Questions relating to contractual capacity of government agencies are perennial concerns of business-to-government vendors. Justice K. I. Okpe of Enugu State High Court denied the claims of Scientific Synergy Consult Ltd (“Scientific Synergy”) that Enugu State Board of Internal Revenue Service (ESIRS) reneged on its contractual duty to pay to it 20% of all monies recovered in respect of any back-duty tax audit Scientific Synergy had carried out.
According to Professor Edwin O. Ezike, “it is now clear that there is need to ascertain the capacity under which government departments, agencies, officials and servants act, including the extent of their authority, prior to contracting with them”
The suit was titled Attorney-General (AG) of Enugu State & another v. Scientific Synergy Consult Limited & another (unreported) suit number E/572/2020. The Honourable Justice Okpe who delivered the judgment on 25th November, 2021, found amongst others that the retainer agreement between ESIRS and Scientific Synergy was not validly executed.
In Godwin Azubuike & another v. Government of Enugu State & another, (2013) LPELR-20381, Mr. Azubuike argued that Government of Enugu State breached the contract Mr. Azubuike entered into with Enugu State Special Standing Committee on Anti-government Activities (the “Committee”) after Mr. Azubuike had fully performed his duty to search, locate and recover properties of the former Anambra State.
The plank of parties’ dispute was whether the award of the contract by the chairman of the Committee is enforceable against Enugu State Government. The court of appeal found that pleadings and evidence failed to disclose the Committee’s powers, functions and authorization.
Following a longline of decided cases, the court of appeal found that it is “necessary that in any action against the government of a State on account of a contract made by its agent, the plaintiff plead in the statement of claim and adduce evidence of facts showing its relationship with the government of the State and that the contract was made in pursuance of the purposes and objects for which it is set up and in exercise of the powers and functions authorized by the State.
The English Court in the Law Debenture Trust Corporation plc v Ukraine  EWHC 655, delivered on 29 March 2017, distinguished between authority and capacity of governments .
Blair J held that once a state is recognized as such, it has unlimited capacity to borrow and cannot be constrained by domestic law restrictions (constitutional or otherwise) on the state. Any lack of compliance with internal restrictions is properly characterized as a question of authority, rather than capacity.
The questions of capacity and authority are separate heads of due diligence for a transactional or commercial lawyer. Even though Nigerian appellate courts are, apparently, yet to reach any such remarkable distinction, with the clarity of thought show by its brother justices at the (lower) English court.
With Nigeria’s election cycles and consequent near partisan approach to continuity of governance, commercial experience of business-to-government (“B2G”) vendors show how aggrieved B2G vendors that invested all they had to finance government project cried home empty-handed without any compensation.
Not being able to enforce any such contract due to lack of or improper due diligence in respect of government agencies’ authority and capacity.
Due diligence by commercial lawyers or law firm is important when a B2G is contracting with a government through its agencies. The Government is a creation of law and its action are regulated by law.
Any contractual obligations of the government or its agencies that is ultra-vires is generally a nullity even when the government has derived benefit from such action.
The principle of ostensible authority may remedy an otherwise ultra-vires contract. In AG Enugu State v. Scientific Synergy (supra), Scientific Synergy tendered certified-true-copies of national newspaper to prove that the chairman of ESIRS at the material time was a person the State Government held out to be the chairman, ESIRS.
The Justice Okpe’s court did not evaluate Scientific Synergy’s evidence in respect of ostensible authority of Mr. Flex Chime who the State Government duly held out as ESIRS’ chairman.
Government agencies in the context of this article include governments, departments, ministries, committees, agencies, boards, sub-committees, officials, and servants.
Some government agencies may be temporary or permanent organizations in public administration, established by a legislation or pursuant to executive or statutory powers
Any B2G contracting with government agencies established by legislation is not likely to run into difficulties given that legislation creating any such government agencies are nearly always in public domain.
Due diligence in respect of any other government agencies not created by legislation are more or less cumbersome.
Access to information, a right under the Freedom of Information Act and respective State Fiscal Responsibility Laws is generally observed in breach – it ought not to be so.
A critical due diligence guide for any B2G contracting with government agencies created by executive orders would be the relevant state or national gazette.
GOVERNMENT AGENCIES CAPACITY AND AUTHORITY TO CONTRACT
Section 95(2), Enugu State Contract Law, provides that the authority of a servant or agent is ostensible when the servant or agent though not in fact so authorized, has been held out by the master or principal, as the case may be, or by someone, having authority to do so.
Section 91(2), Enugu State Contract Law, binds the State to a contract made on its behalf by its servants or agents where such contract is within the authority, actual or ostensible, of such servant or agent.
In our view, s.91(2) states that any government agencies must act within the authority and power conferred on it by Gazette that created it, if a child of executive powers or by the enabling legislation that include subsidiary legislation.
Any person or public body, expressly or impliedly, given powers or duties for public purposes, has no capacity to make any contract which is incompatible with the due exercise of its powers or the due discharge of its duties (s.92, Enugu State Contract law).
Due process is a procedural requirement and its breach will vitiate contractual bindingness on any government agencies or the state. A commercial lawyer is better suited to assist a B2G vendor with due diligence in respect of actual or ostensible authority and capacity of government agencies.
Contracting with government agencies outside its scope of authority, are generally considered by Nigerian Courts as null and void or not binding on the government agencies.
Nigeria’s apex court in Knight Frank & Rutley Nigeria Limited v. Attorney General of Kano State (1998) 7 NWLR (Pt. 556) refused to apply equitable estoppel in spite of the fact that Knight Frank & Rutley Nigeria Limited had relied on Kano State government official’s promise to its detriment.
The judicial mantra that the most reliable, if not the best evidence is documentary evidence (OSIBOWALE v. CARRIBEAN FINANCE LTD & ORS (2011) LPELR-4548)) is only true where a B2G has strictly undertaken due diligence and locked in all procedural requirements of contracting with government agencies.
Subject to any procurement legislation, such steps include:
- publication of invitation to tender (bids) in national newspaper;
- opening of bid (tender) in a place with public access and before the public;
- successful bid selection;
- notice of successful applicant or bidder to the state executive council (where applicable) or to the approving government agencies;
- approval and appointment of vendor; and
- notice of approval to vendor and documentations
In any contractual relationship with government agencies, the B2G vendor will always be the victim of procedural irregularities or non-compliance and business best practice requires it to engage a commercial lawyer to assist it with due diligence and contract documentation.
Emmanuel Urama ESQ.
Emmanuel who heads our commercial dispute and litigation group may be reached on firstname.lastname@example.org