This article is an excerpt from The Art of Tendering: A Global Due Diligence Guide, which is available for purchase.
In its November 2009 decision in National Transport Co-operative Society Ltd v. The Attorney General of Jamaica, the Judicial Committee of the Privy Council found the government of Jamaica liable for improperly terminating a bus transportation services contract that was awarded pursuant to a tendering process. The government initially awarded a ten-year deal to the contractor for bus services in Kingston, Jamaica. A dispute arose with the contractor over service rates, which led to an arbitration ruling against the government. The government then relied on its original lack of statutory authority to award the contract as the basis for terminating the deal and avoiding the arbitration ruling. It then awarded a new contract to a different state-owned bus company. The contractor sued for breach of contract. As the Privy Council summarized, the lower courts in Jamaica reluctantly allowed the government to rely on its own lack of authority as a reason to avoid contractual liability and ruled in favour of the government:
This appeal is brought by the National Transport Co-operative Society Limited (“the Society”) against a decision given on 9 May 2008 (with reasons provided a month later) by the Court of Appeal of Jamaica, dismissing an appeal brought by the Society against a decision given on 29 November 2004 by Brooks J, setting aside an award made by arbitrators on 2 October 2003 in relation to a dispute between the Society and the Government of Jamaica (acting through the Attorney General).
The Government, acting through the Minister of Public Utilities and Transport (“the Minister”), entered into two Franchise Agreements with the Society whereby the Society was permitted and required to provide public transportation services, through a specified number of buses of different capacities along identified routes within defined areas in and around Kingston for ten years at fare rates set out in a table. After the Government had unilaterally determined the agreements, there were arbitration proceedings to determine whether the Society was entitled to damages suffered as a result of the Government having failed to publish a new fare table which would have increased the level of permitted fares. Two lines of defence were raised by the Government which require to be considered on this appeal.
The first issue is whether the Franchise Agreements were enforceable at all. The Government contends that they were purportedly entered into pursuant to legislation with which they did not comply, and that they are therefore ineffective, and, indeed, that their operation would have been illegal by virtue of other legislation. The Judge, at the start of his judgment, described the Government’s case on this first issue as “truly remarkable“, and went on to describe it as follows “although the Minister … on behalf of the Government … entered into a Franchise Agreement with … the Society, and although the parties expended tens of millions of dollars each pursuant to the said agreement, and although the parties entered into a second agreement which recognised the existence of the Franchise Agreement, and although, upon the said Minister seeking to unilaterally terminate the Franchise Agreement, the parties agreed to have their differences settled by reference to arbitrators …, and although all of this was conducted in the glare of public scrutiny, nonetheless, say the lawyers [for the Attorney General on behalf of the Government], the Franchise Agreement was illegal, and of no effect, as the said Minister had no legal authority to contract as he did.“
Despite his evident, and unsurprising, distaste for the Government’s contention on this issue, the Judge concluded that he was constrained to accept it, and the Court of Appeal agreed.
However, the Privy Council reversed part of that ruling, finding that while the government lacked statutory authority to award a ten-year deal, it had authority under other legislation to award a three-year deal. The case was sent back to Jamaica’s Court of Appeal for a ruling on liability for the improper termination of a three-year contract.
As this case illustrates, purchasing institutions should ensure that they have the appropriate authority and approvals to award a contract prior to initiating a tendering process or awarding a resulting contract.
