INVESTMENT PROTECTION AND THE PUBLIC CONTRACT ACT –A SRI LANKAN

PERSPECTIVE

A critical appraisal of the recent Supreme Court decision in Noble Resources

International Pte Limited, Vs Minister of Power and Renewable Energy

Kanishka Talagala1
Attorney-at law

Foreign Investment is widely recognized as a mechanism instrumental in enhancing economic

growth in a country. The Government of Sri Lanka in its 2017-2018 Budget Speech highlighted
the need to introduce innovative means in attracting foreign direct investment. The Public Private
Partnership mechanism has received much attention over the past years as having the capacity to
attract foreign investors especially in the economic infrastructure development sector and easing
the government’s budget constraints. Given the emphasis advanced by the Government to attract
foreign investment, investment protection has become a much discussed topic during recent
times requiring greater scrutiny of the existing legal framework particularly in the field of State
Contracts.

State Contracts are primarily governed by the Public Contracts Act No. 3 of 1987 (hereinafter
referred to as “PCA”) enacted by Parliament in early 1987 under the auspice of the late President
Ranasinghe Premadasa. The PCA applies to all State Contracts where the contract cost exceeds
five million rupees2 with the exception of those state contracts exempted by the President in the
interests of the national economy and sales by public auction.

In terms of the provisions of this Act it is mandatory3 for every tenderer or every person acting as
agent, sub-agent, representative or nominee for and on behalf of such tenderer to have

1
LL.M (UK) International Business Law; LL.B (UK); Postgraduate Diploma in Laws (International Business Law);
Postgraduate Certificate in Laws (Intellectual Property Law);
2
Public Contracts Act No. 3 of 1987, Section 2
3
Ibid., Section 8

1
themselves registered before the Public Contract Division at the Registrar of Companies as an
essential pre-requisite for taking part in any tender.

Registration Formalities

The procedural requirements involved are detailed in the Regulations published in Gazette
Extraordinary No. 508/7 dated 2nd June 1988. In terms of the existing Regulations every
tenderer or every person acting as agent, sub-agent, representative or nominee for and on behalf
of such tenderer must submit a duly filled Application (Form PCA 1)4 with a Certificate of
Appointment of Agent (either a Power of Attorney, Letter of Authorization or Form PCA 10)
together with the required supporting documents5 to obtain registration. The Certificate of
Registration (PCA 3) will be issued in the name of such agent, sub-agent, representative or
nominee and shall be valid for a period of one year6.

No person is permitted to have any dealing with any member of a public body, technical
committee, tender board or evaluation board unless a valid Certificate of Registration issued in
the name of such person is produced7. Contravention or failure to comply with the said
requirements shall amount to an offence and give rise to liability on conviction to a fine of one
hundred thousand rupees and imprisonment of not exceeding two years8.

Once the tender is awarded such registered agent, sub-agent, representative or nominee is
obliged to have the public contract registered within sixty days9 of the award of such public
contract to the tenderer. An application for registration of the public contract must be submitted
in Form PCA 2 and such Certificate of Registration (PCA 4) will be valid for a period of one
year 10.

4
Ibid.., Section 10; Gazette Extraordinary No. 508/7 dated 2nd June 1988, Regulation 2
5
http://www.gic.gov.lk/gic/index.php?option=com_info&task=info&id=2323&lang=en
6
Supra n 2., Section 11; Supra n 4.2., Regulation 2 (3)
7
Supra n 2, Section 9 and 12
8
Ibid., Section 9 (2)
9
Ibid., Section 6; Supra n 4.2, Regulation 2 (2)
10
Supra n 6

2
Each such Registration is liable for renewal within three months prior to the expiration of the
period of one year by application to the Registrar11 failing which such agent, sub-agent,
representative or nominee may make application within a period of three months after such
period of one year to have himself re-registered in such capacity12. The relevant fees payable are
prescribed by regulation13.

Investment Protection under the Public Contract Act

Aside from the requirement for registration of persons taking part in any tender process as
tenderer or agent, sub-agent, representative or nominee acting for and on behalf of such tenderer
the PCA grants supervisory authority over State Contracts to the President of Sri Lanka. The
powers of the President inter alia include,

(a) Power to nominate a Tribunal of Inquiry to carry out investigations as to the

commission or attempted commission of any act or acts by any person in
contravention of any of the provisions of the PCA or any regulations made
thereunder14

(b) Power to nominate a Tribunal of Inquiry to investigate and call for a report15 where it
is alleged by any person aggrieved by the award of a public contract that any such
public contract has been entered into contrary to the specifications or pre-
qualifications required or where restrictive specifications have been set out for the
award of a tender or is contrary to the provisions of the PCA.16

(c) Appointment of members to the Tribunal of Inquiry17

(d) Appointment of the Registrar of Public Contracts18

11
Supra n 4.2., Regulation 7
12
Ibid., Regulation 8
13
Gazette Extraordinary No. 1773/36 dated 30 th August 2012
14
Supra n 2, Section 19
15
Supra n 2, 21
16
Ibid., Section 20
17
Ibid., Section 3
18
Ibid., Section 5

3
Accordingly, in terms of the existing law the President is vested with extensive discretion19 to
decide on whether an investigation should be commenced and in appointing members to such
Tribunal of Inquiry pursuant to complaints received from a public body or any person aggrieved
as to any procedural irregularity or commission or attempted commission of any act in
contravention of the PCA and regulations, including with respect to the grant of any
inducements, gratifications or misrepresentations made or offered to any person to obtain
benefits in the award of tenders and public contracts.

Such Tribunal of Inquiry may of its own motion report to the Attorney –General where in the
course of an investigation under this Act it appears that any person has been guilty of an offence
and the Attorney-General may thereon institute proceedings before a court of competent
jurisdiction20.

In view of the need for greater transparency and independence in the award of State Contracts
recommendations were made in the past to enact new regulations providing for the continuous
examination of public tenders by a panel acting as a standing committee21 and to curtail the
discretion vested on the Executive President in order to enhance the legislative protection
granted to investors, no new regulations have however been tabled to date. Given the
insufficiency of the existing statutory frame work in granting legal redress to foreign investors
the Sri Lankan judiciary is perceived as the only organ of State which accords protection to
foreign investors against abuse of power by the Executive particularly with respect to State
Contracts.

19
Ibid., Section 19 (2) and Section 20 (3)
20
Ibid., Section 22
21
“Who will cleanse this right royal mess?”, Sunday Times (Sri Lanka) 5 th March 2017 available at
https://www.pressreader.com/sri-lanka/sunday-times-sri-lanka/20170305/282411284107359

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The case of Noble Resources International Pte Limited, Vs Minister of Power and Renewable
Energy and 74 others

The inconsistent approach adopted by the Sri Lankan judiciary with respect to foreign
investments was brought to light in the recent Supreme Court decision in Noble Resources
International Pte Limited, Vs Minister of Power and Renewable Energy and 74 others22.

Even though this case was finally decided on its merits in favour of the Petitioner Noble
Resources International Pte Limited a company incorporated in Singapore, a preliminary
objection was raised by the State and the application was dismissed in limine on the basis that,
the Petitioner Company had no locus standi to have and maintain the application in as much as
the Petitioner Company which is incorporated in Singapore has invoked the fundamental right
jurisdiction of the Supreme Court by itself without a local agent, representative or an Attorney-
at-Law.

The three judge bench of the Supreme Court upheld this preliminary objection. His Lordship
Chief Justice K Sripavan, stated thus,

“It is such a registered person [under the PCA] as an Agent, sub-agent, representative or
nominee for and on behalf of the Petitioner Company [who] is entitled to institute action
in terms of Article 126 of the Constitution, as the Petitioner Company is not incorporated
in Sri Lanka. Therefore, the Petitioner Company per se which is incorporated in
Singapore has no locus standi to invoke the jurisdiction of this Court, for the violation of
its Fundamental Rights” 23

On the face of it this pronouncement may be construed as having far reaching implications
inhibiting any foreign investor from invoking jurisdiction of the Supreme Court and seeking
redress under the Chapter on Fundamental Rights of the Constitution.

Considering the grave implication such a connotation may have in attracting FDI and in
investment promotion activities of the Government of Sri Lanka whether his Lordship Chief
Justice Sripavan intended such a wide construction from being imputed is unlikely particularly in

22
SC FR No. 394/2015 decided on 24th June 2016
23
Ibid., page 24, para 4

5
the absence of any reference in the judgement to the Bilateral Investment Promotion Treaty24
which is validly in force between Sri Lanka and Singapore and has the force of law in terms of
Article 159 of the Constitution.

International Investment Treaties which impose obligations on State parties to accord reciprocal
protection to investors and their investments are considered universally as fundamental to the
promotion of foreign direct investment. State parties are thus obliged to act consistently,
transparently, reasonably, without ambiguity, arbitrariness or discrimination, in an even handed
manner to ensure due process in decision-making and respect the legitimate expectations of the
investors.

In the context of Noble Resources the writer is of the view that the issue of locus standi should
have been addressed in conformity with the provisions25 in the Sri Lanka- Singapore BIT the
wide categories of protected investment26 and the corresponding obligation to provide national
treatment to foreign investors arising as a corollary to the MFN obligation to accord treatment no
less favourable than that which is accorded to investments nationals and companies of any third
State, in terms of Article 427.

More fundamentally it can be seen that the their Lordships of the Supreme Court in denying
standing to the Petitioner on the basis that it is only the registered agent, sub-agent,
representative or nominee who may invoke the Fundamental Right jurisdiction has failed to
appreciate the duty conferred on the Registrar of Public Contracts in terms of section 6 of the Act
to require registration of every tenderer in addition to every person who acts as an agent, sub-
agent, representative or nominee, for and on behalf of such tenderer. A tenderer within the
meaning of the PCA is conclusively defined to include companies incorporated outside Sri

24
Sri Lanka – Singapore BIT available at http://investmentpolicyhub.unctad.org/IIA/CountryBits/198
25
Ibid., Article 2
26
Ibid., Article 1 (1) (c); Deutsche Bank AG V Democratic Socialist Republic of Sri Lanka[ICSID Case No.
ARB/09/02], Decision of the Tribunal on “claims to money” as protected investments, Award dated 31st December
2012, page 57 [available at https://www.italaw.com/cases/1745];
27
UNCTAD, Bilateral Investment Treaties in the Mid-1990s, 1998,page 63; Most- Favoured-Nation Treatment,
UNCTAD Series on Issues in International Investment Agreements II, page xiii “In early BITs as national treatment
(NT) was not granted systematically, the inclusion of MFN treatment clauses was generalized in order to ensure that
the host States, while not granting NT, would accord a covered foreign investor a treatment that is no less favourable
than that it accords to a third foreign investor and would benefit from NT as soon as the country would grant it”;
Bilateral Investment Treaties and a WTO Investment Framework, A background paper commissioned by Oxfam
NL, page 15 [available at https://www.somo.nl/wp-content/.../BITs-and-a-WTO-Investment-Framework.pdf]

6
Lanka28. Given the mandatory legal requirement for all tenderers themselves to obtain
registration under the PCA as a pre-requisite for participation in state contracts it is inappropriate
to interpret this legislation in a manner which creates an unequal playing field between foreign
and local investors particularly since Sri Lanka is considered internationally as an emerging
market for inward investment.

Further it is seen that the Supreme Court has required the registered agent, sub-agent,
representative or nominee to be “locals” or “citizens” of Sri Lanka for the purpose of invoking
fundamental right jurisdiction. The imposition of a requirement for appointment of a “local
agent” fails to appreciate the divergence between the varying categories of state contracts such as
contracts for the supply of goods and infrastructure contracts on BOO/BOOT basis and public-
private partnerships. It is seen that vast majority of foreign investors bidding for infrastructure
contract are inclined to appoint agents or representatives who are non-locals to act on their behalf
during the pre-award stage as most infrastructure contracts require the successful bidder to
incorporate a special purpose company in Sri Lanka as a prerequisite. In the absence of an
express prohibition in the PCA for registration of foreign nationals as agent, sub-agent,
representative or nominee such a restrictive interpretation of the law as seen in Noble Resources
shall deprive foreign investors of the universal right to access to justice and may as a
consequence adversely affect the economic interests of Sri Lanka.

Therefore, the decision of their Lordships in Noble Resources which denies foreign investors
from invoking the fundamental right jurisdiction of the Supreme Court, though decided correctly
on its merits, invariably discriminates against foreign investors on the basis of nationality and
ought to be considered as a decision per incuriam and lacking binding force as no reference has
been made in this decision to the legal regime available in Sri Lanka for protection of
investments.

Conclusion

In view of this inconsistency in the prevailing legal regime on protection of foreign investments
greater vigilance is required of foreign investors intending to invest particularly in the field of
28
Supra n2, Section 25

7
State Contracts. Given the increasing desire for certainty and predictability in the realm of
investment protection the time has perhaps arrived to re-visit the Public Contract Act and to
incorporate provisions confirming the universal right to access to justice to all tenderers and
every person acting as agent, sub-agent, representative or nominee for and on behalf of such
tenderer notwithstanding any requirement on nationality and to strengthen transparency and non-
discrimination in this era of global trade.