MUNASINGHE V. DR. JOE FERNANDO AND OTHERS

030-SLLR-SLLR-1996-1-MUNASINGHE-V.-DR.-JOE-FERNANDO-AND-OTHERS.pdf


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MUNASINGHE
V.
DR. JOE FERNANDO AND OTHERS
SUPREME COURT.
FERNANDO, J.
DHEERARATNE, J. ANDWIJETUNGA, J.
S.C.APPLICATION NO. 365/93.
NOVEMBER 21 AND DECEMBER 06, 1994.
Fundamental Rights – Discrimination – Constitution, Article 12(1) – Tenderprocedure – Validity of tender procedure when there is only one potentialbidder.
A Cabinet appointed Tender Board called for bids for the supply of 25 metrictonnes of Lambda-Cyhalothrin 10% water dispersible powder, an insecticidefor use in the Anti – Malaria Campaign of the Ministry of Health. The 6thRespondent, Imperial Chemical Industries (pic) a company incorporated inthe United Kingdom ICI was the only tenderer. The Petitioner, who is theaccredited agent in Sri Lanka of Chemagri International Inc. a companyincorporated under the laws of the State of Florida, and carrying on businessinter alia as a supplier of anti-malarial insecticides filed this applicationcomplaining that the invitation for bids was an infringement and that theproposed award of the tender to the 6th respondent was an imminentinfringement of its fundamental right under Article 12(1) of the Constitution.
The grounds set up were:
All other comparable anti-malarial insecticides were excluded fromthe tender without due cause.
Only the 6th Respondent and its nominees and agents were ableto tender for Lambda-Cyhalothrin because it was a patented product,and that even the tender specifications were tailored to suit the packingrequirements of the 6th Respondent by asking for supply in units of62.5 grams.
Held:
(1) In calling for bids the Respondents did not exclude all other anti-malarial insecticides and 62.5 gram packs were specified for convenienceof use as this was the quantity required for one tank charge and obviatedthe necessity of measuring out the quantities in the field.
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(2) The selection of Lambda-Cyhalothrin was after a village scale trial. WHOhad approval Lambda-Cyhalothrin and this approval was sufficient for villagescale' testing and purchase although the 'hut test' had been done before theWHO approval. There was no impropriety in the hut test.
(The testing process involves two stages: First, the insecticide is subjectedto a "hut1' test, using a hut specially built for the purpose. If the results arepromising then a "village scale" trial is conducted by spraying the insecticideon selected samples of houses in a highly malarial area).
Observations proved that Lambda-Cyhalothrin was more effective becausethere was an unacceptable degree of resistance to Malathion (which hadsuperseded DDT).
The petitioner failed to establish that the selection of Lambda-Cyhalothrin powder was flawed or arbitrary or discriminatory.
The bids were invited using the generic name of the active ingredientas 10% Lambda-Cyhalothrin water dispersible powder.
ICI or associate companies had patents in about 22 countries, but not inSri Lanka, in respect of
cyhalothrin which was the starting material with which Lambda-Cyhalothrin was produced.
two processes for making Lambda-Cyhalothrin and
lambda-Cyhalothrin itself.
ICI had a much more valuable but secret and unpublished process formaking Lambda-Cyhalothrin but enjoyed no patent protection for it.
The petition failed to establish that there was a legal obstacle – thoughundoubtedly there were serious practical difficulties – in the way of anyperson, not associated with ICI, submitting a bid.
Bids had been invited from "formulators" namely firms or organisationswhich were engaged in making the finished product; not from"manufacturers" (i.e. producers of the active ingredient), or dealers in thefinished product. Formulators were required to submit their certificates ofquality: one from the manufacturer as to the quality of the active ingredientwhich he supplied to the formulator and the other from the formulator as tothe quality of the finished product.
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Only two ICI associate companies were in fact able to tender. However thefact that there can be only one qualified tenderer does not mean that thereis a denial of equality to other persons, for the reason that such persons arenot qualified and so they are not in the same class. It is true that the solequalified person thereby enjoys a monopoly, but that only means that hebelongs to a class which consists of one person (and, in this case, whichwas properly constituted). Since the impugned act dealt with the entireclass, there was no discrimination among members of the class. And, whereas in this case, the right is reserved to annul the bidding process and toreject all bids, it is possible to avert any financial loss which would resultfrom accepting an unduly high bid submitted by a lone tenderer.
The situation in which there is only one potential supplier is not in anyway comparable to the situations in which FR 799(2) permits a deviationfrom normal tender procedures. Resort to tender procedure would not thwartthe purpose of getting the product and would have the advantage ofopenness. The quality of the product would be the same whether it isobtained through public tender or private negotiation. There was no goodreason here to deviate from tender procedures.
Cases referred to :
Ceylon Paper Sacks v. JEDB – SC 220/92A SCM 2.7.93
Taffy de Silva, v. Atukorale [1993] 1 Sr LR 283
/
Jayawardena v. Dharmaratna (1951) 54 NLR 424
Julius v. Bishop of Oxford (1880) 5 AC 214
APPLICATION for relief for infringement of fundamental rights guaranteedby Article 12(1) of the Constitution.
C.Seneviratne RC.with D.N.Thurairajah, Prasanna Jayawardena, and
D. Yogendra for the Petitioner.
Douglas Premaratne P.C., A.S.G. with Chanaka de Silva S.C.for 1st to 5thRespondents.
L.de Silva P.C. with Romesh de Silva P.C. and Harsha Amerasekera forthe 6th respondent.
Cur.adv.vult.
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January 31,1995.
FERNANDO, J.
By a notice dated 18.6.93, published on 21.6.93, a Cabinet-ap-pointed tender board consisting of the 1st to 3rd Respondents (whowere the Secretary, Ministry of Health, State Secretary, Ministry ofPorts and Shipping, and the Deputy Director, National Planning Divi-sion) called for bids for the supply of 25 metric tonnes of "Lambda-Cyhalothrin 10% water dispersible powder", an insecticide for use inthe Anti-Malaria Campaign of the Ministry of Health. The 6th Respond-ent, Imperial Chemical Industries (pic) a company incorporated in theUnited Kingdom ("ICI"), was the only tenderer; its offer was at the rateof US$ 70 per kilogram. The Petitioner, who is the accredited agent inSri Lanka of Chemagri International Inc, a company incorporated un-der the laws of the State of Florida, and carrying on business inter aliaas a supplier of anti-malarial insecticides, filed this application underArticle 126 complaining that the invitation for bids was an infringe-ment, and that the proposed award of the tender to the 6th Respondentwas an imminent infringement, of its fundamental right under Article12(1).
The Petition referred to two aspects of this alleged infringement.Firstly, it was averred that all other comparable anti-malarial insecti-cides were excluded from the tender without due cause; and sec-ondly, that only the 6th Respondent and its nominees and agents wereable to tender for Lambda-Cyhalothrin, because it was patented prod-uct, and that even the tender specifications were tailored to suit thepacking requirements of the 6th Respondent, by asking for supply inunits of 62.5 grams.
Notices were published in the newspapers in June 1993 calling fortenders as follows:
Malathion600 metric tonnes
Fenitrothion150 metric tonnes
Lambda-Cyhalothrin :25 metric tonnes
it would be unreal to consider the disputed tender in isolation; it isclear that in calling for bids the Respondents did not exclude all otheranti-malarial insecticides.
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The Respondents have averred, and the Petitioner has not denied,that 62.5 gram packs were specified, for convenience of use, becausethis was the quantity required for one tank charge, and it was difficultfor staff to measure such small quantities accurately in the field; andthat there was a similar specification in regard to Fenitrothion.
Thus I need consider only the following submissions made byMr.L.C.Seneviratne, P.C., on behalf of the Petitioner:
1 .the tests conducted prior to the decision to select Lambda-Cyhalothrin powder for use in the Anti-Malaria Campaign were seri-ously flawed; that decision was unfairly favourable to the 6th Respond-ent, and therefore discriminatory; and hence the tender process, basedon that decision, was vitiated by the same defect;
even if that decision had been properly made, yet Lambda-Cyhalothrin powder was a product which could only have been sup-plied by one supplier (or with its permission); hence competitive ten-ders, which are of the very essence of the tender process, were notpossible, and resort to the tender procedure tended to create a mo-nopoly; in those circumstances resort to the tender process was inviolation of Article 12(1); and
the only proper course of action, was to have obtained authorityfrom the Cabinet, under Financial Regulation 799(2), to negotiate withand to purchase direct from that particular supplier.
Most of the facts are not in dispute. Different insecticides havebeen used, from time to time, to control the malaria mosquito. Sincethe malaria mosquito acquires, with time, immunity or resistance toany insecticide, such changes are inevitable. Originally, DDT was usedwith great success, but had to give way in the late 1970's to Malathion.Apart from other factors • such as cost, pilferage for agricultural use,inadequate supervision, poor public acceptance, and the like – in someareas, by 1990, a problem of declining effectiveness had arisen. Ac-cordingly there was already a need for alternatives. Even otherwise, itwas only prudent to be ready with alternatives for use in such an even-tuality. The practice followed was to test WHO-registered insecticidesunder local conditions, using material provided by the manufacturers
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or their local agents, at their cost. Three other insecticides had beentested, including Lambda-Cyhalothrin and Fenitrothion; two more werein the process of being tested; and a hut trial had been conducted inrespect of yet another, but a village scale trial had not been carried outdue to lack of interest on the part of the manufacturer.
During this period, the problem was especially serious in the North-Western Province, which had about 40% of the reported malaria cases,Kurunegala being the District with the highest number of cases. Thusit became necessary to conduct tests in the Kurunegala and PuttalamDistricts, and thereafter to obtain supplies by late September 1993, tobe used by October-November when the incidence of malaria beganits seasonal rise.
The testing process involves two stages. First, the insecticide issubjected to a "hut" test, using a hut specially built for the purpose. Ifthe results are promising, then a "village scale" trial is conducted, inwhich the insecticide is sprayed on selected samples of houses in ahighly malarial area. According to the 4th Respondent, the Director ofthe Anti-Malaria Campaign, in the latter test "the impact on the popula-tion upto a maximum of one year is observed"; and since "the com-plete testing of a new insecticide in the country takes around 1 1/2 to2 years” it is impossible to wait until all available insecticides are testedbefore a final decision to introduce a new insecticide is taken.
Mr.Seneviratne submitted that these tests could only have beendone with insecticides approved by the WHO. Although I do not thinkthat the WHO approvals were mandatory, I have no doubt that it wasboth proper and prudent to follow the WHO recommendations. He con-tended that Lambda-Cyhalothrin had not been approved by the WHO atthe time it was used for the "hut" test, and that this vitiated the test.In regard to the "village scale" test done in 1992, it is clear that byAugust 1991 the WHO had issued an interim specification approvingLambda-Cyhalothrin, and Mr. Seneviratne did not dispute that this con-stituted a sufficient approval, both for "village scale" testing and forpurchase; thus there was no shortcoming, on account of any lack ofWHO approval, when the "village scale" test was done in 1992. Thedocuments produced in this case do not show when the interim speci-fication was issued, and so we do not know whether it came into force
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only after the "hut” test was done. There is also no material to sup-port Mr. Seneviratne's contention that it was contrary to WHO-guide-lines, or otherwise improper, to conduct the "hut" test without Lambda-Cyhalothrin having been approved. Indeed, in August 1991 Anti-Ma-laria operations in Sri Lanka were reviewed by a WHO External Evalu-ation Team, which referred to the then ongoing experimental "hut" testswith Lambda-Cyhalothrin, and recommended "Village Scale" trials withLambda-Cyhalothrin; its report does not suggest that the "hut” testshad been conducted without any necessary WHO approval of Lambda-Cyhalothrin. The Petitioner has failed to establish that there was anyimpropriety in the "hut" test.
Mr. Seneviratne contended that the "Village Scale" test was notconducted for the requisite period of time. This test was carried out inthe Kurunegala District, and involved trials of Lambda-Cyhalothrin andMalathion in two distinct villages with similar populations. The recom-mended period of spraying for Lambda-Cyhalothrin was once in sixmonths, and for Malathion, once in three months. Both villages werestudied from January to November 1992, and statistics were main-tained for that period. Lambda-Cyhalothrin was sprayed in April, andOctober, in one village while Malathion was sprayed in April, July andOctober in the other. The report submitted by the Entomologist of theAnti-Malaria Campaign showed that Lambda-Cyhalothrin was much moreeffective both in reducing the number of malaria cases as well as incontrolling the mosquito itself.
Relying on the averment in the affidavit of the 4th Respondent,that "the impact on the population upto a maximum of one year isobserved", Mr. Seneviratne urged that no conclusion could have beendrawn from the test until the impact of the second spraying of Lambda-Cyhalothrin had been observed for a period of about an year; alterna-tively, he argued, that the 4th Respondent should have waited, at least,for one year after the first spraying of Lambda-Cyhalothrin (i.e. for aboutsix months after the second). On this basis he claimed that the reportwhich was submitted by the Entomologist in January 1993 had beenhastily prepared, with the intention of favouring the 6th Respondent'sproduct. I find myself quite unable to agree with this interpretation ofthe 4th Respondent's affidavit. Observing the impact on the populationfor an year does not mean studying the situtaion for one year after
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spraying; on the contrary, it indicates that the main purpose of the testwas to ascertain and compare the position both before and after spray-ing. Insofar as Lambda-Cyhalothrin was concerned, an eleven monthperiod of observation revealed that Lambda-Cyhalothrin was effec-tive, for six months after spraying, in reducing the numbers of bothmalaria cases and mosquitoes. The 4th Respondent’s affidavit thusdoes not support Mr. Seneviratne's contention at all. It only meantthat the "village" test should take approximately twelve months, andconsequently that it would take 1 1/2 to 2 years to do both the hut testand the village scale test. Whether or not a longer period was desir-able, or a more rigorous test was possible, I am unable to say as theavailable material consists only of the 4th Respondent's affidavit. Ihold that there was no flaw in regard to the test.
Kurunegala being a District whichliad previously been treated withMalathion, this test did not prove that Lambda-Cyhafothrin was intrin-sically superior to Malathion; however, it strongly supported a conclu-sion that there was already an unacceptable degree of resistance toMalathion, which made Lambda-Cyhalothrin a better alternative in thecircumstances. At the same time, Fenitrothion was selected for usein the Puttalam District, and tenders were called for both insecticidesin June 1993.
I therefore hold that the Petitioner has failed to establish that theselection of Lambda-Cyhalothrin powder was flawed, or arbitrary, ordiscriminatory. I
I turn now to Mr. Seneviratne's second contention that the tenderprocedure should not have been resorted to. What was tested was apowder formulated with Lambda-Cyhalothrin by ICI, and sold under thebrand name "ICON0. However, the product for which bids were invitedwas not "ICON"; instead the product was described (using the genericname of the active ingredient) as "10% Lambda-Cyhalothrin waterdispersible powder". It is common ground that this meant that thefinished product should consist, as to 10%, of the active ingredient,Lambda-Cyhalothrin, the remaining 90% consisting of other substanceswhich would make it a water dispersible powder, having specified prop-erties.
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It is necessary to consider the Petitioner's submission as to theextent of the 6th Respondent's patent rights. The Petitioner submittedtwo affidavits from its expert, and the 6th Respondent one. Ultimately,there was no dispute that ICI or associate companies had patents inabout 22 countries, but not in Sri Lanka, in respect of (a) Cyhalothrinwhich was the starting material with which Lambda-Cyhalothrin wasproduced, (b) two processes for making Lambda-Cyhalothrin fromCyhalothrin, and (c) Lambda-Cyhalothrin itself. Further, ICI had a muchmore efficient and valuable process, which was secret and unpublished,for making Lambda-Cyhalothrin, but enjoyed no patent protection forit. The Petitioner's expert further stated that there was no publishedinformation as to the nature of the formulation previously tested in SriLanka (i.e. "ICON"), and that it was not possible for a competitor (inthe short period of three months between invitation for bids and sup-ply) to develop a formulation having a comparable analysis and prop-erties, since this involved substances and processes which were notpublished; however, the formulation itself was not patented; this wasnot disputed. He further claimed that "while an active ingredient is stillsubject to patent protection the patentee generally does not make itavailable, except under special agreements to preferred licensees..but instead makes it available only as formulated material", and that"in any country where there is a patent in force on the active ingredi-ent, it is generally not permissible for an unlicensed third partyto
formulate that compound into a formulation". These assertions sug-gest that patent protection would indirectly extend to formulation aswell. However, the first of these claims is an unproved assertion offact, particularly in relation to Lambda-Cyhalothrin, and it is not sug-gested that the patent laws prevent a third party acquiring the activeingredient in the market. The second is a statement of (foreign) law,unsupported by even a reference to any legal text; and I doubt whetherthe protection conferred by a patent extends so far as to prevent athird party using the patented product to make another product.
The Petitioner has failed to establish that there was a legal obsta-cle – though undoubtedly there were serious practical difficulties-in theway of any person, not associated with ICI, submitting a bid.
This was not all. Bids had been invited from" formulators", namelyfirms or organisations which engaged in making the finished product;
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not from "manufacturers” (i.e. producers of the active ingredient), ordealers in the finished product. Formulators were required to furnishtwo certificates of quality: one from the manufacturer as to the qualityof the active ingredients which he supplied to the formulator, and an-other from the formulator as to the quality of the finished product.Obviously, this would have further restricted the number of personsable to tender. Mr.Seneviratne referred to an extract from the FarmChemicals Handbook, 1992 (which he said was an authoritative publi-cation in regard to pesticides) according to which there were only twoformulators of LC powder, under the names "ICON" and "KARATE":both were ICI associate companies. He also referred to a Korean com-pany, but this turned out not to be a formulator.
On the material placed before us, I hold that only two ICI associ-ate companies were in fact able to tender. In such circumstances,Mr.Seneviratne submitted, competitive tenders were not possible, andresort to tender procedure was in violation of Article 12(1), citing mydissent in Ceylon Paper Sacks v. J.E.D.B.,W. However, in that case Idid not hold that resort to tender procedure was in violation of Article12(1), but, on the contrary, that in the process of. evaluating the ten-ders there had been a breach of the Financial Regulations, which re-sulted in a violation of Article 12(1). Independently of the FinancialRegulations, the fact that there can be only one qualified tenderer doesnot mean that there is a denial of equality to other persons, for thereason that such persons are not qualified and so they are not in thesame class. It is true that the sole qualified person thereby enjoysmonopoly, but that only means that he belongs to a class which con-sists of one person ( and, in this case, which was properly consti-tuted). Since the impugned act dealt with the entire class, there wasno discrimination among members of the class. And where, as in thiscase, the right is reserved to annul the bidding process and to rejectall bids, it is possible to avert any financial loss which would resultfrom accepting an unduly high bid submitted by a lone tenderer.
Mr.Seneviratne's alternative submission was based on the "Guide-lines and Checklist for Tender”, dated 17.8.90, issued by the Secre-tary to the President, in order "to ensure competitiveness and to in-spire confidence in the public with regard to the fairness and equitabilityof Government decisions on tenders"; it was pointed out that the Fi-
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nancial Regulations had been framed "to engender the widest possiblecompetition in all tenders and to secure the most competitive prices/rates", and that "the specifications should be designed so as to makethe tender as competitive as possible and should neither preclude norfavour any particular tenderer or tenderers". As I observed in CeylonPaper Sacks v J.E.D.B., {supra) this document does not purport to beissued by virtue of any legislative or executive authority, and cannotadd to or vary the provisions of the Financial Regulations.Mr.Seneviratne relied on FR 799(2), which provides:
" (2) General authority for deviation from procedures prescribedfor Stores and Supplies. • (a) In urgent and exceptional circum-stances, when real and appreciable injury would be caused to theactivities of the Department by delay in following normal proce-dures for obtaining stores and supplies, or when the normal pro-cedures are inappropriate to the type of articles required and theprovisions of F.RR 794 to 796 are also inadequate to meet thecontingency, the authorities mentioned in (1) above, may, withinthe limits prescribed, authorize deviation from the proceduresprescribed for the procurement of stores provided the reasonstherefor are explicitly recorded in writing."
It is clear that there are two distinct situations in which FR 799(2)permits a deviation from normal tender procedures. The first relates tocircumstances which are “urgent and exceptional", in which seriousloss or prejudice will be caused by reason of the time taken in follow-ing tender procedures. It was not suggested that there was any suchsituation in the present case, and it was clear that the insecticide couldbe obtained well in time despite following tender precedures.
The question for determination, therefore, is whether the secondcondition was satisfied – that normal tender procedures were "inappro-priate to the type of article required"; and, if so, whether it was manda-tory for the appropriate authority (here, the Cabinet of Ministers) topermit a deviation from public tender procedures by authorising privatenegotiations. (Admittedly, the provisions of FR 794 to FR 796 wereinapplicable.) It seems to me that there may well be situations in whichthe appropriate authority is obliged to authorise a deviation. One ex-ample would be where special equipment is required to combat terror-
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ism, crime or smuggling, but calling for tenders may result in publicitywhich would enable defensive measures to be taken, which would sig-nificantly reduce the usefulness of such equipment; in such caseseven though the tender process would ensure the best quality andprice, the very purpose of getting the goods would be thwarted by thepublicity attendant on the tender procedure. Again, there are commodi-ties the prices of which fluctuate considerably, for various reasons; forsuch commodities, it may be that a "spot" price for a contract, to beconcluded at once, would be more favourable than a bid which is openfor acceptance for several days or even weeks. There may be otherarticles for which there is, at any given time, an established price -whether determined by some internationally recognised institution, orby local price control. In all such cases, there is much to be said forthe view that normal tender procedures are "inappropriate1' having re-gard to the articles required.
in the examples I have considered resort to public tenders wouldthwart the purpose of getting the product, or would not secure the bestproduct at the most favourable price; accordingly, private negotiationswould seem to be preferable, and, I will assume, may perhaps even bemandatory.
The situation in which there is only one potential supplier is not inany way comparable. Resort to tender precedure would not thwart thepurpose of getting the product; and would have the advantage of open-ness. The quality of the product would be the same whether it is ob-tained through public tender or private negotiation. In regard to price,there is no reason to assume that a supplier who enjoys a monopolywould quote a higher price at a public tender than in private negotations;and in any event, if he does quote an unduly high price, his bid can berejected and the apropriate authority can thereafter be requested toauthorise a deviation.
But even assuming that the second condition in FR 799(2) is sat-isfied where there is only one potential supplier, yet it does not followthat it is mandatory to authorise deviation from tender procedures – forit is a settled rule of interpretation that "may" in a statute confers adiscretion, and will only exceptionally be held to be mandatory (Maxwell,Interpretation of Statutes,12th edition, p 234). It will be held to be
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mandatory only if there is good reason, as for instance if the contextso requires, or if the purpose of the statute will not otherwise beachieved (as in Tatty de Silva v. Atukorala,(2); see also Jayawardena v.Dharmaratne(3)).
"May" is like the words 0 it shall be lawful", which
"confer a faculty or power, and they do not of themselves
do more than confer a faculty or power. But there may be some-thing in the nature of the thing empowered to be done, somethingin the object for which it is to be done, something in the condi-tions under which it is to be done, something in the title of theperson or persons for whose benefit the power is to be exercised,which may couple the power with a duty, and make it the duty ofthe persons in whom the power is reposed, to exercise that powerwhen called upon to do so
and in relation to FR 799(2), I would add, to exercise the powerwhen it is shown that “usual procedures are inappropriate”-
"And the words 'it shall be lawful' being according to their
natural meaning permissive or enabling words only, it lies uponthose, as it seems to me, who contend that an obligation existsto exercise his power, to show in the circumstances of the casesomething which,according to the principles I have mentioned,creates this obligation." (Julius v Bishop of Oxford.<4>)
The matters I have referred to in the preceding paragraphs showthat there is no good reason to displace tender procedures. I hold thatit was not mandatory to deviate from tender procedures. I
I have not overlooked Mr.Seneviratne's submission that, becausetender procedures were resorted to, a higher price (US $70 per kilo-gram) had to be paid than the market price of US $52.50 per kilogram.Apart from a passing reference in an unsigned and undated documentthere was no satisfactory evidence of the market price in mid-1993.The allegation that the 6th Respondent's bid was too high cannot there-fore be made the basis for challenging the decision to call for tenders.
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Mr.H.L.de Silva submitted in reply that in any event the Petitionerhad no locus standiXo question the decision to resort to tender proce-dures, because whether it was by public tender or private negotiationthe Petitioner was not qualified to make an offer, and was therefore notin the same class; whichever option was selected, the Petitioner's rightwas not affected. As the petition fails on the merits, it is unnecessaryto decide this question of status.
The Petitioner's application fails, and is dismissed with costs in asum of Rs.3,000/- payable to the 6th Respondent.
DHEERARATNE, J. -1 agree.
WIJETUNGA, J. -1 agree.
Application dismissed.