037-SLLR-SLLR-2001-V-2-WICKRWMASINGHE-v.-CEYLON-PETROLEUM-CORPORATION-AND-OTHERS.pdf
WICKREMASINGIfE
c. v-
CEYLON PETROLEUM CORPORATION AND OTHERS
SUPREME COURTS.N. SILVA, CJ.
BANDARANAYAKE, J. ANDISMAIL, J.
S.C. APPLICATION NO 304/98(FR)
6th DECEMBER, 2000
Fundamental Rights – Termination of dealership in petroleum productsin terms of the Dealership Agreement – Applicability of Public Law -Reasonableness on objective basis for determining the Constitutionalvalidity of the impugned termination – Article 12(1) of the Constitution- Relevance of the classification doctrine.
The petitioner had been a dealer in petroleum products from 1949 atpremises No. 267 Galle Road, Colombo 4 when the said premises werewith the British owned Shell Company until the same vested with the 1 *respondent Corporation in 1964 under the Ceylon Petroleum CorporationAct after which the business was continued on an Agreement with theCorporation. The Agreement of Dealership could be terminated eitherwithout notice on the ground of defaults on the part of the dealer or byeither party giving 3 months notice to the other party.
There was no allegation of default against the petitioner who carried onthe business of selling petroleum and providing ancillary services includingthe maintenance of a service station, at a well located site on the land sideof the Galle Road. The average monthly sales were about Rs. 12 million.
The 1st respondent Corporation by its letter dated 25.4.1998(P4) terminatedthe Agreement on the second ground namely, mutual notice and requiredthe petitioner to hand over vacant possession of the premises on or before31.12.1998. P4 states that the dealership was being terminated since theland on which the business is being conducted, being owned by the 1strespondent Corporation was the most suitable site for the construction ofa Head Office Complex for the Corporation. A Committee which hadconsidered nine locations finally recommended the site occupied by thepetitioner.
410
Sri Lanka Law Reports
[2001) 2 Sri L.R.
Held :
Since the termination of the Agreement is challenged on the basis ofan infringement of the right to equality guaranteed by Article 12{ 1) ofthe Constitution, the legality of the termination has to be reviewednot in the light of the law of contract but in the domain of theConstitutional guarantee of equality enshrined in Article 12.
The 1st respondent Corporation having the monopoly in relation topetroleum products is an agency of the Government and its actswould ordinarily come within the pale of' executive or administrativeaction."
The question for decision is whether the impugned decision isreasonable on objective basis and not arbitrary, viz., whethersuch decision is fairly and substantially related to the object oflegislation.
Per S.N. Silva, CJ
"The case of Perera v. Jayawickrema,5' demonstrates theIneffectiveness of the guarantee in Article 12(1) which results fromthe rigid application of the requirement to prove that persons similarlycircumstanced as the petitioner were differently treated. Such anapplication of the guarantee under Article 12(1) ignores the essenceof the basic standard which is to ensure reasonable as opposed toarbitrariness"
The respondents erred in looking at the premises of establishedpetrol sheds in Colombo to site its proposed Head Office Complex.This course of action cannot be fairly and substantially related to theobjective of the legislation which is to carry on the business ofsupplying and distributing petroleum to motorists.
The impugned termination of the petitioner's dealership infringedhis rights under Article 12( 1); hence such termination is invalid andof no force in law.
Cases referred to :
Roberts and Another v. Ratnayake and Others (1986)2 SRI L.R.36
Wlckrematunga v. Ratwatte and Others (1998) 1 SRI L.R. 201
Sangadasa Silva v. Ratwatte and Others (1998) 1 SRI L.R. 350
SC Wickremasinghe v. Ceylon Petroleum Corporation and Others 411
(Sarath Silva, C.J.)
Royster Guano Co. v. (Commonwealth of Virginia. (1920) 253 US412
A
Perera v. Jayawlckrema (1985) 1 SRI L.R. 285
APPLICATION for relief for infringement of fundamental rights.
E.D. Wickremanayake with A.M. Najeem for petitioner.
RA.D. Samarasekera, RC. with Kushan de Alwis and B.C. Perera for 1st to9th respondents.
Cur. adv. uult.
July 23, 2001.
SARATH N. SILVA, C.J.The Petitioner has been granted leave to proceed in respectof the alleged infringement of the fundamental rights to equalityguaranteed by Article 12(1) and (2) of the Constitution.
The Petitioner is a Dealer in petroleum products carryingon business at premises No. 267, Galle Road, Colombo 4, whichis popularly known as the "Dickmans Road" petrol shed andservice station. He commenced business when the premises werewith the British owned Shell Company and has continued afterthe premises vested with the Is* Respondent Corporation interms of the Ceylon Petroleum Corporation Act in 1964. TheAgreement with the Corporation in terms of which the Petitionerbecomes entitled to continue in business is dated 26.9.1964.(Dealership Agreement PI). The alleged infringement of thePetitioner's fundament right to equality relates to tSie decisionof the Corporation to terminate the dealership, notified to thePetitioner by letter dated 23.4.1998 (P4).
The impugned decision to terminate the dealership has beenmade in terms of clause 12B of the Agreement. This clause hasbroadly two parts. The first part empowers the Corporation toterminate the Agreement, without notice on the basis of whatmay be generally described as defaults on the part of the dealer.The second part provides for a unilateral right to terminate.
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120011 2 Sri L.R.
that may be exercised at the optionaof either party i.e. by theCorporation or the dealer, upon 3 months notice being given tothe other party. In this instance the termination has been effectedin terms of the second part of clause 12B and the letter P4 dated
requires the Petitioner to hand over vacant possessionof the premises on or before 31.12.1998. In that respect thetermination of the Petitioners dealership is in compliance withspecific terms of the Agreement (PI) and the Petitioner may notbe entitled to any relief in respect of the termination under thelaw of contract and the common law on the subject. But, that isfrom the perspective of the Private Law. In these proceedings,the termination i%challenged from the perspective of Public Lawon the basis of an alleged infringement of the fundamental rightto equality, guaranteed by Article 12(1) and (2) of theConstitution. Therefore the matters to be considered transcendthe mere examination of the terms of the Agreement and a reviewof the legality of the termination in the light of the Law of Contractand enter the domain of the constitutional guarantee of equalityenshrined in Article 12.
Article 126(2) of the Constitution vests the sole and exclusivejurisdiction in this Court to hear and determine any questionrelating to the infringement or imminent infringement byexecutive or administrative action of any fundamental right orlanguage right declared and recognized by Chapter III or IV ofthe Constitution. Article 17 and 126(2) give a right to any personwho alleges any such infringement or imminent infringement toinvoke the jurisdiction of this Court in the manner providedtherein. Therefore the issues that come up for considerationare initially whether the impugned action comes within the paleof executive or administrative action and if so whether therehas been an infringement of the Petitioner's rights to equalityguaranteed by Article 12(1) and (2) as alleged by him.
There is little doubt as to the initial issue. The 1stRespondent is a Public Corporation established by the CeylonPetroleum Corporation Act No. 28 of 1961. It is vested with anexclusive right to import, export sell, supply or distribute
SC Wickremasinghe v. Ceylon Petroleum Corporation and Others 413
(Sarath Silva, C.J.)
petroleum in terms of Section 5C of the Act. A Public Corporationvested with a monopoly in relation to a commodity vital to thecommunity would undoubtedly be an agency of the Governmentand its acts would ordinarily come within the pale of executiveor administrative action.
In the case of Roberts and another vs. Ratnayake andothers111 by a majority decision it was held that where a statutoryauthority (a Municipal Council) gives out premises on a lease,the constitutional guarantee of equality applies only at thethreshold stage of entering into the lease and that subsequentaction taken to terminate the lease for an alleged breach of itsterms should be considered as a matter of Private Law only;without interposing the Public Law requirements of theguarantee of fundamental rights. This decision had beendeparted from in later cases, in particular Wickrematunga vs.Ratwatte and others(2> and Sangadasa Stlva vs. Ratwatte andothers1 where it was specifically held that the act of thePetroleum Corporation in terminating a Dealership Agreementwas in the nature of executive or administrative action and wouldattract jurisdiction of the court under Article 126 of theConstitution. Therefore the impugned termination of theDealership Agreement by P4, should be reviewed in theseproceedings not from the narrower perspective of only the termsof the Agreement but from broader perspective of the exercise ofexecutive or administrative action by an agency of theGovernment and the constitutional guarantee of equality whichshould guide the exercise of power under the Agreement.
C
Article 12(1) guarantees to every person equality before thelaw and the equal protection of the law. Since diversity is inherentamongst persons, from an early time the United States SupremeCourt applied the equal protection clause as permittingclassification of persons provided that such classificationsatisfies a basic standard. This basic standard is set out in theoften cited judgment of the United States Supreme Court in thecase of Royster Guano Co. vs. Commonwealth qfVirginia'4’ asfollows :
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[20011 2 Sri L.R.
"classification must be reasonable, not arbitrary, and
must rest upon some ground of difference having a fair andsubstantial relation to the object of the legislation, so thatall persons similarly circumstanced shall be treated alike."(E415)
Although the objective is to ensure that all persons, similarlycircumstanced are treated alike, it is seen that the essence ofthis basic standard is to ensure reasonableness being thepositive connotation as opposed to arbitrariness being the relatednegative connotation. The application of this basic standardhas been blur recoin later cases due to an over emphasis on theobjective of ensuring that all persons similarly circumstanced'shall be treated alike. The case of Perera vs. Jayawickrema(5>demonstrates the ineffectiveness of the guarantee in Article 12( 1)which results from the rigid application of the requirement toprove that persons similarly circumstanced as the Petitionerwere differently treated. Such an application of the guaranteeunder Article 12(1) ignores the essence of the basic standardwhich is to ensure reasonableness as opposed to arbitrarinessin the manner required by the basic standard. If the legislationor the executive or administrative action in question is thusreasonable and not arbitrary, it necessarily follows that allpersons similarly circumstanced will be treated alike, being theend result of applying the guarantee of equality. As noted above,the effectiveness of the guarantee would be minimized if there isinsistence that a failure of the end result should also beestablished to prove an infringement of the guarantee. If howeverthere is such evidence of differential treatment that would indeedstrengthen the case of a Petitioner in establishing theunreasonableness of the impugned action.
The next question, which is of particular significance to thefacts of this case, is the basis upon which the aspect ofreasonableness of the impugned action should be examined. Itis submitted on behalf of the 1st to 9th Respondents that thedecision to terminate the dealership was taken bona fide andthat the reasons for it are contained in the letter of termination
SC Wickremasinghe v. Ceylon Petroleum Corporation and Others 415
(Sarath Silva, C.J.)
itself P4 (dated 23.4.98). 'the letter states very clearly that thedealership is being terminated since the land on which the petrolshed and the service station is located, being owned by the Is*Respondent Corporation, is the most suitable site for theconstruction of a Head Office Complex for the Corporation. TheRespondents have adduced evidence to establish that theCorporation had to vacate its Head Office located at No. 113,Galle Road, Colombo 3 (next to the official residence of the PrimeMinister/President) due to security reasons in 1995, andthereafter several departments of the Head Office have beentemporarily located at different premises that have been leasedpaying high rents. That, efforts made to conduct a new HeadOffice complex on other sites, failed. At that stage a committeewas appointed to select a petrol filling station in Colombo, whichcould be used as the site for the construction of the Head OfficeComplex. The committee in its report, which has beenproduced, considered 9 locations and finally recommended thesite occupied by the Petitioner. The Board of Directors acceptedthe recommendation and it was decided to terminate thedealership of the Petitioner and obtain possession of the landto construct the Head Office Complex.
On the other hand the Petitioner submits that the petrolshed has been operated at this well located site from 1949 andfrom the inception he has been a model dealer and has carriedout business without any complaints or adverse reports fromthe Corporation. He has set out the full range of facilities that isprovided at the premises by way of supplying fuel aijd ancillaryservices and relies on the several commendations received forthe services rendered. It is also submitted that this is the onlypetrol shed and service station situated on the land side of theGalle Road, between the petrol shed at Kollupitiya and the otherat Dehiwala. Due to the bifurcation of the Galle Road it serves alarge number of motorists travelling on the land side of the GalleRoad. It is claimed that the average monthly sales is in the regionof Rs. 12 million. None of these matters are disputed by theRespondents.
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Sri Lanka Law Reports
[2001J 2 Sri L.R.
The question of reasonableness of the impugned action hasto be judged in the aforesaid state of facts. The claim of eachparty appears to have merit when looked at from the particularstandpoint of that party. But, resonableness, particularly as thebasic component of the guarantee of equality, has to be judgedon an objective basis which stands above the competing claimsof parties. In this context I find the basic standard laid down inthe Royster Guano case and cited above to be a useful guide. Ithas to be borne in mind that the basic standard was laid inrelation to a challenge of the validity of State legislation grantinga tax exemption to certain corporations and not others.
The protection of equality is primarily in respect of law,taken in its widest sense and, extends to executive oradministrative action referable to the exercise of power vestedin the Government, a minister, public officer or an agency of theGovernment. However, the Court has to be cautious to ensurethat the application of the guarantee of equality does not finallyproduce iniquitious consequences. A useful safeguard in thisrespect would be the application of a basic standard or itselements, wherever applicable. The principle element in thebasic standard as stated above is reasonableness as opposedto being arbitrary. In respect of legislation where the questionwould be looked more in the abstract, one would look at theclass of persons affected by the law in relation to those left out.In respect of executive or administrative action one would lookat the person who is alleging the infringement and the extent towhich such person is affected or would be effected. But, the testonce again, is one of being reasonable and not arbitrary. Ofparticular significance to the fact of this case, the question arisesas to the perspective or standpoint from which suchreasonableness should be judged. It certainly cannot be judgedonly from a subjective basis of hardship to one and benefit tothe other. Executive or administrative action may bring in itswake hardship to some, such as deprivation of property throughacquisition, taxes, disciplinary action and loss of employment.At the same time it can bring benefits to others, such asemployment, subsidies, rebates, admission to universities,
SC Wickremaslnghe v. Ceylon Petroleum Corporation and Others 417
(Sarath Silva, C.J.)
schools and housing facilities. It necessarily follows thatreasonableness should be^judged from an objective basis. Inthis respect the second element of the basic standard would be
a useful guide. That, the "classificationmust rest upon some
ground having a fair and substantial relation to the object ofthe legislation." When applied to the sphere of the executive orthe administration the second element of the basic standardwould require that the impugned action, is based on discerniblegrounds that have a fair and substantial relation to the objectof the legislation in terms of which the action is taken or themanifest object of the power that is vested with the particularauthority.
Therefore, when both elements of the basic standard areapplied it requires that the executive or administrative actionin question be reasonable and based on discernible groundsthat are fairly and substantially related to the object of thelegislation in terms of which the action is taken or the manifestobject of the power that is vested with the particular authority.The requirements of both elements merge. If the action at issueis based on discernible grounds that are fairly and substantiallyrelated to the object of the legislation or the manifest object ofthe power that is vested in the authority, it would ordinarilyfollow that the action is reasonable. The requirement to bereasonable as opposed to arbitrary would in this context pertainto the process of ascertaining and evaluating these grounds inthe light of the extent of discretion vested in the authority.
ExtraOn the basis of the foregoing analysis of the legalrequirements relevant to the guarantee of equality I would nowrevert to the facts of this case. The Ceylon Petroleum Corporationwas established by Act No. 28 of 1961. Its principal object asstated in the long title of the Act and section 5(a) is to "carry onbusiness as an importer, exporter, seller, supplier or distributorof petroleum." In terms of Section 5c(i) the Corporation has beenvested an exclusive right, in the nature of a monopoly to carry
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on the said business. The business of the Petitioner as dealer isa vital link between the Corporation and the end user such asmotorists. When considered from this objective of the legislationthe action of the Corporation should be fairly and substantiallyrelated to the maintenance and improvement of the supply anddistribution of petroleum to end users such as motorists. Anyaction which detracts from or diminishes the supply anddistribution of petroleum would per se be devoid of a fair andsubstantial relation to the objective of the legislation. In thisinstance the impugned decision is for the closure of a vital petrolshed, which cannot be fairly and substantially related to theobjective of the legislation.
The Respondents contention is that it is necessary to havea well located Head Office complex to carry out the full range ofits activities. This contention cannot be basically faulted. It isfurther contended the premises at Galle Road, Colombo 4, wherethe petrol shed in question is located is a good site for the newHead Office complex. There may be merit in this contention, aswell. To add another virtue, the site being owned by theCorporation could be secured without any additional cost.Farther, the evaluation done by the Committee in selecting thepremises in question out of the petrol sheds in Colombo, to sitethe Head Office Complex may be a seemingly reasonable process.But in my view all these factors are negatived since the startingpoint is faulty. The Respondents erred in looking at the premisesof established petrol sheds in Colombo to site its proposed HeadOffice Complex. This course of action cannot in any way be fairlyand substantially related to the objective of the legislation whichis to carry on the business of supplying and distributingpetroleum. The maintenance of a centrally located head officeis subordinate to the maintenance an of efficient and effectivedistribution points. The task of maintaining an efficient andeffective distribution point should get priority when related tothe objective of the legislation. Therefore I hold that the decisioncommunicated by P4 to terminate the dealership of the Petitionerinfringes the fundamental right of the Petitioner guaranteed byArticle 12(1) of the Constitution.
SC Wickremastnghe v. Ceylon Petroleum Corporation and Others 419
(Sarath Silva, C.J.)
e
Next, I have to consider the alleged infringement of Article12(2) of the Constitution. It is contended that the Petitionerhas been a member of the United National Party and in activepolitics on behalf of that Party for a period of 22 years, particularlyin the Kalutara District. On that basis it is alleged that thePetitioner is discriminated against on the ground of politicalopinion. However, the Petitioner has significantly failed todisclose that he has been and continues without any disruptionas a dealer of the Corporation at the petrol shed situated atpremises No. 878, Main Street, Kalutara. The Respondents haveproduced marked R 11 the dealership agreement in respect ofthat petrol shed. Furthermore the Petitioner has carried onbusiness at the petrol shed in question for almost 4 years afterthe change of Government without any adverse reports orhindrance on the part of the 1st Respondent. In fact two monthsprior to the impugned decision the 9th Respondent who was amember of the committee that recommended that the petrolshed in question was the most suited location for the Head OfficeComplex issued a commendation in respect of the servicesrendered by the Petitioner as a dealer. Whereas only 3 monthsnotice should be given of the termination in terms of clause 12Bof the dealership agreement, the letter of termination P4 gives 8months notice to Petitioner. The letter itself which sets out reasonfor the termination is couched in temperate language and endswiht virtually a plea which states as follows :
"We trust you would kindly extend your unstinted co-operation in handing over the vacant anjl peacefulpossession of the land building to our Area Manager."
All these matters in my view negative the allegation ofdiscrimination on the basis of political opinion. It is clear thatthe Petitioner has included this allegation merely to strengthenhis case. The tendency to unnecessarily present disputes upondivisions based on political colour is one that this Court cannotview with favour. I hold that the Petitioner has failed to establishany infringement of Article 12(2) of the Constitution.
,420
Sri Lanka Law Reports
[2001] 2 Sri L.R.
Accordingly I allow the application and grant to the Petitionera declaration as prayed for in paragraph (b) of the prayer to thepetition that his fundamental right guaranteed by 12(1} of theConstitution has been infringed by the 1st to 9th Respondentsand declare the termination of the dealership agreement effectedby document P4 as invalid and of no force in law. Consideringthe finding against the Petitioner in respect of the allegedinfringement of Article 12(2) of the Constitution,-and the factthat he has continued to operate the dealership, I would notaward any compensation or costs in his favour.
BANDARANAYAKE, J. – I agree.
ISMAIL, J.- I agree.
Relief granted.