TRADE EXCHANGE (CEYLON) LTD v. ASIAN HOTELS CORPORATION LTD

007-SLLR-SLLR-1981-1-TRADE-EXCHANGE-CEYLON-LTD-v.-ASIAN-HOTELS-CORPORATION-LTD.pdf


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Trade Exchange {Ceylon} v. Asian Hotels Corporation
67
TRADE EXCHANGE (CEYLON) LTD.
v.ASIAN HOTELS CORPORATION LTD.
SUPREME COURT.
SAMARAKOON. C. J., SAMERAWICKRAME, J. AND SHARVANANDA. J.S.C. APPEAL 10 OF 1980- C. A. APPLICATION 1539/79.
FEBRUARY 9 AND 10,1981.
Writ of certiorari—Application under Article 140 of the Constitution—WhetherPublic Company incorporated under the Companies Ordinance can be a publicbody—Whether decision of such a body amenable to certiorari.
The petitioner had since April, 1975, been carrying on business at Hotel Lanka Oberoiowned by the respondent. For this purpose it had been granted a licence, the last licenceexpiring on 15th July, 1979. Thereafter the petitioner was refused a licence to run itsshop. The respondent was a company incorporated under the Companies Ordinance.The petitioner applied to the Court of Appeal for a writ of certiorari to quash thedecision of the respondent refusing to grant it a licence on the grounds, inter alia, thatthis decision was reached in violation of the principles of natural justice and that therespondent had failed to act fairly and was actuated by mala tides and bias. The Courtof Appeal dismissed the petitioner's application. The petitioner appealed to the SupremeCourt.
It was submitted on behalf of the petitioner that the respondent-company was in fact abody performing functions of public nature, inasmuch as, inter alia, the majority of theissued share capital was drawn from public funds; the majority of the directors werenominated by the Minister of Trade; and the respondent-company was designated as a"department or statutory institution" under the purview of the Minister of Trade. Itwas accordingly submitted that the respondent-company had all the requisitecharacteristics of a Public body so as to make it amenable to the writ.
Held
The respondent was a public commercial company incorporated under the CompaniesOrdinance and the fact that most of the capital was contributed by the Governmentor that shares were controlled by the Government did not make it an agent of theGovernment. The incorporated Company was recognized by the law as a juristic personseparate and distinct from its members and was an independent body-corporatecarrying on commercial activities. Its decisions, made in the course of its business,cannot be reviewed by a superior court by way of writ and the petitioner's applicationmust therefore fail.
Cases referred to
ft. v. Fulham Rent Tribunal, 1951 (1} All E.R. 482.
R. v. National Joint Councils for Dental Technicians ex p. Neate, (19531 I Q.B.
.’04; (1953) 2 W.L.R. 342; (1953) 1 All E.R. 327.
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R. v. Criminal Injuries Commission ex p. Lain. (1967) 2 AH E.R. 770; (1967)
2 Q.B. 864; (1967) 3 W.L.R. 348.
R. v. Electricity Commissioners. (1924) 1 K.B. 171; 130 L.T. 164; 93 L.J.K.B.
390.
Ridge v. Baldwin. (1963) 2 AH E.R. 66; (1963) 1 Q.B 539; (1963) 2 W.L.R. 935;
(1964) A.C. 40.
Saioman v. Saloman & Co.. (1897) A.C. 22; (1895-9) AH E.R. Rep. 33; 75 L. T. 42.6;
13 T.L.R. 46.
Macaura v. Northern Assurance Co.. (1925) A.C. 619; (1925) All E.R Rep. 51.
Short v. Treasury Commissioners, (1947) 1 K.B. 116; (1947) 2 All E.R. 298.
APPfcAL fiom a judgment of the Court of Appeal.
H. L. de Silva, with E. D. Wickremanayake and D. S. Wijesinghe, for the petitioner-appellant.
K. N. Choksy. with Ronald Patera, for the respondent-respondent.
Cur. adv. vult.
February ?6, 1981.
SHARVANANDA, J. .
This is an appeal from the order of the Court of Appeal dismissingwith costs the petitioner's application for the issue of a writ ofcertiorari.
The petitioner is a company registered under the CompaniesOrdinance carrying on business, inter alia, in the production, saleand export of batiks, handiooms and other textiles arid was alsoengaged in the business of tailoring garments.
The respondent is a public company incorporated under theprovisions of the Companies Law with an issued share-capital of1,400,000 shares, each of Rs. 10 value, of which 1,325,314 sharesis held by the Co-operative Wholesale Establishment, a whollystate-owned undertaking incorporated by statute (Cap. 126), 600shares by the Treasury and 74,086 shares held by members of thepublic, the total number of shareholders on 10.3.79 being 502.The main object for which the respondent company was establishedis to carry on hotel business and other business connectedtherewith.
The respondent is the owner of the Hotel Lanka Oberoi whichis one of the largest luxury hotels in the country. Pursuant to itsobjects, the respondent provides on rent rooms and accom-modation in the Hotel Lanka Oberoi for shops catering to residents
SCTrade Exchange (Ceylon) v. Asian Hotels Corporation (Sharvananda, J.)69
and visitors to the said hotel. Since the commencement of thehotel in about April 1975, the petitioner has been granted by therespondent the privilege and licence to carry on a shop for the saleof batiks for a period of one year at a time at shop No. 8 situatedat and forming part of the hotel, on a monthly rental of Rs. 8,064.Likewise, seven other shops which did business in the sale of batikwere granted similar licences. The petitioner's licence had beenrenewed annually by the respondent. According to clause 24 ofthe agreement between the parties, the option to renew the licencewas reserved to the respondent. The last licence granted to thepetitioner which was due to expire on 15.4.79 was extended bythe respondent from 15.4.79 to 15.7.79. On 14.6.79, therespondent called for applications for the issue of licences tooperate the said shops, stating however that it reserved the rightto accept or reject the applications received by it without assigningany reasons. Although the petitioner duly tendered an applicationfor shop space at the specified rates and complied with the otherpreliminary conditions stipulated by the respondent, therespondent, without assigning any reason whatsoever, rejected thepetitioner's application, but accepted similar applications of theother licence-holders for batik shops in the hotel premises. Thepetitioner in its application for writ complains that it had beenarbitrarily refused a licence to run a shop for the sale of batiks inthe respondent's premises because of political discrimination, asthree of its Directors have been supporters of the Sri LankaFreedom Party, and also because of personal hostility towards itsManaging-Director by a director of the respondent-company.The petitioner contends that the decision of the respondent not togrant a new licence and/or renew the existing licence to it is nulland void for the reasons that the decision was reached in violationof the principles of natural justice, in that the petitioner was notgiven any opportunity of being heard prior to such decision andthat the respondent had failed to act fairly towards the petitionerand was actuated by mafa-fides and bias against the petitioner.
The respondent, while denying the allegations of mala-fidesand unfairness made by the petitioner, pleaded in limine againstthe maintainability of this application for the issue of a writ ofcertiorari against it on the ground that it is not a 'publicauthority'. It submits that the question of renewal of the grant ofa licence to run a shop at Hotel Lanka Oberoi, of which it is theproprietor, is a matter for the sole decision of its Board ofDirectors and that such a decision is entirely within the discretion
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of the Board and cannot be reviewed by a writ of certiorari. Therespondent contended that in declining to grant the tenancy of itsshop to the petitioner, it was not deciding on the legal rights ofthe petitioner.
An important aspect of prerogative remedies is that they belongexclusively to public law, their primary object being to make themachinery of Government work properly rather than to enforceprivate rights. An application for the prerogative remedy of a writof certiorari is a proceeding calling some public authority to showlegal justification for its action and to account for exceeding orabusing its power. "A public authority may be described as aperson or administrative body entrusted with functions to performfor the benefit of the public and not for private profit/'-Halsbury'sLaws of England, 4th Edition, Vol. I, paragraph 6 at p. 9. As LordDevlin said in R. v. Fulham Rent Tribunal (1) at 488:
"Orders of certiorari and prohibition are concerned principallywith public order, it being part of the duty of the High Court tosee that inferior Courts confine themselves to their own limitedsphere".
Lord Goddard, C.J. in R. i'. National Joint Councils for Dents!Technicians ex. p. Neate (2) at 707 defined the ambits of the writsas follows:
"The bodies to which in modern times the remedies ol 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 of thesubjects who may have to submit to their jurisdiction".
As Professor Wade in his book on Administrative Law, 4th Edition,at p. 529 stated: "Consequently the existence of statutory powermay be treated as the touchstone, though the Court has recentlyadmitted one exception in R. v. Criminal Injuries CompensationBoard ex p. Lain… " (3) and summed up the law as at p. 540:"Certiorari and prohibition are designed to prevent the excess andabuse of power by public authorities. The powers of public autho-rities are conferred by statute in almost all cases. So that it isusually safe to assume that statutory power is in question."Originally, certiorari and prohibition lay to control the functionsof inferior courts, namely, judicial functions. But the notion of
SCTrade Exchange (Ceylon) v. Asian Hotels Corporation (Sharvananda, J.l 71
what is 'a Court' and a 'judicial function' has undergonegreat revolution, so that today these remedies have grownto be comprehensive remedies for the control of all kinds ofadministrative as well as judicial acts. They have developedto be recognized today as general remedies for the control ofadministrative decisions affecting rights.
The classic definition of these orders is that of Atkin, L.J. inR. v. Electricity Commissioners (4) at 205, when he said:
"They lie wherever any body of persons having legalauthority to determine questions affecting the rights of thesubjects, and having the duty to act judicially, acts in excess oftheir legal authority".
This definition has been authoritatively interpreted and appliedby the House of Lords in the leading case of Ridge v. Baldwin (5).The duty to act judicially, referred to by Atkin, L.J. need notbe some requirement additional to the authority to determine thedispute; if the judicial element may be inferred from the natureof the power conferred over citizens, then that is enough to makecertiorari available. Lord Parker, C.J. in /?. v. Criminal InjuriesCommission ex. p. Lain (3), at 777 and 778 clarified the presentscope of the remedy.
"The exact limits of the ancient remedy by way of certiorarihave never been and ought not to be specifically defined. Theyhave varied from time to time, being extended to meet varyingconditions. At one time the writ only went to an inferior Court.Later its ambit was extended to statutory tribunals determininga lis inier-partes. Later, again, it extended to cases where therewas no lis in the strict sense of the word, but where immediateor subsequent rights of citizens were affected. The onlyconstant limits throughout were that the body concerned wasunder a duty to act judicially and that it was performing apublic duty. Private and domestic tribunals have always beenoutside the scope of certiorari, since their authority is derivedsolely from contract, that is from the agreement of the partiesconcerned. Finally it is to be observed that the remedy by orderof certiorari has now been extended to cases in which thedecision of an administrative officer is arrived at only if theinquiry or process is of a judicial or quasi-judicial character. Insuch a case, this Court has jurisdiction to supervise thatprocess.. .We have, as it seems to me, reached the position
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when the ambit of certiorari can be said to cover every case inwhich a body of persons of a public, as opposed to a purelyprivate or domestic character, has to determine matters affectingsubjects, provided always that it has a duty to act judicially."
In Lain's case, the Compensation Board was established for thepurpose of awarding compensation to victims of criminal injuryout of monies voted by Parliament. The basic feature of the Boardwas that it was wholly non-statutory: it was set up administrativelyand made what in law were ex gratia payments out of the fundsput at its disposal by Parliament. But the published schemecontained rules for the Board's determination of claims, and theserules were debated in Parliament and amended by the HomeSecretary. The rules were therefore administrative instructionsfrom the Home Secretary to the Board, made in the exercise ofthe prerogative and not under any statutory authority. LordParker, C.J. justified the issue of the writ against the Board on theground:
"Moreover, the Board, though set up under the prerogativeand not by statute, had in fact the recognition of Parliamentin debate and Parliament provided the money to satisfy theBoard's awards…The Board are, as counsel for the Board
said —
'a servant of the Crown charged by the Crown byexecutive instructions with the duty of distributing thebounty of the Crown'.
The Board are clearly therefore performing public duties."
It is thus clear lalv that the orders of certiorari and prohibitionwill issue to a tribunal only if its functions are of a public andnot merely of a private nature.
Confronted with the indisputable fact that the respondent isa company incorporated under the Companies Act establishedto carry on hotel business for the benefit of its shareholdersand not a statutory corporation, counsel for the petitioner madevaliant efforts to approximate the company to a body created bystatute and submitted that the respondent is in fact a bodyperforming functions of a public nature. He pointed to thefollowing facts and features in the administration of therespondent Company in support of his submission:
SC Trade Exchange tCeylon) v. Asian Hotels Corporation (Sharvananda, J.i 73
Out of a total issued share-capital of Rs. 14 million, only5.35% is held by private individuals, and the balance 94.65% isdrawn from public funds. The majority of the Directors arenominees of the Co-operative Wholesale Establishment, a publiccorporation, and are nominated by the Minister of Trade. TheHotel Lanka Oberoi is a medium for the development of thetourist industry, which is a function of the Government. In theallocation of subjects and functions under the Constitution of theDemocratic Socialist Republic of Sri Lanka (1978), His Excellencythe President has assigned to the Minister of State as a "Departmentor statutory institution" under his purview the Asian HotelsCorporation Ltd. and as one of his subjects and functions theconstruction and management of Lanka Oberoi Hotel. Supple-mentary estimates for the construction of additional rooms to thehotel at a cost of Rs. 23.3 million have been tabled by the Ministerof Finance in Parliament. A further Supplementary Estimatefor Rs. 9.9 million for completing extensions to the hotel in timefor the Conference of Non-Aligned Nations held in Colombo hadbeen the subject of a debate in Parliament, as evidenced by theHansards of 6.4.76 and 22.4.76. The sum of Rs. 36,200,000 votedfor expenditure by the respondent-company on Hotel LankaOberoi extensions appears in the Estimates of Governmentexpenditure on development projects (P. 26). The Auditor Generalin his report for the year 1976 (P. 27) has commented that"Conlribulions made by the Government towards the capital ofthe various Government-sponsored Corporations as at December31, 1976, amounted to Rs. 5,993,752,384 as compared withRs. 4,593,633,841 as at December 31, 1975, showing an increaseof Rs. 1,400,118,543; the major increase was observed in respectof the following Corporations: River Valleys Development Board,the Ceylon Cement Corporation, Ceylon Petroleum Corporation,Ceylon Electricity Board, Asian Hotels Corporation Ltd. (in respectof which the increase was Rs. 80,112,000) and a number ofother corporations. Approximately 95% of the share-capital ofthe respondent-company was held by the Co-operative WholesaleEstablishment, which was a Government Corporation incorporatedby Statute.
Counsel for the petitioner invited the Court to hold that, havingregard to the foregoing facts and circumstances, the respondenthad all the requisite characteristics of a public body as to make itamenable to the writ. The Court of Appeal has held that "thisformidable catalogue of features could leave no room for doubt
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that the Asian Hotels Corporation Ltd. is a public body". In myview, this conclusion is not tenable in law.
The fundamental attribute of an incorporated company is thatthe company is a legal entity distinct from its shareholders. Theconstitution, powers and functions of a company incorporatedunder the Companies Ordinance are provided for and regulated byits Memorandum and Articles of Association. An incorporatedcompany has a separate existence and the law recognizes it as ajuristic person, separate and distinct from its members. This newpersonality emerges from the moment of its incorporation, andfrom that date the persons subscribing to its Memorandum ofAssociation and others joining it as members are regarded as abody incorporate or a corporation aggregate when the new personbegins to function as an entity. Saloman v. Saloman (6). Its rightsand obligations are different from those of its shareholders. Actiontaken against it does not directly effect its shareholders. Thecompany in holding its property and carrying on its business isnot an agent or trustee of its shareholders. It is the beneficialowner of its own property. A shareholder has no legal or equitableinterest in the company's property such as can be insured. Macaurav. Northern Assurance Co. (7)—as the property of the company isnot in law the property of its shareholders. The mere fact that95% of its share-capital was contributed by the Government orthe fact that 95% of shares were held by a Government corporationlike the Co-operative Wholesale Establishment does not make anydifference. The company and its shareholders being as aforesaid,distinct entities, that the fact that the Government or aGovernment corporation holds all its shares or 95% of its sharesdoes not make the respondent-company an agent of theGovernment. As Lord MacNaghten stated in Saloman v. Saloman(6) at 51:
"The company is at law a different person altogether fromthe subscriber…; and though it may be that after incorporationthe business is precisely the same as it was before and somepersons are Managers, and the same hands receive the payments,the company is in law not the agent of the subscribers ortrustees for them. Nor are the subscribers, as members, liable inany shape or form, except to the extent and in the mannerprovided by the Companies Act."
"Shareholders are not in the eyes of the law part owners of the
SCTrade Exchange (Ceylon/ v. Asian Hotels Corporation (Sharvananda, J.)75
undertaking. The undertaking is something different from thetotality of the shareholdings.''—per Evershed, L.J. in Short v.Treasury Commissioners (8) at 122. Thus, an incorporatedcompany is not the alias, agent, trustee or nominee of its members.
It is true that in this case, the Government, through theCo-operative Wholesale Establishment, having contributed a majorportion of the share-capital, enjoys extensive powers in theconduct of the company. But these powers are derived from thefact of majority-share-holding and the operation of the rule ofthe majority which governs corporate membership rights and notby reason of the company being the agent of the Government.The company is not in law subject to any Ministerial directions.The presence of private shareholders, though they constitute aminority oniy, militates against the company being identified withthe Government. The minority shareholders too have a voice inthe administration of the company's enterprise and are entitledto elect directors, and if the majority shareholders, viz. theCo-operative Wholesale Establishment, act in oppression of theminority, the latter may petition the Court to wind up thecompany on the ground that it is just and equitable to do so. Thecompany is a commercial corporation geared to make profits. Ifit should make losses and is unable to pay its debts, its propertyis liable to execution and liable to be wound up at the suit of acreditor. In the eye of the law, the respondent is its own masterand is answerable as fully as any other person or companyincorporated under the provisions of the Companies Ordinance,the burden of Mr. de Silva's submission was that the respondent-company was subordinate and subservient to the Government byreason of the C. W. E.'s shareholding and by reason of the largeloans granted by the Government to the company and that it wasa mere instrument of the Government and was therefore identifiedwith it. The opposing argument was that the circumstance that theGovernment as main shareholder and creditor is interested in thesolvency and administration of the respondent-company does nothave the effect of changing its fundamental character of being abusiness organization with an independent juristic personality,standing outside the ordinary framework of the Central or LocalGovernment.
Counsel for the petitioner sought to found his submission thatthe respondent is a 'public authority' amenable to the supervisoryjurisdiction of this Court, on the ground that His Excellency the
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President had assigned the Asian Hotels Corporation Ltd. (i.e. therespondent) as a department, subject and function of the Ministerof State. The fact that His Excellency had done so cannottransmute the business concern of the nature of Asian HotelsCorporation Ltd. into a department or organ of the State. Sincethe State had invested in the respondent-company large amountsof money, it has an interest and say in the affairs of the respondent-company, but that is an interest and say qua shareholder andcreditor and not referable to those of the Executive Governmentover its agent. The assignment of the Asian Hotels CorporationLtd. to the Minister of State as one of his subjects and functionssignifies only that the particular Minister was to overlook suchinterest on behalf of the State and not that the Corporation hasbecome a department of the State, or that the property of thecompany is the property of the State, or the Co-operativeWholesale Establishment.
In my view, Mr. de Silva's contentions cannot be sustained.The respondent is an independent body-corporate carrying oncommercial activities. It is not performing any Governmentfunctions and is not an agent, department or organ of the ExecutiveGovernment. Hence, the writ jurisdiction of a superior Courtcannot be availed to question the respondent's decision as to howit is to conduct its business, with whom it should have businessrelationship, and who should be its tenants or licencees of itspremises.
The activities of private persons, whether natural or juristic, areoutside the bounds of administrative law. A public commercialcompany like the respondent, incorporated under the CompaniesOrdinance in which the Government or a Government-sponsoredCorporation holds shares, controlling or otherwise, is not a publicbody whose decisions, made in the course of its business, can bereviewed by this Court by way of writ.
For the above reasons, the preliminary objection of therespondent is upheld. In view of this conclusion, it is not necessaryto examine the other objections raised by Mr. Choksy.
The order of the Court of Appeal refusing the petitioner'sapplication for writ is affirmed and the appeal is dismissed withcosts.
SAMARAKOON, C. J. I agree.
SAMERAWICKRAME, J. -I agree.
Appeal dismissed.