LAW RELATING TO GOVERNMENT DEPARTMENTS, PUBLIC CORPORATIONS, STATUTORY AUTHORITIES, PROVINCIAL AND LOCAL AUTHORITIES
[15.1] Earlier chapters of this text explained that from the late 1970s, Sri Lanka has had an open and liberalized economy where the country’s private sector is recognized as the engine of growth to develop and operate business and commerce.
[15.2] Hence, this text concentrates on commercial institutions and enterprises that private individuals form or organize to conduct business activities such as companies, partnerships, agencies etc. all of which we have discussed in the preceding chapters.
[15.3] Here, we briefly outline the legal position or juristic status of institutions such as government departments and public corporations etc. These institutions are not expected and do not normally engage in commercial activity where the main objective is the generation of profit.
[15.4] However, public sector institutions do get a considerable amount of work done by the private sector sometimes even in relation to very large projects as well. Normally, such work is entrusted to the private sector with transparency by calling for quotations and tenders and what are called Procurement notices. The daily newspapers are full of advertisements inserted by state sector, provincial state sector and local government institutions calling for quotations for supply of goods and services by the private sector. Large scale Government projects which are funded by international agencies like the World Bank and the Asian Development Bank also have to be given by public tender to the private sector.
[15.5] In the above context, the legal position of public sector institutions becomes important because contracts have to be signed and in the event of a dispute that cannot be settled amicably, resort to arbitration or litigation must be possible. It is for this purpose that in this chapter we briefly outline the legal status of (i) government departments (ii) public corporations (iii) statutory authorities (iv) Provincial Councils and (v) Local Authorities. If one looks at the Telephone Directory one will be surprised at the large number of these public sector institutions. By number of personnel, the State sector employees are said to number about 1.2 million in 2009 and a large portion of the annual government budget goes to pay their salaries and pensions in the case of retired staff.
Legal Statute of Government Ministries and Government Departments
[15.6] The following basic rules govern any legal action, including arbitration, against a government ministry or government department.
As far as Contracts and Contractual liability is concerned government ministries and departments can contract and can sue and be sued. The contract can be in their own name but if they are sued, the legal action has to be filed against the Attorney General as representing that Ministry or Department. These rules are discussed below: see [ ].
[15.7] Also, here it is important to remember that one can avail of and make use of the legal procedure for Fundamental Rights violation and resort to Prerogative Writs to obtain relief against government Ministries and Departments. This aspect of the law is discussed in Chapter 8 of this text.
[15.8] As regards delictual liability or liability for any Civil Wrongs, the right of an individual or institution to sue the government (the State) or a public official is given statutory validity by the State (Liability in Delict) Act No.22 of 1969, which follows the English Crown Proceedings Act and specifies the manner in which a legal action for a civil wrong can be filed against the State. All actions against the State must be instituted against the Attorney-General. Further, in any action to which the State is a party, all legal documents / processes against the State must be served upon the Attorney – General.
[15.9] Part 4, Sections 456 to 465 of our Civil Procedure Code contains special provisions which must be followed in legal actions by or against the State, Ministers, Deputy Ministers or any Public officers. These statutory provisions are important because unless they are followed strictly, any legal action that is instituted can be resisted. We now set out the relevant provisions of the Civil Procedure Code.
Section 456 of the Civil Procedure Code states :-
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Section 461 of the Civil Procedure Code states :-
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Legal status of Public Corporations and Statutory Bodies
[15.10] As Regards, state sector or public sector corporations and State Authorities or Statutory Bodies, they are all considered juristic entities and can sue or be sued under their name and the provisions relating to naming the Attorney – General etc. will not apply to them. However, the Attorney – General may come forward to appear for them or defend them in any litigation or arbitration. Public corporations and Statutory bodies normally consult the Attorney – General’s Department in the legal matters.
Privatization of State Institutions
[15.11] Here, we briefly outline two main sets of legislation on privatization of State Sector institutions, namely,
(i) The Conversion of Public Corporations of Government Owned Business Undertakings into Public Companies Act No 23 of 1987.
(ii) Public Enterprises Reform Commission of Sri Lanka Act No 1 of 1996.
The first enactment provided for the following.
(a) incorporation by the Registrar of Companies of any business acquired or vested in the government under the Business Undertaking (Acquisition) Act No 35 of 1971
(b) Transfer of all assets, business and liabilities of that government institution to the new Company
(c) All employees of that government institution who were not employed or refused employment by the new Company being entitled to compensation to be decided by the Cabinet of Ministers.
[15.12] In the case of Labour Officer v Distilleries Company of Sri Lanka (2002) 2 Sri Lanka Reports p 380 where the former Stated owned Distilleries Corporation was privatized under this legislation, the Court of Appeal clearly explained the effect of this legislation for purposes of calculating gratuity payment to staff. The Court said that the new private sector owner must take into account the period of employment under State ownership as well.
Treasury / Ministry of Finance definition of the Public Sector
[15.13] In June 2003, the Department of Public Enterprises of the Ministry of Finance issued a Handbook entitled “Public Enterprises guidelines for Good governance”. That publication defines “public corporations”, “public enterprises”, “commercial corporations”, “government owned companies”, statutory boards” and “subsidiaries of government owned companies” as follows.
Public Corporation
[15.14] “Public Corporation” means any Corporation, Board any other body which was or is established by or under any written law other than the Companies Act, with capital wholly or partly provided by the Government by way of grant, loan or other form”.
“Public Enterprise
Public Enterprises comprise the following :-
(i) Commercial Corporations
(ii) Government owned companies
(iii) Statutory Boards
(iv) Subsidiaries of 1, 2 and 3 above.
Commercial Corporations
[15.15] These are organizations established under Special or General Acts of Parliament, with capital wholly or partly provided by Government. These enterprises are expected to operate on commercial lines and be viable and self-financing.
Government owned Companies
[15.16] These include :-
(a) Entitles established and operated under the Companies Act in which Government has a direct controlling interest by virtue of its shareholding.
(b) Corporations and Government owned Companies converted in terms of the “Conversion of Public Corporations or Government Owned Business Undertakings into Public Companies Act No 23 of 1987”.
Statutory Boards
[15.17] Orgainsations established under Special or General Acts of Parliament with recurrent and capital expenditure fully or partly provided by way of annual Government grants to meet promotional, regulatory, educational, research and other services.
Subsidiaries of Commercial Corporations, Government Owned Companies and Statutory Boards
[15.18] These are companies where the Government has an indirect control through public enterprises.
Provincial Councils and Local Government Institutions
[15.19] Provincial Councils and all local government institutions such as Municipal Councils, Urban Councils and Pradeshiya Sabhas are legal entities having corporate personality and can sue and be sued in their name. When dealing with them or if involved with litigation by or against them one should carefully examine the legislation establishing and governing as shown Table 1 below.
Table 1
| | Legislation | Institution covered |
| (i) | Provincial Council Act No. 42 of 1987 | Provincial Councils |
| (ii) | Municipal Councils Ordinance (Cap.252) | Municipal Councils |
| (iii) | Urban Council Ordinance (Cap. 255) | Urban Councils |
| (iv) | Town Councils Ordinance (Cap. 256) | Town Councils |
| (v) | Pradeshiya Sabha Act No. 15 of 1987 | Predeshiya Sabhas |
[15.20] It is important to note that all the above institutions are Public Sector institutions. Hence, they are all subject to both Fundamental Rights petitions and Prerogative Writ applications if there is a dispute or grievance relating to any one of them apart from normal civil law forms of actions, the aggrieved party should consider whether to proceed by way of a fundamental rights petition or prerogative writ application.
Projects undertaken by Government Ministries and Departments
[15.21] Caution must be exercised when dealing with Projects undertaken by Government Ministries. A good illustration which this author encountered was a Project to assist University graduates to obtain Employment, This was a World Bank sponsored project first undertaken by the Ministry of Youth Affairs. A Project Director (a non – public servant) appointed on a two year contract) had signed a Contract with a private sector firm for providing Software programmes for the project. The Contract document was a standard from contract of the World Bank. After about two years, there was a dispute about an outstanding sum of Rs.750,000/- due to the private sector firm. The dispute could not be settled amicably and the private sector firm went for arbitration as provided for in the contract. Then the following problems arose.
(a) The Ministry of Youth Affairs although they responded to the arbitration, argued that any Award could not be enforced against it because “the project” had been wound up and no funds of the World Bank were available any longer to honour an Award.
(b) It was also argued that the “Project Director” who had been on contract was no longer available even to give evidence. Hence, mainly because of the uncertainty that any Award could be enforced, the private firm gave up the arbitration. The moral of this sad episode for the private sector is to ensure that you are contracting with a legal entity who can be sued in the event of a dispute that cannot be settled. If there is no legal entity, any judgment or arbitration award etc that can be obtained cannot be enforced against such entity. Also, in the first place, the arbitrator or the Court may refuse to entertain any claim for relief if no legal entity can be clearly identified as the defendant. Thus, it is best not to contract with such projects unless you are fully paid up front !
Rules relating to Limitation of Actions and the State
[15.22] In the case of Attorney–General v Wilson (1997) 2 Sri Lanka Law Reports p. 349 a government vehicle had been damaged in a road accident where a private lorry was at fault. The driver of the lorry had pleaded guilty in the Magistrate’s Court. The Attorney – General sued the owner of the private vehicle to recover the damages to the state vehicle but had filed action seven years after the accident. When the issue of prescription or limitation of action was raised (one must file such an action within two years of the accident), the Attorney – General argued that such a defence cannot be raised against the state. The trial judge and the Court of Appeal rejected this contention and held that the claim was prescribed. This shows that the sate is bound by limitation rules: see [ ].
[15.23] In David v Abdul Cader (1968) 70 NLR 253, the applicant sought a license from the Urban Council to run a Cinema hall. The Chairman of the Council misused his authority maliciously and rejected his application. It was held that the applicant could sue the Chairman of the Council in his personal capacity for the damages he had suffered.
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