ECONOMYNEXT – The following is an analysis of the Port City Commission Bill in its original form which was challenged at the Supreme Court. Suri Ratnapala is Emeritus Professor of Public Law, The University of Queensland, Fellow of the Australian Academy of Law, Attorney at Law, Sri Lanka

THREATS TO SRI LANKA’S NATIONAL SOVEREIGNTY UNDER THE PROPOSED COLOMBO PORT CITY COMMISSION BILL

The provisions of the Port City Bill, if enacted, will erode the legal and political sovereignty of Sri Lanka in a number of ways. Most of these threats, ranging from the composition of the governing body, the exemptions from national law, the wide discretionary power granted to the Commission, the limitation of parliamentary, prudential and judicial oversight of the Commission’s operations to the impact of the Bill’s provisions on fundamental rights, franchise of Sri Lankans and the territorial integrity of Sri Lanka have been identified and discussed in the media.

The following comments focus on issues arising from the impermissible transfer of legislative powers from Parliament, the removal of judicial powers from the national courts and the consequent erosion of national sovereignty. I have not specifically addressed the following issues.

(a) The discriminatory, therefore negative, effects on Sri Lankan entrepreneurs, by the privileging of Port City businesses (authorised persons), in particular by tax and labour law exemptions and the grant of various forms of assistance.

(b) The impermissible restriction of fundamental rights of Sri Lankan citizens.

(c) The effect of the Bill on the rights of franchise.

(d) The effect of the Bill on the territorial integrity of Sri Lanka.

(e) The absence of safeguards against opportunities for corrupt practices that could result from the extraordinary discretionary powers of the Commission.

COMPOSITION OF THE COMMISSION AND ITS ADMINISTRATION

The Commission will comprise 5 to 7 members one of whom will be the Chair with a casting vote. They are appointed by the President with no participation by any other body or Parliament. The Director-General to whom the powers of the Commission can be delegated is also appointed by the President at his sole discretion. Given the potential threats to the sovereignty, national security and the economic well being of the nation, it is advisable that these interests are represented on the Commission by majority membership. The presence of ex-officio members on the Commission, perhaps the heads of Treasury and Central Bank, is worth considering.

LEGISLATIVE POWER OF THE COMMISSION

Article 3 of the Constitution declares that ‘In the Republic of Sri Lanka sovereignty is in the People and is inalienable. Sovereignty includes the powers of government, fundamental rights and the franchise’.
Article 4 which prescribes the manner in which the Sovereignty of the People shall be exercised commands that

(a) the legislative power of the People shall be exercised by Parliament, consisting of elected representatives of the People and by the People at a Referendum. 2
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Article 83(a) of the Constitution enacts that ‘a Bill for the amendment or for the repeal and replacement of or which is inconsistent with any of the provisions of Articles 1, 2, 3, 6, 7, 8, 9, 10 and 11 or of this Article … shall become law if the number of votes cast in favour thereof amounts to not less than two-thirds of the whole number of Members (including those not present), is approved by the People at a Referendum’.

Article 3 is violated by legislation that contravenes the manner of the exercise of the Sovereignty of the People set out in Article 4. In considering whether a Bill offends the manner of the exercise of legislative power, Art 4(a) needs to be read with Article 76.

Article 76(1) commands that ‘Parliament shall not abdicate or in any manner alienate its legislative power and shall not set up any authority with any legislative power’. (My emphasis.) Article 76(3) clarifies that Parliament may empower ‘any person or body to make subordinate legislation for prescribed purposes …’. However, the powers granted to the Port City Commission are unmistakably of the nature of primary legislative power and hence clearly violates Art 76(1).

Hence the Bill, in my view, cannot be constitutionally enacted without the approval of the People at a Referendum.

Sources of the Commission’s Legislative Power

The Commission derives legislative powers from a number of sources.

1. General Power to Govern Notwithstanding National Law

The Commission is given a general power to plan, issue and monitor compliance, of permits and authorizations ‘notwithstanding anything to the contrary in any other written law’. – section 6(1)(i). This is the power to create new rights and obligations in disregard of national law. In other words it is legislative power in the strict sense.

The Greater Colombo Economic Commission Act No 4 of 1978 offers an illuminating contrast. The Act incorporates a significant measure of parliamentary control over executive discretions to change national law in favour of investors and to preserve national sovereignty.

i i. The Minister (who was answerable to Parliament) retained power to give general and special directions to the Commission. (s 23)

i ii. The Minister held power by regulation to determine the scope and extent of and exemption of modification of the laws set out in Schedule B. (s 24(1)(a))

i iii. Any modification of the laws specified in Schedule C had to be made by the Minister by regulation. (s 24(1)(b))

i iv. Critically, all regulations had to be approved by Parliament and those not approved were deemed rescinded. (s 24(3))

2. Power to Coerce Regulatory Authorities

There are a number of provisions of the Bill that would allow the Port City Commission to compel regulatory authorities under other laws to give their concurrence to measures that it proposes. In other words, the Commission may override or assume the powers vested in another statutory authority by Parliament. This is legislative power to set aside the national law in favour of the Commission’s clients.
Section 3(5) of the Bill requires the Commission to ‘obtain the concurrence of the relevant Regulatory Authority in respect of the subjects vested in or assigned to, such Regulatory Authority’. This requirement applies to all statutes that require permits, approvals or licences. However, the second proviso of s 3(6) stipulates:

‘(6) The relevant Regulatory Authority from whom such concurrence is being sought by the Commission, shall as soon as practicable in the circumstances, as a matter of priority, provide such concurrence to the Commission.’

On the one hand the Commission is required to obtain concurrence and on the other hand may compel prompt concurrence! It boggles the legal mind but the legal effect is clear enough. The Commission has power to override national regulatory law at will.

There are specific powers to compel similarly, the concurrence of the Condominium Management Authority (s 55(3)) and of the Securities and Exchange Commission. (58(1))

3. Power to Modify National Law in Favour of Businesses of Strategic Importance (Part IX)

The first point to note is the identity of ‘Businesses of Strategic Importance’ (hereafter BSI). They are the businesses designated by the Commission as BSI with the approval of the President and the Cabinet of Ministers. (ss 52 and 53) The businesses so designated and the concessions granted to them must be reported to Parliament but parliamentary approval is not required. (s 53(4))

These businesses may be granted exemptions and incentives over and above those granted to other authorised businesses for a period up to 40 years. Especially, they could be exempted from the laws specified in Schedule II of the Act. They are:

1. The Inland Revenue Act, No. 24 of 2017
2. The Value Added Tax Act, No. 14 of 2002
3. The Finance Act, No. 11 of 2002
4. The Finance Act, No. 5 of 2005
5. The Excise (Special Provisions) Act, No. 13 of 1989
6. The Debit Tax Act, No. 16 of 2002
7. The Customs Ordinance (Chapter 235)
8. The Ports and Airports Development Levy
Act, No. 18 of 2011
9. The Sri Lanka Export Development Act, No. 40 of 1979
10. The Betting and Gaming Levy Act, No. 40 of 1988
11. Termination of Employment of Workmen (Special Provisions)
Act, No. 45 of 1971
12. The Entertainment Tax Ordinance (Chapter 267)
13. The Foreign Exchange Act, No. 12 of 2017
14. Casino Business (Regulation) Act, No. 17 of 2010 4

Guidelines for the award of concessions could be established by regulations (which require parliamentary approval) but regulations are not mandatory. (s 52(5). Besides s 52(6) states:
(6) The Commission may also extend such other assistance or facilitation as may be necessary as incentives to attract Businesses of Strategic Importance, to the Colombo Port City.
As a matter of statutory interpretation, it appears that regulatory guidelines, even if enacted, will not apply to the concessions extended under s 52(6).

The provisions of Part IX confer substantial legislative power on the Commission and the Executive Branch beyond the control of Parliament.

4. Power to Make Community Rules

The Commission is empowered by s 10(4) to make community rules.

‘Community rules’ are defined by s 74 as follows:

“community rules” means rules specifying guidelines and instructions as formulated from time to time by the Commission, which are to be complied with by the owners and occupiers of Condominium Parcels or premises situated within the Area of Authority of the Colombo Port City, with a view to ensuring the maintenance of harmony and the promotion of a cohesive living environment.
The community rules are enforceable laws. However, they are not required to be approved by Parliament. The violations of a community rule is a criminal offence punishable after summary trial in the Magistrates Court by imprisonment to a maximum of 2 years and/or a fine of up to five million rupees. (s 68(1)) reads:

68. (1) Notwithstanding the provisions contained in any other written law, any person who, within the Area of Authority of the Colombo Port City–

(f) contravenes or fails to comply with any rule, code, direction or guideline made or issued in terms of this Act, commits an offence and shall be liable on conviction after summary trial before a Magistrate, to a fine of not less than rupees one million and not more than rupees five million or to imprisonment for a term not less than three months and not more than two years, or both such fine and imprisonment and the court may take into consideration the grave nature of the offence committed, in fixing the amount of such fine or the period of such imprisonment.

5. Extension of Jurisdiction Beyond the Limits of the Port City Area

Section 64(1) of the Bill, if enacted, will empower the Commission (with the consent of the President or Minister responsible) to permit an authorised person (Port City business) to engage in business from a designated location in Sri Lanka, outside the Area of Authority for a period not exceeding five years from the commencement of the Act. Such businesses then become ‘entitled to all the

privileges accorded to, and be deemed for all purposes to be, a business situated within and engaged in business, in and from, the Area of Authority of the Colombo Port City’. These businesses become subject to the provisions of the Act. (s 64(2))

Section 64 is said to be an interim provision that ceases on the lapse of 5 years from the commencement of the Act. No such time limit is set for businesses who are authorised under s 37 ‘to engage in business in Sri Lanka, with a citizen of Sri Lanka or a resident, who is engaged in business in Sri Lanka, outside the Area of Authority of the Colombo Port City’. ‘Residents’, of course are not Sri Lankan nationals. In theory, if not in practice, any number of Port City Businesses may be authorised to operate in any location within Sri Lanka provided that they partner with a citizen or resident. These businesses will continue to enjoy indefinitely, the entitlements and concessions received under the Act that are denied to local businesses.

REMOVAL OF JUDICIAL POWER FROM NATIONAL COURTS

Article 4(c) of the Constitution commands that

(c) the judicial power of the People shall be exercised by Parliament through courts, tribunals and institutions created and established, or recognized, by the Constitution, or created and established by law, except in regard to matters relating to the privileges, immunities and powers of Parliament and of its Members, wherein the judicial power of the People may be exercised directly by Parliament according to law …

Judicial power is an attribute of the inalienable sovereignty of the People. (Art 3 read with Art 4)
The Port City Bill significantly erodes the judicial power of the ‘courts, tribunals and institutions created and established, or recognized, by the Constitution, or created and established by law’. According to Art 111M of the Constitution the judges and members of such courts, tribunals and institutions have to be appointed by the Judicial Service Commission.

Compulsory arbitration by the International Commercial Dispute Resolution Centre (ICDRC)

The ICDRC will be established as a company limited by guarantee under the Companies Act, No. 7 of 2007, for the purposes of offering conciliation, mediation, adjudication, arbitration and any other alternate dispute resolution services.

Section 62(2) enacts that disputes within the Port City Area between –

(a) the Commission and an authorised person or an employee of an authorised person

(b) the Commission and a resident or an occupier, provided that there exists in relation thereto, an agreement or other legally binding document as between the Commission and such resident or occupier, shall be resolved by way of arbitration conducted by the International Commercial Dispute Resolution Centre.

Section 62(3) requires all agreements made by authorised persons to contain provisions for the mandatory reference of disputes to the ICDRC.

Arbitration is a method of alternative dispute resolution based on voluntary contract. If arbitration is made compulsory by a state provided panel, it is no longer arbitration but a form of administrative adjudication. Under arbitration law, courts have no general power of review awards. Contestable grounds are strictly limited. The legal effect of these provisions is the removal of a category of disputes from the jurisdiction of the courts, tribunals and institutions constitutionally established for the administration of justice.

It must be noticed that arbitration awards are final and binding between parties and may be contested only in enforcement proceedings on highly restricted grounds. Enforcement of ICDRC awards, according to s 62(5) of the Bill are to be done under the Arbitration Act No 11 of 1995. Section 32 of the Arbitration Act sets out the following grounds for resisting enforcement.

(i) Incapacity of a party or the invalidity of the agreement under the applicable law.

(ii) Failure to give proper notice of the appointment of an arbitrator or of the arbitral proceedings or the party was otherwise unable to present his case.

(iii) Award deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration, or contains decisions on matters beyond the scope of the submission to arbitration

(iv) the composition of the arbitral tribunal or the arbitral procedure was not in accordance with the agreement of the parties

(v) the subject matter of the dispute is not capable of settlement by arbitration under the law of Sri Lanka

(vi) the arbitral award is in conflict with the public policy of Sri Lanka.

These provisions have the effect of depriving the courts of original and appellate jurisdiction under the Constitution.

The provisions of the GCEC Act again offers an alternative process that avoids conflict with the Constitution. Section 26(1) of the GCEC Act provides for the reference of disputes between the GCEC and enterprises not to a state tribunal but to the International Centre for the Settlement of Investment Disputes. (ICSDID) ‘unless otherwise agreed to between the parties’. The provision does not prevent parties from making other arbitration arrangements and does not exclude the jurisdiction of national courts.

CONCLUSION

It is my considered opinion from the strictly legal standpoint that for reasons explained in the foregoing text, the Port City Bill as currently drafted cannot be constitutionally enacted without the approval of the People at a Referendum as prescribed in Article 83 of the Constitution.