The Foreign Investor Loses It All: A Cautionary Tale To Multinational Corporations?

The Supreme Court of Ghana (Supreme Court) has on several occasions held that international business or economic transactions (IBET(s)) involving the Government of Ghana (Government)...
Ghana Government, Public Sector
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The Foreign Investor Loses It All: A Cautionary Tale to Multinational Corporations?

The Supreme Court of Ghana (Supreme Court) has on several occasions held that international business or economic transactions (IBET(s)) involving the Government of Ghana (Government) that are implemented without approval by the Parliament of Ghana (Parliament) are unconstitutional. In this essay, we analyse the position of the Supreme Court on unapproved IBETs between investors and the Government. We submit that these decisions deny investors of any form of restitutionary remedy despite the lack of constitutional vigilance on the part of the Government. The discharge of the Government from contractual obligations and liability allows the Government to take advantage of its own wrong doing to the detriment of investors. From a commercial and public policy point of view, the position of the Supreme Court is potentially a huge disincentive to foreign investment in Ghana. The essay is in three (3) parts. The first part discusses the policy rationale adopted by the Supreme Court to justify its position on the law. The second part assesses the Supreme Court's analysis, and the third part evaluates potential remedies that best serve both private and public interests.

Policy Rationale

Ghana is touted as a prime investment hotspot in Africa with the potential to become the continent's leading investment hub. Foreign investment is critical to Ghana's overall economic growth and development, and has been enthroned by the Constitution as an economic objective for the country. 1 The Constitution requires the Government to create an enabling environment for foreign investment to thrive in Ghana, by providing that, subject to any law for the time being in force regulating investment in Ghana, 'foreign investment shall be encouraged within Ghana.'2

Although the Constitution promotes foreign investment in Ghana, it requires to the executive arm of government which negotiates international contracts on behalf of the Government to be accountable to the people of Ghana.3 The Constitution places a procedural restriction on the implementation of IBETs to which the Government is a party. Under article 181(5) of the Constitution, subject to necessary modifications made by Parliament, IBETs to which the Government is a party must be laid before Parliament and shall not come into operation unless it is approved by a resolution of Parliament. The Supreme Court enforced this constitutional provision in Attorney General v Faroe Atlantic Ltd (Faroe Atlantic) 4 where the Government entered into a power purchase agreement with a company incorporated in the United Kingdom without parliamentary approval. The Supreme Court held that the power purchase agreement was an international business transaction and therefore needed to comply with the obligations imposed by article 181(5).

The Supreme Court admitted that the Government had breached the power purchase agreement. However, it believed that considering the Court's overriding obligation to uphold the Constitution, 5 the agreement was not binding on the Government because it was concluded without complying with a mandatory prescription of the Constitution. Consequently, the Court did not award any damages to the private investor, relying on the general rule that an illegal contract is ineffective, and a nullity, creates no benefits or imposes no liability on any of the parties to the agreement.6

Despite the glaring illegality, the Supreme Court ordered the investor to refund US$855,000 that the Government had paid in advance under the agreement. The policy rationale set out by the Court was that, although it was settled law that money paid under an illegal contract could not be recovered, the power purchase agreement was not to be regarded merely as an illegal contract in the common law sense, but as an 'unconstitutional contract.'

In essence, the Supreme Court held that, contrary to the general rule that monies advanced under an illegal contract are not recoverable, where monies are advanced under an unconstitutional contract, they are recoverable only by the Government.

The Supreme Court has proliferated this reasoning in subsequent decisions in favour of the Government and adjusted it further to suit the Government. For example, in Amidu (No 1) v Attorney-General, Waterville Holdings (BVI) Ltd & Woyome (Waterville)7 the Supreme Court declared that contracts to rehabilitate sports stadia, entered into between the Government and an investor were void because they had not been approved by Parliament. Although the conditions precedent for the coming into force of the contracts had not been fulfilled, the Government authorised the investor's access to the sites to commence demolition and excavation. The Supreme Court held that even if the investor was not equally at fault with the Government in the breach of the Constitution, there should be less room to award a restitutionary remedy where the breach is of a constitutional provision and not an ordinary statute. Disregarding that the investor had expended money and other resources towards the project, the Supreme Court ordered the investor to refund to the Government any monies advanced by the Government pursuant to the agreement.


The synthesis of the rationale of the Supreme Court's position on unconstitutional contracts is that, where a contract violates article 181(5), regardless of the Government's bad faith, the Government must be reimbursed and consequently, no restitutionary remedy is available to the investor.

The Supreme Court shields the Government, a part-taker of and possibly the primarily culpable entity in the illegality, from facing the consequences of its actions or inactions. The summary of the legal position from both Faroe Atlantic and Waterville is that investors will be refused damages in such matters because the contracts were unconstitutional and therefore a nullity, but the Government could recover money it had paid under the same contract. Thus, even if the contract has been fully executed and the Government has fully paid and taken delivery, the investor would be ordered to refund the payment while the Government keeps the full benefit of the transaction.

The Supreme Court's analysis is not legally justified. While the Court claims that restitutionary claims have no place in unconstitutional contracts, these decisions put the Government in a much better position than it was prior to the contract since the Government retains the benefits of services rendered by the investor. Further, under the Constitution, it is only the Government that can submit a transaction to Parliament for the article 181(5) approval. The investor has no such power and cannot compel the Government to do so, unless it demands of it as a condition precedent for the effectiveness of the transaction. Then every party to every transaction with the Government will demand parliamentary approval, as a belts-and-braces guarantee against the Court subsequently holding that the transaction was an IBET and for which parliamentary approval was required. Yet, the Supreme Court has not imposed any sanctions on the Government or its actors for the repeated constitutional non-compliance, when the burden of seeking and obtaining the parliamentary approval lies on the Government.

Additionally, the position of the Court is at odds with the values of probity and accountability that underpin the Constitution. The Supreme Court itself in Attorney-General v Balkan Energy and Others (Balkan Energy)8 noted that the Proposals for a Draft Constitution of Ghana which formulated the Constitution, refer to the values of probity and accountability which are relevant in understanding the ambit of article 181(5) of the Constitution. However, the decision of the Supreme Court exonerates the Government from contractual liability and emboldens the Government to act with impunity towards investors and get away with it, with the ex post facto blessing of the Supreme Court.

As a whole, the Supreme Court's decisions on constitutionally illegal contracts detracts from the economic objective of the people of Ghana to promote foreign investment. The Supreme Court makes the investor solely culpable for a wrong that the Government commits or is, at least, actively complicit in. Granted that it is incumbent on an investor to conduct the necessary due diligence checks to ensure that a transaction complies with local laws, it is submitted that the consequences of an unapproved IBETs are more severe for investors as they run the risk of losing not only their expected revenue, but the monies invested. The Constitution and case law do not provide any redress for an investor that is not equally at fault for non-compliance with article 181(5), and the good faith of the investor is immaterial.

The Parliament is also responsible for disorienting the legitimate expectations of investors under IBETs. The Constitution entrusted the power to modify the application of article 181(5) to IBETs to Parliament. For 30 years, Parliament has failed, refused or neglected to make any modification. It has ceded that space to the Supreme Court to engage in 'legislation by the accident of litigation.' It presupposes that it was not the intention of the drafters of the Constitution that article 181(1) and (2) in respect of approval of loan agreements with the Government should apply strictly to IBETs under 181(5). This is the conundrum. In Balkan Energy, the Supreme Court out of necessity, first implied the word 'major' into article 181(5), and then ruled that the Attorney-General should certify which IBETs were 'major' and required parliamentary approval, and which were not major so did not require the approval. However, 11 years later Parliament is yet to act to fill the lacuna. The long delay is inexcusable.


These recommendations provide legislative, judicial and institutional relief to alleviate the burden of investors caught in the web of an unconstitutional contract without whittling-down the purpose of parliamentary scrutiny under article 181 (5).

The first recommendation is for Parliament to comply with article 181(5) and pass an Act that clearly sets out the approval regime, thresholds and procedure for IBETs. What has happened in the absence of legislation, and since Faroe Atlantic, Waterville and Balkan Energy, is that at the formation stage of contracts involving the Government, there are likely to be two key provisions demanded to be inserted. First, a provision for sovereign risk insurance with the expensive premiums paid by Government, so that whether there is a default for whatever reason, including Supreme Court decisions that declare the contracts illegal, the investor falls on the insurance. Second, transactions almost mandatorily have an international arbitration clause because international arbitral panels have shown more willingness to hold that the Government is estopped from relying on its failure to send IBET for parliamentary approval as a defence, notwithstanding what the Constitution and the decided cases say.

The second recommendation is that the Supreme Court must review its previous decisions on this matter. As the highest court of the land, the decisions of the Supreme Court are binding on itself and all other lower courts.9 Until the Supreme Court departs from the precedent discussed above,10 all courts in Ghana must necessarily apply this law in all disputes of this nature. For the reasons elaborated above, the Court must adopt a different stance.

Rather than allowing the Government to benefit from unjust enrichment, to do justice, the Court must strike a balance between the public and private interest.

The Supreme Court may do this by modifying the precedent in City and Country Waste Limited v. Accra Metropolitan Assembly (AMA)11 ('AMA case') in relation to constitutionally illegal contracts. The AMA case concerned a contract between a private entity and a government agency that contravened statute. The Supreme Court held that even though parties were bound by the unenforceability of an illegal contract, to avoid unjust enrichment, the Court will award just compensation to a party who has rendered services under an unenforceable contract but who is not equally at fault. In determining whether the plaintiff was equally at fault, the Supreme Court considered 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.

In modifying the principle in the AMA case, the Supreme Court must ensure that neither party retains the benefit of the illegal contract. Provided the investor is proven not to be equally at fault, where funds have been advanced under the contract by the Government, they must not be recoverable by the Government unless there was total failure of consideration12 on the part of the investor. The investor should only be allowed to retain funds equal to the amount of money spent in fulfilling its contractual obligations. Where funds are yet to be advanced under the contract to the investor, the Court must award just compensation to the investor equal to the amount of money spent in fulfilling its contractual obligations. The Court must always hold the Government to a higher standard of constitutional compliance than an investor, as the Government has a duty to uphold the provisions and tenets of the Constitution.

Without evoking debate, the Constitution is the supreme law of Ghana and its provisions are superior to any other law or action that is not in conformance with the Constitution. However, the Constitution recognises the application of international law. Article 73 of the Constitution provides that the Government (which includes the judiciary in this context) shall conduct its international affairs in consonance with the accepted principles of public international law and diplomacy in a manner consistent with the national interest of Ghana. Certain scholars of international investment law have propounded that so long as one of the parties to a contract is a non-national, international law would govern the contract by providing certain international minimum standards with respect to the treatment of aliens. In Aminoil v Kuwait,13 the tribunal held that even if the host state's law is the relevant law, it is still subject to the standards of international law, so that if it conflicts with the standards of international law, it must give way to those standards.

The treatment of investors on an international minimum standard is consistent with Ghana's national interest as it serves to promote foreign investment on a fair scale. The Supreme Court must therefore acknowledge the application of international minimum standards in relation to the Government such that it is bound to act in accordance with principles of international law where the Supreme Court is called upon to resolve IBETs with the Government. The argument is simple: even if the courts decide that unapproved IBETs are unconstitutional, it must not woefully defeat the expectations of investors in an agreement that the Government has spited. Investors must receive due reparations.

The third recommendation is that the Government must establish an independent and centralised institution whose mandate will be to supervise IBETs within the meaning of the Constitution. This institution will work together with the Government and investors to provide legal safeguards during the negotiation of such contracts to avert contravening any local laws in Ghana. The institution will facilitate the entire investment process and liaise with other regulatory institutions to ensure compliance with Ghanaian law, including chaperoning the submission of IBETs to which the Government is a party to Parliament for approval. Additionally, article 181(5) seeks to apply the loan approval procedure under article 181(1) and (2) to IBETs, and knowing that the entire procedure could not apply, the framers of the Constitution entrusted Parliament with the power to make mutatis mutandis modifications by statute. Parliament should therefore make the necessary modifications.


Notwithstanding this judicial setback, Ghana makes for a great investment opportunity. However, pending the implementation of these recommendations, multinational corporations are advised to be extremely vigilant in complying with all the legal requirements for foreign investment in Ghana. The Government has a constitutional duty to restore investor confidence in IBETs to incentivize multinational corporations to invest in Ghana. With Ghana hosting the Secretariat of the African Continental Free Trade Area (AfCFTA) and as one of the biggest contributors of the AfCFTA,14 it must signal to the international market in principle and practice that her foreign investment policy will not discriminate unjustly and unfairly against investors.


1 Constitution, article 34 (1). Under the 1992 Constitution, the Directive Principles of State Policy are a set of political, social, and economic objectives that guides all citizens, Parliament, the President, the Judiciary, the Council of State, the Cabinet, political parties and other bodies and persons in applying or interpreting the Constitution and implementing policy. Foreign investment is part of the economic objectives under the Directive Principles of State Policy

2 id, 36 (4)

3 id, 1. The Sovereignty of Ghana resides in the people of Ghana and the powers of government are to be exercised in the name of the people and for their welfare

4 [2005-2006] SCGLR 271

5 Constitution, Second Schedule (Forms of Oath). Supreme Court judges make an oath to uphold, preserve, protect and defend the Constitution and laws of the Republic of Ghana at all times

6 Re MahMoud and Ispahani [1921] 2 KB 716

7 [2013-2014] 1 SCGLR 152

8 [2012] 2 SCGLR 998. Caveat: the law firm of the writers acted as defendants' counsel in this matter

9 Constitution, article 129(1) and (2)

10 id, article 129(3)

11 [2007-2008] SCGLR 409

12 At common law, total failure of consideration occurs where the consideration offered becomes worthless compared to the value of the contract, or if the party promising to furnish the consideration fails to do so. This common law principle is applicable in Ghana pursuant to article 11 of the Constitution which includes the received common law as of 1874 as a source of law in Ghana

13 21 ILM 976

14 Ighobor, K. (2020), 'AfCFTA Secretariat commissioned in Accra as free trade is set to begin in January 2021' (United Nations). (Accessed on 20 January 2023)

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.

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