Settlement of government contract disputes in Tanzania
"It ain’t over till it’s over. And yet the question remains: When, exactly, is it over?
Perhaps the safest answer, when it comes to litigation, is that it is never over, at least if we mean absolutely and irretrievably over.” Aaron-Andrew P. Bruhl, “When Is Finality . . . Final? Rehearing and Resurrection in the Supreme Court,” The Journal of Appellate Practice and Process 12, no.1 (2011): 1. Negotiating an out-of-court settlement is usually the best route to a most favourable outcome possible under the circumstances.
A settlement allows finality and certainty as the contractor and the government (“the parties”) eliminate the probability of losing in court and put an end to a troubled relationship. Moreover, a settlement saves time, expense, and the publicity produced by litigation.
However, in the course of negotiating a settlement with the government, contractors are apprehensive, as is sometimes the case, about the government not adhering to the terms of the settlement agreement, or otherwise frustrating the agreement and about suffering irreparable loss without effective recourse against the government for the loss.
Where do these apprehensions come from? Finality clauses.
Finality clauses are often contained in settlement agreements, in which the parties can agree, among other things, that the contractor will waive all rights to recover damages or costs under the contract with the government and to discharge the government from all obligations and liabilities to the contractor.
The parties can also agree that the contractor would have no claim against the government, in contract or otherwise, now or in the future, under or arising out of the contract. Such is the content of a finality clause.
There is a severe death of judicial precedent in Tanzania on the effect of finality clauses appearing in government contracts.
However, on August 16, 2018, the US Court of Appeals for the Federal Circuit in Timothy Labatte vs United States, No. 2017-2396, handed down a very significant decision clarifying that a finality clause in a settlement agreement does not bar a person from pursuing a lawsuit at the Court of Federal Claims for a breach of the agreement.
Several legal commentators have rightly hailed the decision as a breakthrough for the protection of contractors entering such agreements with the US federal government. The Federal Circuit also established that the termination of the settlement agreement itself did not mean the plaintiffs were left without any remedy.
The Labatte decision made last year in the US may be persuasive but not binding on Tanzanian courts.
Nevertheless, government contractors bidding and executing works in Tanzania should not inadvertently give up on its rights to seek legal remedies for breach of settlement agreements entered into with the government.
Granted, such agreements precede extended negotiations and may give the impression of the end of a ‘David and Goliath’ court battle, but, to my mind, it is crucial to examine wisely each clause in the agreement to ensure that it does not undermine the overall purpose of the agreement.
Furthermore, it is crucial to ensure that the settlement agreement does not encompass what are commonly referred to as “carve-out” clauses that preserve specific liabilities.
This is especially so if the contractor and the government intend that the agreement entombs all legal proceedings and claims of any kind regarding a particular dispute arising out of a government contract. Let’s face it: it is imperative to encapsulate the mutual intentions of the parties when crafting a settlement agreement.
As retired Judge and former Attorney General of Tanzania, Mr Frederick Mwita Werema, would counsel me, “A succinctly written contract which captures the true intention of the parties to the contract will decrease litigation”.
The same is true for a settlement agreement.
But having said that, settlement agreements should not be long and complicated.
The contents of each settlement agreement will vary depending on the particular circumstances of the case being settled; however, to most such agreements, setting out the dispute and the terms of settlement, including the amount of compensation to be paid, is adequate.
And while that may sound simple, not adhering to these considerations could mean regressing into protracted arbitration or litigation.
Lilian Kyaruzi ([email protected]) is a legal director in Isidora & Company and an international development enthusiast. The views expressed do not necessarily reflect those of Isidora & Company.
