It is a general principle of law that from an illegal action, no rights will accrue or will be enforceable. In its Latin rendition, this principle is reflected in the maxim ex turpi causa non oritur actio. While it is straightforward and based on good sense and rests on a sound legal frame, it may equally present a moral dilemma for a court. This dilemma was expressed thus by Lord Bingham in Saunders v Edwards [1987] 1 WLR 1116, at 1134:
Where issues of illegality are raised, the courts have to steer a middle course between two unacceptable positions. On the one hand, it is unacceptable that any court of law should aid or lend its authority to a party seeking to pursue or enforce an object or agreement which the law prohibits. On the other hand, it is unacceptable that the court should, on the first indication of unlawfulness affecting any part of a transaction, draw up its skirts and refuse all assistance to the plaintiff, no matter how serious his loss not how disproportionate his loss to the unlawfulness of his conduct.
In Centurion Engineers & Builders Limited v Kenya Bureau of Standards (Nairobi Court of Civil Appeal E398 of 2021) [2023] KECA 1289 (KLR), the Kenya Court of Appeal was faced with an appeal from the High Court, by whose determination an arbitral Award was set aside for being contrary to a statute, the Public Procurement and Disposal Act, 2005 (since repealed).
In this case, the appellant, Centurion, had been contracted to perform works for the respondent, Kenya Bureau of Standards (KeBS). After the contract was entered into, the contract was varied, with the upshot that the contract value drastically shot up. Under section 47 of the (now repealed) Public Procurement and Disposal Act 2005, contract variation for works was allowable where the variance did not shoot up by more than 15% of the initial contractual value. In this case, it had shot up from Ksh 79.9 million to Ksh 378 million. Under the law, the maximum allowable variation would have been Ksh 11.8 million, otherwise, a fresh tender would have had to be issued.
Kenya Bureau of Standards refused to pay the sum demanded after the variation. Centurion commenced proceedings, which were stayed, in deference to an arbitration clause in the Agreement. Centurion succeeded in the arbitral proceedings and moved to court to enforce the Award. KeBS moved to court to have the arbitral Award set aside. Tuiyott, J (as he then was) set aside the Award for being contrary to section 47 of the PPDA then in force; holding that enforcing a contract that flew in the face of the statute was contrary to public policy. In a detailed analysis of the law limiting variation of public contracts, the High Court held that there was an overriding public policy concern to safeguard public resources and to ensure that publicly awarded tenders are not tinkered with in such a manner as to render the statute on public procurement meaningless.
Centurion appealed to the Court of Appeal. The Court of Appeal allowed the appeal, holding that there was evidence that the works were done under the Supplementary Agreement varying the original contract, for which KeBS was liable to pay, and that, KeBS could not, as an afterthought, in order to avoid liability, turn around and allege that the contract was tainted by illegality.
This was a rational decision, but the Court missed an opportunity to establish a principled approach to the enforcement of contracts that are attended by a claim or allegation of illegality. Saying that there was a contract that a party was bound to perform, where there was a claim (even if disingenously raised to skirt around the contract, of illegality and violation of public policy), gave short shrift to what is a more complex question.
Firstly, not all illegal contracts are unenforceable. Courts have adopted a principled approach to dealing with such contracts. Where a contract can survive independent of the illegality, it will be enforced, as will be the case where there would be a perverse result, where a party in breach of the law obtains an unjust benefit from not meeting its part of the bargain because the bargain was tainted.
Secondly, where the parties’ private interest will not offend the public policy purpose of the rule, the contract can be kept alive. The policy purpose of the limitation on variation of the contract was to prevent a defeat of the circumvention of the strictures of public procurement law, and to ensure that tenders for public works deliver value for money. Unfortunately, the Court of Appeal did not dwell much on this point, which was given due attention by the High Court, and appeared to be the decisive factor in the High Court’s decision to set aside the Award enforcing the contract.
Clearly, the question as to the hierarchy of norms in deciding whether to enforce a contract tainted by illegality is one that courts will have to grapple with. It is as much a matter of public policy to generally enforce contracts, as it is to ensure that statutes are not rendered toothless by contractual clauses, especially such a statute as the PPDA, which is intended as a bulwark against procurement malpractice, and by extension, corruption and misuse and abuse of public resources.
As Lord Bingham in Saunders v Edwards summed it up, courts must try to adopt a judicious, pragmatic approach to see to it that ‘genuine wrongs are made good, as long as it does not promote a nefarious object which it would be otherwise bound to condemn.’ Centurion righted a wrong, but did it, in the same vein, open an avenue through which section 139 of the PPDA, which limits variations on public procurement contracts, to be sacrificed?
