Feature Article of Wednesday, 18 July 2012
Columnist: Ahamed, Baba
The issue of judgment debts has captured headlines for quite some time and there seem to be no insight to the end of this saga. In the light of this, I have thought it is necessary to open a discussion on how we have come be in the position that we are today and what lessons can be learned from it.
To begin with, judgment debt is the amount of money awarded by court to winner of a court case and payable by the losing party. When the losing party defaults in settling this debt, interest may accrue on the principal amount, hence increasing the liability.
From government sources, several millions of debts have been paid (or are to be paid) out in judgment debts to individuals and companies most of which relate to contracts breaches. Notable amongst these payments include GHC 52 Million paid to Alfred Woyome, EUR 94 Million paid to CP, nearly USD 6.6 million to be paid by AMA to CCWL and USD 400,000 to ISOFOTON SA. Indications are that there could be further judgment debts to be paid by government in respect of contract breaches and untimely abrogation.
However, there are several twists to these payments because it has been pointed out that, there were still on-going court cases on some of the contracts but the NDC government “jumped the gun” to settle the so called judgment debts. Officials of the previous NPP governments have even argued that in some cases, there was no contract with the parties being paid these whopping sums (ISOFOTON SA case is an example).
The question however is, how could the state be making payments (judgment or out of court settlement) for purported contract breaches when in fact contract did not exist? Is this a manifestation of the fact that our state attorneys are not up to their tasks as it was revealed when they sought wrong remedies in the Supreme Court in respect of the on-going Ken Agyapong’s? If contracts did really exist, why did the previous government failed to perform these contractual obligations? Did they deliberately breach these contracts because they thought the terms were not commercially beneficial to the country?
Given the general lighthearted treatment of promises by people, one may argue that the concept of contract obligations and the resulting consequences of any breaches are not taking seriously by people. In our daily lives, the concept of time, meeting appointments and promises are often not taking seriously. It is often normal to be an hour late to an appointment without having to apologize (depending on your rank of course) or not even turn up at all (usually in private appointments). This generally relaxed attitude to time, appointments or honouring promises may have blurred our understanding of the obligations placed upon us when we enter into contractual agreements, be they written or unwritten.
There is also the perception that people at the top hierarchy can always get away with anything and they have the final authority, even on issues that they should not be meddling with. Due to this attitude, we have such problems as land litigations resulting from multiple sales of lands to different people by different chiefs. It has almost become a practice where by newly installed chiefs think they can undo what their predecessor did thereby reversing land tittles obtained under the deceased chiefs and making new sales when in fact, they are not “owners” of the lands, but custodians of the land to be held in trust for the benefit of their communities. Could this attitude of “New king, new rules” have played into the government machinery which led to some contracts entered into by the NDC being overturned by NPP when they took power in 20001 and vice versa?
The concept of contract:
I must state that I am not a lawyer but will try to explain the concept of contract and its implications in commercial perspective just to give an insight into why we may be incurring such debts (provided contracts actually existed).
Contract is an agreement between two or more parties which is legally binding. The contract does not have to be written to be legally binding on parties. Thus, non-written agreements and previous practices can be construed to give rise to legally enforceable contracts.
A typical example of a non-written agreement: Let’s assume a carpenter called Mr James has an apprentice called John. John helps his master is executing all his contracts but he is not mastered to be on his own. James will often give John 20% of contract proceeds on every successful job executed. However, there is no written agreement that John will be paid this amount anytime they get a job order.
In the month of July 2012, James son had a lucrative contract to roof a new home in East Legon. His son will be going to university in two months’ time. As such, James saw an opportunity to use the proceeds of the new job to pay his son fees. After completing the job, he gives his assistant an amount equal to 7% of the contract price. Having worked with his master for a couple of years, John knows this amount is too small and does not fairly reflect work he has done. Can he claim that his master has not fulfilled a contract? Yes, though not written, contract can be construed from previous practices.
Other agreements: Not all forms of agreements constitute a contract. For instance, promises between friends such as visits to each other, sweet promises to spouses and other relations do not generally constitute legally enforceable contracts if unfulfilled.
Special circumstances: Generally one cannot enter into contract with minors. However, there are special circumstances where a contract entered with a minor can be enforceable. Let’s consider this scenario. A very affluent business man by name Alhaji Damba’s son books the biggest conference facility in a 5 star hotel for his 16th birthday with full catering provided by the hotel for hundreds of guests. The boy is noted for his affluent lifestyle. After enjoying himself with friends and family, the boy refuses to pay the hotel, arguing that he is a minor and could not have entered into this contract. This will be a special instance where contract with the minor is likely enforceable in the court given the boy’s fathers’ status and his own affluent lifestyle.
Nullification of contract: Contract can be nullified, that is, not enforceable for various reasons including:
1. Contract entered into under duress, that is, one party being coerced (not willingly) into the contract
2. None disclosure or concealment of vital information that could have affected the contract, had either party disclosed it to the other,
3. Illegality (null from inception, treated as if contract never existed at all), for instance, contract to sully banned substances cannot be enforced in any court. This may be the reason why criminals go after each other in their own way when their counterparts do not honour their side of the “obligation” (which does not exist in the face of the law).
From the judgment debts saga, it does not seem that the contracts were nullified as the state would have had no obligation whatsoever to pay the other parties, had the contracts being found to be null and void. Hence there is the need for further analysis as to why such huge judgment debts have been incurred.
Contract Price: Courts are not valuation boards, so if you enter into contract at disadvantaged price, it is your own problem. So for government to enter into any contract at terms that are less favourable, this cannot be simply abrogated by a new government on the basis that the people are not getting value under the terms of contract entered into by previous government.
Even though the parties to a contract are all obliged to discharge their responsibilities, there are always possibilities of breaches. Most commercially written contract envisages such situations and will have early termination or exit clauses that would result in one party paying possible damages or exit prices so as to make for possible loss to the other party due to the early exit or termination by the exiting party.
It may therefore be prudent to do Cost-Benefit-Analysis of the loss in value if the contract is fulfilled against possible damages resulting from non-performance of the obligation under the contract. Thus, an informed decision can be made by the party wanting to exit (breach) the contract based on the financial burden versus savings when contract is breached. To my dismay, I have not seen this analysis from either the NDC government or the opposition NPP relating to the contracts that have been supposedly breached or abrogated and the resulting judgment debts now being paid.
Contract Breaches: As explained earlier, contracts are entered into with the intention of both parties discharging their respective obligations fully. Any unfulfilled obligation would result in a breach and the aggrieved party can seek some form of relief for the breach. These reliefs or remedies can be in different forms including;
1. Specific performance (if any other damages will be unfair to one party) where one party prays to the court to seek the other party to perform tasks or obligations outlined in the contract.
2. Damages: The aggrieved party may sue for some financial compensation in respect of the breach. Damages are not meant to be financial profits but an estimate of possible financial loss to the other party resulting from the breach of contract.
3. Other remedies that the courts deem appropriate
From the above, the remedies that have been sought by the aggrieved parties against the state have been largely damages resulting in the huge amounts paid to individuals and companies.
The way forward:
I suppose this is a bitter lesson for people in authority and individuals at large to understand the concept of contract and the binding legal obligations that comes with it. A contract is not a mere promise or the usual “fat lies” that have become part of our lives. A contract, whether written of not is legally binding and must be treated as such.
By: Baba Ahamed
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