FUNDAMENTAL RIGHTS AND PREROGATIVE WRITS IN BUSINESS AND COMMERCE
[8.1] Almost every day we read in the newspapers about breach of Fundamental Rights applications and Prerogative Writ applications filed before our Court of Appeal and our Supreme Court seeking some form of relief. It is also noteworthy that such applications are given priority for hearing and disposal by these two Superior Courts and they are taken up for consideration before the normal appeals are heard. We will first discuss fundamental rights applications and their relationship to business and commerce and then briefly outline the relevance of Prerogative Writ applications to a text on Commercial Law.
[8.2] These fundamental rights applications were not common until our current Constitution was enacted in August 1978. The 1975 Constitution also recognized fundamental rights but that Constitution omitted to lay down a simple and prompt procedure to obtain relief for any infringement of such rights. This omission was rectified in the 1978 Constitution.
[8.3] The main fundamental rights recognized by our Constitution are contained in Chapter 3, Articles 10 – 16. Article 17 read with Article 126 specifies the remedies and the method of enforcement for breach of fundamental right. They provide that any person can apply to the Supreme Court against any infringement or imminent infringement of a fundamental right as a result of an executive or administrative action. For our purposes, “executive or administration action” basically means a decision taken by the government, that is by a Minister, a Ministry, a public corporation, a statutory body or a public official. Thus, as a general statement, relief for breach of a fundamental right will lie against any public or state sector institution.
[8.4] The issue of fundamental rights in relation to business or commerce relates mainly to an infringement of Article 12 (1) and (2) of the Constitution which states as follows:
Article 12(1)
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Article 12(2)
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Resort in Recent Times to Breach of Fundamental Rights in Public Interest Litigation
[8.5] Any reader of this text must be aware how in the past two years, the Supreme Court of Sri Lanka was asked by a few concerned members of the public to set aside by way of Fundamental Rights petitions, certain commercial and business transactions entered into between private companies and the State Sector. The first such successful application was against the well known private sector company - John Keells to set aside the privatization of Lanka Marine Services a state owned asset. The Supreme Court by a Bench of Three Judges presided over by Chief Justice Sarath Silva granted the application and John Keels had to hand back that asset. The second similar case, was the attack on the Cabinet approved Waters Edge transaction where on a fundamental rights plea, the Supreme Court, headed also by Sarath Silva as the Chief Justice, set aside the Waters Edge transaction. The Court also ordered the former President (Chandrika Kumaratunga) and a few others to pay specified sums as compensation to the state for such wrongdoing and also ordered the private sector firm that had taken the land in question for a Tourist Hotel and a Golf course, to hand it back to the Urban Development Authority (UDA) etc. This was done and the Waters Edge complex is now run by the State through the UDA.
[8.6] The more recent attack through a Fundamental Rights petition was on the privatization of the State –owned Sri Lanka Insurance Corporation (SLIC). The privatization had taken place in 2004. In May 2009, a Three Judge bench of the Supreme Court once again presided over by the Chief Justice Sarath Silva, set aside the privatization as lacking transparency and even finding fault with the Auditors on whose reports the State had relied on in their decision to privatize the insurance giant. The Supreme Court ordered that the company that obtained the privatization be paid back their money and that the Sri Lanka Insurance Corporation be once again be made a State Sector Organization. So here we have a “judicial nationalization” of an insurance business- the largest in the Island – that had been privatized a few years back: see Supreme Court FR Application No.158/2007.
[8.7] Another Fundamental Rights application related to the Supreme Court setting aside the Hedging contracts on oil that the Ceylon Petroleum Corporation had entered into with several banks in Sri Lanka (Standard Chartered Bank, the Citibank and the People’s Bank). The Court held that “the Hedge” was not in the best interests of the nation: see The “Petroleum Hedge” that was cut down by our Supreme Court by Dr. Wickrema Weerasooria, The Bankers Journal, January to March 2009, pp 6-8.
[8.8] It is also significant to record that incidental to the John Keells case mentioned above, the then Secretary of the Treasury, the respected public servant, Mr. P.B.Jayasundera was directed by the Supreme Court to step down from his post and also tender an affidavit that he will not again hold any public office in Sri Lanka. However, after the retirement in June 2009 of the then Chief Justice Mr. Sarath Silva on his reaching the compulsory age of retirement for Supreme Court Judges, Mr. P.B.Jayasundara applied for and was permitted by a Seven Bench (Full Court) of the Supreme Court, presided over by the new Chief Justice (Mr. Asoka Silva), to hold public office once again and he was forthwith appointed by the President to his former post.
[8.9] Another commercial dispute that was resolved by the fundamental rights process was the petition by Laufgh’s Gas, which complained about a directive issued against it by the then Chairman of the Consumer Affairs Authority (CAA) (Mr.Sarath Wijesinghe). The Supreme Court directed the Chairman of CAA to suspend the directive until the matter was fully inquired. When the Chairman neglected to act as directed by the Supreme Court, he was charged for contempt of court by the Supreme Court and was later asked to resign and not hold any public office: see Divaina and other newspapers of 11 September 2007.
[8.10] The above mentioned cases – (i) John Keels and Lanka Marine Services (ii) the Waters Edge transaction (iii) the Sri Lanka Insurance Corporation privatization (iv) the Hedge for imports of oil by the Ceylon Petroleum Corporation and (v) the Reinstatement of Mr. P.B.Jayasundara Secretary, Ministry of Finance/ Treasury and (vi) contempt of court action taken by the Supreme Court against the Chairman of the Consumer Affairs Authority – were all the result of Fundamental Rights applications. Whether the Supreme Court was right and justified to treat these matters as part of their Constitutional jurisdiction, is an important issue which should be carefully addressed by our legal and constitutional community. Such issues cannot be suitably dealt with in a text of this nature. However, we felt we should mention these cases for purpose of record because human memory is short. The well-known saying is “we do not remember yesterday’s newspaper headlines”.
[8.11] We now examine several judicial decisions of our Supreme Court where businessmen have resorted to Articles 12(1) and 12(2) of our Constitution relating to Fundamental Rights seeking relief against decisions taken affecting their business.
Fundamental Rights, Private Commercial Contracts and
“Legitimate Expectations”.
[8.12] In Gunawardena v Petroleum Corporation (2001) 1 SLR 231, the Supreme Court decided the following two important issues.
(a) Fundamental Rights applications may have a bearing on Private Commercial rights. The Court will not refuse to entertain such applications merely because a contractual right is involved.
(b) The infringement of a ‘Legitimate Expectation’ of a Commercial nature can be the basis of a fundamental rights application
In that case, the petitioner’s father had been a dealer of the Ceylon Petroleum Corporation (CPC) for several years. After the father’s death, the petitioner asked the CPC to continue the dealership in his name because (i) he had worked with the father in the dealership and (ii) there was a practice in the CPC to give the dealership to a family member of the former dealer. However in this case, the CPC gave the dealership to an outsider who had no experience in the business. The Supreme Court held that the petitioner had a legitimate expectation that he would be appointed Dealer of the aforesaid Service Station upon satisfying prescribed conditions set out in the CPC Marketing Manual. Accordingly, the rights of the petitioner guaranteed by Article 12 (1) of the Constitution had been infringed.
It was argued on behalf of the CPC that the purported rights of the petitioner cannot be vindicated in a fundamental rights application. It was CPCs submission that the petitioner was seeking in his application to agitate a matter which is strictly within the realm of private commercial contract which does not fall within the purview of the fundamental rights jurisdiction of this Court.
[8.13] The Supreme Court noted that in their earlier decision in Wickrematunga v Anuruddha Ratwatte [1998] 1 Sri Lanka Reports p.201, the Court had recognized that a fundamental rights application under Article 12(1) of the Constitution can be filed to seek relief in a purely contractual or commercial dispute with a public institution. That case also concerned the cancellation of a long standing dealership by the Petroleum Corporation and there the petitioner was granted relief on a fundamental rights application for breach of a contract.
[8.14] The Supreme Court’s view was that Article 12 of the Constitution includes regulations, rules, directions, principles, guidelines and schemes that are designed to regulate public authorities in their conduct. In that context, public authorities must conform to constitutional requirements, in particular to those set out in Article 12 even in the sphere of contract. Accordingly, where there is a breach of contract and a violation of the provisions of Article 12 brought about by such breach, the aggrieved party can seek relief by a fundamental rights application although the issue related purely to a breach of contract. In the case before it, the petitioner was awarded Rs.250,000 as compensation for the breach of contract.
[8.15] The decision in Gunawardene v The Petroleum Corporation was followed in the case of Wickremasinghe v The Ceylon Petroleum Corporation [2001] 2 Sri Lanka Reports p.409. In this case, the petitioner had been a dealer of the CPC from as way back as 1949. He was then a dealer for the Shell Company at the same petrol station at Bambalapitiya near Dickman’s Road, when the CPC nationalized it and let him continue as the dealer. The average monthly sale came to about Rs.12 million. Now in 1998, the CPC terminated the dealership without reason and without notice saying that they wanted the premises to build their head office. In granting the petitioner relief under Article 12 (1) of the Constitution, Chief Justice Sarath Silva held that the CPC had contravened the petitioner’s fundamental rights and therefore the termination of the dealership was invalid and of no force in law. In granting such relief, the Court noted that the petitioner’s claim related to a breach of contract as well but it could be reviewed as a Constitutional issue relating to the guarantee of equality under Article 12 of the Constitution.
Fundamental Rights used to attack decisions on Government Tenders
[8.16] It is now common for Fundamental Rights petitions being used by Private sector Commercial concerns to attack and try to set aside decisions by government Ministries and Public Corporations on Tenders. The Supreme Court decisions support the general principle that the Award of government Tenders should follow a fair and transparent procedure. Following are some of the leading Supreme Court decisions on this topic.
[8.17] In Swissray Medical v Joe Fernando, Secretary, Ministry of Health, Supreme Court FR Application of 25th July 1994, there were three tenders for Dental X-Ray apparatus. The Tender Evaluation Board (TEB) of the Health Ministry rejected the petitioner’s tender which was the lowest offer saying there was one defect in the specifications. The tender selected also had shortcomings. The Supreme Court took the view that the petitioner had a good case. On this occasion the Court did not award the tender to the petitioner but ordered compensation. Justice Mark Fernando made the following observations which are useful guides for those seeking relief on Tenders. He said:
“Equality before the law, in the field of public tenders, recognizes that a tenderer has a right to be duly considered, though he has no right to be awarded the tender. An aggrieved person does not have to prove that his right was totally denied: there is an infringement even when his right is abridged, restricted, or impaired. Hence, the Petitioner does not have to show that its tender was not considered at all, but only that it was not given due, and equal consideration, with competing tenders in the same class. I have stated in detail my reasons for concluding that the proceedings of both the TEB and the Tender Board resulted in a serious denial of equal treatment in several respects. I therefore hold that the Petitioner’s fundamental right under Article 12 (1) has been violated”.
[8.18] In Munasinghe v Joe Fernando, Secretary, Ministry of Health, SC (FR) 365/93, SCM 31.10.95 which was a tender for anti-malaria insecticide, the Petitioner complained that there was only one tender and that other comparable insecticides were excluded and that the tender specifications were tailor-made to suit one supplier. It was contended, that where there was only a single qualified tenderer it was a violation of Article 12(1) of the Constitution. The Supreme Court refused to interfere. Justice Mark Fernando said:
“Independently of the Financial Regulations, the fact that there can be only one qualified tenderer does not mean that there is a denial of equality to other tenderers, for the reason that such persons are not qualified and so they are not in the same class. It is true that the sole qualified person thereby enjoys a monopoly, but that only means that he belongs to a class, which consists of one person (and, in this case, which was properly constituted). Since the impugned act dealt with the entire class, there was no discrimination among the members of the class. And where, as in this case, the right is reserved to annul the bidding process and to reject all bids, it is possible to avert financial loss which would result from accepting an unduly high bid submitted by a lone tenderer”.
[8.19] Another case, namely Smithkline Beecham v State Pharmaceutical Corporation (1997) 3 SLR 29 is upto now the best Supreme Court case to understand fundamental rights applications challenging government tenders. In that case, the Supreme Court recognized the Guidelines on Government Tender Procedures issued by the Treasury in 1996. Justice A.R.B. Amerasinghe’s judgment in that case clearly explains how State agencies should evaluate and decide on tenders.
According to the facts, the State Pharmaceutical Corporation (SPC) called Worldwide Tenders for the supply of the Rubella Viral Vaccine. Of the parties that tendered, three were found by the Technical Evaluation Committee (TEC) to be neither registered nor past suppliers and were not therefore acceptable. The TEC recommended the Petitioner’s tender. The rejected tenders were lower in price and the Cabinet Appointed Tender Board (CATB) decided to award the Petitioner the tender but as more vaccine was required hoped that those rejected would by then be qualified. One of the rejected tenderers who later became registered was recommended by the CATB to supply a further quantity of vaccine at a lower price without notice to the Petitioner. The Petitioner on becoming aware of the decision informed the SPC that the new supplier had not complied with all the mandatory requirements of the tender conditions and requested the award of that tender to the petitioner. On the failure of the SPC to take action, the Petitioner complained of violation of Article 12(1) of the Constitution. The Supreme Court held in the Petitioner’s favour. Justice A.R.B. Amerasinghe held that the Guidelines on Tender Procedures issued by the Treasury are the “most important documents” to keep the whole tender process transparent. All State agencies must follow that procedure prescribed in those Guidelines. In his normally clear inimitable style, Justice Amerasinghe then explained why the Supreme Court can interfere if these Guidelines are not observed and followed. Any petitioner wishing to attack a decision on a tender should carefully read this judgment.
[8.20] In Lakmini Printers (Private) Ltd. v Dharmaratne (2003) 1 Sri Lanka Reports p.10 the petitioner company had submitted a tender to the Postal Department for the supply of stamped envelopes. The tender was awarded to another company (“Spot International”) whose quotation was Rs.2,000/= less than that of the petitioner. However, the petitioner claimed that the award contravened the Financial Regulation No. 697 (3) issued by the Treasury under which a twenty percent preference should be given to local manufacture and in this case there was evidence that Spot International was getting the envelopes from India. On the above grounds the Supreme Court granted the fundamental rights application filed by the petitioner under Article 12 of the Constitution and set aside the award of the tender. The petitioner was also awarded Rs.1.5 million as compensation payable by the State.
[8.21] The Nation newspaper of 30th September 2007 reported a case where the Supreme Court presided by Chief Justice Sarath Silva had issued an order of the Cabinet of Ministers restraining them from making any final decision to award a tender for the Puttlam – Trincomalee main highway to Anuradhapura to the Korean firm, Keangnam Enterprises. The Court made this order on a fundamental rights application filed by Maga Engineering Ltd on the basis that Maga’s bid for this construction was the lowest and also on the merits the award should have gone to them.
[8.22] In November 2007, the Diesel Motor Engineering Company (DIMO) by way of a Fundamental Rights application challenged a Cabinet decision to award a tender for diesel cabs to another motor company, alleging that the DIMO offer was the lowest and was the only tender that was in conformity with the tender guidelines: see Bottom Line paper of 21st November 2007.
Teledrama Producer obtains Relief against Rupavahini Corporation
[8.23] In Bennett Ratnayake v The Sri Lanka Rupavahini Corporation [1999] 2 Sri Lanka Law Reports p 93, the Petitioner produced a Sinhalese telefilm entitled “Makara Vijithaya” at a cost, he said, of Rs.2.3 million. The Respondent Corporation refused to telecast the petitioner’s telefilm during “prime time” for telefilms of that type, viz between 8.30 p.m. and 9.00 p.m. on Mondays, Tuesdays and Thursdays.
The telefilm had been reviewed on three occasions by different boards. On each occasion the decision was adverse to the Petitioner. But he was not told who the members of the board were, how they had been appointed, what procedure they would follow, what criteria they would apply, what their views were about the film and the reasons for the decision not to telecast. On an application for breach of fundamental rights under Article 12(1) of the Constitution, the Supreme Court granted relief and held that the statutory powers which the Respondent Corporation has are not absolute, unfettered, or unreviewable; they are held in trust for the benefit of the public, and they cannot be exercised arbitrarily or capriciously or unreasonably. The airways are public property and the State is under an obligation to ensure that they are used for the benefit of the public, for which purpose the Rupavahini Corporation was obliged to establish and implement a fair and objective procedure to determine whether a telefilm submitted to it was suitable for screening, and if so the time of screening. This obligation had been violated in breach of the Petitioner’s fundamental rights under Article 12(1) of the Constitution.
Prerogative Writ Applications in Commercial /Business matters
[8.24] Prerogative writs are a concept of English Law. They were unknown to Roman – Dutch Law which is Sri Lanka Sri Lanka
[8.25] Today, the Prerogative Writs are one of the most important ways in which our Superior Courts – in this case the Court of Appeal controls the actions of Administrative bodies and Public officials.
[8.26] The main Prerogative Writs and their Objective
1) Habeas Corpus This writ is available as a remedy in respect of any person improperly detained in public or private custody. The Court has the power by issuing this writ to direct that person to be produced before Court and discharge or remand any person so brought up or otherwise deal with such person according to law. This type of writ is used where a person has gone missing or is being wrongfully restrained, detained or confined.
2) Writ of Certiorari A writ of Certiorari is sought asking the court to quash or cancel an illegal, wrongful or unjust decision already made by an administrative body or a public official.
3) Writ of Prohibition A writ of Prohibition is sought to stop a public officer or a state body from arriving at a wrongful decision.
4) Writ of Mandamus This writ provides the means of enforcing the performance of public duties by public authorities. A writ of Mandamus is sought to direct a public official or state body to arrive at a particular decision. Such a writ can also be used to compel a public official to take a decision when he is inactive or delaying to do so.
5) Writ of Quo Warranto A writ of Quo Warranto is available to challenge the entitlement of a person to hold public office. The person who holds the public office may not be entitled to hold it either because his appointment/election to it was unlawful or because he later ceased to be entitled to such office due to a supervening disqualification. [8.27] Of the above writs, business people – except as private citizens or who are involved in politics or public affairs - will not normally make use of writs (1) and (5) – namely, writs of Habeas Corpus and Quo Warranto. On the other hand, there have been cases where in commercial issues, resort has been made to obtain relief by way of the Writs of Certiorari, Prohibition and Mandamus.
[8.28] Let us take this illustration XY2 Company had responded to a public notice in the newspapers by a State Corporation calling for the supply of specified office equipment. These are popularly called “Procurement Notices”. XY2 Company’s quotation is the best in price and quality but for some undisclosed reason the state corporation is delaying to place the order with XY2 Company. The company also learns that the state corporation is planning to get the requested office equipment from another company. In the above circumstances, XY2 Company can apply for the writ of Prohibition and Mandamus against that public corporation. Apart from seeking relief by way of Prerogative Writs, it may also be possible for XY2 Company to also apply under breach of Fundamental Rights as discussed earlier : see [8.12].
[8.29] An illustration of a Writ of Certiorari to set aside a decision of a State authority is where in May 2008, the Court of Appeal upheld a writ application by Shell Gas Company challenging a directive by the Consumer Affairs Authority ordering LP gas manufacturers and dealers to accept LP gas cylinders of any make to be refilled with LP gas: see Daily News of 6th May 2008.
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