Enforceability of MoUs in Tanzania

Saturday August 18 2018


Recently, I was in Thailand to explore business opportunities for my company in Tanzania. As I see a promising future, I would like to propose the signing of a Memorandum of Understanding (MoU) between the Thai company and my company. Will the MoU be binding and enforceable?

Whether the MoU is binding or not is a question which is subject to adjudication by the Tanzanian courts. That said, in terms of the Contract Act, Cap 345 (R.E 2002), one of the conditions of a valid contract is the intention of the parties to enter into a binding agreement or obligation—which results in the creation of a contract. Enforceability of the MoU depends upon the intention of the parties as reflected in the terms of the MoU and, of course, the fulfillment of other conditions of a valid contract (presence of a valid offer, acceptance, and consideration).

If, for instance, enforcement provisions on breach by either party are included in the MoU, this will confirm the parties’ intention to enter into a binding agreement. However, as stated earlier, whether the MoU is binding or not is a question which is subject to court adjudication. It is important to exercise caution when drafting the language of the MoU: for example, the use of the word “shall” denotes binding effect.

I’m contemplating to establish a small and medium enterprise (SME) in the export business after retiring from the Tanzanian civil service. As I have never worked in the private sector, I have a lot to start learning. Could you please enlighten me on the risks of getting sued as an SME owner in Tanzania?

In any business undertaking, there are legal risks. But it is not usually clear what those risks are. Some businesses, irrespective of size, are at higher risks for court action than others. Moreover, SMEs and their owners can face court action in a number of contexts: allegations of intellectual property (IP) infringement; labour disputes; and/or commercial disputes. Recognizing where you are most at risk and formulating and implementing a strategy to minimize that risk is the first step to avoiding legal risks. If possible, you should seek the advice of your professional lawyer to help you identify and take steps to reduce those risks.

I’m a Tanzanian citizen having significant business interests in South Africa. Should I be concerned about how I write my will?

There may be tax and administration implications. Your advocate can advise you about these and other implications and how they could affect your will. At the outset, you need to list all the properties in your estate, in and outside Tanzania. Then, you can decide how you would like to share the estate between beneficiaries. You also need to give thought to what happens if any of your beneficiaries die before you do. After you have written your will, you should review it regularly to ensure it reflects your wishes.

In a retrenchment exercise, must our company justify why some employees are selected over the other employees and how can we best do this?

When retrenching employees, you justify the selection process by evaluating all affected employees in a particular job category. The evaluation is done against the pre-determined parameters, such as skill set and performance. However, if the employer persuades employees to resign and pay them entitlements, this is risky in that the employees might allege undue influence or duress; and it is, therefore, not advisable. For more tips on how to conduct a retrenchment, see the article: Kibuuka, Paul. “Consultation is vital to retrenchment process.” The Citizen. March 16, 2018.

I’m an agro-commodities trader based at Mbeya city, Tanzania and I operate across the country. Now I need to make a power of attorney, but I would like to know if it will affect my will. What else do I need to know?

In relation to whether your power of attorney will affect your will, the answer is, no. A power of attorney only operates while you are alive; when you die, it is inevitably cancelled. But you should make a power of attorney if you understand what you are signing; in other words, if you have mental capacity.

If there is doubt about your capacity, an assessment of your understanding needs to be made by a certified psychologist or psychiatrist. You can clarify in the power of attorney that you only want your attorney’s power to commence if and when you become incapable of making your own decisions.