the District
Assemblies and provide a general
framework within which they
would operate, including the
category of contracts that they
would operate in relation to.
They state clearly the role and
functions of the District Tender
Boards, which are purely
advisory. They do not create
the District Tender Boards into
the contract-awarding bodies of
the District Assemblies. The
advice of the District Tender
Board is not expressly made a
condition precedent to the award
of such contracts. Nor has it
been stated in the provisions
that the award of such contracts
or their validity was predicated
on approval by the District
Tender Board. If those were the
intentions of the law, they
would have been made clear, in
which case any contracting party
would have been put on the alert
and then would have been duty
bound to ascertain whether or
not any contract within the
stated categories has received
such approval or advice.
72.
What
would be the legal position if,
for instance, the District
Tender Board in recommending a
contract to be awarded, which in
fact is awarded, but in so
recommending the District Tender
Board did not follow its own
procedure? Would the contract
be impliedly prohibited? I
respectfully think not. To be
impliedly prohibited, that
contract must be one the
substance of which the
Defendant/Appellant has not got
the authority or is competent to
execute and/or implement.
73.
I
would rely on Section 156 of Act
462 to say that any person who
has been awarded a contract
within the category allowed the
Defendant/Appellant would be
entitled to assume that an
advice has been given by the
District Tender Board. If it
turns out that indeed no such
advise (sic) has been given, it
cannot be the law’s intention,
judging from Section 156, to
invalidate such a contract which
would have been entered into in
good faith by the third party in
reliance on the fact that it has
on the face of it been executed
by the District Assembly by its
authorized officers.
74.
Section 156 of Act 462 creates a
presumption in favour of all
persons dealing with District
Assemblies to the effect that
all acts of the District
Assemblies have been regularly
done. Section 156 states as
follows:
“Any
authorization, notice or other
document purporting to be
granted, given or made and any
act done by the District
Assembly under this Act or of an
instrument made under it shall
be taken to be duly granted,
given, made or done by the
Assembly without further
evidence unless the contrary is
proved.”
75.
There
is clearly a recognition of the
fact that it would be difficult
for third parties dealing with
the District Assemblies to know
their inner workings, or
determine whether or not they
have in dealing with such third
parties they have followed their
own internal procedures. It is
this position that was stated in
the Respondent’s written address
at the end of the trial, which
was dismissed by the trial judge
in a rather strong language
thus,
“Counsel for
the plaintiff is right in his
submission that all official
acts are presumed to have been
regularly performed. But are we
talking of acts simpliciter.
Are we not here concerned with
the plaintiff, a company, having
entered into a contract in
breach of the rules and
regulations of a state
organization and therefore the
country and against public
policy? Is it being contended
that a company like the
plaintiff company has no duty
knowing the laws of Ghana before
doing business in Ghana? I am
of the opinion that such an
assertion will be violative of
our Socio-economic and legal
order…”
76.
The
Learned Trial Judge then
continued to declare the
contract as illegal and against
public policy.
77.
It is
submitted that the Learned Trial
Judge’s interpretation of the
section imposes a higher duty on
the third party than is intended
by the Act. This position could
therefore only have been taken
per incuriam, because the very
legislation which provides for
the creation of the District
Tender Board for the purpose of
advising the District Assembly
on contracts of the stated
category also creates a
presumption in favour of the
third party dealing with the
District Assembly.
78.
This
presumption cannot relate to the
processes necessary to award the
contract because a careful look
at Section 156 would show that
the presumption refers to
situations in which due
authorization is required or
where acts are actually done or
notices given. Notices are not
relevant in this instance, and
the District Tender Boards are
not required to authorize the
execution of such contracts as
are under consideration. This
is because the functions of the
District Tender Board are merely
advisory, and they are not
required to authorize the
transaction. The presumption
can therefore only relate, in
this instance, to acts
done. The only act
under consideration here is the
execution of Exhibit H.”
Counsel
concludes his argument on this
point as follows, in paragraphs
83 and 84 of the Statement of
Case:
-
“Finally,
using the analogy contained
in the Archbold
Freightage case, it is
submitted that the sections
quoted above do not prohibit
the execution and
performance of a contract by
the Appellant to manage
waste in the city of Accra.
Even though it may be
arguable that impliedly the
Appellant may not enter into
such contract without the
advise (sic) of the District
Tender Board, through a
process which is regulated
in the various pieces of
legislation cited by the
Learned Trial Judge, the
contract to manage waste is
collateral to the regulatory
framework established for
the purpose of regulating
the Appellant in the
efficient award of such
contracts.
-
It is
respectfully submitted that
these are not the kind of
provisions from which
prohibition can be implied.
From the totality of the
Act, its scope the language
used and its objects, it is
not intended to prohibit and
render unenforceable Exhibit
H, which, after all, is a
contract for the collection
and management of garbage.
In holding Exhibit H void as
against public policy,
therefore, the Learned Trial
Judge erred very gravely
indeed.”
Naturally,
counsel for the Defendant is of
a different view. He relies, in
the Statement of Case he filed
on behalf of the Defendant, on
the case of Phoenix General
Insurance Company of Greece SA v
Administratia Asigurarilor de
Stat [1987] 2 All ER 152 to
assert that, from even a
unilateral statutory prohibition
binding upon only one party to a
contract, there can be an
implication that a contract
entered into in breach of such
prohibition is illegal. He
argues further, in para. 7.2 of
the Statement of Case, that:
“It is also
not a correct statement of the
law that a contract cannot be
held to be illegal by
implication unless it prescribes
a penalty for its breach. In
the recent Supreme Court case of
Faroe v Attorney General
[2005-2006] SCGLR 271, the
Supreme Court declared a
contract entered into in breach
of Article 181 of the
Constitution illegal and
unenforceable even though the
said Article 181 does nto
prescribe any penalty for its
breach.
Against the
background of the principles
laid down in the Phoenix case as
set out above, it is submitted
that the formulation of the law
by the Plaintiffs, to the effect
that a contract will only be
held to be impliedly prohibited
by statute and therefore
illegal, if the governing
legislation contains provisions
the substance of which seeks to
restrain both parties to the
contract from doing a specific
act or acts when there is no
authority to do so is not in
accord with the law.
As the
Phoenix case shows, a contract
can still be impliedly
prohibited by statute even
though the prohibition contained
in the statute is unilateral
only. It is submitted therefore
that the conclusion reached from
the analysis by the Plaintiffs
of the various statutes found by
the Learned Trial Judge to have
been breached, based as it were
on the wrong formulation of the
law is erroneous and ought to be
rejected.”
We agree with
this analysis of the Phoenix
Insurance case. For, as
Kerr LJ said (at p. 176 of the
Report):
“But where a
statute merely prohibits one
party from entering into a
contract without authority
and/or imposes a penalty on him
if does so (i.e. a unilateral
prohibition) it does not follow
that the contract itself is
impliedly prohibited so as to
render it illegal and void.
Whether or not the statute has
this effect depends on
considerations of public policy
in the light of the mischief
which the statute is designed to
prevent, its language, scope and
purpose, the consequences for
the innocent party, and any
other relevant considerations.”
In our view,
in the circumstances of this
case, it is a necessary
implication from the statutory
provisions on District Tender
Boards that contracts entered
into in breach of them are
illegal. The requirement that
each District Assembly “shall
have a district tender board
which shall advise the Assembly
on the award of contracts in the
district” implies an obligation
on the District Assemblies to
seek such advice. The combined
effect of the statutory rules on
District Tender Boards, when
construed purposively, has to be
that there is a prohibition on
concluding contracts in
disregard of them. To hold
otherwise would be to defeat
their purpose. Their purpose is
to provide for transparency and
accountability in the
procurement process at the
District Assembly level. If the
provisions could be ignored
without any legal repercussions
on the contracts entered into in
breach of them, an effective
sanction against disobeying them
would have been lost.
But quite
apart from the implied
prohibition embedded in the
provisions on tender boards, the
Defendant’s counsel argues with
much force that it is wrong for
the Plaintiff to assert that the
statutes alleged to have been
breached contain no
prohibitions. Focusing on
section 87(1) of the Local
Government Act 1993, Act 462, he
contends that:
“If the words
of the said Section 87(1) are
given their ordinary meaning,
they can mean nothing more than
that, the District Assembly is
not to incur any expenditure
necessary for the carrying out
of any of its statutory
functions unless that
expenditure is included in its
approved budget for the relevant
year.
This by
necessary implication prohibits
the AMA from entering into or
performing any contract
necessary for the carrying out
of any of its statutory
functions, if the expenditure to
be incurred as a result of the
performance of that contract is
not included in its approved
budget for the relevant year.
It is
submitted that Exhibit H, being
a contract for waste management
is one such contract necessary
for carrying out a statutory
function of the AMA. Section
10(3)(e) of the Local Government
Act 1993 Act 462 makes the
District Assembly responsible
for the development, improvement
and management of human
settlements and the environment
in the District. Waste
collection and disposal the
subject of Exhibit H are part of
the environmental management
functions of the AMA in the
District and accordingly by
Section 87 of Act 462, the AMA
is prohibited from incurring any
expenditure on this contract
unless it has been included in
its approved budget for the
relevant year.
It is true
that this prohibition is
unilateral on AMA. But because
Section 87 of the Local
Government Act 1993, Act 462,
prohibits the AMA from incurring
any expenditure on Exhibit H as
it has not been included in its
approved budget for the relevant
year and because such
expenditure can only be incurred
if the contract is carried out,
the net result is that the
prohibition extends not only to
the formation but also to the
carrying out of Exhibit H.”
We agree that
Section 87(1) of the Local
Government Act 1993 contains
what is in effect a
prohibition. Because of the
proviso to the section, we would
interpret the subsection to mean
that a District Assembly may not
incur expenditure necessary for
carrying out its statutory
functions unless the expenditure
is included in the approved
budget of the District for the
year in question. We consider
that incurring expenditure
includes becoming contractually
bound to make such expenditure.
Accordingly, upon executing a
contract containing financial
expenditure commitments, one may
be said to have incurred those
expenditures within the meaning
of the statute.
Moreover, the
argument set out earlier in the
Plaintiff’s Statement of Case
(quoted above, see particularly
paras 73 and 74) which seeks, in
effect, to introduce a rule
similar to the famous company
law rule in Turquand’s case
(Royal British Bank v Turquand
(1856) 6 E & B 327) cannot
succeed, because the prohibition
imposed on the District
Assemblies is a statutory one,
as contrasted with the internal
company regulations concerned in
the rule in Turquand’s case.
A statutory prohibition has to
be complied with, even if it is
unilaterally binding on only one
party to the contract.
Furthermore, the statutory
presumption of regularity which
is prayed in aid to buttress
that argument is, in its own
terms, rebuttable. Thus, where,
as in this case, the evidence is
clear that the statutory
provisions were not complied
with, the presumption of
regularity is of no help.
When the
public policy purpose principle
(derived from Shaw v Groom,
supra) is applied to
the facts of the current case,
the result should clearly be a
declaration of the illegality of
the contract concerned since
there is a clear public policy
rationale against allowing
District Assemblies to evade the
framework of accountability
established in the statutory
rules that have been set out
above.
Finally, let
us respond to one of the reason
given by the Court of Appeal for
declining to find illegality on
the facts of this case.
Akoto-Bamfo JA said (at p. 545
of the Record):
“It could be
argued that since the preamble
made references to external
funding whose character was not
disclosed; A.M.A. would
ultimately have to pay the
contract sum; I am however of
the view that since from the
Chief Executive’s submissions
the A.M.A. was asking to be
subsidized it cannot be said
that the contract fell within
the purview of Sec. 39(1) of the
Local Government Act. In
conclusion on this issue
therefore I would say that the
findings of the learned Judge
that the contract fell within
the purview of sec. 39 of the
Local Government Act was not
borne out by the evidence on
record.”
With respect,
we are unable to agree with this
conclusion. The evidence of the
Chief Executive cannot override
the legal liability that the AMA
took on through executing the
agreement, Exhibit H. The mere
fact that the agreement had a
recital saying (see p. 720 of
the Record): “WHEREAS, AMA
intends to enter into agreements
with the ministry of Finance of
Ghana for the allocation of the
Canadian (Sper Fund) with
respect to the financing of the
Execution of works to be
rendered under this agreement”
should not lead to the
conclusion that therefore the
contract was not to be financed
exclusively from the resources
of the Assembly. The allocation
of funds by the Ministry of
Finance under the Canadian
arrangement was not made a
condition precedent to the
validity of the agreement.
Accordingly, once the contract
was executed, the AMA became
bound by its terms and AMA’s
resources were exclusively
exposed to legal action to
enforce the obligations of the
contract. This result must have
been in the reasonable
contemplation of the parties to
the agreement, even before its
execution. Accordingly, we do
not consider that it was
legitimate for the Court of
Appeal to exclude the agreement
from the purview of s. 39 of the
Local Government Act 1993 on the
ground that the contract was not
to be financed exclusively from
the resources of the Assembly.
Restitution of the benefit
conferred on the Defendant
There is a
long-standing approach in the
English common law, dating back
to the eighteenth and nineteenth
centuries, according to which
where a contract is found to be
illegal, the benefits conferred
under it are not recoverable.
The decided cases have tended to
deal with the recovery of money
paid or property transferred
under an illegal contract. But
even this traditional English
approach was subject to
exceptions. The two main
exceptions to the English
general rule that a party cannot
recover a benefit conferred on
the other party under an illegal
contract are: first, where the
parties are not in pari
delicto; and, second, where
a party to an executory contract
repents before performance. On
the facts of this case, it is
the in pari delicto
exception which is germane.
Also, it is noteworthy that on
the facts of this case the
benefit to be recovered from the
Defendant is not money paid or
property transferred but rather
the value of services rendered.
The critical
issue is whether this Court is
entitled to grant the Plaintiff
restitutionary relief in respect
of the services actually
rendered the Defendant or
whether the illegality of the
contract is also a defence to
the restitutionary claim. It is
open to this Court to base an
alternative restitutionary claim
on the Plaintiff’s claim for the
recovery of the value of its
services, indorsed on its Writ,
although the Plaintiff’s intent
was to found that claim on the
contract that we have held to be
illegal. The Plaintiff can
legitimately argue that a
restitutionary claim by it is
not equivalent to enforcing the
illegal contract. The Plaintiff
is bound by the unenforceability
of the illegal contract.
Nevertheless, in the interest of
justice, it is reasonable for
the Plaintiff to seek to reverse
the unjust enrichment of the
Defendant through its retention
of the benefit of the
Plaintiff’s services without any
payment for them at a reasonable
rate, not necessarily coincident
with the contract rate
negotiated under the illegal
contract. In the English case
law, the illegality of a
contract has been held to be an
effective defence to even a
restitutionary claim, unless the
parties are not in pari
delicto (or equally at
fault).
The next
issue arising therefore is
whether the Plaintiff is not
in pari delicto with the
Defendant according to the
orthodox English authorities on
the issue. A review of the
English case law reveals that,
in assessing the fault of the
parties, the law adopts a rather
technical approach, according to
which recovery is allowed only
where a Plaintiff can
demonstrate that he or she was
induced to enter into the
illegal contract by the fraud,
duress or oppression of the
other party; or that he or she
was ignorant of a fact that
rendered the contract illegal;
or that he or she belonged to a
vulnerable class protected by
statute. By way of illustrating
the last category, the words of
Lord Mansfield in Browning v
Morris (1778) 2 Cowp. 790 at
792, may be quoted:
“Where
contracts or transactions are
prohibited by positive statutes,
for the sake of protecting one
set of men from another set of
men; the one, from their
situation and condition being
liable to be oppressed and
imposed upon by the other;
there, the parties are not in
pari delicto and in
furtherance of these statutes,
the person injured after the
transaction is finished and
completed, may bring his action
and defeat the contract.”
We do not
think that we ought in this
Court to be constrained
excessively by the weight of the
English case law in finding a
just outcome in this case.
Rather, we are encouraged to
develop Ghanaian law in this
area by some of the ideas
contained in the English Law
Commission’s Consultation Paper
No. 154 on Illegal
Transactions: The Effect of
Illegality on Contracts and
Trusts. This Consultative
Paper, after an extensive and
erudite review of the complex
English law in the area,
concludes as follows (at p. 91):
“We have said
that we believe that there is a
continued need for some doctrine
of illegality in relation to
illegal contracts and that, in
certain circumstances, it is
right that the law should deny
the plaintiff his or her
standard rights and remedies.
However, we have also explained
how, in some situations, we
believe that the plaintiff is
being unduly penalized by the
present rules. This injustice
would seem to be the inevitable
result of the application of a
strict set of rules to a wide
variety of circumstances,
including cases where the
illegality involved may be
minor, may be wholly or largely
the fault of the defendant, or
may be merely incidental to the
contract in question. We
consider that the best means of
overcoming this injustice is to
replace the present strict rules
with a discretionary approach
under which the courts would be
able to take into account such
relevant issues as the
seriousness of the illegality
involved, whether the plaintiff
was aware of the illegality, and
the purpose of the rule which
renders the contract illegal.
The adoption of some type of
discretionary approach has the
support of the vast majority of
academic commentators in this
area; and it is the approach
which has been followed in those
jurisdictions where legislation
has been implemented. Moreover,
we have not been able to devise
a new enlightened regime of
“rules” that would provide
satisfactory answers to all
disputes involving illegal
contracts. In our view, a
balancing of various factors is
required so that, put quite
simply, the law on illegal
contracts does not lend itself
to a regime of rules.”
We have
decided to adopt this structured
discretionary approach to the
resolution of issues arising
from illegality of contracts.
The approach is to be fleshed
out on a case by case basis. On
the facts of the present case,
balancing the need to deny
enforceability to the contract
sued on by the Plaintiff against
the need to prevent the unjust
enrichment of the Defendant,
and, considering that in
relation to the Defendant’s
non-compliance with the
statutory provisions binding on
it, the Plaintiff was not in
pari delicto in a broad
sense, we have come to the
conclusion that the Plaintiff
must be paid reasonable
compensation for the services it
rendered to the Defendant. This
position is not necessarily a
contradiction of the Supreme
Court’s decision in Zagloul
Real Estates Co. Ltd (No. 2) v
British Airways [1998-99]
SCGLR 378 where it held that a
contract breaching the mandatory
provisions of a statute was
illegal and void. The
restitutionary claim that we are
upholding is distinct from any
claim on the void and illegal
contract.
Regarding the
Plaintiff not being in pari
delicto with the Defendant,
we find helpful the following
observations made by Akoto-Bamfo
JA in the Court of Appeal (at
pp. 547-8 of the Record):
“That the
A.M.A. had the power to enter
into the contract is beyond
dispute. Besides and more
importantly, the respondent
performed under the contract for
some 2 years. When then the
appellant realize (sic)
that it had flouted the laid
down procedures? A reading of
the various pieces of
legislation shows that the
appellant was not prohibited
from entering into contracts; it
certainly had the power it was
required to comply with the
provisions in the enabling
statutes. As observed
rightly by the learned Judge the
respondent had nothing to do
with the omissions of the
appellant. It my (sic)
considered view that the
respondent was not in a position
to determine whether the
appellant had gone through its
internal procedures and complied
with every piece of legislation,
to expect a party to a
transaction to mount an enquiry
into whether the other party has
complied with all its internal
procedures would be to stifle
commerce making it burdensome
for parties entering
contracts.” (Emphasis
supplied).
These
observations of the learned
Justice of Appeal give weight to
our finding that the Plaintiff
was not in pari delicto
with the Defendant, at least
from the point of view of the
structured discretion approach
we have adopted, whether or not
its conduct would qualify as
such under the existing common
law case law. (However, we
disagree with the learned
Justice of Appeal that the
contract sued on was not
illegal.)
The learned
trial judge also made findings
of fact supportive of the
Plaintiff not being in pari
delicto. He said (at p. 370
of the Record):
“The evidence
is undisputed that the plaintiff
did perform the primary services
it was enjoined under the
contract to perform. It was
involved in the collection and
disposal of Garbage within the
City of Accra for years to the
knowledge of AMA and several
government officials. The
defendant at a certain point
made certain payments to the
plaintiff of services it had
rendered. There is no evidence
the plaintiff entered into the
contract in bad faith. It
entered into the contract
believing it was entering into a
contract not tainted with any
illegality.”
In exercise
of our structured discretion, we
have taken into account the
issues mentioned in the passage
quoted above from the Law
Commission of the UK, namely the
seriousness of the illegality
involved, whether the plaintiff
was aware of the illegality, and
the purpose of the rule which
renders the contract illegal.
Because of the good governance
implications of the purpose of
the statutory rules that we have
construed to make the contract
impliedly prohibited and
illegal, it is important to
avoid a direct enforcement of
the terms of the illegal
contract. At the same time,
given that the plaintiff was, on
the evidence, not aware of the
illegality and that the purpose
of the rule rendering the
contract illegal would not be
defeated if the plaintiff is
awarded some compensation at a
rate below the contract rate for
the services rendered to the
Defendant, we hold that the
Defendant is liable to the
Plaintiff to pay a reasonable
compensation for the Plaintiff’s
services. We will say more
concerning the computation of
the compensation below.
The learned
trial High Court judge decided
that a fair price for the
Plaintiff’s services would be US
$18 per metric ton of garbage
collected and disposed of. His
reasoning was as follows (at p.
370 et seq. of the
Record):
“I am talking
about discretion here because I
have found that the contract was
entered into in breach of
certain statutes and regulation
resulting in the defendant not
having had the opportunity to
discuss in full the tonnage
fee. It would therefore be
unfair to accept the plaintiff
revised figure of $25.08 as the
fee payable per ton. The
defendants have offered
conflicting figures on what they
consider to be the proper fees
chargeable. They mention $10
and $12. From Exhibit ‘K’
minutes of the Board meeting of
the plaintiff company held on
the 12th of October
1999, the agreed price for
refuse collected by the
subcontractors was $5.20. I
have mentioned earlier in this
judgment that before the
abrogation of the agreement
there was goodwill on the part
of the plaintiff to further
renegotiate the agreement. I
believe that the tonnage fee
charged being one of the main
objections to the contract would
have been part of the review
exercise. What would a review
had (sic) had come to? I
find myself in a guess work but
the guess should be reasonable.
Taking into consideration the
defendant’s view of what the
tonnage fee should have been and
what is paid the local
contractors. I think a figure
of US $18 per metric ton of
refuse will be fair to award the
plaintiff in the circumstances
of this case instead of the
$25.08. Plaintiffs agree with
the total tonnage presented by
the defendant in their Exhibit
‘1’ as the tonnage chargeable
for the relevant period of 1999
to 2001. For the year 1999 the
tonnage was 147,510.35. For the
year 2000 the tonnage was
371,696.83 and for the year 2001
the tonnage was 196,421.33. We
have a total of 715,628.51
metric tons. I will accept this
figure as the tons of garbage
for which the figure$18 should
apply. In respect of the use by
the plaintiff of defendant waste
management premises the
defendant has caused it valued
at $5.8m per month. For the
period of 23 months we have a
total of c133,400,000. I will
accept this figure as the total
rent payment for the period
payable by the plaintiff to the
defendant. Mr. Kwesi Bosompem
and Mr. Armah who testified for
the defendant created the
impression the plaintiff owed
the defendant for dumping fees
and for the use of the
equipments. But in
cross-examination they admitted
there was no such debt. For the
user fees Exhibit 5 showed that
an amount of $4,918,899 had
already been taken care of. No
evidence was led by the
defendant for which an order
could be made for the plaintiff
to pay for the cost of any use
of spare parts, garage, tools,
furniture, computers and
communication system. I will
refuse these claims of the
defendant. In conclusion of
this case the plaintiff will be
entitled against the defendant
to the sum of 715,628.5 x 18
dollars payable in cedis at the
current inter forex bureau
exchange rate, From this amount
will be deducted the figure of
c133,400,000 owed the defendant
for the use of the waste
management premises.”
These awards
made by the learned trial judge
were fully supported by the
evidence on the record. Whilst
the legal foundation for the
varied fee per ton was suspect,
on the contract law basis that
the learned judge had proceeded,
the fee arrived at is reasonable
from the point of view of the
restitutionary basis that this
Court has adopted. Accordingly,
we order that the defendant
should pay the plaintiff the net
award made by the learned trial
court judge in the passage
quoted above. In accordance
with the Court (Award of
Interest and Post Judgment
Interest) Rules, 2005 (CI 52),
the Defendant is ordered to pay
interest on the amount awarded
to the Plaintiff at the bank
rate prevailing today with
effect from the date of
termination of the contract,
that is, 29th June
2001 till today.
In effect,
then, though we hereby reverse
the Court of Appeal’s finding
that the contract was not
illegal, the appeal is dismissed
and the orders of the learned
trial judge affirmed with the
supplementary order that
interest be paid.
Finally, we
would like to commend counsel of
both parties for the high
quality of their legal
submissions, which have been of
considerable assistance to the
Court.
DR. S. K. DATE=BAH
JUSTICE OF THE SUPREME COURT
MISS S.A.B. AKUFFO
JUSTICE OF THE SUPREME COURT
J. ANSAH
JUSTICE OF THE SUPREME COURT
R. T. ANINAKWAH
JUSTICE OF THE SUPREME COURT
S. K. ASIAMAH
JUSTICE OF THE SUPREME COURT
COUNSEL
Mr. Stanley
Amarteifio for Appellants.
Mr. Tony
Lithur for Respondents. |
