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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. |
