21st January 2001

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Focus on Rights

Flying out of (Govt.) control

By: Kishali Pinto Jayawardene

When the Supreme Court of this country held, fourteen years ago, that actions of the management of AirLanka could be reviewed by the Court for fundamental rights adherence as they amounted to executive and administrative action under Article 126 of the Constitution, its precise reasoning deserves notice.National carrier under new management: little govt. control

Thus "the demands and obligations of the modern welfare state have resulted in an alarming increase in the magnitude and range of governmental activity. For the purpose of ensuring and achieving the rapid development of the whole country by means of public economic activity, the government is called upon to embark on a multitude of commercial and industrial undertakings. In fact, a stage has now been reached when it has become difficult to distinguish between governmental and non governmental functions……… but by resorting to this device of the corporate entity, the government cannot be permitted to liberate itself from its constitutional obligations in respect of fundamental rights which it and its organs are enjoined to respect, secure and advance…"

The State has, of course, proceeded to bigger though not necessarily better things since then. While the substantial principle articulated above remains, the tests facing a Court now called upon to decide whether a particular body engages in actions of the government or is an organ or agency of the government are vastly different. In 1987, the Court had to cope with the rather easy argument that only if a body has been conferred with some part of the coercive power or special privileges enjoyed by the State, it could be included in the constitutional definition. Reducing this argument did not take much time; thus, unsurprisingly, the ultimate judicial finding was that although the presence of such sovereign characteristics would be strongly indicative of it being a government body, their absence would not necessarily indicate the contrary.

Air Lanka then was indisputably of a particular composition, managed and controlled by the government through its own nominee directors and financed almost wholly by the government. These provisions were detailed to reveal the legal and pervasive character of control, which the government had and its brooding presence behind the operations of the company. Interestingly also, that AirLanka had been created for the purpose of carrying out functions of great public importance which were earlier carried on by Air Ceylon were also taken into account by the Court. Buttressing this was the fact that the airline was the national carrier and carried the national flag.

Similarly, the actions of the University Grants Commission were held to come within supervision of the Court as the Act assigned to the Commission certain vital government functions pertaining to university education. Contrasted to this were earlier decisions of the court, which put the actions of bodies such as the Insurance Corporation, the National Paper Corporation and the People's Bank beyond the reach of the Court. Judicial thinking in these cases articulated that where the State's only significant involvement is through financial support or limited regulation, it may be well to inquire whether the State has so thoroughly "insinuated" itself into the operations of that particular body. But the warning in 1987 that the juristic veil of corporate personality donned by a company for certain purposes cannot debar constitutional provisions on fundamental rights protection continued even after the first wave of privatisation by the government. Thus, in as recent as 1999, actions of Sri Lanka Telecom were held to come within constitutional protection on the basis that the government still retained beneficial ownership in the majority of the shares, thus subjecting the management to judicial scrutiny.

Last week, when the Supreme Court put an end to judicial supervision of the management of AirLanka, now Sri Lankan AirLines, it undoubtedly had changed circumstances to contend with as compared to 1987. The Amended Articles of Association and the shareholders' agreement consequent to 1998 when the Government entered into a share sale with Emirates made this very plain. Through the Agreement, the Government and Emirates entered into an approved business plan for an initial period of ten years during which time the day to day running of the company was to be in Emirates. The government however had four of the seven directors on the Board of Directors while Emirates consequently had three. The Agreement provided in clause 2.2.1. that, in matters over which Emirates exercises such power, control and authority, it shall not be required to refer such matters or seek the approval at a general meeting of the company or the Board of Directors. These provisions were cumulatively held to take away the "deep and pervasive power" enjoyed previously by the government over the national carrier. Contrary arguments among others, that it was the Board which delegated authority for management and consequently had the right to revoke that power, that overall, the Board had the right of control over the company and that the Government of Sri Lanka had the power by four to three to outvote the representatives of Emirates on the Board, thus vesting in the government, control though admittedly not sole control of the Board, were not accepted by the Supreme Court. Neither was the fact that the Government kept to itself its authority in its shareholdings where it specifically retained 60% of the shares even after the share sale of the airline was to be completed, with 40% to be vested in Emirates (of which Emirates held only 26% presently).

It is a matter of interest that the Court, in this case, referred to tests adopted by the Indian Supreme Court, notably by Bhagwati J. in the early eighties, though preferring to isolate the "deep and pervasive" test from the whole. Analysis of the entirety of these tests show that in declaring that the inquiry has to be not as to how the juristic person is born but why it has been brought into existence, the Indian Court focused on six criteria. Whether the entire share capital of the corporation is held by the government, whether the financial assistance provided by the State is so much as to meet almost the entire expenditure of the body, whether it enjoys monopoly status which is State conferred or State protected, whether there exists deep and pervasive State control of the corporation, whether the corporation performs functions of public importance which are closely related to governmental functions. Importantly, the sixth test was as to whether the corporation is one to which a department of Government has been transferred, which in the opinion of Bhagwati J, would strongly support the inference that the corporation is an instrumentality or agency of government. This reasoning, in a sense, was echoed in the 1987 Air Lanka case where the linkages between AirLanka and Air Ceylon were considered in detail by the then Court.

Last week's decision therefore tightens earlier judicial positions that declared unequivocally that the exertion of State power in all forms attracts fundamental rights protection. In its wake however, what is troubling is not only that we will have less and less reason to regard the national carrier as indeed our national carrier. In these times of unrestrained privatisation of even more vital public services, it is now evident that this expansion will come at the expense, if not the total surrender of constitutional protection of fundamental rights.

This, of course, continues to be an equation that is wholly unacceptable to the concept of public power held in trust by the State for the people, the infringement of which should be within strict supervision by the courts in this country.

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