VASUDEVA NANAYAKKARA v. CHOKSY AND OTHERS (JOHN KEELLS CASE)

014-SLLR-SLLR-2008-V-1-VASUDEVA-NANAYAKKARA-v.-CHOKSY-AND-OTHERS-JOHN-KEELLS-CASE.pdf


134Sri Lanka Law Reports[2008J 1 Sri L.R
VASUDEVA NANAYAKKARAv
CHOKSY AND OTHERS(JOHN KEELLS CASE)SUPREME COURTS. N. SILVA, CJ.
AMERATUNGA, J.
BALAPATABENDI, J.
SC FR 209/2007MARCH 14, 27, 2008MAY 12, 26, 2008.
Constitution Article 3, 4 – Article 12 (1), 126 – 13th Amendment ~ Sale ofshares of Lanka Marine Services Ltd – Acting without lawful authority – PublicEnterprise Reform Commission Act, No.1 of 1996 – Ostensible authority -Right to equality – Privatization – Bias – Rule of law – Locus Standi – Defenceof time bar – Severability of executive action – Just and equitable relief underArticle 126 – Provincial land list – Advice of Provincial Council necessary?Petroleum Products (sp. provisions) Act 63 of 2002.
The petitioner filed application in the public interest in terms of Article 126alleging an infringement of the fundamental right to the equal protection of thelaw. The impugned executive action is the action primarily of the 8threspondent – P. B. Jayasundara (PBJ) who functioned as Chairman of thePublic Enterprise Reform Commission (PERC) and of the Cabinet of Ministersincluding the Prime Minister – 3rd respondent. It is alleged that PBJ causedthe sale of shares of Lanka Marine Services Ltd (LMSL) a wholly owned
5C Vasudeva Nanayakkara v Choksy and others (John Keells Case) 135
company of the Ceylon Petroleum Corporation (CPC) which was a profitmaking debt free tax paying company to John Keells Holdings (JKL) 18threspondent without prior approval of the Cabinet of Ministers in a processwhich is not transparent and was biased in favour of JKL. It was also allegedthat he did not obtain a valuation of LMSL from the Government Valuer andrelied only on a valuation secured at the discretion of a private Bank. It wasfurther alleged that, there was an illegal state grant given to LMSL by the thenPresident within the Port of Colombo 2 years after the sale of shares statingthat it was made upon the payment of approximately Rs. 1.2 Billion by LMSLto the Government whereas no such money was paid. It was further allegedthat in a collateral proceeding JKH obtained tax free status for its investmentin LMSL from the Board of Investments (BOI) and that since the applicableregulation did not cover the agreement entered into, JKH got the regulationamended and a fresh agreement entered into by the BOI. It was alleged thatthe impugned privatization was lopsided and moved in the reverse direction ofPublic Enterprise Reform by converting a tax paying Public Enterprise to a taxfree private enterprise which claimed a monopoly in the relevant business.
It was further alleged that after the bid of JKH was accepted the specimen ofthe Common User Facility (CUF) agreement was also amended by PBJ at thedetest of JKH and a new clause included which provided that the Governmentof Sri Lanka Ports Authority (SLPA) and CPC would ensure that all bunkerswould be supplied using the CUF. It was further alleged that the new clauseeffectively prevented an alternative supply of bunkers and created a monopolyin LMSL now owned by JKH.
Held
The process of divestiture of state ownership which was initially done onan ad hoc basis in respect of enterprises that were incurring losses wasformalized on 01.03.1995 and described as the Public Enterprise ReformProgramme with the establishment of a Special Task Force appointed bythe President. The Reform Programme was further enhanced and givenlegal dimension by Act No.1 of 1996 established by the PERC. Thus PublicEnterprises Reform which lay in the area of Executive discretion camestrictly to the legal domain as being public process regulated by law. Thefunctions and the objects of PERC are set out in section 4 of the Act.
Since the role of advising and assisting is vouched by section 4 inmandatory terms, it necessarily follows that the Government cannotcarry out public enterprise reform including divestiture without receivingadvice and assistance from PERC. Furthermore all the objects of PERCare intended primarily to benefit the people – section 5(1).
The committee of officials reconciled a cautious approach of preservingthe monopoly of LMSL within the Port and liberalization the sector by thegrant of 3 licences for the supply of bunkers outside the Port of Colombo.The Committee which included a Director of PERC did not recommendthe sale of shares of LMSL.
136Sri Lanka Law Reports[2008] 1 Sri L.R
The steps taken by PBJ and the PERC towards affecting a sale of sharesof LMSL is not in any way mandated by the decision of the Cabinet ofMinisters and is manifestly contrary to the process that had beenauthorized. The procedure adopted is also contrary to the Public FinanceCircular,
The Cabinet had not even authorized the PERC to make reconsiderationas to the sale of LMSL shares. The only matter on which the Cabinet hadauthorized action was the liberalization of the bunkering service in thearea outside the Colombo Port, which had been effectually put into coldstorage by PERC. This action is not based on a lawful exercise ofExecutive power in terms of the PERC Act and was contrary to thedecision of the Cabinet of Ministers.
All ostensible authority involves a representation by the principal as tothe extent of that agents authority. No representation by the agent as tothe extent of his authority can amount to a “holding out” of the principal.No public officer unless he possess some special power, can hold not onbehalf the state that he or some other public officer has the right to enterinto a contract in respect of the property of the state when in fact no suchright exists.
The 13th Amendment provided for the exercise of legislative andexecutive power within a province in respect of matters in the provincialland list on a system akin to the Westminster model of government. Thepower reposed in the President in terms of Article 33 (d) read withsection 2 of the State Lands Ordinance is circumscribed by theprovisions of "Appendix II" in item 18.
"Appendix 11" established an interactive legal regime in respect of stateland within a Province. Whilst the ultimate power of alienation and ofmaking a disposition remains with the President the exercise of thepower would be subject to conditions in Appendix 11 being satisfied. Apre condition is that an alienation or disposition of state land within aprovince shall be done in terms of the applicable law only on the adviceof the Provincial Council.
The rule of law postulates the absolute supremacy or predominance ofregular law as opposed to the influence of arbitrary power. It excludes theexistence of arbitrariness of prerogative or wide discretionary authorityon the part of the government.
The principle enunciated in Articles 3 and 4 of the Constitution is that therespective organs of government, the legislature, the executive and thejudiciary are reposed power as custodians for the time being to beexercised for the people. The resources of the state are the resources ofthe people and the organs of state are guardians to whom the peoplehave committed the care and preservation of these resources.
SC Vasudeva Nanayakkara v Choksy and others (John Keells Case) 137
There is a positive component in the right to equality guaranteed underArticle 12 (1) and where the executive being the custodian of thepeople’s power all ultra vires and in derogation of the law and proceduresthat are intended to safeguard the resources of the state, it is in thepublic interest to implead such action.
The defence of time bar must necessarily fail since the impugnedtransfer was not conducted according to law in a fair and transparentprocess.
Held further
The petitioner has a sufficient locus standi to institute-these proceedingsin the public interest and has established an infringement of thefundamental right guaranteed by Article 12 (1) in respect of 90% of theshares of LML.
Per Sarath N. Silva C.J.
“From the perspective of JKH I hold that the company has securedadvantages and benefits through the illegal process and in specificinstances by misrepresentation that have been made.
Per Sarath N. Silva C.J.
‘The findings in the judgment demonstrate that the action of PBJ has notonly been arbitrary and ultra vires but also biased in favour of JKH.
Per Sarath N. Silva C.J.
“Ordinarily, the grant of a declaration that executive or administrativeaction is an infringement of the fundamental right guaranteed by Article12 (1) would result in a restoration of the status quo ante. However sincethe jurisdiction vested in this court in terms of Article 126 (g) is to grantrelief or to make directions as it may seem just and equitable, it is opento the court to ascertain whether the implications of the impugnedexecutive action is severable.
An APPLICATION under Article 126 of the Constitution.
Cases referred to:-
Attorney-General v A. D. de Silva – 34 NLR 529 (PC)
Rawlands v A. G. – 72 NLR 385
Visvalingam v Liyanage – 1983 – 1 Sri LR 236
Premachandra v Jayasundara – 1994 – 2 Sri LR 9
Bulankulama and others v Secretary Ministry of Industrial Development- 2000 – 3 SLR 243
Senaratne v Chandrika Kumarasinghe – 2007 – 1 Sri LR 59.
138Sri Lanka Law Reports(2008} 1 Sri L.R
M. A. Sumanthiran with Viran Corea for petitioner
Nihal Fernando PC with Ronald Perera and V. K. Choksytor 1st respondentL. C. Seneviratne PC with A. P. Niles for 3rd respondentViraj Premasinghe for 10th respondent
Romesh de Silva PC with Harsha Amarasekera for 18th – 21st respondents
Y. J. W., Wijayatilleke PC 4SG with Viraj Dayaratne SSC for 8th, 15th – 19th,26th and 31st respondents
22nd respondent – Nihal Sri Amarasekera in person.
Shibly Azeez PC for 32nd – 34th added respondents.
July 21,2008.
SARATH N. SILVA P.C., C.J.The petitioner, Vasudeva Nanayakkara, in the capacity of anational politician and a social worker has filed this application inthe public interest in terms of Article 126 of the Constitution,alleging an infringement of the fundamental right to the equalprotection of the law guaranteed by Article 12(1) of the Constitution.The impugned executive action as alleged by the petitioner is theaction, primarily of P. B. Jayasundera, the 8th respondent whofunctioned at the material time as Chairman of the PublicEnterprise Reform Commission (previously and presentlySecretary to the Treasury) and of the then Cabinet of Ministers,including the 3rd respondent, Ranil Wickremasinghe, who was thePrime Minister. The then President is cited as the 4th respondent.It is alleged that Jayasundera caused the sale of shares of LankaMarine Services Ltd., (LMSL) a wholly owned company of theCeylon Petroleum Corporation (CPC), which was a profit making,debt free, tax paying company to John Keells Holdings Ltd (JKH -18th respondent), without prior approval of the Cabinet of Ministers,in a process which was not transparent and was biased in favour ofJ.K.H. It is also alleged that he did not obtain a valuation of LMSLfrom the Government Valuer and relied only on a valuation securedat his discretion from a private bank. That, the sale price ofapproximately Rs. 1.2 billion pales into insignificance consideringthat profits of LMSL for the 4 years including the year of sale wasRs. 2.45 billion. In addition an illegal State Grant was given toLMSL by the then President of an extent of 8 Acres 2 Roods, 21.44perches within the Port of Colombo in January 2005, nearly 21/2
or' Vasudeva Nanayakkara v Choksy and others (John Keells Case) -i oq
(Sarath N. Silva, P.C., J.)
years after the sale of shares stating that it was made upon thepayment of approximately Rs.1.2 billion by LMSL to theGovernment, whereas no such money was paid. It is further allegedthat in a collateral proceeding JKH obtained tax free status for itsinvestment in LMSL from the Board of Investment (BOI). That,since the applicable Regulation did not cover the Agreemententered into, JKH got the Regulation amended and a freshAgreement entered into by the BOI. Thus it was alleged that theimpugned privatization was lopsided and moved in the reversedirection of public enterprise reform by converting a tax payingPublic Enterprise to a tax free private enterprise which claimed amonopoly in the relevant business.
The petitioner also relies on the Central Bank Annual Report of2004 (P24) which states that the privatization of LMSL has notyielded the expected low prices and competition, requiring furtherreforms in the sector. The same view is expressed by the noticepublished on May 2005 (P2), by “Feeder Operators” complaining ofhigh “Bunker Prices” in Colombo.
The petitioner was actively supported by Nihal Amarasekera,the 22nd respondent who succeeded Jayasundera as Chairman,PERC, at a later point of time. It is clear that the bundles ofdocuments produced in the case would not have surfaced if not forthe probing scrutiny by Amarasekera. I would not cite the scathingremarks made by him of the impugned transaction since this courtwould be guided only by the sequence of events, relevantdocuments and the reasonable inferences that could be drawnfrom them.
The petitioner is also supported by 3 intervenient petitioners lateradded as 32nd, 33rd and 34th respondents. The 32nd respondent,Sri Lanka Shipping Co. Ltd., (SLSCC) bid for the shares of LMSL incollaboration with Chemoil Corporation, USA. They allege that theinitial bid of JKH was made in collaboration with Fuel and MarineMarketing (FAMM) owned by the Chevron Corporation of USA. That,JKH could have got above the threshold of 70 marks to be shortlisted, only on the credentials of FAMM, being a market leader inBunkering. After clearing the initial threshold, the TechnicalEvaluation Committee (TEC) was notified that FAMM was notpursuing the bid in collaboration with JKH and it is alleged that the
140Sri Lanka Law Reports[2008] 1 Sri L.R
TEC erred in continuing to evaluate the bid on financial capabilityand business strategy as an individual bid of JKH. It was submittedthat with the withdrawal of FAMM, the Committee should havestruck off the marks attributed on the credentials of FAMM andremoved JKH from the shortlist.
It is further alleged by the petitioner and the 22nd, 32nd, 33rdand 34th respondents that after the bid of JKH was accepted thespecimen of the Common User Facility (CUF) Agreement wasamended by Jayasundera at the behest of JKH and a new clause8.2 was included which provided that the Government, Sri LankaPorts Authority (SLPA) and CPC would ensure that all bunkerswould be supplied using the CUF. The catch in this clause is thatthe CUF is connected to the Storage Tanks located within theproperty granted to the privatized LMSL and the added clauseeffectively prevented an alternative supply of bunkers and createda monopoly in LMSL now owned by JKH. After their bid for thepurchase of LMSL shares was rejected, the 32nd respondentobtained a licence in terms of section 5 of the Petroleum Products(Special Provisions) Act, No.33 of 2002 to distribute petroleumwhich included the supply of bunkers. On that license theserespondents commenced an off-shore operation of supplyingbunkers using ships and a main tanker. LMSL owned by JKHcaused SLPA to prevent this operation in terms of the said clause8.2. There were many rounds of litigation and finally the Court ofAppeal struck down the said clause 8.2 as being inconsistent withthe provisions of Act, No.33 of 2002.
It is thus seen that the petitioner and the respondents referredabove challenge every step of the privatization of LMSL includingsteps taken after the acceptance of the bid to consolidate the gainsof JKH. The gravamen of the allegation is that P. B. Jayasundera,Chairman of PERC and S. Ratnayake, Director, JKH (20threspondent) worked hand in glove to clinch the wrongful benefits toJKH. In sum, the petitioner and 22nd, 32nd, 33rd and 34threspondents adopt the conclusion of the Committee On PublicEnterprises (COPE) of Parliament which inquired into the samematter and reported to Parliament as follows:
“This transaction had been executed blatantly without
Cabinet approval, with several flaws causing loss and
SC Vasudeva Nanayakkara v Choksy and others (John Keells Case) 141
(Sarath N. Silva, P.C., J.)
detriment to the Government, and demonstrating it to be aquestionable “fix", and is therefore ab-initio bad in law, nulland voild” (Vide: Hansard of 12.01.2007 – P35)
Although I cited the conclusion of the Committee as reported toParliament, I have to state straightaway that the perspective of theinquiry before this court is different. We have to focus on theapplicable law and ascertain whether the impugned executiveaction was an arbitrary exercise of power, serving a collateralpurpose and defeating the object of the law, denying thereby to thepetitioner and the People the equal protection' of the law underArticle 12 of the Constitution. From that perspective the initial focuswould be on the Public Enterprises Reform Commission of SriLanka Act, No.1 of 1996, purportedly in terms of whichJayasundera as the then chairman of the Commission took theimpugned executive action.
PUBLIC ENTERPRISES REFORM COMMISSION OF SRILANKA ACT, NO.1 OF 1996
The Act which sets up the Commission better known by theacronym PERC marks a watershed in the progression ofgovernmental economic policy, from a State owned and controlled,centrally driven economy to a privately owned market driveneconomy. This process has been characterized at one end of thespectrum, in the extensive nationalization programme especially inthe post 1956 era and the establishment of large scale Statecommercial enterprises to, the divestiture of State ownershipand/or control. At one end the process envisaged economicstability and fixed prices and at the other, market buoyancy andcompetition resulting in the best product reaching the people at thelowest price. At both ends the process has been intended to benefitthe People. Hence I would reject the objection raised by thecontesting respondents which denies a public interest in the dueexecution of this Law and also denies a locus standi to thepetitioner to vindicate such public interest by invoking thejurisdiction of this court in terms of Article 126(1) of the Constitution,as being misconceived and myopic.
The process of divestiture of State ownership which was initiallydone on an ad hoc basis in respect of Enterprises that were
142Sri Lanka Law Reports[2008] 1 Sri L.R
incurring losses was formalized on 01.03.1995 and appropriatelydescribed as the Public Enterprise Reform Programme with theestablishment of a Special Task Force by the President. TheReform Programme was further enhanced and given the muchneeded legal dimension when Parliament enacted Act, No. 1 of1996 cited above establishing the Commission ‘PERC’. ThusPublic Enterprise Reform which lay in the area of Executivediscretion came strictly to the legal domain as being a publicprocess regulated by law. The functions and objects of the PERCare set out fairly and squarely in section 4 of the Act, as follows:-
'Tihe function of the Commission shall be to advise and assist
the Government on the reform of public enterprises with the
following objects in viewi-
ja) fostering and accelerating the economic development ofthe country;
improving the efficiency and competitiveness of theeconomy;
upgrading production and services with access tointernational markets on a competitive basis, by theacquisition of new technology and expertise;
developing and broadbasing the capital market andmobilizing long term private savings;
motivating the private sector;
augmenting the revenues of the Government, so as toenable it to better address the social agenda; (emphasisadded)
It is manifest from this provision that the role of the PERC islimited and circumscribed by law to one of advising and assistingthe Government in any envisaged reform of a public enterpriseincluding divestiture of State ownership. Since the role of advisingand assisting is couched by section 4 in mandatory terms, itnecessarily follows that the Government cannot carry out publicenterprise reform including divestiture without first receiving theadvice and assistance of the PERC.
SC Vasudeva Nanayakkara v Choksy and others (John Keells Case) 143
(Sarath N. Silva, P.C., J.)
A further aspect to be noted in the section is that all the objectsof the PERC are intended primarily to benefit the People, Thepublic element of the process is further enhanced by the specificduty cast on the PERC by section 5 (1) which reads as follows:
“to assist the Government to create public awareness ofGovernment policies and programmes on the reform of publicenterprises with a view to developing a commitment by thepublic, to such policies and programmes. ”
Thus public enterprise reform including divestiture could neverdescend to be a shadowy, slithering process. The Law mandatesthat it should be a transparent process circumscribed by an abidingpublic interest in ensuring its legality and propriety. It is on this basisthat I reject the objection to a suit in the public interest and thedenial of a locus standi to the petitioner as being misconceived andmyopic. The objection not only ignores the significance of theimpugned transaction in the broad canvas of an economicparadigm shift but also ignores the salient aspects of the Law citedabove.
I would now move to examine the process of reform relevant tothe impugned transaction being the sector commonly referred toas, bunkering.
LIBERALIZATION OF BUNKERING
The service of providing marine petroleum fuels to ships that layin port, in anchorage or off-shore is a shipping related operationgenerally described as bunkering. Hub ports like Singaporeenhanced their capacity to supply bunkers and were generatingforeign exchange revenue of phenomenal proportions. It isaccepted that the Port of Colombo with its unique andadvantageous geographic location close to major West-EastShipping lanes failed to harness the huge potential in this sector.The principal inhibiting factor was cited as the monopoly vested inthe Ceylon Petroleum Corporation (CPC) by Act, No.28 of 1961 inthe entire sector of the petroleum trade and industry includingbunkering. This was one item of the process of nationalization inthe post 1956 era, referred to above. Bunkers were supplied by theCPC through its wholly owned subsidiary LMSL using a storagefacility of 12 tanks and a network of interconnecting pipelines linked
144Sri Lanka Law Reports[2008] 1 Sri L.R
to the Dolphin Berth and the South Jetty. This network is laterdescribed as the Common User Facility (CUF) and is located withinthe Port of Colombo.
The initial proposal for the liberalization of bunkering iscontained in the Cabinet Memorandum of 24.05.2000 presented bythe Minister of Shipping. It cites the high prices of bunkers suppliedin Colombo and of limited supplies and recommends that theprivate sector be encouraged to invest and operate bunkeringservices. The memorandum makes no reference to a sale ofshares of LMSL.
The Cabinet considered the memorandum on 22.06.2000together with observation made by several Ministers and decidedto refer the matter to a Committee of Officials for a report thereon.The officials to consist of Secretaries to Ministries of Finance,Shipping, Irrigation and Power and of PERC. The CommitteeReport dated 01.08.2000 was submitted to the Cabinet with amemorandum of the Minister of Shipping bearing the same date.
The recommendations of the Committee of Officials were asfollows:-
" (a) To liberalize the bunkering sector and to permit a limited numberof parties to operate bunker services within the territorial waters ofSri Lanka and the Ports of Sri Lanka other than the Port ofColombo;
For PERC to seek offers through an open tender process for theimportation and marketing of marine fuel as given in section 3above, from investors with local equity participation and thenecessary technical and financial ability and experience inBunkering;
The GOSL to charge a licence fee from the selected operators forthe use of Sri Lankan territorial waters to carry out their business;
To authorize the Merchant Shipping Division of the Ministry ofShipping and Shipping Development in terms of the MerchantShipping Act, No.52 of 1971 to regulate and monitor the activities ofbunker operators within Sri Lanka’s territorial waters;
For PERC to initiate action accordingly and to make furtherrecommendation to the Cabinet regarding the process to befollowed. ”
SC Vasudeva Nanayakkara v Choksy and others (John Keells Case) 145
(Sarath N. Silva, P.C., J.)
It is to be noted that the Committee recommended a cautiousapproach of preserving the monopoly of LMSL within the Port andliberalizing the sector by the grant of 3 licences for the supply ofbunkers outside the Port of Colombo. The PERC had to makerecommendations regarding this process. It is significant that theCommittee which included a Director of PERC did not recommendthe sale of shares of LMSL.
The Minister of Shipping in his Memorandum dated 01.08.2000agreed with the recommendations of the Committee of Officialssubject to two observations viz:-
“ln the light of this background / will make the following observations on the
committee report for consideration of the Cabinet.
Monopoly given to Lanka Marine Services Ltd., (LMSL) should berestricted to one year within which period privatization of LMSLshould be completed.
New entrants to the bunkering sector in Sri Lanka should beallowed to sell bunkers within the territorial waters of Sri Lankawhich should include the immediate vicinity of the Port of Colombo.
I seek the approval of the Cabinet of Ministers for therecommendation of the Committee of Officials, subject to theobservations I have made."
The Cabinet considered the matter on 17.08.2000 and grantedapproval to the proposals in the memorandum and directed thataction be taken by the Minister of Shipping and ShippingDevelopment.
Thus the process of reform in the bunkering sector authorizedby the Cabinet was a phased out arrangement. Initially for thePERC to invite offers for supply of bunkers outside the Port ofColombo and licenses being granted to 3 suppliers. To continuewith the monopoly of LMSL to supply bunkers within the Port ofColombo for 1 year within which period the privatization of LMSL tobe completed. It was envisaged that the competitive process willbring in the necessary expertise to the sector with the servicebeing operated with due compliance with international safety andenvironmental standards and finally with the completion of theprivatization of LMSL the entire sector being liberalized. The
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benefits for the Government of Sri Lanka (GOSL) are set out inparagraph 3(d) of the recommendations of the Committee Officialswhich reads as follows:-
"The benefits to GOSL are expected from the increase in tax revenuethrough higher income tax from the local companies as well asopportunities for employment generation. In addition, GOSL would chargea license fee, for the use of Sri Lanka’s territorial waters."
ACTION TAKEN BY THE PERC CHAIRED BYJAYASUNDERA PURPORTEDLY ON THE BASIS OF THERECOMMENDATIONS OF THE COMMITTEE OFFICIALSAND THE OBSERVATION OF THE MINISTER ASAPPROVED BY THE CABINET OF MINISTERS
The petitioner has put in the forefront of his case that any actionby the PERC could only have been within the conspectus of therecommendations of the Committee and the observations of theMinister as approved by Cabinet, as set out above. Jayasunderahas in paragraph 8 of the affidavit admitted the content of thesedocuments and of the decision of the Cabinet. Hence we have toassume that he knew fully well that the task of PERC was to makea recommendation to the Cabinet on the 3 processes that wereenvisaged in the following order:-
the process of calling for tenders through an open tender toissue initially 3 licenses for the supply of bunkers within theterritorial waters and Ports other than Colombo;
the process of privatization and the removal of themonopoly given to LMSL within a period of 1 year of theoperation of this partly liberalized regime as envisaged in (i)above;
the operation of the fully liberalized regime of bunkeringservices after the privatization of LMSL as envisaged in (ii)above;
Admittedly, PERC did not make any recommendation to theCabinet on any of the matters envisaged above which would havebrought about an improved regime of bunkering facilities to servicea growth in the shipping sector; higher foreign exchange earnings
SC Vasudeva Nanayakkara v Choksy and others (John Keells Case) 147
(Sarath N. Silva, P.C., J.)
and a higher yield of tax revenue. Nor was there any change in theCabinet decision stated above. Instead, whilst purporting to actunder the said Cabinet decision PERC embarked on a course ofaction devised by itself of which I would now examine.
On 28.10.2001, PERC published a notification inviting proposalsfrom private sector operators to participate in the marine fuelmarket in Sri Lanka within the territorial waters including the Ports.The notice also stated that there will be no limit in the number oflicenses to be issued. I have to make a brief note here that thisnotification is contrary to the Cabinet decision. The Committee ofOfficials had recommended that only three licenses should beissued initially and in any event in the first year, services could beprovided only outside the Port of Colombo.
More significantly the issue of licenses required a new legalregime which as pleaded in paragraph 6 of the petition by thepetitioners is contained in the Petroleum Products (SpecialProvisions) Act, No.33 of 2002. This averment is admitted byJayasundera in paragraph 5 of his affidavit. The Act, No.33 of 2002was passed by Parliament and certified by the Speaker only on17.12.2002. Hence the notice calling for proposals more than 1year before the law as enacted was an exercise in futility. It appearsthat PERC took no action on the proposals received pursuant to thenotification referred to above except to forward them to the Ministryof Power and Energy. No recommendation was made byJayasundera as required in the Cabinet decision as to the processof granting three licences initially to operate bunkering serviceoutside the Port of Colombo.
PERC published another notice on 08.02.2002 invitingExpression of Interests (EOl’s) for the purchase of 90% shares inLMSL. EOl’s were to be submitted on or before 21.02.2002. Thenotice stated that it is being published on behalf of the Governmentof Sri Lanka. It has to be noted that the Cabinet of Ministers did notin the decision referred to above authorize PERC to call for suchEOl’s. The proposal of the Committee of Officials (including aDirector of PERC) was that PERC should make recommendationsas to the grant of licenses for providing bunkering service. Theobservation of the Minister was that the privatization of LMSL
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should be completed within 1 year of operation the partlyliberalized bunkering services in terms of the licenses that will beissued. It is significant that the Minister’s observation quoted byme verbatim in the preceding section does not even refer to anyaction on the part of the PERC in this regard. The omission is forgood reason since the process of privatization of LMSL was tofollow the successful implementation of the licensing schemewith private operators supplying bunkers outside the Port ofColombo. Neither the Committee of Officials nor the Ministerever envisaged a situation where LMSL which admittedly had amonopoly is privatized without successfully operational licensingscheme which was essential to pave the way for competition,lowering of price and improved services, being the objectiveapproved by the Cabinet of Ministers. From this perspective thecourse of action adopted by the PERC of dampening theliberalization process and publishing a notification with anobvious overbreadth, shorn of the necessary legal machinery,which could not have been implemented at the stage and byaccelerating the privatization process of LMSL, has to be viewedin a dim light. The action which was contrary to the Cabinetdecision had the effect of favouring the would be purchaser ofLMSL shares who will continue in effect to have a monopoly ofproviding bunkering services. The inference is further supportedby an amendment to the draft CUF Agreement, agreed to beJayasundera at the behest of JKH, after the offer of JKH forpurchase of LMSL shares was accepted (which would be dealtwith at a later stage under the head of “Deviations which wasavailed of by LMSL then under the control of JKH to stave offcompetition in the supply of bunkers.
The petitioner and Amarasekera have made severalsubmissions that Jayasundera has acted contrary to the PublicFinance Circular No. FIN 358 (4) dated 29,11.199.. whichJayasundera himself had issued for “Enhancing the Effectiveness
of the Procurement Procedure ” by the failure to constitute a
Cabinet Approved Tender Board (CATB) for the purpose of makingrecommendations the Cabinet on the sale of LMSL shares. It wassubmitted that the Tender Documents viz: the EOI and Request forProposal (RFP) should have been approved by a CAT and the
onVasudeva Nanayakkara v Choksy and others (John Keells Case) 14a
(Sarath N. Silva, P.C., J.)
TEC. In this instance only a TEC had been appointed and on thesequence of dates it was established that the EOi and RFP hadbeen issued prior to even the appointment of the TEC.
The requirements to appoint a CATB and a TEC a intended toensure transparency, fairness and honesty the procurementprocess. Purchase and sale are two aspect of a contractualprocess which those volumes of guideline and circulars areintended to safeguard. Jayasundera has conveniently sought toexplain the failure to appoint a CATB on the basis that it is not apractice to appoint such a Board in respect of the sale ofGovernment shares. If it is so, his practice is contrary to his owncircular. Be that as it may, the appointment of CATB would haveafforded a mechanism to redress the bitter grievances such asthose voiced by the 32nd respondent, as to a lack of transparencyand of unfavourable treatment. Furthermore, it would have ensuredthat the Cabinet was apprised of the process of evaluation of bidsand a decision being made by the Cabinet as to the manner inwhich the sale should be effected, without Jayasundera on his ownaccord purporting to “clinch the deal” with JKH.
Furthermore, if the tender documentation was prepared by aTEC and CATB, incorrect statements such as the seriously wrongstatement contained in paragraph 4.4.1 of the RFP would havebeen avoided. In respect of the land in question this paragraphstates that CPC presently holds freehold title to this land and hasobtained Cabinet approval to transfer the land to LMSL. Thisstatement is incorrect in its entirety. The petitioner has establishedthat the land in question in extent 8 acres 2 roods and 21.4 perchesis in fact a part of the Port of Colombo in terms of Order made bythe Minister in terms of section 2(3) of the Sri Lanka Ports AuthorityAct, No.51 of 1979. The aspect of the land will be dealt withmorefully at a later stage.
I conclude on the foregoing reasoning that the steps taken byJayasundera and PERC towards effecting a sale of shares of LMSLis not in any way mandated by the decision of the Cabinet ofMinisters and is manifestly contrary to the process that had beenauthorized. The procedure adopted is also contrary to the PublicFinance Circular issued by Jayasundera himself.
150Sri Lanka Law Reports[2008] 1 Sri L.R
Jayasundera has sought to explain the action taken by him inparagraph 10(d) of his affidavit as follows:
“as provided for in section 5 (t) of the Public EnterprisesReform Commission Act, No.1 of 1996, PERC was acting asthe agent of the Government and as such was empowered tofollow appropriate procedures in carrying out the task ofliberalizing the bunkering trade;”
Section 5(t) of the PERC Act relied on by him reads follows:
“to act as the agent of the Government, in Sri Lanka or abroad,for the purposes of any matter or transaction, if so authorized"
(emphasis added)
He seems to be implying that he took steps for the sale of LMSLwithout prior authority of the Cabinet “in carrying out the task ofliberalizing the bunkering trade”. It is correct as noted above thatthe Cabinet of Ministers decided that PERC should make proposalsfor liberalizing the bunkering trade by issuing licenses to the privatesector. Jayasundera as revealed in the preceding analysis in factput this process of ‘liberalizing’ in cold storage and moved atexpress speed in the opposite direction of privatizing LMSL with themonopoly intact. In that respect he has acted contrary to section5(t) relied on by him by failing to act in the manner he wasauthorized to do and by engaging in a process which wasdiametrically opposed to the policy as laid down in the Cabinetdecision.
VALUATION OF LMSL SHARES
Valuation of LMSL had been done by the Chief Valuer as at02.07.93. Jayasundera wrote to the Chief Valuer on 06.02.2002requesting an updated version of the valuation. The Chief Valuerreplied him by letter dated 07.05.2002 stating that the valuation ofassets is almost complete and can be finalised within a week andthat the business valuation was not started since his officers areentitled to an incentive payment as approved by the Cabinet. Herequested Jayasundera to confirm the payment as approved by theCabinet. Significantly, Jayasundera did not reply this letter. Instead,by letter dated 15.05.2002 a business valuation of LMSL wasrequested from the DFCC Bank to be given before 28.05.2002. A
SC Vasudeva Nanayakkara v Choksy and others (John Keells Case) 151
(Sarath N. Silva, P.C., J.)
sum of Rs. 750,000/- plus GST and NSLwere paid by Jayasunderato DFCC Bank without demur. A question immediately arises as tohow a public officer who was reluctant to pay an incentiveallowance to another public officer Could be so generous to aprivate bank. The only reason given by Jayasundera for not pursingthe matter with the Chief Valuer is that “it would not have beenfeasible to have expected a business valuation to be done by theChief Valuer within a short period of time” (paragraph 12k of hisaffidavit). Even the DFCC bank appears to have been rushedthrough by PERC to furnish the valuation. Question looms large asto whose deadline Jayasundera was trying to keep. The Cabinethad not even authorized PERC to make a recommendation as tothe sale of LMSL shares. The only matter on which the Cabinet hadauthorized action was the liberalization of the bunkering service inthe area outside the Colombo Port, which had been effectively putinto cold storage by PERC as demonstrated above. Hence hishasty action was certainly not based on a lawful exercise ofexecutive power in terms of the PERC Act and was contrary to thedecision of the Cabinet of Ministers.
Even assuming that Jayasundera wanted to make anunsolicited recommendation to the Cabinet as regards the sale ofLMSL shares, the proper course would have been to secure avaluation from the Chief Valuer which had been previouslyrequested and would have been ready within a week in regard tothe assets of LMSL. He avoided getting this valuation by refrainingfrom making a commitment to pay the Chief Valuer the incentiveallowance which the latter was entitled to in terms of Cabinetdecision. Having successfully stalled that process, he selected aprivate bank on his own and paid the full fee that was sought. Thisis completely contrary to the basic tenets of public sectorprocurement. The business valuation he sought was conceived byhim alone. Based on the business value given by the DFCC,Jayasundera fixed floor price for bids of 90% of LMSL shares at Rs.1.2 Million. The severe criticism of the valuation and the floor pricefixed is based on the financial performance of LMSL within 4 yearsof the privatization. According to the Annual Report profits of LMSLfor the year 2005/2006 (figures being as follows:
152Sri Lanka Law Reports(2008] 1 Sri L.R
2002/2003-508,735,000
2003/2004-267,802,000
2004/2005-575,035,000
2005/2006-1,106,992,000
2,458,564,00)
Thus, it is pointed out by the petitioner and Amarasekera thatwithin 4 years more than double the amount that had been spenton the purchase of shares was recovered by way of profits from thebusiness of LMSL. That alone gives credence to the criticism ofpetitioner and of Amarasekera that the basis of valuation and theprocess of sale was seriously flawed.
The method used by DFCC was the discount of future cash flowprojected to a period of 15 years. Amarasekera in his submissionsdemonstrated that this is an erroneous basis of valuationconsidering the nature of the business activity, especially if the highcomponent of real estate (more than 8 Acres of land in the Port ofColombo) is to be taken into account. Real estate could never bevalued in the manner it was sought to be done. The valuation of realestate could have come from the assets value done by the ChiefValuer which Jayasundera carefully avoided obtaining. The aspectof significance is that LMSL would continue to enjoy a monopoly inthe bunkering sector due to the delay in the process of liberalizationwhich has been dealt with exhaustively in the preceding section ofthe judgment. Jayasundera in fact paved the way for thecontinuation of the monopoly by adding clause 8.2 to the CUFAgreement after the offer of JKH was accepted.
The petitioner in paragraph 22 of the petition quoted paragraph12 of the Report of the Committee on Public Enterprises (COPE)which highlights both matters referred above. The said paragraph12 quoted in the petition is as follows:
“Consequently, being confronted with the above monopolyclause, DFCC Bank reneged on their “business valuation” ofLMSL of Rs. 1,200,000,000/- and confirmed in writing that onthe basis of a “monopoly” their “business valuation” is Rs.2,400,000,000/-, confirming that had they been required to give
SCVasudeva Nanayakkara v Choksy and others (John Keells Case)-j 53
(Sarath N. Silva, P.C., J.)
a ‘‘net assets valuation” they would have engaged the servicesof a professional real estate valuer for the land 8A. 2R.21,44P."
The representative of the DFCC who filed an affidavit in Courthas refrained from giving any specific answer to the averment inparagraph 22 of the petition. In the circumstances it is unnecessaryto consider the written submissions tendered on behalf of theDFCC seeking to justify the valuation. Jayasundera’s conduct in thematter of obtaining the valuation is basically not authorized by theCabinet, is characterized by inexplicable haste; erratic; apparentlydesigned to suit his own objectives; contrary to all acceptedprocedures and furthest removed from a lawful exercise of powerunder the PERC Act of tendering well considered advice and arecommendation to the Cabinet.
EVALUATION BY THE TEC AND THE SHORTLISTING OFBIDDERS
A ‘TEC’ was appointed by C. Ratwatte, the then Secretary tothe Treasury entirely on the recommendation of Jayasundera. Acharacteristic feature of the entire process is that Ratwatte hasapproved and signed every paper that had been put to him byJayasundera, promptly and without any question being raised.
The TEC met on 8th and 27th March 2002 to review the 17EOl’s submitted. A two tiered marking scheme was adopted. 60marks being attributed to financial capability on the basis of netassets of the bidders and 40 marks were attributed to experiencein bunkering and other credentials in that sector. Bidders receivingover 70 marks were short listed to submit proposals.
JKH submitted the EOI in collaboration with Fuel and MaritimeMarketing (FAMM) owned by the Chevron Corporation of the USA.The 32nd Added respondent being a party that was rejectedsubmitted a bid in collaboration with the Chemoil Corporation of theUSA. Both EOls were short listed – together with 4 others. Thecase of the 32nd Added respondent is that JKH would havereceived the full 60 marks for financial capability but since JKH didnot have experience in the bunkering sector, it could not havecleared the threshold of 70 marks if not for the collaboration ofFAMM which was undoubtedly a market leader in the sector. The
154Sri Lanka Law Reports[2008] 1 Sri L.R
TEC met on 06.06.2002 to review the proposals of the six shortlisted bidders. On that day it is recorded by the TEC that FAMMwould not bid for the shares along with JKH but may enter into atechnical consultancy agreement. The submission is that at thatstage JKH should have been removed from the shortlist since itwould have necessarily fallen below the threshold of 70 marks. The32nd Added respondent alleges discriminatory treatment since theTEC continued to evaluate the bid of JKH as an individual bidwhereas its bid was rejected on the basis that the collaboratorChemoil Corporation sought a monopoly for 8 years, since amonopoly was not possible within the terms that were offered.Submission of the 32nd Added respondent is borne out by thesummary of the EOl’s being Annex 1 to the TEC Report. The EOIof JKH is summarized with FAMM as the lead collaborator. Item 10reads as follows:
Name:FAMM/John Keells Holdings Ltd.,
Submission of
Information:Form A-Yes
FormB-Yes
Principal business
activity:Marketing of fuel oil & marine lubricants
Access to refinery:Yes
Tanker company:Yes
Location of bunkering operations: Americas, Europe, UAE, Asia,incl. Singapore, Thailand.
According to the mark sheet annexed FAMM/JKH combinationgot the maximum marks of 100 on the formidable credentials ofFAMM in the bunkering sector highlighted in the evaluation citedabove. Admittedly JKH on its own could not have laid claim to anyof those credentials.
The criticism of the petitioner and Amarasekera as to the failureof Jayasundera to get a CATB appointed gathers strength, sincethere was no other body other than Jayasundera himself to checkon the work of the TEC. The following passage of the Report of theTEC show that it has been guided entirely by Jayasundera:
qr Vasudeva Nanayakkara v Choksy and others (John Keells Case) me
(Sarath N. Silva, PC., J.)
“The TEC met on 6th June 2002, to review the proposalsreceived in terms of the RFP by the due date of 28 May 2002,to shortlist the parties who would be allowed to place financialbids on the Colombo Stock Exchange. ”
The entirety of the envisaged process of shortlisted partiesbeing allowed to place financial bids on the Colombo StockExchange was obviously devised and followed by Jayasundera onhis own as the later events reveal, since the matter of sale ofshares had not even been placed before the Cabinet as at thatstage and there was admittedly no CATB.
The criticism of the 32nd Added respondent that JKH only madeuse of the credentials of FAMM to clear the initial threshold and thatcollaboration with FAMM, was never genuinely intended gainsstrength from a document that emerges from an entirely differentquarter. The petitioner has at a later stage in the case obtaineddocuments marked P36 and P37 from the BOI as to an applicationfor investment relief submitted by Ratnayake on behalf of JKH. On
being 7 days before the meeting of the TEC referred toabove in which the EOl’s were reviewed, Ratnayake submitted anapplication in terms of section 17 of the BOI Law for tax relief inrespect of a “new investment’. In column 1(a) of the applicationform as to “Particulars of Collaborators” only the name of JohnKeells Holdings and the address at 130 Glennie Street, Colombo 2is specified. Significantly, there is no reference to any othercollaborator or to any foreign investment. More, significantly theparticulars of the proposed investment carries all the details ofLMSL without the name. The address of the place where theinvestment is going to be made is given as 69 Walls Lane, Colombo15, which is the address of LMSL. The extent of the land requiredfor the investment is given as 8 Acres 2 Roods 21.4 Perches beingprecisely the extent of the land within the Port of Colombo whichfeatures so significantly in the case. 12 Tanks, 40 years old beingthe facilities used by LMSL are also included. The application madeby Ratnayake on behalf of JKH is premised on a suppression of thetruth, in that it is nowhere stated that what was intended is anacquisition of the business of LMSL. It is falsely made out to be anew investment to qualify for investment relief. The omission torefer to the collaboration of FAMM, which was most significant from
156Sri Lanka Law Reports[2008] 1 Sri L.R
the perspective of the BOI, clearly establishes the allegation of the32nd Added respondent that the inclusion of FAMM in the EOIsubmitted at the same time was only a passing show to get past thethreshold of 70 marks.
Another aspect to be considered is the basis on whichRatnayake of JKH was so confident that its EOI containing themisrepresentation of collaboration with FAMM, would dear all thehurdles and be able to “clinch the deal” including the land of 8Acres, before the EOI was even shortlisted. Was it optimisticguesswork? Or, as alleged by the petitioner and Amarasekera, theentire deal was arranged between Jayasundera and Ratnayake?The subsequent events will shed light as to which alternative ismore probable.
To continue the narrative of events with regard to the BOIapplication. By letter dated 11.07.2002 the BOI notified JKH thatthe application for investment relief has been approved and thatthere will be no income tax for a period of 3 years. Thereafterincome tax would be 10% for the 4th and 5th year and 15%thereafter. The irony of the process as pointed out by Amarasekerais that LMSL owned by the Ceylon Petroleum Corporation was atax paying enterprise. In the year 2000/2001 it made a profit of Rs.318 Million and paid Rs. 163 Million as income tax. The criticism ofAmarasekera that a profit making tax paying public enterprisebecame a tax free private enterprise as a result of the impugnedexercise is well established. Whereas the object of the process ofliberalization according to the Cabinet Memorandum whichapproved was to increase the volume of bunkering and thereby andincrease the revenue yield to the State.
The date of the BOI letter granting tax exemption being
may have some significance since on the very nextday – 12.07.2002, Jayasundera rushed a letter to Ratnayakethat the JKH bid was accepted and that “it is proposed toconclude the transaction”. Ratnayake replied on the same day
stating that they are willing to conclude thetransaction. There is indeed, amazing speed, in concluding atransaction as to the sale of a public asset which also included8 Acres of land in the Port of Colombo. All this was done whenthe proposed process of sale had not been even considered
qc Vasudeva Nanayakkara v Choksy and others (John Keells Case) – K7
(Sarath N. Silva, P.C., J.)
by the Cabinet. The Cabinet considered the process, a monthlater on 14.08.2002.To conclude the narrative of events as regards the BOI approval,although approval was granted by letter dated 11.07.2002, it wouldnot have in effect given tax relief to JKH since only a newinvestment as opposed to an acquisition of an existing businesswould qualify for such relief. The applicable Regulation wasthereafter amended by Gazette bearing No. 1256/22 dated
to include an investment formed by an acquisition ofassets of an existing enterprise. The amendment is'“tailor made” tofit the acquisition of assets of LMSL by JKH. Which inference is fullysupported by the prompt letter dated 04.10.2002 sent byRatnayake to BOI requesting an amendment of the Agreement thathad already been entered into on the basis of the amendment tothe Regulation. All the amendments to the Agreement suggestedby Ratnayake were incorporated by BOI ensuring the tax reliefreferred to above for the investment. This process to say the leastmakes a mockery of the Rule of Law and the equal protection of thelaw. If the law can be bent and amended to suit an individualpurpose and to confer a benefit to any party that was not due underthe existing law, the hallowed principle of equality before the law,will be denuded of its essential and abiding meaning.
I have to now revert to the events leading to the acceptance ofthe bid and consideration of the deviations that favour JKH asalleged by the petitioner and Ratnayake.
EVENTS LEADING TO THE ACCEPTANCE OF THE BID ANDTHE ALLEGED DEVIATIONS THAT FAVOUR JKH
A Pre Bid Conference was convened by Jayasundera on
and held at the PERC office. Representatives of theCPC, SLPA, Colombo Stock Exchange and of parties whosubmitted EOl’s were present. It is clear that the meeting wasconvened well before the report of the TEC was completed. TheTEC Report is undated but it refers to a meeting on 06.06.2002. Itappears that without finalizing the report and signing it, the partieswho were shortlisted were notified that they could submit proposalson the basis of the RFP furnished by PERC. The absence of anyguidelines laid down by the Cabinet and of a CATB appears to have
158Sri Lanka Law Reports[2008] 1 Sri L.R
enabled Jayasundera to devise a procedure of his choice being acourse of action far removed from the power vested in the PERCunder the law referred to above being to advise and assist theGovernment. Be that as it may when parlies come for the Pre BidConference no one knew of the basis on which the EOl’s wereevaluated for thee plain reason that there was no Report of TEC asat that date.
The minutes of the conference have been recorded andcirculated amongst all parties present. Whatever be the regularityof the procedure adopted, what was notified to the parties have adegree of sanctity and parties would necessarily have been guidedby it in making their proposals. Three matters arise forconsideration in view of the specific allegations that have beenmade of subsequent deviations that favour JKH. These matters areas follows:
DEVIATION (i)
Paragraph 1 of the minutes specifically states that LMSL will nothave a monopoly on the import and sale of bunkers subsequent tothe sale of LMSL shares. Paragraph 1.5 states that the presentCPA Act provides for the Minister to authorize the import and saleof bunkers;
Thus the clear message given to the bidders is that after thesale the monopoly will be dismantled with licenses being granted toothers.
I have demonstrated above that the Cabinet had directed thereverse of the process, being a partial dismantling of the monopolyand a sale of LMSL shares within 1 year thereof.
Further, it is clear from the sequence of events set out aboveunder the head of “Liberalization of Bunkering” that the PERCheaded by Jayasundera did not take steps towards liberalization asrequired by the Cabinet and on the contrary the process waseffectively put in cold storage. Hence Jayasundera who knew fullywell that PERC had not taken steps to even recommend aliberalized regime to the Cabinet and at the least for sometime tocome there would be no competition in the sector, failed to apprisethe bidders of the true picture and conveyed an incorrect
SC Vasudeva Nanayakkara v Choksy and others (John Keells Case) 159
(Sarath N. Silva, P.C., J.)
impression. Whereas, if in effect the monopoly was going tocontinue for a limited period of time the bidders may have had abasis to enhance their bids. Hence Jayasundera’s action wasadverse to the interests of the State in securing a better price. Hefailed to take into account the specific decision of the Cabinet thatthe monopoly would at the least would continue to the Port ofColombo for one year.
The more serious allegation against Jayasundera on thataccount is that after the JKH bid was accepted he agreed to asuggestion of Ratnayake made in letter dated 31.07.2002 thatprovision be included in the draft CUF Agreement which had beenissued with the RFP, that all bunkers handled and transportedwithin the Port of Colombo will have use the Common User Facility(CUF). Accordingly the CUF was amended including as clause 8.2,the assurance sought by Ratnayake as an undertaking of theGovernment and SLPA. The lay out of the Pipeline Network showsthat the Bunkering Jetty (South Jetty) and the Dolphin Berth arelinked to the tanks used by LMSL. Hence the requirement in clause8.2 would necessarily result in any party supplying bunkers in thePort of Colombo having to use of tanks of LMSL. There is merit inthe submission of the Added 32nd respondent that since differentgrades of fuel are used in supplying bunkers the other competitorswould thereby be necessarily precluded from supplying bunkers inthe Port of Colombo. LMSL under the management of JKH got theSLPA to enforce clause 8.2 against the Added 32nd respondentwhen the latter on the basis of a license granted in terms of thePetroleum Products (Special Provisions) Act No. 63 of 2002 beganan off-shore operation to supply bunkers. LMSL sought injunctiverelief from Court to restrain this operation and followed up by filinga writ application in the Court of Appeal. Finally, the Court of Appealheld that the said clause 8.2 was invalid as being inconsistent withAct No. 53 of 2002. President’s Counsel for the 18 to 21respondents (LMSL/JKH and Directors) submitted that nothingflows from the inclusion of 8.2 and that there was no monopoly afterthe privatization in view of the judgments of the respective courts. Ifind it difficult to agree with the submission. What is drawn in issuein this case is the executive action of including clause 8.2. The factthat judicial action set right the wrongful executive action cannot beavailed of by the party who secured the wrongful executive action
160Sri Lanka Law Reports[2008] 1 Sri L.R
in its favour and went to the extent of enforcing the wrongfulexecutive action in Court.
At the pre bid meeting Jayasundera clearly indicated that therewould be no monopoly and that other licenses would be issued. Heacted contrary to the proclaimed position in two ways. Firstly herefrained from acting on the specific decision of the Cabinet madeon the recommendation of the Committee of Officials including aDirector of PERC, that PERC should make recommendations as tothe issuance of licenses to liberalize the bunkering trade. Therebyhe brought about a situation of a defacto monopoly by dampeningthe competitive regime which the Cabinet envisaged. Secondly, hereadily and without any consultation agreed to the inclusion ofclause 8.2 in the CUF departing from the draft previously issued,being a provision obviously intended to install a monopoly.Jayasundera’s function under the PERC Law cited above was onlyto advise and assist the Government and not to commit theGovernment to an undertaking which is completely contrary to theprevious decision of the Cabinet.
Jayasundera has in paragraph 18 (d) of his affidavit admitted thesubsequent inclusion clause 8.2 and seeks to justify his action onthe basis that it was done.
“in order to maintain a level playing field among all bunkeroperators. ”
I have to observe in respect of this quaint defence that hisperception of a “level playing field” appears to be one with a singleplayer. He indirectly assured to the continuance of the monopoly,being a course completely contrary to the position set up in theforefront of the Pre Bid Conference.
As regards the role of JKH in respect of the admitted ‘Deviation’by including clause 8.2, the overall submission of President’sCounsel is that its action was entirely bona fide and the award wasmade since it was the only bidder who furnished the undertaking topay 10% of the bid price. That, it is not the burden of JKH as thebuyer to satisfy itself whether Jayasundera was duly empowered orauthorized to enter into the impugned transaction and / or to makeDeviations in the manner he has done. The gravamen of thesubmission is that the transaction is a sale and JKH made a
SC Vasudeva Nanayakkara v Choksy and others (John Keells Case) -|g-|
(Sarath N. Silva, P.C., J.)
request for the inclusion of clause 8.2 in furtherance of itscommercial interests and Jayasundera who had ostensibleauthority agreed to it and that the transaction cannot be impleadedon this account. Counsel thereby supports the plea of bona tideswith the legality of the executive action in issue.
The argument seems to be that when there is a yielding handthere is nothing illegal to take something more. I possibly cannotaccept either of the propositions of Counsel.
JKH knew fully well that this was not a mere sale, but a sale ofshares owned by a Public Corporation in an extremely lucrativeventure. That, transparency and action being taken according tolaw should necessarily underpin the validity of the transaction. Thedeclared basis at the Pre Bid Conference attended by Ratnayakerepresenting JKH was that there will be no monopoly after the saleand that other suppliers of bunkers would be issued licenses. Thispremise would necessarily have inhibited bidders from quoting ahigher price. In any event the object of the Cabinet was not tosecure a higher price by preserving the monopoly. It was, as notedabove is to enhance competition, to lower bunker prices, improvefacilities and thereby increase the revenue yield to the State.Having come in on this openly declared premise, no sooner the bidwas accepted by Jayasundera, Ratnayake moved quickly to get theformer committed to an inclusion of clause 8.2. The obviouspurpose of getting clause 8.2 included was to drive awaycompetitors as manifested by the subsequent conduct of JKH ofprocuring the SLPA to take action against the 32nd respondent andthereafter by directly instituting legal proceedings against the latter.Hence I cannot agree with the submission of bona tides.
The next aspect to be considered is the authority ofJayasundera to make the Deviation in question. Although the issueis dealt with here, the reasoning would apply in respect of allaspects of the impugned transaction.
The question whether a public officer can act in excess of hisstatutory authority and enter into any agreement or arrangementand whether such agreement or arrangement would be binding onthe State on a plea based on the ostensible authority of the publicofficer has been fully considered and settled more than half a
162Sri Lanka Law Reports[2008] 1 Sri L.R
century ago. It appears that with the passage of time the basicproposition of law in this regard has been forgotten. In the case ofAttorney – General v A. D. de SilvaW the Privy Council consideredthe question whether in a situation where the Principal Collector ofCustoms sold certain articles of the State without any statutory oractual authority, the contract could be enforced against the State onthe the basis that the officer had ostensible authority. The followingdicta of the Privy Council appropriately deal with the proposition -now advanced by Counsel offf JKH.
“Next comes the question whether the Principal Collector ofCustoms had ostensible authority, such as would bind theCrown, to enter into the contract sued on. All “ostensible"authority involves a representation by the principal as to theextent of the agent’s authority. No representation by the agentas to the extent of his authority can amount to a “holding out”by the principal. No public officer, unless he possesses somespecial power, can hold out on behalf of the Crown that he orsome other public officer has the right to enter into a contractin respect of the property of the Crown when in fact no suchright exists. Their Lordships think therefore that nothing doneby the Principal Collector or the Chief Secretary amounted to aholding out by the Crown that the Principal Collector had theright to enter into a contract to sell the goods which are thesubject matter of this action." (emphasis added)
Later in the Judgement (at p. 537) Their Lordship dealt with asituation where a public officer is acting in terms of a statute andobserved that the authority would then be “rigidly fixed” by the limitsof the statute. That a “representation” by the Public officer would bebinding on the State only if there is a specific provision to that effectin the Statute and the reading in, of such a provision by way ofinterpretation would be an undue extension of a Statute.
The question of the resultant hardship to a purchaser in a sale,purportedly effected by a public officer has been specificallyexamined by Their Lordships as follows:
“It may be said that it causes hardship to a purchaser at a saleunder the Customs Ordinance if the burden of ascertainingwhether or not the Principal Collector has authority to enter into
qn Vasudeva Nanayakkara v Choksy and others (John Keells Case) -i
(Sarath N. Silva, P.C., J.)
the sale is placed upon him. This undoubtedly is true. But whereas in the case of the Customs Ordinance the Ordinance doesnot dispense with that necessity, to hold otherwise would be tohold that public officers had dispensing powers because theythen could by unauthorized acts nullify or extend the provisionsof the Ordinance. Of the two evils this would be the greater one.This is illustrated in the case under consideration. The subjectderives benefits, sometimes direct, sometimes indirect, fromproperty vested in the Crown, and its proper protection isnecessary in the interests of the subject even though it maycause hardship to an individual."
The final sentence of the passage is relevant to the examinationof the issue from the perspective of Public Law at a later stage inthe judgment.
The judgment in A. D. de Silva’s case was followed by theSupreme Court in the case of Rowlands v Attorney-General2). Inthat case the Court considered the question whether the principleof ostensible authority could be applied to enforce a liability againstthe State on the basis of an assurance given by the Minister ofFinance. The Court held as follows (at page 410.)
“Now in the field of agency, in so far as it concerns contractsseeking to impose liability upon the Crown, the common lawdoctrine that the agent need have only ostensible authoritydoes not apply, and his authority must be actual. There is dearauthority to this effect in American law but there would appearto be a dearth of authority in English law. In our law howeverthere is now clear authority to this effect.’'
The Supreme Court cited the preceding dicta in A. D. de Silva’scase as the authority for this proposition.
The Court also observed that in a contract involving a largersum of money the authority to bind the State lay in the Cabinet asa whole (p. 405) and not on a single member who acts on his ownresponsibility. That the Minister should have got approval of theCabinet or gone “before the House” (Parliament).
A useful observation has also been made at page 409 asfollows:
164Sri Lanka Law Reports[2008] 1 Sri L.R
"… It is well recognized that although there are no legalrestrictions on the contents of Government contracts, theGovernment generally contracts only on the basis of certainfixed standard terms and conditions….”
This is also relevant to the Public Law perspective as evolved insubsequent decisions of this Court referred to later.
For the reasons stated above I cannot accept the submission ofCounsel for JKH (18th to 20th respondents) based on bona fides.It is clear that these respondents got an advantage over othercompetitors through the yielding hand of Jayasundera. Theostensible authority of Jayasundera cannot be a shield for theserespondents to safeguard what they secured in an illegal, arbitraryand biased exercise of executive power.
DEVIATION (ii)
The next Deviation alleged is in respect of the land in extent 8Acres 2 Roods 21.44 perches being an area generally referred toas the “Bloemendhal Oil Depot” I have noted above under the headof “Action Taken By PERC” that the statement contained inparagraph 4.4.1 of the RFP that the CPC presently holds freedholdtitle to the land and has obtained Cabinet approval to transfer it toLMSL, is incorrect. The land in fact comes within the limits of Portof Colombo, as specified in the Order dated 24.03.1986 made bythe then Minister of National Security in terms of section 2(3) of theSri Lanka Ports Authority Act No. 51 of 1979. The Petitioner hasproduced the Gazette containing the order marked P33 thecontents of which are not disputed.
If the petitioner could have laid hand on this order, the officialsof PERC could with reasonable diligence have done so. All partiessubmitting proposals were specifically required to carry out theirown due diligence without relying on the representations in RFP.Hence JKH cannot rely on the incorrect statement contained inparagraph 4.4.1 of the RFP. Be that as it may it is common groundthat LMSL being a Company did not own this property and had nolegal claim to it whatsoever.
Paragraph 5 of the minutes of Pre-bid Conference reads asfollows:
qr Vasudeva Nanayakkara v Choksy and others (John Keells Case) i qq
(Sarath N. Silva, P.C., J.)
“The time frame for the transfer of assets to LMSL from CPC:
AH movables – prior to dosing date
Land – within one year of the dosing date. PERC to revertby 7th May 2002 regarding the terms of the transferincluding any payments that would have to be made byLMS:
The petitioner has quoted this section of the minute verbatim inparagraph 25(c) of the petition and Jayasundera had to answer asto what he intended notify the bidders by 07.05.2002 as to theterms of the transfer and the payment to be made. As noted above,by this date the Cabinet has not even been notified of any sale ofLMSL shares let alone a transfer of 8 Acres of land within the Portof Colombo. The Cabinet had not authorized Jayasundera of PERCto do anything in this regard. A question looms large as to the basison which Jayasundera intended to give this vital informationregarding the land within 7 days. Jayasundera has stated inparagraph 27(b) and (c) of his affidavit which reads as follows:
“(b) The transfer of title of the said land was not to be free of“valuable consideration” because the value of the said landwas taken into account in arriving at the business valuation ofLMSL.
(c) the issue of transferring title of the said land was discussedat the Pre-Bid conference since matters such as the manner oftransfer, the instrument to be executed etc., had to befinalized. ”
In respect of what he has stated in paragraph (b) above it is tobe noted that he did not inform the bidders that the value of the I andhas been taken into account in arriving at the business valuation ofLMSL. On the other hand he could not have possibly given thisinformation since the business valuation was requested from theDFCC by him only on 15.05.2002, and the valuation report is dated10.06.2002, whereas the pre-bid conference was on 30.04.2002.
In paragraph 71 of his affidavit Ratnayaka has stated that a prebid clarification letter dated 10.05.2002 was issued to all bidders byPERC in which it was expressly stated that there will be noadditional payment to be made with regard to the transfer of the
166Sri Lanka Law Reports[2008] 1 Sri L.R
land. He has produced this letter marked Z18. It is significant thatalthough Ratnayake has stated that all bidders were thus notified,Z18 is addressed only to him by name. It is not in the format inwhich the minutes of the Pre bid Conference were communicatedwhich contained all the names of those who attended theconference. The letter Z18 is typed on the PERC letter head hasbeen signed by the Director General. It merely states "… please findattached additional clarification sought at the Pre-bid Conference.”The attached sheet of paper is not even on a letter head of PERC.It does not contain any list of names of persons who attended theConference. The document which contains only typed scriptwithout any writing or even a signature is titled;
“Pre Bid Conference further clarification”
I do not wish to burden this Judgment by reproducing itscontents but suffice it to state that it contains important pricesensitive information. Significantly paragraph 5 which relates to theland reads as follows:
“CPC will transfer title of the property at Bloemendhal Roadwithin the period of one year. There will be no additionalpayments to be made to CPC in this regard. CPC will transfertitle of the movable assets including the barqes prior to the saleof LMSL."
Although the covering letter has been signed by the DirectorGeneral it is clear that it has been sent on Jayasundera’sinstructions because he has subsequently acted on thisrepresentation that there would be no separate payment for the 8Acre land within the Port of Colombo. Jayasundera had nomandate whatsoever from the Cabinet or anyone else to make anastounding representation that title to 8 Acres of State land wouldbe transferred without any payment, in such a casual manner, on asheet of paper that does not bear even a signature. When Stateland is bequeathed on a Grant or Lease at a nominal price orgratituously, it is described as a “special grant or lease.” Section6(1) of the State Lands Ordinance empowers the President tomake such a special grant or lease only for any “charitable,educational, philanthropic, religious or scientific purpose.” Even thepower reposed in the President would now be subject to the 13th
SC Vasudeva Nanayakkara v Choksy and others (John Keells Case)i aj
(Sarath N. Silva, P.C., J.)
Amendment to the Constitution (referred to later). ThusJayasundera making this representation was arrogating to himselfa power that even the President did not have. Even assumingwrongly that the land belonged to the CPC, such representationshould have been made at the Pre-bid Conference which wasattended by the Chief Legal Officer of the CPC. It is clear thatJayasundera did not seek instructions from the CPC after the PreBid Conference on 30.04.2002 and before the date of Z18 being10.05.2002.
I have to now revert briefly to certain matters dealt withpreviously under the heading of “Valuation of LMSL”. The ChiefValuer who was requested to do a valuation wrote to Jayasunderaon 07.05.2002 stating that the assets valuation was nearly readyand requested confirmation of the incentive payment authorized bythe Cabinet for the business valuation. It was noted in thepreceding analysis that Jayasundera effectively prevented theChief Valuer from submitting a valuation by not making acommitment to make the incentive payment. Having thus stalledthe Chief Valuer he caused Z18 to be sent to JKH on 10.05.2002stating that there would be no separate payment for the land.Thereafter, on 15.05.2002 he requested the business valuationfrom DFCC Bank. Thus it is clear that the business valuation byDFCC Bank is a contrivance adopted by Jayasundera to avoid aseparate assets valuation and a business valuation being done bythe Chief Valuer.
I would now deal with the documented sequence of events onlyfrom the perspective of the land. After having made a award infavour of JKH in an exchange of letters dated 12.07.2002 betweenJayasundera and Ratnayake, well before the matter was evenconsidered by the Cabinet, the PERC set about in getting therelevant agreements ready for signature. The Agreements wereexecuted on 20.08.2002 one day prior to the decision of theCabinet being confirmed. They are:
CUF Agreement [P19 (a)]
The Share Sales and Purchase Agreement [P19(c)]
A notarial Agreement to transfer the Land (P27)
168Sri Lanka Law Reports(2008} 1 Sri L.R
Jayasundera and the Director General of PERC have signed aswitnesses for all State parties to the Agreements. The Secretary tothe Treasury has signed on behalf of the Government of Sri Lanka.The CPC is described as the Vendor and the SLPA is only a partyto the CUF Agreement. Jayasundera has admitted that theseAgreements were prepared by PERC in anticipation of the Cabinetdecision. What is significant from the aspect now being consideredis the notarially executed Agreement to transfer the land. Clearlythis kind of Agreement was neither referred to in the RFP nor at thePre-bid Conference. It appears to flow from the exclusivecommunication to JKH (Z18) referred to earlier. The proposal to theCabinet referred to later does not make any reference to theGovernment being a party to an Agreement to transfer land.
Jayasundera in his affidavit (paragraph 27(g) and (k) takesresponsibility for this Agreement and adduces four reasons tojustify his action. They are
that the “land was to form part of the assets of LMSL”;
the value of the land was taken into account in arriving atthe business value of LMSL;
that there was no necessity to obtain specific approval ofthe Cabinet since that was “implicit” in the CabinetMemorandum that was approved;
that Agreement No.538 (P27) was entered into “in order togive effect to the undertaking to transfer title of the saidland”
An examination of the reasons given by Jayasundera in thecontext of the documented sequence of events demonstrates thatthey centre around his own role in this regard. The statement thatland “was to form part of the assets” is a nebulous statement. Landis immovable property with clearly defined legal means of acquiringownership. The question is whether at the material time land was inlaw an asset of LMSL. Admittedly it was not. It has been a part ofthe Port of Colombo. The incorrect statement in paragraph 4.4.1 ofRFP that CPC holds freehold title to the land and obtained Cabinetapproval to transfer the land to LMSL referred to above, was onlyin the imagination of Jayasundera and the PERC.
SC Vasudeva Nanayakkara v Choksy and others (John Keells Case) -j gg
(Sarath N. Silva, PC., C.J.)
However, since the bidders were put on “due diligence” toascertain the truth of the statement in the RFP and since nocommitment in this regard being made at the Pre Bid Conferenceas revealed in the preceding analysis, nothing would have turnedonly on this incorrect statement. The turning point was the com-munication that no additional payment will be due in respect of theland. Jayasundera had no authority whatsoever to make such acommunication. Having given this assurance, Jayasunderaavoided getting a separate assets and business valuations from theChief Valuer and opted to get only a business, valuation from theDFCC Bank. The Bank has quite correctly admitted before theCommittee in Parliament that if a net asset valuation was requestedthey would have engaged the services of real estate valuer.
It is seen from the Report that the valuation of land has beendone in a most cursory manner. Land has been referred to only asan item of “Residual value” with an “assumed present value." Actingon this bare statement and having carefully avoided getting a netassets valuation, Jayasundera now takes shelter for actions on thebasis that the value of the land has been taken into account in thebusiness valuation whereas he has without any authority andillegally given a prior assurance that no additional payment need bemade for the land, before even the business valuation wasrequested.
In the Agreement to transfer P27 although the CPC is describedas the Vendor, it is clear from the terms and conditions of theAgreement itself that the CPC has no title to the land. Hence theGovernment is brought in with an obligation to ensure the transferof the land without any payment to JKH. The Agreement is sobiased in favour of the JKH that it even includes a clause that theland should be transferred free and all associated costs should beborne by the CPC since the sale of 90% shares of LMSL to JKHwas “structured” on such basis. It is significant that this “structuring”was only done in the unauthorized communication made byJayasundera as evidenced by document Z18 and thereby an illegalobligation was cast on the Government of Sri Lanka to “ensure” thetransfer of 8 Acres 2 Roods 21.44 perches of land that comeswithin the declared limits of the Port of Colombo free of any chargewhatsoever, to JKH. The transfer has to be done within 1 year and
170Sri Lanka Law Reports[2008] 1 Sri L.R
to add insult to injury LMSL (now owned by JKH) is entitled toenforce this Agreement by an “order for specific performance."
The alienation and disposition of the State land is a matterregulated in every step by law, and finally governed by theConstitution and cannot possibly be the subject matter of such anoutrageous legal fiction as contained in the Agreement which wasadmittedly prepared by Jayasundera and the PERC.
JKH/LMSL pursued their “rights” under the Agreement P27 andthe Government was compelled to seek extensions of the period of1 year granted to “ensure” the transfer of the land. There wereaccordingly 4 amendments to the Agreement. Finally the thenPresident made a Grant under the Public Seal of the Republic inrespect of the land to LMSL under the State Lands Ordinance. TheGrant P30 states that it is made in consideration ofRs. 1,199,362,500/= paid to the Republic by LMSL. It is commonground that this statement is incorrect. In fact no money was paidby LMSL to the Government. The amount is the sum as that paidon 06.09.2002 by JKH to CPC for the purchase of shares of LMSL.Hence the grant is bad in law solely on the ground of themisstatement as to consideration. Any Grant made by the Head ofState under the Public Seal of the Republic should have thesanctity of truth in its contents. In normal circumstances a falsestatement as to a payment to the Government could not be madesince, it has to be verified by the Treasury. But regrettably, thatcheck is not there since by now the same Jayasundera who wasresponsible for the creation of the fiction in favour of the JKH thatthere would be no additional payment in respect of the land, is nowensconced as the Secretary to the Treasury.
The validity of the Grant P30 has also to be examined in the lightof the provisions of the 13th Amendment to the Constitution.
The 13th Amendment to the Constitution certified on 14.11.1987provided for the establishment of Provincial Councils. Article 154G(1) introduced by the Amendment vests legislative power inrespect of the matters set out in List 1 of the Ninth Schedule (theProvincial Council List) in Provincial Councils. Article 154C veststhe executive power within a Province extending to the matters inList I in the Governor to be exercised in terms of Article 154F(1) on
SC Vasudeva Nanayakkara v Choksy and others (John Keells Case)-j 71
(Sarath N. Silva, P.C., C.J.)
the advice of the Board of Ministers is collectively responsible andanswerable to the Provincial Council. Thus it is seen that the 13thAmendment provides for the exercise of legislative and executivepower within a Province in respect of matters in the ProvincialCouncil List on a system akin to the “Westminster” model ofGovernment. Item 18 of the Provincial Council List which relates tothe subject of land reads as follows:
"Land – Land, that is to say, rights in or over land, land tenure,transfer and alienation of land, land use, land settlement andland improvement, to the extent set out in Appendix II:
Appendix II referred to in item 18 reads as follows:
“Land and Land Settlement”
"State land shall continue to vest in the Republic and may bedisposed of in accordance with Article 33(d) and written lawgoverning the matter.
Subject as aforesaid, land shall be a Provincial Councilsubject, subject to the following special provisions:-
State land –
State land required for the purposes of the Government ina Province, in respect of a reserved or concurrent subjectmay be utilised by the Government in accordance with thelaws governing the matter. The Government shall consultthe relevant Provincial Council with regard to the utilizationof such land in respect of such subject;
Government shall make available to every ProvincialCouncil State land within the province required by suchCouncil for a Provincial Council subject. The ProvincialCouncil shall administer, control and utilise such State landin accordance with the laws and statutes governing thematter.
Alienation or disposition of the State land within a Provinceto any citizen or to any organisation shall be by thePresident, on the advice of the relevant Provincial Council,in accordance with the laws governing the matter."
172Sri Lanka Law Reports[2008] 1 Sri L.R
It is seen that the power reposed in the President in terms ofArticle 33 (d) of the Constitution read with section 2 of the StateLands Ordinance to make grants and dispositions of State Lands iscircumscribed by the provisions of “Appendix II” cited above.
“Appendix II" in my view establishes an interactive legal regimein respect of State Land within a Province. Whilst the ultimatepower of alienation and of making a disposition remains with thePresident, the exercise of the power would be subject to theconditions in Appendix II being satisfied.
A pre-condition laid down in paragraph 1.3 is that an alienationor disposition of State land within a Province shall be done in termsof the applicable law only on the advice of the Provincial Council.The advice would be of the Board of Ministers communicatedthrough the Governor, the Board of Ministers being responsible inthis regard to the Provincial Council.
Another aspect to be considered in regard to the facts of thiscase is the implication of paragraph 1.1 of Appendix II. The land inquestion comes within the limits of the Port of Colombo in terms ofthe order P33, made in terms of the Sri Lanka Ports Authority Act.Ports and Harbours being a Reserved subject in terms ofparagraph 1.1 above the land may be used by the Government inaccordance with the provisions of the Sri Lanka Ports Authority Act.Hence when the Order P33 is subsisting it would not be lawful toalienate the land in the manner it was purported to be done infavour of LMSL.
To sum up the findings as to the alleged "Deviation" in respectof land, I hold that the Petitioner has established not only that thedeviation favours JKH denying to others the equal protection of thelaw but also that the alienation of the extent of 8 Acres 2 Roods21.44 perches located within the defined limits of the Port ofColombo is invalid due to the –
incorrect statement in the Grant that it is made inconsideration of the payment of Rs. 1,100,362,500/-.
the Grant was made without the advice of the ProvincialCouncil as required in terms of paragraph 1:3 of Appendix IIof List 1 in the Ninth Schedule to the Constitution.
SQ Vasudeva Nanayakkara v Choksy and others (John Keells Case) 173
(Sarath N. Silva, P.C., C.J.)
The land comes within the defined limits of the Port ofColombo in terms and can only be used by the Governmentin accordance with the Sri Lanka Ports Authority Act."
I would now deal with the third deviation that is alleged tohave favoured JKH.
DEVIATION (iii)
In paragraph 24 of the petition it is alleged that althoughJayasundera stated at the Pre Bid Conference that theGovernment would not take over any pending litigation againstLMSL in clause 3.5(d) of the Share Sale and Purchase Agreement(P19(c)) entered into with JKH there is provision that any liabilityarising pursuant to the claim made by Oxford Jay International(Pte) Ltd., would be the responsibility of the Government.
Jayasundera has denied this allegation and stated in paragraph27 of his affidavit that a decision was made later that an exceptionshould be made in respect of the large amount claimed in theOxford Jay case. Ratnayake has also denied the allegation andstated that the exception in respect of Oxford Jay case was madeat a meeting of shortlisted bidders held on 24.05.2002 (vide: para85 of the affidavit). This is confirmed by letter bearing the same dayZ22 annexed to his affidavit. This is also confirmed by a copy of aletter to the same effect sent to another shortlisted bidder producedby the Petitioner himself. Hence I hold that although Jayasundera'sauthority to make such a concession is questionable it has in factbeen made at a meeting of the shortlisted bidders at the PERCoffice.
G. ACCEPTANCE OF THE BID OF JKH
The undated report of the TEC had been signed presumablyafter the meeting on 06.06.2002. The report recommends that 6shortlisted bidders be allowed to place financial binds on theColombo Stock Exchange for the shares of LMSL "subject toCabinet approval". The DFCC Bank valuation report stating avaluation for 90% of the shares in the range of Rs. 1.016 billion toRs. 1.286 billion is dated 10.6.2002. Considering that Jayasunderaand the PERC had not been authorized by the Cabinet to makeeven a recommendation as to the privatization of LMSL, if it was
174Sri Lanka Law Reports(2008] 1 Sri L.R
intended to give unsolicited advice to the Cabinet, this was theappropriate stage for the matter to have been referred to theCabinet. Instead Jayasundera appears to have taken two parallelcourses of action.
Firstly, a Cabinet Memorandum dated 20.6.2002 was submittedby the 2nd respondent being the then Minister of Power andEnergy. It is clear from its contents that it has been prepared on thebasis of information furnished by the PERC. There is a specificreference to the shortlisting of bidders and the valuation by theDFCC Bank. Significantly, it does not refer to a valuation requestedfrom the Chief Valuer which was not pursued. The more importantlythe Memorandum makes no reference whatsoever to the previousdecision of the Cabinet as regards liberalizing of the bunkeringsector. Since PERC is obviously responsible for the preparation ofthe memorandum, the omission to refer to the previous policydecision has to be attributed to the PERC. It is manifest that the2nd Respondent who has not filed any objections in Court, hasmerely adopted a draft submitted by PERC without anyexamination of its content.
Be that as it may if the matter was submitted to the Cabinet asalleged by the petitioner no further action could have been taken bythe PERC whose sole function was to advise and assist theGovernment, until a decision was made in this regard by theCabinet.
The observation made by the former President in theMemorandum dated 07.08.2002(p14) reveals that the
Memorandum of the 2nd Respondent had been circulated only on
Hence there appears to have been no urgency indealing with the matter in the Cabinet and a decision in respect ofthe memorandum was made only on 14.08.2002 and confirmed on
21.08.2002.
The decision states that action should be taken on the matter bythe Ministry of Power and Energy.
The second course of action taken by PERC was that while itsproposal was pending before the Cabinet, to finalise the sale ofshares. It is clear that Jayasundera viewed the process pendingbefore the Cabinet as a mere formality. And, acting entirely in
5C Vasudeva Nanayakkara v Choksy and others (John Keells Case) 175
(Sarath N. Silva, P.C., C.J.)
excess of the power vested in the PERC by Act No. 1 of 1996, hecalled for bids from the shortlisted parties. Thus the shortlistingdone by the TEC in the faulty process referred above whichfavoured JKH become a fait accompli. Further, the valuation doneby the DFCC Bank which was obtained entirely on the decision ofJayasundera after carefully avoiding a valuation being done by theChief Valuer became a fait accompli. Jayasundera then, acting onhis own fixed the floor price at Rs. 1.2 billion and required thebidders to furnish a bid bond for 10% of the floor price to be eligibleto bid at the Stock Exchange for 90% of shares of LMSL. Theterminal date for the bid bond was fixed by Jayasundera as being
As at that date the Cabinet memorandum of theMinister being the 2nd Respondent had not even been circulatedamongst the members of the Cabinet. But, there was a flurry ofactivity on the part of Jayasundera and the PERC which thePetitioner has pleaded by producing contemporaneous accounts ofthese events published in the Daily News Papers of 10.07.2002,13.07.2002 and 24.07.2002 produced marked P17.
I would now advert to the events as reported in P17 that are notdenied by Jayasundera. On 08.07.2008 Jayasundera had informedthe bidders that they should enter into a Memorandum ofUnderstanding (MOU) with the CPC Unions. The bidders protestedto this requirement and it appears that due to the exposure in theNewspapers the bidders were summoned for a meeting at thePERC office on 10.07.2002 at 12.30 p.m. and informed that therewould be no requirement to enter into such a MOU with the Unions.The complaint of the bidders published in the Newspapers is thatthey had time only from 1.00 p.m. to 2.00 p.m. on the 10th tofurnish the bid bonds and that those with foreign collaboratorscould not get necessary instructions within the limited space oftime. JKH was the only bidder to place the bid bond.
Jayasundera has on his own fixed the sale for bidding at theStock Exchange for 12.07.2002 and since JKH was the only bidderto have furnished the bid bond, he decided that it was notnecessary to go ahead with the bidding process and notified byletter bearing date 12.07.2002 itself to S. Ratnayake of
JKH(P15(a)) that "it is proposed to conclude the transaction
and signing the Agreements by July 24th 2002". Ratnayake by
176Sri Lanka Law Reports[2008] 1 Sri L.R
letter addressed to Jayasundera bearing the same date 12.07.2002(P15) stated that JKH is willing to conclude the transaction as setout in Jayasundera's letter.
When looking at the two letters bearing the same date onegets the impression that Jayasundera and Ratnayake sat acrossthe table and exchanged them. Counsel for JKH submitted thatthey were exchanged by FAX. Jayasundera’s FAX letter bearstime 4.45 p.m. and Ratnayake’s Fax the time 5.30. Thedocuments have not been produced by JKH and I have noted thetimes based only on submissions. Whatever be the travails ofother bidders, the timing fitted well to Ratnayake's affairs sinceaccording to document P37 (subsequently obtained by thepetitioner from the BOI) by letter dated 11.07.2002 the BOIinformed JKH that the application for tax relief in this regard hasbeen allowed I have already under the heading "E" dealt with thefalse and illegal manner in which JKH secured the tax relief.
Having promptly and without reservation agreed to close thetransaction by letter P16, Ratnayake continued to secure moreconcessions from Jayasundera as noted above by sending letterP18(a) which included the concession as to the amendment of theCUF by incorporating clause 8.2 on the basis of which JKHsought to stave off competitors as revealed in "Deviation "F"above.
It is seen from document P15(a) that Jayasundera stated that theAgreements would be signed by July 24, 2002, well before theCabinet memorandum being circulated. He admits that PERC got allthe Agreements ready pending a decision of the Cabinet. I have setout in "F" that the Agreements are heavily biased or favour JKH andhave cast responsibilities on the Government of Sri Lanka that arenot even referred to in the Cabinet Memorandum. Impatience ofJayasundera appears to have given way and the Agreements werein fact signed on 20.09.2002, 1 day before the Cabinet minutes wereconfirmed. Ironically, the decision of the Cabinet is for action to betaken by the Minister of Power and Energy and not by Jayasunderaand the PERC.
Based on the preceding analysis contained in sections "A to G"I would summarise the findings as follows:
SC Vasudeva Nanayakkara v Choksy and others (John Keells Case) 177
(Sarath N. Silva, P.C., C.J.)
Lanka Marine Services Ltd. (LMSL) was a wholly ownedcompany of the Ceylon Petroleum Corporation (CPC) whichhad the monopoly of supplying marine fuel (bunkers) with awell developed facility within the Port of Colombo consistingof 12 Tanks and a network of pipes connected to the "SouthJetty" and the "Dolphin Berth."
the supply of bunkers is a lucrative business and in the year2000/2001 LMSL made a profit of Rs. 318 million and paidRs. 163 million as income tax;
that due to the unique location of the Port of Colombo thesupply of bunkers could have been improved and expandedresulting in a vast economic advantage to the State.
that liberalization of bunkering was proposed to the Cabinetby the Minister of Shipping on 24.05.2000 and in view ofconcerns expressed by several Ministers the proposal wasreferred to a Committee of Officials including a Director ofthe Public Enterprise Reform Commission (PERC);
the Cabinet approved a careful strategy of liberalizationaddressing all concerns such as marine pollution andauthorized PERC to recommend a process of granting 3licenses to private sector operators to provide bunkersoutside the Port of Colombo. LMSL to continue for 1 yearwith a monopoly in the Port of Colombo and to be privatizedin a situation where the trade is fully liberalized;
the PERC chaired by P.B. Jayasundera failed to take actionto recommend a process for the granting of 3 licenses andinstead devised and carried out without any authority ofCabinet a process of the sale of 90% shares of LMSL;
Jayasundera nominated three persons to be on the TechnicalEvaluation Committee (TEC) and the then Secretary Ministryof Finance appointed three persons. But Jayasundera failedto get a Cabinet Approved Tender Board (CATB) or aNegotiating Committee (CANC) constituted. Thereby heavoided submitting this matter to the Cabinet and reserved forhimself the final authority of deciding on all matters.
178Sri Lanka Law Reports[2008] 1 Sri L.R
the documents clearly establish that all impugned decisionshave been made entirely by Jayasundera at his discretion.
that the PERC Act No. 1 of 1996 empowers the Commissionof which Jayasundera was Chairman only to advice andassist the Government in the matter of public enterprisereform and to act on any matter or transaction only ifauthorized by the Government.
that Jayasundera failed to take action as authorized by theGovernment to liberate the trade in bunkering and tookaction without any authorization of Government to embarkon a process of selling of shares of LMSL whilst themonopoly was yet in effect operative thereby benefiting thewould be purchaser of the LMSL shares.
that Jayasundera avoided getting a valuation of LMSL fromthe Chief Valuer and instead on his own without anyauthorization of Government secured a valuation from theDFCC Bank and took all action for the sale of shares ofLMSL based entirely on that valuation.
that TEC erred in shortlisting the bid submitted by Fuel andMarine (FAMM being a market leader in bunkering) incollaborating with John Keells Holdings (JKH) after it wasindicated that FAMM would not continue with their joint bid.
that JKH had made a false representation of collaborationwith FAMM for the purpose of securing the 70 marks to beshortlisted. This falsity is established by a contemporaneousapplication made by JKH to the Board of Investment (BOI)for investment relief in which no reference is made to anyforeign collaborator.
that JKH had an assurance that it would succeed in securinga sale of shares in its favour even before the bid contrary amisrepresentation referred above was accepted, since itmade an application to the BOI well before the biddingprocess, on a false basis that the application is in respect ofa new investment whereas the particulars in the applicationare referable to the business of LMSL. The Tax relief grantedto KJH was not permissible under the existing Regulations
SC Vasudeva Nanayakkara v Choksy and others (John Keells Case) 179
(Sarath N. Silva, P.C., C.J.)
and JKH got an amendment tailor made for its purpose andsecured the tax exemption. This resulted in the LMSL whichwas a tax paying company when owned by the CPCbecoming a tax free Company when sold to JKH;
That Jayasundera made certain significant deviations fromthat stated at the Pre bid Conference that favoured JKH inparticular after the bid was accepted Jayasundera agreed tothe inclusion of a clause in the CUF Agreement on the basisof which LMSL owned by JKH attempted to stave offcompetition in the supply of bunkers by others whosubsequently obtained licenses from the Minister. Theclause agreed to by Jayasundera was struck down by theCourt of Appeal as being illegal;
Jayasundera made an unauthorised and illegalrepresentation that the land in extent 8 Acres 2 Roods 21.44perches within the port of Colombo would be transferred tothe purchaser of LMSL shares without any additionalpayment. Although he seeks to justify this representation onthe basis that the value of the land has been taken intoaccount in the business valuation of LMSL, on the sequenceof events it is established that the representation was madeby Jayasundera even before he requested a businessvaluation from the DFCC Bank;
that Jayasundera pursued the unauthorised and illegalrepresentation as to the land by causing a NotarialAgreement to be entered in terms of which the Governmentof Sri Lanka is obliged to ensure the transfer of the landwithout payment to LMSL and the expenditure connectedwith the transfer has to be met by the CPC;
that the Grant of the said land given by the President toLMSL 21/2 years later is illegal since it is contrary to theprovisions of the 13th Amendment to the Constitution and inany event it contains an incorrect statement that thegrant as made in consideration of the payment ofRs.1,197,362,500/- by LMSL whereas no moneywhatsoever was paid by LMSL.
180Sri Lanka Law Reports[2008] 1 Sri L.R
that Jayasundera rushed through the bidding process bygiving misleading information to bidders and purported toconclude the transaction with an exchange of letters withRatnayake on 12.07.2002 at the time when the Proposal ofthe Minister in charge of the subject had not even beencirculated amongst the members of the Cabinet.
On the basis of the aforesaid findings l hold that the entireprocess of the sale of shares of Lanka Marine Services Ltd., toJohn Keells Holdings has been done without lawful authority. P.B.Jayasundera being the 8th respondent and the then Chairman ofthe Public Enterprise Reform Commission, from the verycommencement of the process, has acted outside the authority, ofthe applicable law being the Public Enterprise Reform CommissionAct No. 1 of 1996 and the functions mandated to be done by theCommission as contained in the decision of the Cabinet ofMinisters. He had not only acted contrary to the law but purportedto arrogate to himself the authority of the Executive Government.His action is not only illegal and in excess of lawful authority butalso biased in favour of JKH.
From the perspective of JKH I hold that the company hassecured advantages and benefits through the illegal process andin specific instances by misrepresentations that have been made.
I have to now consider the foregoing findings in relation to thealleged infringement of the fundamental right to equality before thelaw and the equal protection of the law guaranteed by Article 12(1)of the Constitution.
Three well established aspects of our Constitutional Law have tobe stated in this regard. They are:
That the Rule of Law is the basis of our Constitution asaffirmatively laid down in the decision of this Court inVisvalingam v LiyanageW and Premachandra v Jaya-wickrema^ and consistently followed in several subsequentdecisions. The Rule of Law "postulates the absolutesupremacy or predominance of regular law as opposed tothe influence of arbitrary power. It excludes the existence ofarbitrariness, of prerogative or wide discretionary authorityon the art of the Government" (vide: Law of the Constitution
SC Vasudeva Nanayakkara v Choksy and others (John Keells Case) Q1
(Sarath N. Silva, P.C., C.J.)
by A. Dicey – page 202). In the picturesque language of thefamous British Chief Justice Lord Coke whose dicta andwritings contributed to the early growth of EnglishConstitutional Law, the principle of legality which underpinsthe Rule of Law assures that the powers of Government willbe exercised in accordance with "the golden, and straightmetwand of law" as opposed to the "uncertain and crookedcord of discretion",
that as firmly laid down in the Determination of the DivisionalBench of Seven Judges of this Court in regard to theconstitutionality of the proposed 19th Amendment to theConstitution (2002 3 SLR page 85) the principle enunciatedin Articles 3 and 4 of our Constitution is that the respectiveorgans of Government, the Legislature, the Executive andthe Judiciary are reposed power as custodians for the timebeing to be exercised for the People. In Bulankulame andothers v Secretary, Ministry of industrial Development <5) thisCourt observed that the resources of the State are the"resources of the People" and the organs of State are"guardians to whom the people have committed the careand preservation" of these resources (at p. 253). That, thereis a "confident expectation (trust) that the Executive will actin accordance with the law and accountably in the bestinterests of the people of Sri Lanka (page 258);
That there is a "positive component in the right to equality"guaranteed by Article 12(1) of the Constitution as decided inSenarath v Chandrika Bandaranayake Kumaratunga<6) andwhere the Executive being the custodian of the People'spower act ultra vires and in derogation of the law andprocedures that are intended to safeguard the resources ofthe State, it is in the public interest to implead such actionbefore Court.
For the reasons stated above I hold that the petitioner has asufficient locus standi to institute these proceedings in the publicinterest and has established an infringement of the fundamentalright guaranteed by Article 12(1) of the Constitution in respect of thesale of 90% shares of Lanka Marine Services Ltd.; being a
182Sri Lanka Law Reports[2008] 1 Sri L.R
company wholly owned by a State Corporation – the CeylonPetroleum Corporation. That the impugned transaction and thegranting of benefits to John Keells Holdings Ltd.; has been anarbitrary exercise of executive power primarily on the part of the 8threspondent P.B. Jayasundera who functioned at the relevant timeas the Chairman of the Public Enterprise Reform Commission.
The defence of time bar pleaded by the respondent mustnecessarily fail since the impugned transfer was not conductedaccording to obtain material documents from sources that were notaccessible to him. This is borne out by the fact that materialdocuments P31 and P37 on which significant findings have beenmade were obtained from the Board of Investments after theapplications was filed.
Accordingly, I overrule the objections based on locus standi andtime bar and grant to the petitioner the relief sought in prayer (b) ofthe petition that there has been an infringement of the fundamentalright guaranteed by Article 12(1) of the Constitution by executive oradministrative action.
Ordinarily, the grant of a declaration that executive oradministrative action is an infringement of the fundamental rightguaranteed by Article 12(1) would result in a restoration of thestatus quo ante. However, since the jurisdiction vested in this Courtin terms of Article 126(4) of the Constitution is to grant relief or tomake directions as it may seem just and equitable, it is open to theCourt to ascertain whether the implications of the impugnedexecutive action are severable. On a careful survey of the findingsI am of the view, that the Presidential Grant of the land 8 Acres 2Roods 21.44 Perches which is within the declared limits of the Portof Colombo; the grant of investment relief by the Board ofInvestments to Lanka Marine Services Ltd., resulting inter alia inrelief from the payment of taxes that are due and, the entering intoof the Common Users Facility Agreement with the Sri Lanka PortsAuthority are severable from the sale of shares. Accordingly, I allowthe relief prayed for in prayer (g), (h) and (i) of the prayer to thepetition and declare the Presidential Grant marked P31 as null andvoid. The 18th, 19th, 20th and 21 st respondents will vacate the landwithin one month from today and restore possession to Sri LankaPorts Authority. The Common User Facility Agreement dated
SC Vasudeva Nanayakkara v Choksy and others (John Keells Case) -j 33
(Sarath N. Silva, P.C., C.J.)
20.08.2002 (P19(a)) is declared null and void and the Sri LankaPorts Authority may enter into fresh Agreements for the use offacilities within the Port on equal terms with all parties licensed tosupply bunkers.
All agreements entered into between the Board of Investmentand Lanka Marine Services Ltd., are declared null and void and theCommissioner General of Inland Revenue is directed to recover alltaxes due on the basis that such Agreements have not been inforce.
In view of the foregoing orders I do not consider it necessary orjust and equitable to make an order as regards the sale of sharesper se.
The findings in the judgment demonstrate that the action of PB.Jayasundera, 8th respondent has not only been arbitrary and ultravires but also biased in favour of John Keells Holdings Ltd., Theallegation of the petitioner that he worked in collusion with S.Ratnayake of John Keells to secure illegal advantages to the latter,adverse to the public interest is established. Accordingly I direct the8th respondent pay a sum of Rs. 500,000/- as compensation to theState.
The 18th to 21st respondents will pay the petitioner a sum ofRs. 250,000/- as costs.
The Registrar is directed to send a copy of this judgment to theCommissioner General of Inland Revenue who is not a party tothese proceedings to take action as directed above.
All parties to the proceedings will take necessary action on thebasis of the findings stated above.
AMARATUNGA, J.-l agree.
BALAPATABENDI, J. -I agree.
Application allowed.