Legal Services and Laws of Sri Lanka


SLR-1981 Vol.1-P67

SLR - 1981 Vol.1, Page No - 67

TRADE EXCHANGE (CEYLON) LTD.

v.

ASIAN HOTELS CORPORATION LTD.
SUPREME COURT.

SAMARAKOON, C. J., SAMERAWICKRAME, J. AND SHARVANANDA, J.

S.C. APPEAL 10 OF 1980-C.A. APPLICATION 1539/79.

FEBRUARY 9 AND 10, 1981.
Writ of certiorari-Application under Article 140 of the Constitution-Whether Public Company incorporated under theCompanies
Ordinance can be a public body-Whether decision of such a body amenable to certiorari.

The petitioner had since April, 1975, been carrying on business at Hotel Lanka Oberoiownedbytherespondent.Forthis
purpose it had been granted a licence, the last licence expiring on 15th July, 1979. Thereafter the petitioner was refuseda
licence to run its shop. The respondent was a company incorporated under the Companies Ordinance. The petitionerappliedto
the Court of Appeal for a writ of certiorari to quash the decision of the respondent refusing to grant it alicenceonthe
grounds, inter alia, that this decision was reachedinviolationoftheprinciplesofnaturaljusticeandthatthe
respondent had failed to act fairly and was actuated by mala fides and bias. The Court of Appeal dismissedthepetitioner's
application. The petitioner appealed to the Supreme Court.

It was submitted on behalf of the petitioner that the respondent-company was in fact a body performingfunctionsofpublic
nature, inasmuch as, inter alia, the majority of the issued share capital was drawn from public fundsthemajorityofthe
directors were nominated by the Minister of Tradeand the respondent-company was designated as a"departmentorstatutory
institution" under the purview of the Minister of Trade. It was accordingly submitted thattherespondent-companyhadall
the requisite characteristics of a Public body so as to make it amenable to the writ.

Held
The respondent was a public commercial company incorporated under the Companies Ordinance andthefactthatmostofthe
capital was contributed by the Government or that shares were controlled by the Government did not make it anagentofthe
Government. The incorporated Company was recognized by the law as a juristic person separate and distinctfromitsmembers
and was an independent body-corporate carrying on commercial activities. Its decisions, made in the course ofitsbusiness,
cannot be reviewed by a superior court by way of writ and the petitioner's application must therefore fail.
Cases referred to
(1) R. v. Fulham Rent Tribunal, 1951 (1) All E. R. 482.

(2) R. v. National Joint Councils for Dental Technicians ex p. Neate, (1953) 1 Q.B. 704(1953) 2 W. L. R. 342(1953) 1 All
E. R. 327.
(3) R. v. Criminal Injuries Commission ex P. Lain, (1967) 2 AllE.R. 770(1967) 2 Q.B. 864(1967) 3 W.L.R, 348.
(4) R. v. Electricity Commissioners, (1924) 1 K.B. 171130 L.T. 16493 L.J.K.B.390.
(5) Ridge v. Baldwin, (1963) 2 All E. R. 66(1963) 1 Q. B. 539(1963) 2 W. L. R. 935(1964) A. C. 40.
(6) Saloman v. Saloman & Co., (1897) A. C. 22(1895-9) A// E. R. Rep. 3375 L. T. 42613 T.L.R. 46.
(7) Macaura v. Northern Assurance Co., (1925) A.C. 619(1925) All E.R. Rep. 51.

(8) Short v. Treasury Commissioners, (1947) 1 K.B. 116(1947) 2 All E.R. 298,
APPEAL from a judgment of the Court of Appeal.
H. L. de Silva, with E. D. Wickramanayake and D. S. Wijesinghe, for the petitioner-appellant.
K. N. Choksy, with Ronald Perera, for the respondent-respondent.

February 26, 1981.

SHARVANANDA, J.
This is an appeal from the order of the Court of Appeal dismissing with costs the petitioner's application for theissueof
a writ of certiorari.

The petitioner is a company registered under the Companies Ordinance carrying on business, interalia,intheproduction,
sale and export of batiks, handlooms and other textiles and was also engaged in the business of tailoring garments.

The respondent is a public company incorporated under the provisions of the Companies Law withanissuedshare-capitalof
1,400,000 shares, each of Rs. 10 value, of which 1,325,314 shares is held bytheCo-operativeWholesaleEstablishment,a
wholly state-owned undertaking incorporated by statute (Cap. 126), 600 shares by theTreasuryand74,086sharesheldby
members of the public, the total number of shareholders on 10.3.79 being 502. Themainobjectforwhichtherespondent-
company was established is to carry on hotel business and other business connected therewith.
The respondent is the owner of the Hotel Lanka Oberoi, which is one of the largest luxury hotels in the country. Pursuantto
its objects, the respondent on rent rooms and accommodation in the Hotel Lanka Oberoi for shopscateringtoresidentsand
visitors to the said hotel. Since the commencement of the hotel in about April 1975, the petitioner has been grantedbythe
respondent the privilege and licence to carry on a shop for the sale of batiks for a period of one year atatimeatshop
No. 8 situated at and forming part of the hotel, on a monthly rental of Rs. 8,064. Likewise,sevenothershopswhichdid
business in the sale of batik were granted similar licences. The petitioner'slicencehadbeenrenewedannuallybythe
respondent. According to clause 24 of the agreement between the parties, the option to renew the licence was reserved tothe
respondent. The last licence granted to the petitioner which was due to expire on 15.4.79wasextendedbytherespondent
from 15.4.79 to 15.7.79. On 14.6.79, the respondent called for applications for the issue of licencestooperatethesaid
shops, stating however that it reserved the right to accept or reject the applications received by it withoutassigningany
reasons. Although the petitioner duly tendered an application for shop space at the specified ratesandcompliedwiththe
other preliminary conditions stipulated by the respondent, the respondent, without assigning any reason whatsoever,rejected
the petitioner's application, but accepted similar applications of the other licence-holders for batikshopsinthehotel
premises. The petitioner in its application for writ complains that it had been arbitrarily refused a licence to runashop
for the sale of batiks in the respondent's premises because of political discrimination, as three of its Directors havebeen
supporters of the Sri Lanka Freedom Party, and also because ofpersonalhostilitytowardsitsManaging-Directorbya
director of the respondent- company. The petitioner contends that the decision of the respondent not to grant anewlicence
and/or renew the existing licence to it is null and void for the reasons that the decision was reached inviolationofthe
principles of natural justice, in that the petitioner was not given any opportunity of being heardpriortosuchdecision
and that the respondent had failed to act fairly towards the petitioner and was actuated by mala-fides and biasagainstthe
petitioner.

The respondent, while denying the allegations of mala-fides and unfairness made by the petitioner, pleaded in limineagainst
the maintainability of this application for the issue of a writ of certiorari against it on thegroundthatitisnota
'public authority'. It submits that the question of renewal of the grant of a licence to run a shop atHotelLankaOberoi,
of which it is the proprietor, is a matter for the sole decision of its Board ofDirectorsandthatsuchadecisionis
entirely within the discretion of the Board and cannot be reviewed by a writ of certiorari. The respondent contended thatin
declining to grant the tenancy of its shop to the petitioner, it was not deciding on the legal rights of the petitioner.

An important aspect of prerogative remedies is that they belong exclusively to public law,theirprimaryobjectbeingto
make the machinery of Government work properly rather than to enforce private rights.Anapplicationfortheprerogative
remedy of a writ of certiorari is a proceeding calling some public authority to show legal justification for itsactionand
to account for exceeding or abusing its power. "A public authority may bedescribedasapersonoradministrativebody
entrusted with functions to perform for the benefit of the public and not for private profit."-Halsbury'sLawsofEngland,
4th Edition, Vol. 1, paragraph 6 at p. 9. As Lord Devlin said in R. v. Fulham Rent Tribunal (1) at 488:

"Orders of certiorari and prohibition are concerned principally with public order, it being part ofthedutyoftheHigh
Court to see that inferior Courts confine themselves to their own limited sphere".
Lord Goddard, C.J. in R. v. National Joint Councils for Dental Technicians ex. p. Neate (2) at 707 defined the ambits ofthe
writs as follows:

"The bodies to which in modern times the remedies of these prerogative writs have beenappliedhaveailbeenstatutory
bodies on whom Parliament has conferred statutory powers and duties which, when exercised, may lead to the detriment ofthee
subjects who may have to submit to their jurisdiction".

As Professor Wade In his book on Administrative Law, 4th Edition, at p. 529 stated: "Consequently the existence ofstatutory
power may be treated as the touchstone, though the Court has recently admitted oneexceptioninR,v.CriminalInjuries
Compensation Board ex p. Lain..."(3) and summed up the law as at p.540:"Certiorariandprohibitionaredesignedto
prevent the excess and abuse of power by public authorities. The powers of public authorities areconferredbystatutein
almost all cases. So that it is usually safe to assume that statutorypowerisinquestion"Originally,certiorariand
prohibition lay to control the functions of inferior courts, namely, judicial functions. But the notion of what is 'aCourt'
and a 'judicial function' has undergone great revolution, so thattodaytheseremedieshavegrowntobecomprehensive
remedies for the control of all kinds of administrative as well as judicial acts. They have developed to be recognizedtoday
as general remedies for the control of administrative decisions affecting rights.
The classic definition of these orders is that of Atkin, L.J. in R. v. Electricity Commissioners (4) at 205, when he said:
"They lie wherever any body of persons having legal authority to determine questions affecting the rightsofthesubjects,
and having the duty to act judicially, acts in excess of their legal authority".

This definition has been authoritatively interpreted and applied by the House of LordsintheleadingcaseofRidgev.
Baldwin (5). The duty to act judicially, referred to by Atkin, L.J. need not be some requirement additional to theauthority
to determine the disputeif the judicial element may be inferred from the nature of the power conferred over citizens,then
that is enough to make certiorari available. Lord Parker, C.J. in R. v. Criminal Injuries Commission ex. p. Lain (3), at777
and 778 clarified the present scope of the remedy.

"The exact limits of the ancient remedy by way of certiorari have never been and ought not to be specificallydefined.They
have varied from time to time, being extended to meet varying conditions. At one time thewritonlywenttoaninferior
Court. Later its ambit was extended to statutory tribunals determining a is inter-partes. Later, again, it extended tocases
where there was no is in the strict sense of the word, but where immediate or subsequent rights ofcitizenswereaffected.
The only constant limits throughout were that the body concerned wasunderadutytoactjudiciallyandthatitwas
performing a public duty. Private and domestic tribunals have always beenoutsidethescopeofcertiorari,sincetheir
authority is derived solely from contract, that is from the agreement of the parties concerned. Finally it is to beobserved
that the remedy by order of certiorari has now been extended to cases in which the decision of an administrativeofficeris
arrived at only if the inquiry or process is of a judicial or quasi-judicial character.Insuchacase,thisCourthas
jurisdiction to supervise that process........We have, as it seems to me, reached the position when the ambitofcertiorari
can be said to cover every case in which a body of personsofapublic,asopposedtoapurelyprivateordomestic
character, has to determine matters affecting subjects, provided always that it has a duty to act judicially."

In Lain's case, the Compensation Board was established for the purposeofawardingcompensationtovictimsofcriminal
injury out of monies voted by Parliament. The basic feature of the Board was that it was wholly non -statutory:itwasset
up administratively and made what in law were ex gratia payments out of the funds put at its disposal by Parliament. Butthe
published scheme contained rules for the Board's determination of claims, and these rulesweredebatedinParliamentand
amended by the Home Secretary. The rules were therefore administrative instructions from the HomeSecretarytotheBoard,
made in the exercise of the prerogative and not under any statutory authority. Lord Parker, C.J. justified the issueofthe
writ against the Board on the ground:

"Moreover, the Board, though set up under the prerogative and not by statute, had in fact the recognitionofParliamentin
debate and Parliament provided the money to satisfy the Board's awards ... The Board are, as counsel for the Board said-
a servant of the Crown charged by the Crown by executive instructions with thedutyofdistributingthebountyofthe
Crown'.
The Board are clearly therefore performing public duties."
It is thus clear law that the orders of certiorari and prohibition will issue to a tribunal only if its functionsareofa
public and not merely of a private nature.

Confronted with the indisputable fact that the respondent is a company incorporated under the CompaniesActestablishedto
carry on hotel business for the benefit of its shareholders and not a statutory corporation, counsel for the petitionermade
valiant efforts to approximate the company to a body created by statute and submitted that the respondent is in factabody
performing functions of a public nature. He pointed to thefollowingfactsandfeaturesintheadministrationofthe
respondent Company in support of his submission:

Out of a total issued share-capital of Rs. 14 million, only 5.35% is held by private individuals, and the balance94.65%is
drawn from public funds. The majority of the Directors are nominees of the Co-operativeWholesaleEstablishment,apublic
corporation, and are nominated by the Minister of Trade. The Hotel Lanka Oberoi isamediumforthedevelopmentofthe
tourist industry, which is a function of the Government. In the allocation of subjects and functions undertheConstitution
of the Democratic Socialist Republic of Sri Lanka (1978), His Excellency the President has assigned to the Minister ofState
as a "Department or statutory institution" under his purview the Asian Hotels Corporation Ltd. and asoneofhissubjects
and functions the construction and management ofLankaOberoiHotel.Supplementaryestimatesfortheconstructionof
additional rooms to the hotel at a cost of Rs. 23.3 million have been tabled by the MinisterofFinanceinParliament.A
further Supplementary Estimate for Rs. 9.9 million for completing extensions to the hotel in time for the Conference ofNon-
Aligned Nations held in Colombo had been the subject of a debate in Parliament, as evidenced by the Hansardsof6.4.76and
22.4.76. The sum of Rs. 36,200,000 voted for expenditure by the respondent- company on Hotel Lanka Oberoi extensionsappears
in the Estimates of Government expenditure on development projects (P.26). The Auditor-General in hisreportfortheyear
1976 (P.27) has commented that "Contributions madebytheGovernmenttowardsthecapitalofthevariousGovernment-
sponsored Corporations as at December 31,1976, amounted to Rs.5,993,752,384ascomparedwithRs.4,593,633,841asat
December 31, 1975, showing an increase of Rs. 1,400,118,543the major increase was observedinrespectofthefollowing
Corporations: RiverValleysDevelopmentBoard,theCeylonCementCorporation,CeylonPetroleumCorporation,Ceylon
Electricity Board, Asian Hotels Corporation Ltd. (in respect of which the increase was Rs. 80,112,000) and a number ofother
corporations. Approximately 95% of the share-capital of the respondent-companywasheldbytheCo-operativeWholesale
Establishment, which was a Government Corporation incorporated by Statute.

Counsel for the petitioner invited the Court to hold that, having regardtotheforegoingfactsandcircumstances,the
respondent had all the requisite characteristics of a public body as to make it amenable to the writ.TheCourtofAppeal
has held that "this formidable catalogue of features could leave no room for doubt that the Asian Hotels Corporation Ltd.is
a public body". In my view, this conclusion is not tenable in law.
The fundamental attribute of an incorporated company is that the company is a legal entity distinctfromitsshareholders.
The constitution, powers and functions of acompanyincorporatedundertheCompaniesOrdinanceareprovidedforand
regulated by its Memorandum and Articles of Association. An incorporatedcompanyhasaseparateexistenceandthelaw
recognizes it as a juristic person, separate and distinct from its members. This new personality emerges from themomentof
its incorporation, and from that date the persons subscribing to its Memorandum ofAssociationandothersjoiningitas
members are regarded as a body incorporate or a corporation aggregate when the new person begins to functionasanentity.
Saloman v. Saloman (6). Its rights and obligations are different from those of itsshareholders.Actiontakenagainstit
does not directly effect its shareholders. The company in holding its property and carrying on its business is notanagent
or trustee of its shareholders. It is the beneficial owner of its own property. Ashareholderhasnolegalorequitable
interest in the company's property such as can be insured. Macaura v. Northern Assurance Co. (7)-asthepropertyofthe
company is not in law the property of its shareholders. The mere fact that 95% of its share-capital wascontributedbythe
Government or the factthat95%ofshareswereheldbyaGovernmentcorporationliketheCo-operativeWholesale
Establishment does not make any difference. The company and its shareholders being as aforesaid, distinct entities, thatthe
fact that the Government or a Government corporation holds all its shares or 95% of its shares does not maketherespondent
-company an agent of the Government. As Lord MacNaghten stated in Saloman v. Saloman (6) at 51 :

"The company is at law a different person altogether from the subscriber... and though it may be thatafterincorporation
the business is precisely the same as it was before and some persons are Managers, and the same hands receivethepayments,
the company is in law not the agent of the subscribers or trustees for them. Nor are the subscribers, as members,liablein
any shape or form, except to the extent and in the manner provided by the Companies Act."
"Shareholders are not in the eyes of the law part-owners of the undertaking. The undertaking is something different fromthe
totality of the shareholdings." -per Evershed, L.J. in Short v. Treasury Commissioners (8)at122.Thus,anincorporated
company is not the alias, agent, trustee or nominee of its members.

It is true that in this case, the Government, through the Co-operative Wholesale Establishment, havingcontributedamajor
portion of the share-capital, enjoys extensive powers in the conduct of the company. But these powers arederivedfromthe
fact of majority- share -holding and the operation of the rule of the majority which governs corporate membership rightsand
not by reason of the company being the agent of the Government. ThecompanyisnotinlawsubjecttoanyMinisterial
directions. The presence of private shareholders, though they constitute aminorityonly,militatesagainstthecompany
being identified with the Government. The minority shareholders too have a voiceintheadministrationofthecompany's
enterprise and are entitledtoelectdirectors,andifthemajorityshareholders,viz.theCo-operativeWholesale
Establishment, act in oppression of the minority, the latter may petition the Court to wind upthecompanyontheground
that it is just and equitable to do so. The company is a commercial corporation geared to make profits.Ifitshouldmake
losses and is unable to pay its debts, its property is liable to execution and liable tobewoundupatthesuitofa
creditor. In the eye of the law, the respondent is its own master and is answerable as fully as any other personorcompany
incorporated under the provisions of the CompaniesOrdinance.TheburdenofMr.deSilva'ssubmissionwasthatthe
respondent company was subordinate and subservient to the Government by reason of the C. W. E.'s shareholding andbyreason
of the large loans granted by the Government to the company and that it was a mereinstrumentoftheGovernmentandwas
therefore identified with it. The opposing argument was that the circumstance that the Governmentasmainshareholderand
creditor is interested in the solvency and administration of the respondent- company does not havetheeffectofchanging
its fundamental character of being a business organization with an independent juristicpersonality,standingoutsidethe
ordinary framework of the Central or Local Government.
Counsel for the petitioner sought to found his submission that therespondentisa'publicauthority'amenabletothe
supervisory jurisdiction of this Court, on the ground that HisExcellencythePresidenthadassignedtheAsianHotels
Corporation Ltd. (i.e. the respondent) as a department, subject and function of the Minister ofState.ThefactthatHis
Excellency had done so cannot transmute the businessconcernofthenatureofAsianHotelsCorporationLtd.intoa
department or organ of the State. Since the State had invested in the respondent-company large amounts of money,ithasan
interest and say in the affairs of the respondent company, but that is an interest and say qua shareholder andcreditorand
not referable to those of the Executive Government over its agent. The assignment of the AsianHotelsCorporationLtd.to
the Minister of State as one of his subjects and functions signifies only that the particular Minister was tooverlooksuch
interest on behalf of the State and not that the Corporation has become a department of the State, or thatthepropertyof
the company is the property of the State, or the Co-operative Wholesale Establishment.
In my view, Mr. de Silva's contentions cannot be sustained. The respondentisanindependentbody-corporatecarryingon
commercial activities. It is not performing any Government functions andisnotanagent,departmentororganofthe
Executive Government. Hence, the writ jurisdiction of a superiorCourtcannotbeavailedtoquestiontherespondent's
decision as to how it is to conduct its business, with whom it should have businessrelationship,andwhoshouldbeits
tenants or licencees of its premises.
The activities of private persons, whether natural or juristic, are outsidetheboundsofadministrativelaw.Apublic
commercial company like the respondent, incorporated under the Companies Ordinance in which the Government oraGovernment-
sponsored Corporation holds shares, controlling or otherwise, is not a public body whose decisions, madeinthecourseof
its business, can be reviewed by this Court by way of writ.

For the above reasons, the preliminary objection of the respondentisupheld.Inviewofthisconclusion,itisnot
necessary to examine the other objections raised by Mr. Choksy.

The order of the Court of Appeal refusing the petitioner's application for writ is affirmed and the appeal is dismissedwith
costs.

SAMARAKOON, C. J.-l agree.
SAMERAWICKRAME, J.-I agree.
Appeal dismissed.

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