SEEMA SAHITHA PANADURA JANATHA SANTHAKA PRAVAHANA SEVAYA AND OTHERS

050-SLLR-SLLR-1995-2-SEEMA-SAHITHA-PANADURA-JANATHA-SANTHAKA-PRAVAHANA-SEVAYA-AND-OTHERS.pdf


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MENDIS
V.
SEEMA SAHITHA PANADURA JANATHA SANTHAKAPRAVAHANA SEVAYA AND OTHERS
COURT OF APPEALS. N. SILVA, J. (P/CA)
C.A. 57/95JUNE 28, 1995.
Company Law – Companies Act No. 17 of 1982-S. 15(1), S. 141(2), (3), S. 22(1),S. 185(1), (2), S. 194(1), (2) – Conversion of Public Corporations of GovernmentOwned Public Undertakings into Public Companies Act No. 23 of 1987 S. 2(1) -Panadura Depot of the Colombo South Regional Transport Board converted to aPublic Company – Managing Director removed – Public Law – Private LawRemedies – Prerogative remedies – Writs of Certiorari – Prohibition.
The 1st Respondent was registered as a Public Company in terms of S. 15(1) ofthe Companies Act pursuant to the conversion of the Panadura Depot of theColombo South Regional Transport Board on a decision of the Cabinet. ThePetitioner was appointed at the Second Annual General Meeting of the Companyheld on 25.4.94 as the Managing Director. The Secretary to the Treasury on24.11.94 removed the Petitioner from the office of the Managing Director.
It was submitted that the 3rd Respondent (Secretary to the Treasury) is a PublicOfficer and holds shares on behalf of the Government, and therefore his action issubject to review by way of a writ of certiorari as coming within the purview ofAdministrative Law.
The Petitioner claimed that he could be removed only upon an ordinary resolutionas required by S. 185(1) of the Companies Act and therefore sought a writ ofCertiorari to quash the decision made by the Secretary to the Treasury and a writof Mandamus to direct that the Petitioner be designated back once again as theManaging Director.
Held:
Per S. N. Silva, J.
"Writs of certiorari and prohibition are instruments of Public Law to quash andrestrain illegal governmental and administrative action, similarly the writ ofmandamus lies to enforce the performance of a statutory duty by a PublicAuthority. They are instruments of judicial review of administrative action.”
The appointment and removal of Directors of the Company is regulated by itsarticles of association. There are no statutory provisions that apply in relation tothis matter except the Companies Act which applies generally to all Companies.
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The Petitioner has based his case for judicial review on the allegedbreach/Non compliance by the 3rd Respondent of the provisions of the Articles ofAssociation and of S. 185(1) of the Companies Act.
The legal force and the binding effect of the Articles of Association in relationto members of a Company is contractual.
Hence if the 3rd Respondent, as a Member of the company has acted contrary tothe Articles of Association he is in breach of a covenant signed and sealed byhim. It is a matter of Private Law and it cannot be subject to judicial review in anyapplication for a prerogative writ.
What is here sought to be done is the enforcement of a Contract ofemployment, contracts of employment are enforceable by ordinary action and notby judicial review. In the circumstances the dispute as to the contract ofemployment is solely a matter within the purview of Private Law and not a matterfor judicial review.
Per Silva, J.
“The trend of Authority is thus one way. Learned Counsel for the Petitioner has notbeen able to cite any authority in support of his claim that matters pertaining to acompany registered under the Company Act or matters pertaining to a contract ofemployment could be the subject of judicial review.”
APPLICATION for Writ of Certiorari/Mandamus.
Cases referred to:
R.v. National Joint Council for Dental Technicians (1953) 1 QB Pg. 704 at 707.
Trade Exchange (Cey. Ltd.) v. Asian Hotels Corporation Ltd., 1981 – 1 SLR 67(SC).
Jayaweera v. Wijeratne – 1985 2 SLR 413.
Piyasiri v. Peoples Bank – 1989 2 SLR 47.
Ranjit de Silva with Gamini Perera for the Petitioner.
Faiz Musthapha PC., with T. M. S. Nanayakkara for 2nd Respondent.
A. S. M. Perera, D.S.G., for 3rd Respondent.
August 25, 1995.
N. SILVA, J.
The Petitioner claiming to have been the Managing Director of the1st Respondent Company has filed the above application for Writs ofCertiorari and Mandamus. The Writ of Certiorari is to quash thedetermination made by the Secretary to the Treasury. (3rdRespondent) as contained in letter dated 24.11.94 (P13), removingthe Petitioner and three others as Directors of the 1st Respondent
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company. The Writ of Mandamus is to direct “that the Petitioner beeffectively, lawfully and legally be designated back once again to theoffice he held as Managing Director with full pay with immediateeffect.” (Prayer (b) of the petition) The other two are interim reliefsand have not been pursued.
The Petitioner has filed this application on the basis that the 1stRespondent is a Limited Liability Company incorporated under theCompanies Act No. 17 of 1982 (Certificate of Incorporation markedP1); regulated by the Memorandum and Articles of Association (P2)and of which 50 per cent of the shares-are held by the employeesand balance 50 per cent by the 3rd Respondent. The foregoingmatters are accepted by all parties and are set out in paragraphs 6,7, 8 and 9 of the petition.
The 1st Respondent was registered as a Public Company in termsof section 15(1) of the Companies Act No. 17 of 1982 pursuant to theconversion of the Panadura Depot of the Colombo South RegionalTransport Board, on a decision of the Cabinet of Ministers made interms of section 2(1) of the Conversion of Public Corporations orGovernment Owned Public Undertakings into Public Companies ActNo. 23 of 1987. The Scheme of the conversion is that uponincorporation, the 3rd Respondent to whom all the shares of theCompany are allotted in terms of section 2(3) of the Act transferred50 per cent of the shares to the employees of the Depot by way of agift (Article 2(a) of the Articles of Association). The balance 50 percentum of the shares remain with the 3rd Respondent and may bedealt with as provided in the Articles.
The appointment and removal of Directors of the 1st RespondentCompany is regulated by its Articles of Association. Article 9provides that the Company shall have not less than 3 and not morethan 10 Directors until otherwise determined by a special resolutionof the Company at a general meeting. Article 10 provides that 4Directors of the Company shall be Working Directors described asExecutive Directors who shall be in charge of the overallmanagement and functioning of the company. They are theManaging Director, Director Operations, Director Finance andDirector Engineering. Acording to the Article the first ExecutiveDirectors of the Company shall be appointed by the 3rd Respondent
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on the recommendation of the Secretary to the Ministry of Transportand all subsequent appointments shall be by the Board of Directors.It further provides that such first Executive Directors may be removedby the 3rd Respondent or the Board of Directors for any reasonwhatsoever without prejudice to any claim they may have fordamages, for breach of any contract of service with the company.
The appointment of Directors is regulated by Articles 11 to 15 ofthe Articles of Association. According to the scheme of theseArticles, the employee-shareholders are entitled to nominate twoDirectors, provided they collectively own more than 25 pef cent of theshares and may nominate one Director if they collectively own morethan 10 per cent of the shares (Article 11). The Directors thusappointed may be removed by the employee share-holders providedthey have the requisite share holding (Article 12). Similarly, the 3rdRespondent may appoint two Directors or one Director, as the casemay be, if he owns more than the stated percentage of shares andsuch nominees and may be removed and replaced by the 3rdRespondent (Article 12 and 13). The other share-holders maynominate up to four Directors at the rate of one for every block of 10per cent of the shares held by them (Article 15). Article 15 (b)empowers the Board of Directors to remove the Managing Directorand any Executive Director subject to any claim for damages forbreach of contract. It is seen from the foregoing analysis that theArticles of Association contain comprehensive provisions for theappointment and removal of Directors, Managing Director andExecutive Directors. There are no statutory provisions that apply inrelation to this matter except the Companies Act which appliesgenerally to all companies.
The Petitioner has pleaded that at the second Annual GeneralMeeting (A.G.M.) held on 25.4.94 he was appointed as ManagingDirector (paragraph 24 of the petition). The minutes of the secondA.G.M. have not been produced in support of this claim. Accordingto section 141 (2) and (3) of the Companies Act such minutes wouldbe evidence of the proceedings at the meeting and of theappointment of any Directors at such meeting. The Petitioner has alsonot produced an extract from the Register of Directors andSecretaries that is maintained in terms of section 194(1) of theCompanies Act. He has not produced a copy of the return that has to
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be sent to the Registrar of Companies within 14 days of any changeamongst the Directors, in compliance with section 194(2) of the Act.On the other hand, the Petitioner has produced the annual report forthe year 1.4.92 to 31.3.93 (P3). According to the annual report thePetitioner has signed the balance sheet and issued a message asthe Managing Director. This shows that the Petitioner was functioningas Managing Director prior to the second A.G.M.
The Petitioner has produced the minutes of the meeting of theBoard of Directors held on 30.6.93 (P4). According to the minutes theManaging Director D. R. F. Peiris resigned at that meeting "on theadvise of the Ministry of Transport", (paragraph III) and the Petitionerwas appointed as Director and Managing Director in his place,(paragraph IV). It is seen from the Articles of Association referredabove that the Board of Directors cannot appoint a Director. TheArticles contain comprehensive provisions as to the Directorsappointed by the different classes of share holders. Therefore, on thePetitioner’s own documents, a question looms large as to the sourceof his claimed appointment as Director and Managing Director.
The Petitioner’s case is that he was not one of the first ExecutiveDirectors of the company appointed by the 3rd Respondent in termsof Article 10 and as such he cannot be validly removed by the 3rdRespondent as provided in that Article. Learned counsel for thePetitioner submitted that the Petitioner could be removed only uponan ordinary resolution as required by section 185(1) of theCompanies Act. It was on this basis that the Petitioner supported hisplea that his removal was illegal and should be quashed by a Writ ofCertiorari.
I have to note that section 185(1) of the Companies Act referred bylearned counsel for the Petitioner contains a general proceduralmechanism for the removal of a Director in any Company at anextraordinary general meeting. A special notice is required of suchmeeting in terms of section 185(2) and 138 of the Act. These aregeneral provisions applicable to all companies regulated by theCompanies Act No. 17 of 1982. They are procedural requirements.But, the question whether a Director is removable or not has to bedecided in terms of the Articles of Association of the company. In the
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case of the 1 st Respondent, the Articles have specific provisions forappointment and removal of Directors who represent different classesof share-holders. They are the substantive provisions that have to beconsidered in deciding on the validity of a purported removal of anyDirector. Hence, the question whether the 3rd Respondent has validlyremoved the Petitioner as a Director has to be considered in terms ofArticles of Association.
It is in the context stated above that learned President’s Counselfor the 2nd Respondent and Learned Deputy Solicitor General for the3rd Respondent raised preliminary objections to this application onthe ground that on the basis of the facts pleaded by the Petitioner,the decision in issue cannot be reviewed by this Court in anapplication for prerogative Writs. Learned President’s Counsel for the2nd Respondent submitted that the 1st Respondent is an ordinarycompany, at common with all companies, registered under theCompanies Act. The 3rd Respondent is a share holder who owns 50per cent of the shares and who has specific powers in terms of theArticles of Association for the appointment and removal of Directors.Therefore, the 3rd Respondent although a public officer, in thisinstance, acts as a share holder in terms of the Articles ofAssociation. He is not exercising governmental or statutory power ofa public nature but is exercising private rights as a share-holder of acompany. On that basis it was submitted that the action of the 3rdRespondent does not come within the purview of administrative lawand the remedies by way of prerogative Writs. The 3rd Respondent’saction could be the subject of a private suit that may be instituted byany one having a cause of action, in a regular civil court.
Learned Deputy Solicitor General submitted that the Articles ofAssociation derive authority not from statute but from the fact that it isa contract binding on the members of the company. Therefore itsauthority is contractual and not statutory. It was also submitted thatthe Petitioner as Managing Director has a contractual relationshipwith the company as seen from the Articles of Association itself. Onthat basis it was submitted that contractual rights cannot be enforcedby a Writ of Certiorari or Mandamus.
Learned counsel for the Petitioner submitted that the 3rdRespondent is a public officer and holds shares on behalf of the
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Government of Sri Lanka. On that basis he submitted that his actionshould be subject to review by way of a Writ of Certiorari as comingwithin the purview of administrative law. He also submitted that the3rd Respondent has acted contrary to the Articles of Association andsection 185(1) of the Companies Act. On that basis it was submittedthat the decision P13 should be quashed by a Writ of Certiorari.
The objection raised by learned President’s Counsel and learnedDeputy Solicitor General relate to a fundamental question as to theareas in which Writs of Certiorari and Mandamus, being Public Lawremedies, would lie. It is clear these Writs come within the purview ofadministrative law which is a branch of law that has been developedby courts for the control of the exercise of governmental or statutorypowers by mainly public authorities. The distinction between thePublic Law and Private Law, which is a concept of recent origin inEnglish law but, which has been a basic concept of Roman Lawshould be borne in mind in considering this matter. The distinctionbetween Public Law and Private Law in Roman Law (being the genusof our Common Law) Jus Publicum and Jus Privatum – is clearlystated in his Institutes (1.1.4) by Justinian – R. W. Lee in his work onthe Elements of Roman Law (4th Edition page 35) states as followswith regard to the division of Roman Law to branches as Public Lawand Private Law:-
“This is the division which the Roman lawyers take as theprimary line of cleavage in the legal system. “Public Law hasregard to the Constitution of the Roman State. Private Law isconcerned with the interest of individuals." The classification isintelligible and convenient, though there are points at which thetwo overlap. The first included constitutional law, administrativelaw, criminal law and procedure and the jus sacrum. Thesecond comprises those branches of law which regulate therelations of citizens to one another, family law, property,obligations and succession. The institute is mainly concernedwith private law. It ends with one Title on criminal law. whichbelongs to the jus publicum."
Writs of Certiorari and Prohibition are instruments of Public Law toquash and restrain illegal governmental and administrative action.
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Mendis v. Seema Sahitha Panadura Janatha Santhaka Pravahana
Sevaya and Others (S. N. Silva, J. (P/CA))
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Similarly the Writ of Mandamus lies to enforce the performance of astatutory duty by a public authority. They are instruments of judicialreview of administrative action.
In Administrative Law by H. W. R. Wade and Forsyth (1994) 7thEdition at page 627 it is stated as follows:
“But both certiorari and prohibition in their modern applicationsfor the control of administrative decisions, lie primarily only tostatutory authorities. The reason for this is that nearly all publicadministrative power is statutory. Powers derived from contractare matters of private law and outside the scope of prerogativeremedies."
The authors cite the dictum of Lord Goddard CJ in the case of R v.National Joint Council for Dental Technicians(,). The citation is thus:
“But the bodies to which in modern times the remedies of theseprerogative Writs have been applied have all been statutorybodies on whom Parliament has conferred statutory powers andduties which, when exercised, may lead to the detriment ofsubjects who may have to submit to their jurisdiction."
It is thus seen that prerogative remedies such as Certiorari andProhibition lie in situations where statutory authorities wielding powervested by Parliament exercise these powers to the detriment of amember of the Public. The essential ingredient is that a member ofthe public who is affected by such a decision has to submit to thejurisdiction of the authority whose action is subject to review. In otherwords, there is an unequal relationship between the authoritywielding power and the individual who has to submit to thejurisdiction of that authority. The principles of Administrative Law thathave evolved such as the doctrine of ultra vires, error on the face ofthe record, rules of natural justice, requirement of procedural fairnessand the reasonableness of decisions, coupled with the remedies byway of prerogative Writs, lie to correct any illegality or injustice thatmay emanate from this unequal relationship. It is in this context thatthe view has been firmly held that relationships that are based oncontract, without any statutory underpinning and actions ofcompanies and private individuals and bodies, are not subject tojudicial review by way of the Writs of Certiorari and Prohibition.
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In the case of Trade Exchange (Cey. Ltd.) v. Asian HotelsCorporation Ltd.(2) the Supreme Court held that the action of a publiccommercial company incorporated under the Companies Ordinance,although its capital was mostly contributed by the Government andwas controlled by the Government, is a separate juristic person andits actions are not subject to review in an application for a Writ ofCertiorari. At p76 Sharvananda, J. (As he then was) stated as follows:
"The activities of private persons, whether natural or juristic, areoutside the bounds of administrative law. A public commercialcompany like the Respondent, incorporated under theCompanies Ordinance in which the Government or aGovernment sponsored Corporation holds shares, controlling orotherwise, is not a public body whose decisions, made in thecourse of its business, can be reviewed by this court by way ofWrit."
In the case of Jayaweera v. Wijeratne (3) a Writ of Certiorari andMandamus were sought to quash the decision of a competentauthority of a business undertaking vested in the government,terminating the agency of the Petitioner. G. P. S. de Silva, J. (as hethen was) held (at page 47)
“The case before us is one where there is an ordinarycontractual relationship of principal and agent. I therefore holdthat the remedy of Certiorari is not available to the Petitioner.”
Similarly, he held, that the Petitioner cannot seek a Writ of Mandamus“to enforce a mere private duty arising from a contract… this clearlyis outside the scope of mandamus."
A similar decision was made by this court in the case of Piyasiri v.Peoples Bank It was held that a Writ of Mandamus did not lie tocompel the Board of the Peoples Bank to call the Petitioner for aninterview with a view to a promotion in terms of circular that had beenissued by the Bank. The decision was made on the following threegrounds:
(1) that the Bank though subject to ministerial control is not apublic body but basically a commercial bank;
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that the circular, drawn in issue, does not have statutoryforce;
that in any event implementation of the circular was a privateand internal matter.
The trend of authority is thus one-way. Learned counsel for thepetitioner has not been able to cite any authority in support of hisclaim that matters pertaining to a company registered under theCompanies Act or matters pertaining to a contract of employmentcould be the subject of judicial review in an application forprerogative writs.
Learned counsel for the Petitioner bases his case for judicialreview by way of Writs of Certiorari and Mandamus on the allegedbreach/non compliance, by the 3rd respondent of the provisions ofthe Articles of Association and of section 185(1) of the CompaniesAct.
The legal force and the binding affect of the Articles of Associationin relation to members of a Company, is contractual. This is clearlydemonstrated by the provisions of section 22(1) of the CompaniesAct which reads thus:
“Subject to the provisions of this Act the memorandum andarticles shall, when registered, bind the company and themembers thereof to the extent as if they respectively had beensigned and sealed by each member, and contained covenantson the part of each member to observe all the provisions of thememorandum and of the articles."
Hence, if the 3rd Respondent, as a member of the company hasacted contrary to the Articles of Association, he is in breach of acovenant signed and sealed by him. It is a matter of Private Law andit cannot be the subject of judicial review in an application for aprerogative Writ. Wade & Forsyth states thus (at p690):
“Private law also regulates associations and bodies whoserelations with their members are governed by contract, howeverpowerful their licensing and disciplinary powers may in fact be.”
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The Writ of Mandamus prayed for in prayer (b) (reproduced at thebeginning of this judgment) is entirely misconceived. It seeks anorder from this Court restoring the Petitioner to the post of ManagingDirector with full pay. As noted, above the Writ of Mandamus lies onlyto compel the discharge of a statutory duty by a public authority.What is here sought to be done is the enforcement of a contract ofemployment. The provisions of article 10 (3rd paragraph) and of15(c), clearly show that the Managing Director holds a contract ofservice with the company. Wade & Forsyth (at page 689) states asfollows:
"Contracts of employment are enforceable by ordinary action
and not by judicial review".
The only exception appears to be situations where the employmenthas a statutory "underpinning" such as statutory restrictions ondismissal which would support a claim of ultra vires or a statutoryduty to incorporate certain conditions in the terms of employment,which could be enforced by mandamus (Wade & Forsyth at p 690).In this instance there is no statutory provision, whatever relevant tothe post of Managing Director of the 1 st Respondent company or forthat matter with regard to any post in that company. In thecircumstances, the dispute as to the contract of employment is solelya matter within the purview of Private Law and not a matter for judicialreview by way of Public Law remedy such as the Writ of Mandamus.
For the reasons stated above I uphold the preliminary objectionraised by learned President’^ Counsel for the 2nd Respondent andlearned Deputy Solicitor General for the 3rd Respondent. Theapplication is accordingly dismissed. The Petitioner will pay a sum ofRs. 2500/- each as costs to the 2nd and 3rd Respondents.
There are several other cases in which the same objection arisesfor consideration. It was agreed by learned counsel for the petitioner(who appears in all these cases) and counsel for the Respondents(who also appear in all these cases) that the judgment in this casewould be binding in the other cases. Order will be made accordinglyin the said cases.
Application dismissed.