Irregularities in procurement tenders in Uganda have become increasingly common, with announcements frequently made without adherence to legal procedures. In October 2024, it was reported that a government minister purported to hand over the Kiteezi landfill to a Ghanaian investor to improve waste management by converting garbage into fertilisers and recyclable materials. The Inspector General of Government ("IGG") directed the suspension of all dealings with investors, pending an investigation into their selection for the landfill project outside standard procurement guidelines.
The High Court recently held in BJ Consults v AG, that contractors procured in violation of the law would not be paid for services rendered. Does the judgment uphold the law and protect the public purse at the expense of bidders?
Background
BJ Consults sued for damages for losses arising from an alleged breach of a claimed contract with a government Ministry for customs clearing services. Though the Ministry admitted it owed some monies to BJ Consult, the Attorney General contended there was no valid contract, as the services had been procured in violation of the Public Procurement and Disposal of Public Assets ("PPDA") Act. BJ Consults countered that the Ministry could not benefit from its services without payment.
The Court found that there was no invitation to bid, no bidding documents, and no bid submitted by BJ Consults. Relying on the Supreme Court decision in Galleria in Africa v Uganda Electricity Transmission Company, the court held that compliance with the PPDA Act is mandatory and that any procurement process failing to meet these standards is invalid. The Court dismissed the suit while ruling that the doctrine of unjust enrichment did not apply as there was no valid contract between BJ Consults and the Ministry.
How have Ugandan courts treated similar situations?
The ruling in BJ Consults contradicts earlier court decisions. For example, in Engineer Investments v Attorney General and Kampala Capital City Authority (KCCA), the case centered on whether a contractor should suffer due to a procuring entity's breaches in the procurement process. The Court held that contractors are only liable if they participated in the statutory breaches. In this case, KCCA withheld the balance owed to Engineer Investments for waste management services, arguing illegality for failing to obtain the Attorney General's advice. The Court held that a Local Government was not a Central Government under Article 257 of the Constitution and that Article 119(5), which provided for the Attorney General's advice on a contract, applied to the Central Government and not a local government. The Court further described KCCA's actions as an attempt to defraud a provider who had fulfilled their obligations
In Finishing Touches v Attorney General, the Ministry of Foreign Affairs invited bids for decoration services for the 2007 Commonwealth Heads of Government Meeting. The Ministry approved the contract award, but no contract was ever signed. In a claim for payment, the Attorney General argued illegality for breach of the PPDA Act, as there was no advertising, bidding, evaluation, or a signed formal contract.
The Court acknowledged the non-compliance with PPDA regulations but ruled that since the PPDA Act's objectives of fair, competitive, transparent, non-discriminatory, and value-for-money procurement had been met, payment should be made.
In Galleria in Africa v Uganda Electricity Distribution Company ("UEDCL"), UEDCL had issued a letter of bid acceptance, but before a formal contract was signed, UEDCL cancelled the procurement. The plaintiff claimed lost profits, general damages, interest, and costs for breach of contract. The High Court dismissed the claim, ruling that no contract existed=This decision was reversed by the Court of Appeal which found that a valid contract had been formed. On further appeal, the Supreme Court held that public procurement must comply with legal procedures, rejecting the idea that meeting the PPDA Act's objectives alone was sufficient. The Supreme Court emphasised that the PPDA Act's provisions are mandatory, and any failure to follow the prescribed steps renders the procurement process void. This ruling overturned the Finishing Touches decision, which held that a flawed procurement could be valid if it met the PPDA Act's objectives.
The Supreme Court acknowledged the peculiar situation in Finishing Touches (similar to BJ Consults), where services had been satisfactorily rendered, yet disagreed with the High Court's conclusion, asserting that failure to follow the PPDA Act undermines the integrity of public procurement. The Court in Galeria did not comment on the legality of the award made in Finishing Touches based on the doctrine of unjust enrichment.
Under what circumstances may a contractor under an illegal contract recover?
A lesson from South Africa
At the other end of the continent in South Africa, the Constitutional Court of South Africa has held in Greater Tzaneen Municipality v Bravospan, that state entities must pay contractors for services rendered, even when procedural irregularities occur in the procurement process. The Municipality initiated judicial review proceedings and set aside an extended contract based on illegality.
The Supreme Court of Appeal upheld the High Court's award to the contractor based on unjust enrichment. The court criticised the growing trend of state entities using self-review applications to avoid fulfilling contractual obligations, highlighting that such reviews frequently conceal inefficiencies in procurement procedures. The court characterised this as an unacceptable tactic to avoid contractual obligations. The Courts have condemned the municipality's attempt to rely on its own procedural errors to evade payment, stating that it is unjust for state entities to exploit their failings to avoid paying for services received. Ugandan courts might be encouraged to adopt a more balanced approach, moving away from the strict precedent set by Galleria.
Lessons from the United Kingdom
The UK Supreme Court cases Patel v Mirza and Stoffel v Grondona have re-examined the defence of illegality, concluding that illegality does not automatically bar the enforcement of a claim in every circumstance.
In Patel, Patel gave Mirza GBP620,000 to bet on shares using insider information. The agreement was a conspiracy to commit insider trading under the Criminal Justice Act 1993. However, the inside information never materialised, and therefore no illegal act occurred. Patel sought to recover the money, claiming breach of contract and unjust enrichment. Mirza argued that Patel could not recover due to the illegal nature of the transaction.
The Court referred to the need when considering the application of the common law doctrine of illegality "to have regard to the policy factors involved and to the nature and circumstances of the illegal conduct in determining whether the public interest in preserving the integrity of the justice system should result in denial of the relief claimed." The Court set down the factors in assessing whether the public interest would be harmed (a) the underlying purpose of the prohibition which has been transgressed and whether that purpose will be enhanced by denial of the claim, (b) any other relevant public policy on which the denial of the claim may have an impact and (c) whether denial of the claim would be a proportionate response to the illegality, bearing in mind that punishment is a matter for the criminal courts. Patel was then allowed to recover the money paid to Mirza.
The UK Supreme Court in Barton v Morris has also held that a claimant who has performed a service for a defendant and wants to be paid something for those efforts has to establish a legal entitlement to the money claimed in two ways. The first is where the parties are in a contractual relationship and the terms of their binding agreement define if and when the defendant will be bound to pay for the service. If there is no contract between them, the claimant may base a claim on the assertion that if the defendant does not pay, then the defendant will have been unjustly enriched at the claimant's expense.
A proportionate approach to unjust enrichment could offer some much-needed relief for contractors. In BJ Consults, the Court denied the claim of unjust enrichment because it stemmed from an invalid contract. However, the Court ought to have addressed the claim of unjust enrichment as an independent equitable claim, as held in Barton.
Conclusion
The ruling in BJ Consults serves as a stark reminder to contractors of the importance of strict adherence to public procurement laws in Uganda. Contractors must ensure full compliance with all procurement processes they engage in to avoid the risk of non-payment for services rendered. The decision reinforces the integrity of the procurement process but has raised questions about the fairness of denying contractors payment for services duly rendered, particularly when the flaws in the procurement process arise from the procuring entity's failures.
To mitigate the harsh consequences, Ugandan courts should draw inspiration from other jurisdictions like South Africa and the United Kingdom, which adopt a more balanced approach that emphasises equity and fairness. This approach prevents government and procuring entities from unduly benefitting from procedural missteps to the detriment of contractors.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
