Tender season! It comes around every year and every time it does, our local newspapers and websites are awash with tender invitations placed by various government ministries or agencies across the country for the supply of goods and services or for the conduct of building and civil works. Numerous Kenyan businesses, from various industries, scan the dailies and reload website pages almost religiously with a view to tracking such advertisements. The businesses identify the invitations to tender falling within their field of expertise and submit their bids. Putting those bids together is often time consuming and cost intensive especially for large construction projects where the business entity is required to offer tender security, guarantees, informed technical proposals and detailed financial proposals.
The excitement is almost palpable when the relevant government ministry or agency evaluates the submitted bids and awards the tender to the successful business entity. The letter of award is quickly accepted by the successful tenderer, and the parties then prepare and sign the necessary contract documents spelling out, among other terms, the obligations of the parties. Some of these obligations are usually standard. One of these would be that the successful tenderer is expected to supply the goods and services or conduct the building and civil works in a satisfactory manner. On the other hand, the government ministry or agency commits to settle payments in a timely fashion.
For the successful business entity, the tender might often be its guaranteed source of income, its super profit machine or its business deal of the decade in light of the perceived financial stability of government ministries or agencies.
That is, until the government ministry or agency in question defaults in making scheduled payments despite the satisfactory performance of the business entity’s obligations, the ministry’s or agency’s officials remain non-responsive to the business entity’s constant emails, letters and telephone calls. It then becomes necessary to evaluate the available options for recovery or recourse.
What are the legal remedies available to the business entity for breach of contract by a government ministry or agency? What is the manner in which these remedies would be enforced?
Breach of contract
The law defines a breach of contract as the existence of a disparity between what was promised and what has occurred, or not occurred. This may be perpetrated by a party to the contract itself or, in some instances, by a third party which has ‘induced’ the breach of contract.
Inducing a breach of contract occurs where, rather than directly persuading the party in breach to breach or default on that contract, the third party deliberately creates an intervening event or environment that interferes with the performance of the contract when it falls due by that party.
The essential elements considered by a Court or Tribunal when making a determination as to whether there has been inducement to breach a contract are:
There must have been a contract in existence.
The offending third party must have had knowledge of the existence of the contract.
The offending third party must have intended to secure a breach of the contract or acted with substantial
certainty that a breach would result from its conduct.
The offending third party directly or indirectly induced the breach of contract.
The aggrieved party suffered damage, that is, loss of a contractual bargain.
Remedies available for breach of contract
A business entity aggrieved by a breach of contract by a government ministry or agency is entitled to either:
lodge a claim for compensation in the form of damages;
make a claim for the contract price if it has become due; or
apply for specific enforcement of the government ministry’s or agency’s obligations.
Guiding laws and principles in interpretation of contracts
The determination of whether or not a breach of contract has occurred, the proper forum in which a claim in this respect is to be lodged and the appropriate remedies available to the parties is largely dependent upon the provisions of the contract. For instance, if the contract details that in the event of a dispute, parties should resort to arbitration, the parties are bound to use this dispute resolution mechanism. Similarly, if the contract expressly and validly limits the amounts payable as compensation or damages to an aggrieved party, the Court or Tribunal addressing the dispute would ordinarily be restrained by such express limits.
Notably, in legal disputes relating to breach of contract, the general rule is that Courts or Tribunals are reluctant to give an interpretation or imply terms which are not provided for in the agreement. They are instead required to interpret the language as used, as defined or as intended by the parties in the contract and to imply certain statutorily recognized terms or provisions only where the contract is silent on those matters. Additionally, Kenyan Courts and Tribunals usually apply English Common Law and the Law of Equity in solving disputes revolving around commercial contractual agreements between parties. They further rely upon Acts of Parliament, Regulations and business practices governing the particular industries in which the parties operate.
Obtaining and enforcing Judgment or Award
A business entity may have gone through the motions of lodging its claim against a government ministry or agency for breach of contract and, upon the parties being heard, obtained a Judgment from a Court or an Award from a Tribunal in its favour. It is expected to notify the government ministry or agency of the Judgment or Award and request for the satisfaction of the same in the specified manner. However, if the government ministry or agency does not comply with the Judgment or Award, the business entity may have to consider an avenue to enforce such Judgment or Award.
Can the business entity promptly proceed to engage menacing auctioneers to attach and auction the property belonging to the government ministry or agency to satisfy the Judgment or Award? The answer to this question is, “No”.
The business entity would be constrained to file Judicial Review proceedings in the High Court. Judicial Review entails the process by which the High Court examines the actions of an administrative body and issues Orders to remedy a breach of procedure or an unfair decision.
The underlying principle for Judicial Review proceedings is that the Courts have the power to review the exercise of powers granted to public officers where the exercise of those powers encroaches upon recognised interests. This power is exercised on the broad basis that statutory powers must be exercised strictly within the provisions of the law.
One of the Orders available in Judicial Review is that of mandamus. Mandamus is basically a command issued by the High Court to an administrative body directing it to perform a duty imposed upon it by law. It compels a person or body of persons to perform a particular duty imposed by the Constitution or statute and which duty has not been performed, to the detriment of an applicant which has the legal right to expect such duty to be performed.
However, this Order cannot be issued to compel the exercise of discretionary power let alone the exercise of such power with a view to arriving at a particular result. Additionally, an Order of mandamus will not be granted as a matter of course.
In order for the business entity to succeed in such an application it must, among other requirements, clearly demonstrate that the government ministry or agency failed to perform a constitutional or statutory duty. In the instance under consideration in this article, this would involve a demonstration that the government ministry or agency has failed, refused or neglected to satisfy a Judgment or an Award by paying the compensation due or complying with such other remedy as may have been granted to the business entity. The business entity would then urge the High Court to compel the relevant government officials to comply with the said Judgment or Award.
Contempt of Court Proceedings
In the event that the government ministry or agency fails to abide by an Order of mandamus issued in favour of the business entity, the entity would then have the option of lodging an application in Court citing the principal accounting officer of the government ministry or agency for contempt of Court. This is basically being disobedient to the Court in a manner which could be interpreted as opposing or defying the authority, justice and dignity of the Court.
In making an application citing contempt of Court, the business entity would have to show that the Court Order, in this instance, an Order of mandamus, exists. Further, it would have to prove that the relevant government official had been notified of the Order. Finally, the business entity would have to demonstrate the manner in which the Order has been breached.
The business entity would subsequently urge the Court to impose an appropriate penalty against the relevant government officials. Such penalty usually triggers the eventual compliance with the Order in question. This brings the lengthy process to a close with the business entity finally enjoying the remedies awarded to it on account of the government ministry’s or agency’s breach of contract.
The process of pursuing remedies against a government ministry or agency can prove lengthy and costly because of the specific and multi-tiered nature of proceedings that are to be brought against the government. This is in contrast to the rather straightforward processes in disputes between business entities or individuals. The remedies are, however, available and can prove fruitful in the long-term.
That said, it is advisable and critical for business entities to ensure that all forms of their engagement with government bodies are valid and are diligently conducted in the specified manner. These would include the procurement process, the preparation and execution of formal contract documents, the ascertainment of performance and the payment procedures. Such attention to rock solid engagement would be with a view to avoiding or mitigating losses arising on account of claims for breach of contract that turn out to be non-starters simply because a stage of the engagement was void or improper.