Issues for Tanzania government in breach of contract claims

Simply defined, a ‘contract’ is an agreement that creates rights and obligations which are enforced or recognised by law. In deciding whether the parties have reached ‘agreement’, the courts of law will apply an objective test.

If, without lawful excuse, a party fails or refuses to perform its contractual obligations, the party may be liable for damages for breach of contract.

As the government of Tanzania is using contracts to deliver public services, what is the suitable response of the courts of law when the government breaches a contract?

It’s trite to say that the purpose of awarding damages for a breach of contract claim is to compensate the injured party; however, damages are generally meant to put a claimant in the position in which they would have been had the breach not occurred. Moreover, the burden of proof in civil lawsuits is normally on the claimant to establish the loss suffered.

Where the government of Tanzania (hereinafter, “the government”) is the aggrieved party claiming for monetary damages, such damages may be difficult to assess, since most direct loss—deemed to be reasonably foreseeable, and within the contemplation of the parties—suffered by the government in managing contract defaults will be internal; for example, upsetting the operations of the government. Then there is the ‘privity of contract’ doctrine, which establishes that only a person who is a party to a contract can sue or be sued on it.

In view of this doctrine, would losses to third parties who would have benefited under a government-led water and sanitation project at Madaba village in Tanga Region—had the contractor fulfilled its obligations—be a loss to the government? Damages for breach of contract are, in general, compensatory i.e. they are measured by the loss to the government as plaintiff and not the gain to the contractor as defendant. This is juxtaposed with the tort law which recognises the award of restitutionary damages in some negligence claims. In brief, the goal of restitutionary damages is to deprive a defendant the wrongful gains made by committing a wrong or breaching a contract.

When a contractor breaches the terms of a government contract, the question of whether the government has a remedy presents many challenges. The government may learn of the breach after the contractor has rendered the services.

Also, the contractor may be one of very few in the Tanzanian marketplace that the government relies on for the supply of a particular service or good; and thus, unwilling to engage in a court battle with the contractor.

What’s more is that records of the activities that were not performed may be inaccessible, making it difficult to determine whether a breach of contract lawsuit against the contractor is justified.

In the example of the government-led water and sanitation project in Madaba village, a contractor’s breach may not cause financial loss to the government—the people of Madaba village fail to benefit from the project. In addition, unlike private commercial parties to contracts, the government does not operate on a profit and loss (P&L) basis.

The government wants to secure the services set out in the contract for the public. Furthermore, equitable remedies (such as, specific performance and interlocutory injunction) are discretionary; and there are conditions to be met before a court of law exercises the discretion to grant the remedies. It is not easy to surmount the conditions in regards to government contracts. Suppose a contractor derives a benefit from a breach of contract and there is no corresponding loss suffered by the government, can the government claim damages? This is another key issue for government to consider in potential breach of contract claims against contractors.

Because of the difficulty in proving loss, the court may award nominal damages. Suppose also that the government overpays a contractor, would that be regarded as a loss that could be compensated?

Given the difficulties facing the government in obtaining damages for breach of contract, the next part of our ongoing Tanzania government contracting series on Saturday, 12 October 2019, will focus on contract drafting and management.

Lilian Kyaruzi ([email protected]) is a legal director in Isidora & Company and an international development enthusiast. The views expressed here do not necessarily reflect those of  Isidora & Company.