022-SLLR-SLLR-1996-1-GUNARATNE-AND-OTHERS-V.-CEYLON-PETROLEUM-CORPORATION-AND-OTHERS.pdf
sc
Gunaratne and Others v. Ceylon Petroleum
Corporation and Others
315
GUNARATNE AND OTHERSV.
CEYLON PETROLEUM CORPORATION AND OTHERS
SUPREME COURT.
FERNANDO, J.
DHEERARATNE, J. ANDANANDACOOMARASWAMY, J.
S.C. APPLICATION NO. 99/96.
13 JUNE AND 05 JULY, 1996.
Fundamental Rights – Infringement of Article 12(1) of the Constitution- Deal-ership Agreement granting authority to sell, supply and distribute petro-leum – Summary termination of Dealership Agreement – Should concept ofexecutive or administrative action in relation to a contract be confined onlyto the "threshold stage"?
For many years before 1994 the 1st Petitioner had – as an individual – aDealership Agreement together with the requisite authority under section 5E of the Ceylon Petroleum Corporation Act, No. 28 of 1961 as amended (byAct No. 5 of 1963) for running a filling station for the sale, supply and distri-bution of petroleum. The same filling station was taken over by the petition-ers in partnership on a Dealership Agreement signed by the Petitioners on23.3.94 and by 1st Respondent on 26.10.94 and the petitioners were grantedauthority with dealer discounts to sell, supply and distribute Lanka Two StarPetrol, Lanka Diesel and lubricants under section 5 E of the Act. By letterdated 4.1.96 signed by the Marketing Manager of the Ceylon PetroleumCorporation (9th Respondent) the said Dealership Agreement was termi-nated. The authority was thus cancelled.
Clause 12B of the Agreement and section 5H (4) of the Act had provisionsfor the termination of the Agreement.
The Board of the Corporation had passed a resolution to terminate thedealership of the Petitioners and to grant the Dealership authority to one B.K. Sarath Wickramasiri (11th Respondent). The resolution was implementedwithout notice to the Petitioners. The resolution did not indicate any reasonfor the Board's decisions. However according to the letter of terminationdated 4.1.96 the Board had considered the contents of five warning lettersdated 23.2.81, 21.11.84,19.5.86, 27.10.88 and 29.6.93 and had decided toterminate, with immediate effect the Petitioners' Agreement and authority,acting under Clause 12 B and section 5H (4). The Corporation had a Mar-keting Manual setting out the procedure for the appointment of new dealers
316
Sri Lanka Law Reports "
[1996] 1 Sri L.R.
but this procedure was not followed. The 11th Respondent stated had madean application for a dealership in or about August 1995 and an interviewhad been held in the 9th Respondent's office and he was aware the Corpo-ration's officials had made investigations into his application. There werehowever no pleadings or prayer in respect of the 11th Respondent's dealer-ship.
The 9th Respondent had tendered a Board paper dated 8.12.95 wherein hementioned the five warning letters and stated that although in the last warn-ing, the dealer had been cautioned that any further act of misconduct wouldresult in termination, considering the said serious lapses, he recommendsto the Board of Directors to terminate the dealership.
Held:
It is not only at the "threshold" stage (i.e.at or before the time the contractwas entered into) that the Board's action could be regarded as executive oradministrative action but also during the subsistence of the contract, Theimpugned resolution was administrative or executive action although it in-volved a contract and was in violation of Article 12(1).
The Board was not entitled to cancel the authority or to terminate theAgreement without reasons. Further the Board was not made aware thatfour of the five warnings brought to its notice had occurred long before thecurrent agreement and authority, and that the 2nd to 4th Petitioners werenot involved in them; these should not have been taken into consideration.The fifth warning wds in respect of an incident (defective pump) which hadbeen dealt with, and was in any event insufficient to justify the termination,having regard to the Corporation's responsibility to supply and maintainequipment.
The Agreement and the authority were intimately linked, and were infact dealt with together and the first limb of the impugned resolution wastherefore not severable. That part of the resolution was bad. However thesecond limb of the resolution (appointing 11th Respondent) was distinctand severable.
There being no pleadings and prayer in respect of the appointment ofthe 11th Respondent it is not just and equitable to make any order affectingthat appointment.
The Petitioner's fundamental rights under Article 12(1) have been vio-lated by the 1st to 8th Respondents by the termination of the agreement andthe cancellation of the authority.
sc
Gunaratne and Others v. Ceylon Petroleum
Corporation and Others
317
Cases referred to:
Roberts v. Ratnayake (1986) 2 Sri L.R. 36.
Wijenaike v. Air Lanka (1990) 1 Sri LR 293.
Dahanayake v. De Silva (1978-79-80) 1 Sri LR 47, 53-54.
APPLICATION for relief in Tespect of infringement of fundamental rightsunder Article 12(1) of the Constitution.
Tilak Marapana P.C. with Nalin Ladduwahetty, Jayantha Fernando and AnujaPremaratne for Petitioners.
A.A. de Silva with Mahinda Ralapanawe for 1st to 9th Respondents,J.C. Weliamuna for the 11th Respondent.
Cur. adv.vult
July 31, 1996.
FERNANDO, J.
The 1st Respondent, the Ceylon Petroleum Corporation, enteredinto a Dealership Agreement (“the Agreement") for the sale of petro-leum products with the four Petitioners (who were carrying on businessin partnership) in respect of the Kottawa Lanka Filling Station. ThatAgreement was signed by the Petitioners on 24.3.94 and by the 1stRespondent on 26.10.94.The Petitioners were granted authority to sell,supply and distribute petroleum under and in terms of section 5E ofthe Ceylon Petroleum Corporation Act, No. 28 of 1961, as amended.The Petitioners complain of the infringement of their fundamental rightsunder Article 12(1) by the 1 st Respondent and the 2nd to 8th Respond-ents (the Chairman and Directors of the 1 st Respondent) by reason ofthe summary termination of that Agreement, communicated by letterdated 4.1.96 signed by the Marketing Manager, the 9th Respondent, inconsequence of which possession was taken on the same day; andthe filling station was handed over to the 11th Respondent, the newdealer. There was no plea or prayer in respect of the cancellation ofthat authority.
For many years before 1994, the 1st Petitioner had – as an indi-vidual – a Dealership Agreement, together with the requisite authorityunder section 5E, in respect of the same filling station.
318
Sri Lanka Law Reports
[1996] 1 Sri L.R.
Clause 12B of the Agreement, and section 5H(4) of the Act, makethe following provisions for the termination of the Agreement, and thestatutory authority, as follows:
Clause 12B: If the Dealer does not in the opinion of the GeneralManager perform his duties and obligations as a Dealer of petro-leum products of the Corporation faithfully, diligently and efficientlyor if he defaults in complying with the terms, covenants and con-ditions of this Agreement or the terms and conditions under whichcommissions and allowances are payable to him referred to inparagraph 12 above, the Corporation shall be entitled to termi-nate agreement without any notice whatsoever. The Corporationshall also be entitled to terminate this Agreement after threemonths' notice in writing to the Dealer and the Dealer is entitledto terminate this Agreement after three months' notice in writinggiven to the Corporation.The three months' notice by the Dealershall commence to run from the date on which the Corporationacknowledges the Dealer's written notice. Notwithstanding theabove the Board of Directors may by a resolution passed at ameeting of the Board of Directors terminate this Agreement with-out notice and without assigning any reasons whatsoever.'
Section 5H : "The following provisions shall be applicable in thecase of the exercise of the power to grant a written authorityconferred on the Minister, any authorized officer or the Board ofDirectors by any of the sections 5B, 5E, 5F and 5G :
(4) The Minister, such officer or such Board may, in his
or its absolute discretion, decide at any time to cancel suchauthority"
In an affidavit sworn on behalf of the 1st Respondent, the DeputyMarketing Manager produced the following Board resolution, which hesaid had been passed on 2.1.96:
"BOARD PAPER of 8.12.95 – TERMINATION OF DEALERSHIP OF ..KOTTAWA LANKA FILLING STATION – from Manager Marketing.
Board decided:
sc
Gunaratne and Others v. Ceylon Petroleum
Corporation and Others (Fernando, J.)
319
to terminate the dealership of Kottawa Lanka Filling Station atthe Corporation Controlled Lanka Filling Station situated at Kottawaand cancel the authority granted to him under section 5H(4) ofCeylon Petroleum Corporation Act, No. 28 of 1961 as amendedby Ceylon Petroleum Corporation (Amendment) Act, No. 5 of 1963read with section 12(b) [sic] of the Dealership Agreement to sell,supply and distribute Lanka Two Star Petrol, Lanka Auto Dieseland Lubricants.
to appoint Mr. B.K. Sarath Wickramasiri of No. 201, JanarajayaMawatha, Divulapitiya, Boralesgamuwa and grant him authorityunder section 5E of Ceylon Petroleum Corporation Act, No. 28 of1961 as amended by Ceylon Petroleum Corporation (Amendment)Act, No. 5 of 1963, read with the terms and conditions set out inthe Dealer Agreement to be signed hereinafter to sell, supply anddistribute Lanka Two Star Petrol, Lanka Auto Diesel and Lubri-cants and grant him Corporation Controlled Dealer discounts."
The document produced, though certified as a true copy, regretta-bly failed to indicate that it was in fact an extract from the Board min-utes, and the date of the Board meeting. Mr. A. A. de Silva for the 1stto 9th Respondents submitted that the Board meeting had been heldon 12.12.95. Although there was some uncertainty as to the date ofthe Board Meeting, learned President's Counsel for the Petitioners didnot dispute the fact that the Board had passed that resolution. It hadbeen implemented without any notice to the Petitioners. That resolu-tion did not indicate any reason for the Board's decisions. However,according to the letter of termination dated 4.1.96, the Board had con-sidered the contents of five warning letters dated 23.2.81, 21.11.84,19.5.86, 27.10.88, and 29.6.95, and had decided to terminate, withimmediate effect, the Petitioners' Agreement and authority, acting un-der clause 12B and section 5H(4).
When this matter was taken up for hearing on 13.6.96, we pointedout to Mr. A. A. de Silva that there was no material to indicate why theBoard had decided to terminate the Petitioners' Agreement and to ap-point the 11th Respondent in their place. When the hearing was re-sumed on 5.7.96, he tendered a copy of the Board paper, dated 8.12.95,submitted by the 9th Respondent. This stated that the Dealership was
320
Sri Lanka Law Reports
[1996] 1 Sri L.R.
operated by the 1 st Petitioner in the name and style of Kottawa LankaFilling Station; that there were four partners in the partnership; thatthere had been instances of "complaints against the Incumbent dealer"and that disciplinary action had been taken, mentioning only those fivewarning letters; and concluded:
"Although in our last warning, we have cautioned the dealer thatany further act of misconduct would result in the termination ofthe dealership, considering the above serious lapses on their part,I recommend to the Board of Directors to terminate the dealer-ship."
It further stated that the 11th Respondent had sought a dealershipof a Corporation-controlled outlet. Board approval was requested interms identical to the resolution subsequently passed.
* *
There was no information as to how the 11th Respondent had comeon the scene. The 11th Respondent stated that he had made an appli-cation for a dealership in or about August 1995, and that an interviewwas held in the 9th Respondent's office. He added that he was awarethat officials of the 1st Respondent had made investigations into hisapplication. Although the Petitioners originally made allegations of im-proper political influence, involving the 10th Respondent, a Member ofParliament, in regard to the selection of the 11 th Respondent, learnedPresident s Counsel conceded at the hearing that these could not bemaintained. We therefore reject those allegations but as the 10th Re-spondent did not file papers, and was absent and unrepresented at thehearing, an order for costs is not justified.
The Petitioners contended that the 1st Respondent's MarketingManual set out the procedure for the appointment of new dealers. TheManual required the Area Supervisor to obtain at least three applica-tions, and to forward these to the Area Manager with certain informa-tion relevant to financial capacity and standing as well as his owncomments; and the Area Manager to interview each candidate andscrutinize certain documents, and to submit full particulars of all can-didates with his recommendation to the "Head of Function", who wasthen required to –
sc
Gunaratne and Others v. Ceylon Petroleum
Corporation and Others (Fernando, J.)
321
'Prepare a Board Paper recommending the candidate whom heconsiders best suited for appointment or leave it to the Board tomake their selection if more than one candidate is equally eligi-ble and suitable for appointment.'
The Respondents do not deny that this procedure was not followed.They state that the Board was vested with authority to appoint deal-ers, and that 'the manual referred to has been prepared purely as aguideline in case of selection for appointment of new dealers for newareas'. However, they do not explain how the 11th Respondent wasselected. Whether it was for an existing filling station, or for a newfilling station, the interests of the 1st Respondent and the public re-quired that care be exercised when selecting a new dealer; and I find itdifficult to accept, in the absence of clear provision to that effect in theManual, that less care was required for selection of a new dealer for anexisting station.
Learned President's Counsel contended on behalf of the Petition-.ers that the termination of the Agreement was wrongful because theRespondents were not entitled to rely on matters which had occurredbefore the Agreement had been entered into; because the Board had ..not been made aware that four of the five warnings were in respect ofpast incidents for which the 2nd to 4th Petitioners were not responsi-ble; because the fifth incident was one which had been inquired intoand concluded six months earlier, and could not be re-opened; andbecause in any event that incident did not justify termination.
Mr. A. A. de Silva contended that:
(1) the action taken by the Board to terminate the Applicant andthe authority under section 5E did not constitute "executive oradministrative action" within the meaning of Article 126; firstly,because the Board took a commercial decision in respect of apurely commercial transaction; secondly, because it was an actdone taken in the exercise of the 1st Respondent's contractualrights under a concluded contract and it was only at the "thresh-old" stage (i.e. at or before the time the contract was enteredinto) that, if at all, it could be regarded as ‘executive or adminis-trative action". He cited Roberts v Ratnayake,™ and Wijenaike vAir Lanka,w and some of the Indian cases mentioned therein.
322
Sri Lanka Law Reports
[1996] 1 Sri L.R.
the Board was entitled to terminate the Agreement and theauthority, without notice and without any reason;
because the Petitioners had claimed no relief in respect of thecancellation of the authority, this Court could not grant any relief;
the Board was entitled to rely on past incidents, the 1994partnership was between the original dealer, the 1st Petitioner,and members of his family; and there were also other incidents,not mentioned in the Board paper, which had taken place beforeand after the 1994 Agreement, which justified the termination.
Mr. Weliamuna, on behalf of the 11 th Respondent, contended thatthe Petitioners were required by Rule 44(1) (d) of the Supreme CourtRules, 1990, to specify the reliefs claimed; that the Petitioners neitherpleaded that the appointment of the 11th Respondent was wrongful,nor prayed for relief (by way of declaration, quashing or otherwise) inrespect of that appointment; and that whatever relief this Court mightgrant in regard to the termination of the Petitioners' Agreement, itshould not interfere with the 11th Respondent's appointment.
Section 5B of the Act confers a monopoly on the 1st Respondentin respect of the right to import, export, sell, and distribute petrol,kerosene, diesel oil and furnace oil (and petroleum of any other classor description specified by the Minister in a vesting order under sec-tion 5C). No person can deal in such products except with the writtenauthority of the Board of Directors of the 1 st Respondent. Section 5Fprohibits the establishment and maintenance of facilities and equip-ment for the sale, supply and distribution of such petroleum products,by any person who does not have the written authority of the Boardunder section 5E. Although prior to 1961, the State was not engaged,directly or through a State agency, in the provision of petroleum prod-ucts for the community, that is now part of the service provided by theState for the people; even the pricing of such products is influenced byGovernment policy and is not solely on commercial considerations.The supply, sale and distribution of petroleum products is thus a func-tion of the Executive. Samarakoon, C.J., said in Dahanayake v deSilva,& :
sc
Gunaratne and Others v. Ceylon Petroleum
Corporation and Others (Fernando, J.)
323
"Political ideology at the time considered that, petroleum beingan essential service for the community, it should be the responsi-bility of and the sole business of the Government of the country
Petroleum has ceased to be a mere consumer item of
private trade and is now the concern of governments at both na-tional and international levelswhen [the
Corporation] enters into contracts for services for the sale anddistribution of petroleum products, it does so as agent of theState."
Similarly in Perera v U.G.C.,W it was held that University educa-tion was a governmental function, which had been assigned to theUniversity Grants Commission, as an organ or delegate of the Govern-ment, and the selection of students for admission was "executive oradministrative action".The grant of authority under section 5E is plainlya statutory function. A dealership agreement is not a distinct, or sev-erable, matter, but intimately connected with that authority. Indeed, itseems to be referable to section 5F. Entering into such agreementsand granting such authority – and cancelling them – cannot be regardedas purely commercial decisions in commercial transactions: it consti-tutes executive or administrative action.
Mr. de Silva argued, however, that it was only at the “threshold"stage of entering into a dealership agreement that "executive or ad-ministrative action" was involved. When he was reminded that therewere numerous decisions in which this Court had given relief in re-spect of acts done in relation to contracts long after the "threshold"stage had been passed, he submitted that that was in regard to con-tracts of employment, and maintained that the position was different inregard to other contracts. I
I cannot accept this contention. The principle of equality embodiedin Article 12 does not make any exception, in regard to contracts ingeneral, or particular types of contracts, or the stage at which a con-tract is. Indeed, the proviso to Article 12(2), as well as Article 12(3),militate against the contention that contracts are excluded. As for thesubmission that action taken after a contract has been entered intoceases to be executive or administrative action, that would give rise toa host of anomalies. That submission, while acknowledging that dis-
324
Sri Lanka Law Reports
[1996] 1 Sri L.R.
crimination (e.g. on the ground of race, religion, or political opinion) atthe stage of awarding or granting a contract, dealership or licence, canbe remedied under Article 126, leaves it open, soon thereafter, to can-cel that same contract, dealership or licence on the very same groundsdoing indirectly that which could not have been done directly. Anotherconsequence of Mr. de Silva's submission that the "threshold" restric-tion does not apply to contracts of employment would be that if theCorporation appoints employees to manage some filling stations, anddealers to manage others, the act of terminating the services of theformer would be "executive or administrative action", but the termina-tion of a dealership for identical reasons would not.
In view of Mr. de Silva's concession that the distinction as to the“threshold" stage does not apply to contracts of employment, it is un-necessary to refer to Wijenaike v Air Lanka, except to point out that itconcerned a contract of employment. The majority decision in Robertsv Ratnayake appears to have been based on the principle that the -termination of the contract in that case was not done under any statu-, tory provision, and that equality before the "law" only ensured equalityin respect of protection under statutory provisions, (see pp. 43, 48,118,119). The present case is distinguishable because the Petition-ers' Dealership was hot a purely private contract, but is referable tosection 5F; it was inextricably connected to the authority granted un-der section 5E, and was not severable; and there was a single act oftermination which was primarily referable to section 5H(4). Further,with respect, the majority decision seems to have proceeded upon anarrow view that Article 12 is restricted by the definition of "law" (asmeaning a statute), and I take the broader view that the principle ofequality before the law embodied in Article 12 is a necessary corollaryof the concept of the Rule of Law which underlies the Constitution(Perera v Jayawickremaw). Article 12 therefore prohibits arbitrary, ca-pricious and/or discriminatory action. Since I entertain no doubt as tothe scope of Article 12,1 must respectfully decline to examine otherdecisions from other jurisdictions with a view to importing restrictionswhich are plainly lacking.
It is now well settled that powers vested in the State, public offic-ers, and public authorities are not absolute or unfettered, but are heldin trust for the public, to be used for the public benefit, and not for
sc
Gunaratne and Others v. Ceylcn Petroleum
Corporation and Others (Fernando, J.)
325
improper purposes. Even assuming that the Board of the 1 st Respond-ent was not obliged initially to disclose the reasons for its decision,nevertheless when that decision is being reviewed in the exercise ofthe fundamental rights jurisdiction of this Court, the burden is on theRespondents to establish sufficient cause to justify that decision, andthis Court can scrutinize the grounds for the.decision.
To justify the termination, the Respondents relied on a number ofalleged acts of misconduct and/or inefficiency on the part of the Peti-tioners (in addition to the five letters mentioned in the Board paper andthe letter of termination) and these included acts done both before andafter the 1994 Agreement was entered into.
In my view neither clause 12B nor section 5H(4) empowers theBoard to terminate a dealership or cancel an authority on account ofmatters which occurred before that dealership or authority was granted(except possibly where they were not known at that time).To hold oth-erwise would penalise the 2nd to 4th Petitioners for acts done at a timewhen they had no control or responsibility for them. I hold that allega-tions in respect of the period prior to March 1994 cannot be relied on injustification.
In regard to matters occurring after March 1994, the Respondentshave referred to two or three instances in which, upon a routine inspec-tion, pumps have been found to be delivering less than the properquantity. However, admittedly, those pumps are the 1st Respondent'sproperty; it is its responsibility to calibrate them correctly; and a dealermust not meddle with them. Mr. de Silva contended that it was thePetitioners' responsibility to test the pumps every day. If such testshad been done, and the pumps were found to be defective, the Peti-tioners should have reported the matter to the 1st Respondent, andany such complaint should have been recorded in the log book main-tained by the Petitioners. The Petitioners' log book was taken over bythe 1st Respondent on 4.1.96, and despite an order made by this Courton 2.2.96 directing the 1st and 2nd Respondents to produce it, it wasnot made available at the hearing. Further, some of the inspectionreports produced by the Respondents also showed instances wherethe pumps were overdelivering. In any event, it was primarily the re-sponsibility of the 1st Respondent to supply pumps of good quality
326
Sri Lanka Law Reports
[1996] 1 Sri L.R.
and in working order, and the Petitioners cannot be held solely or mainlyaccountable for their defects. It would have been unreasonable for theBoard to have terminated the Dealership on account of such defects inthese circumstances; and in fact the relevant Board paper made noreference to them, and the Board could not have taken them into con-sideration.
The Respondents also produced photocopies of six cheques is-sued by the Petitioners (drawn on the Seylan Bank, Kottawa) to the 1 stRespondent in payment for goods supplied, for sums aggregating toRs 662,126/19, dated 29.12.95,30.12.95, 31.12.95 and 3.1.96, whichhad not been honoured upon presentation. Although the entries are notclear, it would seem that these were presented on 4.1.96 and subse-quent dates. It is not known when each of these cheques were re-ceived by the 1 st Respondent, and it would seem that the normal courseof clearing ensured that cheques issued by the Petitioners would bepresented only after two or three days to the Petitioners’ bank atKottawa.The matter has not been clarified, but it is quite possible thqtthe cheques were presented after the Petitioners were compelled tohand over the filling station on 4.1.96. Mr de Silva strenuously con-tended that the Petitioners had acted improperly in issuing thosecheques because, he argued, they did not have funds in their accountat the time of issue; we do not know what funds they had at the time qfissue, but even if they did not then have sufficient funds their obliga-tion was 'to ensure that there were sufficient funds at the time of pres-entation; and if in consequence of the takeover, they did not depositfunds, or make other arrangements to enure that the cheques drawn infavour of the 1 st Respondent would be met, they can hardly be faulted.The letter of 4.1.96 expressly stated that payment would be made forstocks taken over; Mr de Silva admitted that no payment had beenmade, and that the value of the stocks taken over was Rs 577,587. Healso conceded that the 1st Respondent had not taken any action inrespect of the dishonoured cheques. The dishonouring of those chequeswas not a matter which in any way influenced the decision of the Board,and perhaps occurred after the takeover, and the 1st Respondent can-not now rely on it to justify the termination of the Agreement.
The only allegation which remains for consideration is that referredto in the warning letter dated 29.6.95. On Saturday, 27.5.95, one pump
sc
Gunaratne and Others v. Ceyter. Petroleum
Corporation and Others (Fernando, J.)
327
was found to be defective, in that occasionally it did not return to zeroafter recording a delivery of fuel. According to the relevant page of thelog book, a photocopy of which page alone the Petitioners had kept,probably in connection with the inquiry into that incident, this defecthad been reported by telephone at 3:10 p.m. that very day. Similarcomplaints were made on 9.5.95, 29.5.95 and 20.6.95. On Sunday,28.5.95, an employee of the 1st Respondent who had come to pur-chase fuel, found that the pumper was about to commence deliveryalthough the pump had not returned to zero after the previous delivery.The Petitioners were asked to submit an explanation; this they did,saying that the pumper was a trainee, who had been dismissed inconsequence, and asking for forgiveness. By letter dated 29.6.95, thePetitioners were warned that although disciplinary action could havebeen taken in terms of the Agreement, no such action would be takenin that instance, but that any future irregularity would be reported tothe Board for action in regard to the Dealership Agreement. Being itsequipment, the 1st Respondent was under an obligation to ensure thatit was in proper working order, and we have been given no explanationas to why it was not.
The 1 st Respondent was not entitled to rely on that incident, sinceit had been dealt with; in any event, having regard to the circumstancesin which it happened, it did not justify termination; and the Board wasnot made aware that four of the five warnings referred to in the Boardpaper had occurred before the Dealership Agreement came into opera-tion. If the Directors had been asked to terminate the Agreement andthe authority on account of that single incident, it is likely that theDirectors, as fair and reasonable persons, would at least have probedthe matter more deeply, and perhaps given the Petitioners an opportu-nity to state their position. Had they been asked to terminate the Agree-ment and the authority, summarily and without any reason, it is possi-ble that they might have refused. However, I need not speculate aboutthose matters, because none of the Directors have sworn affidavitsasserting that they would have terminated on account of that singleincident or without any reason; nor has the 9th Respondent venturedany explanation in that regard.
The Board resolution was in two parts. The first terminated theAgreement and the authority; the second appointed the 11th Respond-
328
Sri Lanka Law Reports
[1996] 1 Sri L.R
ent as the new dealer. To that extent, the resolution was severable.However the first limb of the resolution was not severable, particularlyas the dealership and the authority were so intimately connected. Ihold that the first limb of the resolution was in violation of the Petition-ers' rights under Article 12(1), and though they have not specificallyasked for it, it follows that they are entitled to a declaration that theirfundamental rights under Article 12(1) have been infringed by the can-cellation of the authority as well as by the termination of the Agree-ment.
I uphold, Mr. Weliamuna's contention that the Court ought not tomake an order which would affect the 11th Respondent's dealership inthe absence of the necessary pleadings and prayer- not because ofthe technical defect, but because the case presented by the petition-ers did not make it sufficiently clear to the 11th Respondent that hisdealership was in jeopardy; and the failure of the 1st Respondent toplace the necessary material in regard to the preliminary steps takenprior to the appointment of the 11th Respondent might have been dueto that lapse. It would not be just and equitable to compel the 1,1thRespondent to surrender his dealership. The Petitioners have averredthat they had a yearly turnover of around Rs 61 million and a yearlyprofit of around Rs 2 million.
In the counter affidavits filed on behalf of the Respondents thishas not been denied. The 1st Respondent was in a position to placedocumentary evidence, as to the value of the petroleum products sup-plied to the Petitioners, and their margin of profit. I accept the Petition-ers assessment of the loss caused to them.
To sum up, I hold that passing the impugned resolution was "ad-ministrative or executive action", although it involved a contract, andwas in violation of Article 12(1); the Board was not entitled to cancelthe authority or to terminate the Agreement without reasons; further,the Board was not made aware that four of the five warnings brought toits notice had occurred long before the current Agreement and author-ity, and that the 2nd to 4th Petitioners were not involved in them; theseshould not have been taken into consideration; the fifth warning was inrespect of an incident which had been dealt with, and was in any eventinsufficient to justify the termination, having regard to the 1 st Respond-
sc
Gunaratne and Others v. Ceylon Petroleum
Corporation and Others (Fernando, J.)
329
ent's obligations to supply and maintain equipment; the Agreementand the authority were intimately linked, and were in fact dealt withtogether, and the first limb of the impugned resolution was thereforenot severable. That part of the resolution was bad. However, the sec-ond limb of that resolution was distinct and severable; there being nopleadings and prayer in respect of the appointment of the 11th Re-spondent, it is not just and equitable to make any order affecting thatappointment.
I grant the Petitioners a declaration that their fundamental rightsunder Article 12(1) have been violated by the 1st to 8th Respondentsby the termination of the Agreement and the cancellation of the author-ity, and award them compensation and costs in a sum of Rs 75,000.Had the Agreement been terminated with notice in terms of clause12B, the petitioners would have made profits for a further period ofthree months, and that according to their uncontradicted assessmentwould have been Rs 500,000.1 therefore further direct the 1st Re-spondent, at its option, either to grant the Petitioners (within six monthsfrom today) a dealership in respect of the same or another mutuallyacceptable filling station or to pay them compensation in a sum of Rs500,000.
DHEERARATNE, J. -1 agree.
ANANDACOOMARASWAMY, J. -1 agree.
Relief granted.