036-SLLR-SLLR-2002-V-1-COLOMBO-SOUTH-CO-OPERATIVE-SOCIETY-LTD-v.-ANURUDDHA-RATWATTE-MIN.pdf
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COLOMBO SOUTH CO-OPERATIVE SOCIETY LTD
v.ANURUDDHA RATWATTE, MINISTER OF POWER ANDIRRIGATION AND OTHERS
SUPREME COURTBANDARANAYAKE, J.,
EDUSSURIYA, J. ANDYAPA, J.
SC APPLICATION NO. 698/98NOVEMBER 29, 2001
Fundamental rights – Termination of dealership contract in petrol by PetroleumCorporation – “Executive or administrative action* – Article 12 (1) of theConstitution.
The petitioner was carrying on the business of a petrol filling station at No. 502,Sirimavo Bandaranaike Mawatha, Colombo 14, as a dealer of the 2nd respondentPetroleum Corporation (the Corporation). The said filling station was owned bythe Corporation. The petitioner was appointed as a temporary dealer in 1984 anda formal dealership agreement was entered into between the petitioner and theCorporation in 1997. On 14. 10. 1998, officers of the Corporation arrived at thepetitioner's filling station and took possession of it after handing over a letter oftermination dated Y3. 10. 1998.
The defence of the respondents was that according to a Board Paper dated28. 09. 1998 the Board of Directors of the Corporation had decided to limit "oneshed per dealer".
The petitioner had been operating three Corporation owned outlets owned by theCorporation.
Notwithstanding, the claim of "one shed per dealer* policy which was also theclaim made in an SC application decided on 02. 10. 1997 – it was proved thatthe Corporation had permitted some dealers to operate more than one filling stationand that a dealer who operated one filling station had been given another on12. 08. 1998.
SC Colombo South Co-operative Society Ltd. v. Anuruddha Ratwatte,
Minister of Power and Irrigation and Others337
Normally, the conditions of the agreement require three month's notice prior to
the termination of agreement, but in the case of certain specified defaults, the
Corporation is permitted to terminate the agreement without notice. In the instant
case requisite notice of three months was not given even though the relevant
Board Paper did not refer to any such default.
Held:
Although the relationship between the petitioner and the Corporationwas contractual, it is settled law that the latter’s conduct constitutes"executive or administrative action" within the meaning of Article 126 ofthe Constitution.
The petitioner had been subjected to discrimination vis-a-vis persons whowere similarly circumstanced. Further, the termination of the agreementwithout due notice was arbitrary. Hence, the petitioner's right under Article12 (1) has been infringed.
Cases referred to :
Dahanayake v. De Silva – (1978-79-80) 1 Sri LR 47.
Kuruppu Don Somapala Gunaratne and Others v. Ceylon Petroleum Corpo-ration and Others – SC (Application) No. 99/96 SC Minutes of 31st July, 1996.
Wickrematunge v. Anuruddha Ratwatte and Others – (1998) 1 Sri LR 201.
Sangadasa Silva v. Anuruddha Ratwatte and Others – (1998) 1 Sri LR 350.
APPLICATION for relief for infringement of fundamental rights.
Romesh de Silva, PC with Geethaka Gunawardena for petitioner.
D. S. Wijesinghe, PC for 2nd respondent.
J. C. Weliamuna for 3rd respondent.
Ms. /. Demuni de Silva, Senior State Counsel for 1st and 4th respondents.
Cur. adv. vult.
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March 25, 2002
SHIRANI A. BANDARANAYAKE, J.
The petitioner, a duly incorporated society with 17,000 members and iapproximately 500 employees, had been carrying on the business ofa Petrol Filling Station at No. 502, Sirimavo Bandaranaike Mawatha,Colombo 14, as a dealer of the 2nd respondent Corporation. Thepetitioner was first appointed as a temporary dealer of petroleumproducts in February, 1984 (C) and a formal dealership agreementbetween the petitioner and the 2nd respondent Corporation was enteredinto on 28. 02. 1997 (G2). In September, 1998, the petitioner becameaware that the 2nd respondent was attempting to take steps toterminate the dealership. On hearing these unconfirmed reports, the 10petitioner wrote to the 2nd respondent on 23. 09. 1998, but therewas no response to this letter. On 14. 10. 1998, several officers fromthe 2nd respondent Corporation arrived at the petitioner's filling stationand took possession of the filling station, after handing over the letterof termination dated 13. 10. 1998 (11), to the Manager.
The petitioner claims that by the said termination of the dealershipagreement, the 1st and 2nd respondents had infringed the petitioner'sfundamental right to equal treatment and acted in a discriminatorymanner.
This Court granted leave to proceed in respect of the alleged 20infringement of Article 12 (1) of the Constitution.
The 2nd respondent Corporation on the other hand contended thatthe agreement with the petitioner was terminated due to a policydecision taken by the Board of Directors to permit the dealers tooperate only one dealership. The letter dated 13. 10. 1998, terminatingthe dealership with the 2nd respondent Corporation (11) however statedthat the termination was due to the fact that the petitioner wasoperating more than one filling station and further that the petitioner'sdealership was on a temporary basis.
SC Colombo South Co-operative Society Ltd. v. Anuruddha Ratwatte,
Minister of Power and Irrigation and Others
(Shirani A. Bandaranayake, J.)339
The Manager (Marketing) of the 2nd respondent Corporation averred 30in his affidavit that the general consensus of the Board of Directorsof the 2nd respondent Corporation was that there were several dealerswho enjoyed multiple dealerships and that it was more commerciallyviable and equitable if it is limited to one dealership per person. Itwas also submitted on behalf of the 2nd respondent Corporation thatrepresentations were made to the effect that persons with multipledealerships were not able to maximize the potential of their fillingstations in view of logistical and financial strains they had to bearas a result of operating more than one filling station. As a result ofthis line of thinking, a decision was taken by the Board of Directors 40of the 2nd respondent Corporation on 06. 10. 1998 to terminate thedealership of the petitioner's filling station situated at SirimavoBandaranaike Mawatha, Colombo 14.
Consequently, the Manager (Marketing) of the 2nd respondentCorporation submitted a Board paper on 28. 09. 1998 (2R7) recom-mending the termination of dealership of the petitioner society. Thereason for this recommendation was on the basis that it was 'theintention of the Board of Directors to limit one corporation owned fillingstation or sen/ice station to one individual or organization!.
It was submitted on behalf of the 2nd respondent Corporation that sothe said decision to limit 'one shed per dealer' was taken after oneD. Kasturiarachchie filed a fundamental rights application against thetermination of his dealership at Nuwara Eliya in SC (Application)
No. 289/95 decided on 20. 10. 1997 (2R4). The contention of the2nd respondent Corporation in the said Kasturiarachchie's case wasthat, a proposal was made to the Board of Directors of the 2ndrespondent Corporation, to permit one dealership per each dealer, thusplacing a limitation on multiple dealerships.
The Board paper of the 2nd respondent Corporation, dated28. 09. 1998, had incorporated the following resolution, with regard soto the termination of the dealership of the petitioner:
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"As it is the intention of the Board of Directors to limit oneCorporation owned filling station or service station to one individualor organization-
we recommend that of the three Corporation owned outletsoperated by the Colombo South Co-operative Society Ltd, thedealership at the filling station at Sirimavo Bandaranaike Mawatha,Colombo 14, which accrues the lowest income to this society, beterminated … 11
The petitioner, however, contended that, although the Board of 70Directors of the 2nd respondent Corporation had taken up the positionthat a dealer would be given only one filling or service station, contraryto this policy, the 2nd respondent had permitted some agents tooperate more than one filling station. The learned President's Counselfor the petitioner contended that, one Slipto Agencies (Pvt) Ltd., hadobtained the dealership of filling stations at Baseline Road, atMaligawatte and at Bastian Mawatha. The dealership of the fillingstation at Baseline Road had to be terminated not owing to a decisiontaken by the 2nd respondent Corporation, but due to an order givenby this Court in SC (Application) No. 251/95.80
Although the 2nd respondent Corporation accepted that, pursuantto a decision taken by the Board of Directors in or around October,1997, that facility should be granted to dealers on the basis of 'oneshed per dealer*, it would appear that even in August, 1998, the 2ndrespondent had allocated dealerships to persons who were alreadydealers of filling or service stations of the 2nd respondent Corporation.The documents annexed along with the affidavit dated 01. 02. 1999bear testimony to this fact. Annex (i), attached to the Board Paperof the 2nd respondent Corporation, dated 28. 09. 1998 marked 2R7is a list of dealers operating more than one 'Petroleum Corporation socontrolled dealerships as at 31. 08. 1998'. According to 2R7, oneMrs. C. K. Warusavithana who was the dealer of the filling stationat Attidiya Junction from 12. 10. 1988 was given another dealership
SC Colombo South Co-operative Society Ltd. v. Anuruddha Ratwatte,
Minister of Power and Irrigation and Others
(Shirani A. Bandaranayake, J.)341
in Mt. Lavinia on 12. 08. 1998. It is surprising how the 2nd respondentCorporation decided to grant her the second dealership in August,1998, if a policy decision was taken in October, 1997, to permit thedealers, 'to operate only one deadership'.
The petitioner contended that, although initially there was only atemporary dealership, on 28. 02. 1997, the petitioner entered into adealership agreement with the 2nd respondent Corporation. The 100Manager (Marketing) of the 2nd respondent Corporation has notdenied this fact. He, however, contended that the dealership of thefilling station at No. 502, Sirimavo Bandaranaike Mawatha, Colombo14, was given to the petitioner only on a temporary basis and the2nd respondent Corporation had decided to enter into a formal dealershipagreement to regularize and formalize the terms and conditions betweenthe two parties. He, in his affidavit, further averred that even wherea dealership is granted temporarily, a dealership agreement is enteredinto with the 2nd respondent Corporation. The Memorandum ofagreement, however, does not indicate that the dealership agreement nowas on a temporary basis as claimed by the 2nd respondent Cor-poration. According to the dealer agreement the right to terminate anagreement without any notice was on the basis that the dealer hadfailed to ‘pay and settle in full all monies due to the Corporation'.Clause 12B of the dealer agreement is as follows:
“If the Dealer does not in the opinion of the General Managerperform his duties and obligations as a Dealer of petroleum prod-ucts of the Corporation, faithfully, diligently and efficiently or if hedefaults in complying with the terms, covenants and conditions ofthis Agreement or the terms and conditions under which commis- «sions and allowances are payable to him referred to in paragraph12 above, the Corporation shall be entitled to terminate thisagreement without any notice whatsoever. The Corporation shallalso be entitled to terminate this agreement after three months*notice in writing to the dealer . . .“
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The Board paper on the letter of termination however, did not referto any such defaults made by the petitioner regarding the dealership.When the termination of the petitioner's dealership was taken up fordiscussion on 14. 09.1998 (2R 5), the Board had directed the Manager(Marketing) of the 2nd respondent Corporation to fall in line with the isopolicy adopted by the Board, viz 'one shed per dealer' (2R 6). Whenthe Board met again on 09. 10. 1998, it was resolved to terminatethe dealership of the petitioner on the basis that the co-operativesociety operated more than one filling station.
In the first Board paper, it was recommended by the Manager(Marketing) that the 3rd respondent must be appointed as dealer ofthe filling station in question (2R5). The purpose of the second BoardPaper was to 'terminate the dealership of M/s Colombo SouthCo-operative Society Ltd. and appoint Mr. W. K. D. Tilak Waragodaof No. 26, Biyagama Road, Pethiyagoda, Kelaniya, as Dealer at140Corporation owned Lanka Filling Station, Sirimavo BandaranaikeMawatha, Colombo 14.'
It is common ground as pointed out earlier, that as soon as thepetitioner became aware that there was a move to terminate thedealership of the petitioner, a letter was sent to the 2nd respondentCorporation. If the Board of Directors and the Manager (Marketing)of the 2nd respondent Corporation were of the view that the petitioner'sagreement had to be terminated, the petitioner should have been giventhree months' notice prior to the termination of the agreement in termsof clause 12B of the agreement. No reasons were given by the 2nd 150respondent as to why the alternative procedure of termination withoutnotice, based upon a resolution of the Board of Directors of the 2ndrespondent Corporation was opted for by them.
The relationship between the petitioner and the respondent, whichis based on the agreement entered into on 28. 02. 1997, no doubtis contractual. It is however, now well-settled law that the action takenby the Board of the 2nd respondent Corporation to terminate the
SC Colombo South Co-operative Society Ltd. v. Anuruddha Ratwatte,
Minister of Power and Irrigation and Others
(Shirani A. Bandaranayake, J.)343
petitioner's dealership and to appoint the 3rd respondent in his placeconstitutes "executive or administrative action" within the meaning ofArticle 126 of the Constitution {vide Dahanayake v. De Silva,(v 160Kuruppuge Don Somapala Gunaratne and Others v. Ceylon PetroleumCorporation and Others,(2) SC (Application) Wickrematunga v. AnuruddhaRatwatte and Others/31 Sangadasa Silva v. Anuruddha Ratwatte andOthersJ4>
Article 12 (1) of the Constitution states: "All persons are equalbefore the law and are entitled to the equal protection of the law".
This provision implies that there should be no discrimination betweenany two persons if they are similarly situated and that no decisionshould be taken in a capricious, unreasonable or arbitrary manner.Considering the applicability of this provision in a matter regarding 170the termination of a dealership agreement by the Ceylon PetroleumCorporation, Justice Dr. Amerasinghe in Wickrematunga v. AnuruddhaRatwatte and Others (supra) at pp. 229-230 stated that:
"If the rules of conduct contain provisions that are constitutionallyimpermissible …, they must be declared unconstitutional. Likewise,if such provisions are ex facie lawful, not invidiously discriminatoryand rational in the matter of classification, but in their applicationviolate the constitutional restraints and guarantees relating tofundamental rights and freedoms declared and recognized by theConstitution, the action of the authority concerned must be declared isounconstitutional: For instance, if they are applied in an invidiouslydiscriminatory manner or in a capricious, unreasonable or arbitrarymanner."
In these circumstances, I am of the view that the 2nd respondentCorporation has acted in an arbitrary manner in total violation of clause12B of the dealer agreement by their failure to give due notice tothe petitioner before the cancellation of the dealer agreement. Besides,it is also to be noted that the aforesaid material shows that thepetitioner had been subjected to unequal treatment in violation of
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Article 12 (1) of the Constitution by applying the purported policy 190decision to limit 'one shed per dealer' unequally and arbitrarily.
I, therefore, hold that the Board of the 2nd respondent Corporationwas not entitled to terminate the petitioner's dealership and thereforethe termination of the petitioner's dealership was not justifiable.
I, accordingly, hold that the petitioner's fundamental right guaranteedby Article 12 (1) of the Constitution has been infringed by the 2ndrespondent Corporation. I also hold that the order dated 13. 10. 1998(11), terminating the petitioner's dealership of the filling station situatedat No. 502, Sirimavo Bandaranaike Mawatha, Colombo 14, andcontained in the letter marked 11 is null and void and of no effect 200in law. I,
I, accordingly, make order and direct the 2nd respondent Corpo-ration to reinstate the petitioner society as the dealer of the fillingstation situated at No. 502, Sirimavo Bandaranaike Mawatha, Colombo14, under and in terms of the agreement dated 28. 02. 1997 (G2)entered into between the 2nd respondent Corporation and the peti-tioner within one month from today. The 2nd respondent Corporationshould also pay the petitioner society a sum of Rs. 125,000 ascompensation and Rs. 25,000 as costs. These amounts totalling toa sum of Rs. 150,000 must be paid within three (3) months from today. 210
EDUSSURIYA, J. – I agree.
YAPA, J. – I agree.
Relief granted.