LMS Deal and the reliability of the Sri Lankan Judicial system

Is this the beginning of controversial decisions?  

The purpose of this article is to discuss the controversial LMS deal which was taken place between the Sri Lankan government and JKH recently.  Many sources stated that the verdict was quiet controversial.

What is LMS? Lanka Marine Services expertise in bunkering and lubricants to meet all demands at port, at anchorage and at off port limits.

This is what I  could find:

1. LMS was a subsidiary of Ceylon Petroleum Cooperation.  However the land where the LMS is physically located was not under LMS account but under Sri Lanka ports authority.  This was not a problem for their operations as both were held by the government.

2. The government then decided to privatize the LMS through the PERC - Public Enterprise Reforming Commission. 

3. Government called for bidders.  JKH offered a massive bid which hammered all other bidders.  Finally the bid was closed selecting JKH as the potential buyer.  Deal was made!

Click on the title to view the full content:

4. Now the problem starts - JKH bought the LMS but it was little late to realize that the land where LMS located has not been taken care in the agreement.  Basically JKH has legally bought LMS company but not the land which is held by Sri Lanka ports authority.  Its like a person is buying a house without the land.

5. Then it was decided to handover the land to JKH and the president issues a letter saying ordering the land transfer.  This is the cause of the problem.  The land was not transferred through a tender system as it should actually held by the buyer.  It is like the house owner is asking the land once he purchased the house.  It is obvious that the buyer paid for both land and the facilities.  The problem was land and the other properties were held by two parties where the transaction happened between only one party.   

here is the course order to make the above order a null;

a) The land Grant to LMS dated 19 January 2005 under the hand of the president of the Republic of Sri Lanka transferring ownership of the land on which LMS carries on its business is null and void; 

6. The land was transferred but a case was filed against the land transfer. 

7.  Verdict has been made ordering to make the land transfer a null.  Under the opinion of the verdict statement Chief Justice said it is not good to continue the public service if the officer engaged in this kind of a deal - in this case secretary of treasury following the president's orders. 

8. Land was transferred back.  Secretary of treasury remained in the public service. 

9. Another case was filed saying that continuation of his public service is a breach of the original verdict.  The verdict has been made asking secretary of treasury to get retired from the public service with immediate effect.  Further he was asked to provide an affidavit stating the immediate retirement.  And he had to retire.

10.  HE Mahinda Rajapakse re appointed the former Secretary of treasury as the affidavit was recalled by the Secretary of treasury.


Another Fact: none of the JKH share holders sold their shared after this verdict  which clearly stated there is breach of the law.  If there is a real breach of law at least one of them specially Overseas Pension funds would have recalled their investment as per their policy.  Since no one of them withdrew their investments we have a reasonable concern that this is a above case and there is no such breach.  

Now lets see what popular media said about this deal!!!

Bribery Commission finalizing probe in LMS deal

The Commission to Investigate Allegations of Bribery or Corruption is close to concluding investigations into corruption allegations in the controversial privatization of Lanka Marine Services (LMS), its Deputy Director General Ms. L. Jayawickrama said.

A decision on the findings of the investigations will be taken by the Commission soon after it receives the report from the investigators, she said, declining to comment however on the progress of the investigation.

Statements of former Treasury Secretary Dr. P.B. Jayasundera and Chairman of John Keells Holdings (JKH) Susantha Ratnayake among others have been recorded.

The Commission began the probe based on many issues raised in the COPE (Parliamentary Committee on Public Enterprises) report including the failure to appoint a Cabinet approved Tender Board., the selection of DFCC Bank by PERC without competitive offers to do a business valuation of LMS and without the Chief Valuer’s valuation.

The Supreme Court had earlier asked the Commission to conduct investigations and act on the Court's findings – following a fundamental rights case -- on the LMS deal which it declared was invalid, null and void. The Court held that the entire process of the sale of shares of LMS to John Keells has been done without lawful authority.

This is what LBO said!

The fall of JKH also dragged down the indices in the Colombo stock exchange. JKH said in a stock exchange filing that it was considering the options open to it after Monday's supreme court judgement ordering its subsidiary, Lanka Marine Services (LMS), to return land on which it has its bunker fuel tanks to the Sri Lanka Ports Authority.
The judgement also cancelled the tax holiday given to LMS and ordered it to pay back taxes.
"JKH and LMS are reviewing the options available to ensure to continuity of business at LMS and also assess the financial impact of this judgment on the two entities. Further notification will follow," the JKH statement said.
The bunkering or ship fuel business of LMS, that JKH acquired in a privatisation programme, had emerged as one of the conglomerate's main sources of profit in recent years.

The supreme order said the Sri Lanka Ports Authority may enter into fresh agreements for the use of facilities within the port on equal terms with all parties licensed to supply bunkers. LMS is the only bunker supplier in Colombo port with onshore storage tanks.
Rival suppliers have to use tankers.
The full text of the JKH statement is as follows:

Judgment was delivered by the Supreme Court of the Democratic Socialist Republic of Sri Lanka on 21 July 2008, in a Fundamental Rights application regarding the privatization of Lanka Marine Services (Private) Limited (LMS), a wholly owned subsidiary of John Keells Holdings PLC (JKH).
The Supreme Court has in its judgment held, inter alia, as follows;
a) The land Grant to LMS dated 19 January 2005 under the hand of the president of the Republic of Sri Lanka transferring ownership of the land on which LMS carries on its business is null and void;
b) The Common User Facilities Agreement between the Government of Sri Lanka, the Sri Lanka Ports Authority, Ceylon Petroleum Corporation and LMS dated 20th August 2002 is null and void;
c) All agreements entered into between the Board of Investment of Sri Lanka, a statutory corporation, and LMS are null and void.
In view of the foregoing the Court did not think it necessary to make an order regarding sale of shares of LMS by Ceylon petroleum Corporation to JKH which therefore remains intact and effective.
Accordingly the Court directed: 1) LMS to vacate the aforesaid land and restore possession of the land to the Sri Lanka Ports Authority, a statutory corporation, with 30 days of the judgment.
2) That the Sri Lanka Ports Authority may enter into fresh agreement/s for the use of facilities within the port on equal terms with all parties licensed to supply bunkers.
3) The Commissioner General of Inland Revenue to recover all taxes as if there was no agreement between LMS and the Board of Investment of Sri Lanka.
In the aforesaid, JKH and LMS are reviewing the options available to ensure to continuity of business at LMS and also assess the financial impact of this judgment on the two entities.
Further notification will follow.

LBO Futher said

Disputed Justice

18 Sep, 2009 14:08:53

Sri Lanka private sector told could have challenged powerful chief justice

Sept 18, 2009 (LBO) - Sri Lanka's private sector should have been more forceful in challenging a chief judge seen as brilliant but dominating whose judgments raised questions about the process of public interest litigation, a public forum was told.

Affected businesses could have asked for immediate reviews of what they considered bad decisions of the powerful former chief justice Sarath Silva who reversed three privatization deals, among other controversial and wide-ranging decisions, lawyers said. A spate of applications for revision came only after Silva retired.
Corporate lawyer Arittha Wikramanayake told an LBO-LBR chief executive officers forum which discussed the impact of the public interest litigation that defendants were too scared to challenge the chief judge.
"The complaint here is not about the process," he told the forum. "The people complain they were rushed into the hearing. Unfortunately no one had the courage to get up and say, okay, enough is enough.
"We had a very, very strong Chief Justice, a brilliant Chief Justice, let me add, and everybody caved in. Nobody had the guts to stand up to him. And that is the crux of this problem."

Wikramanayake said the affected parties, if they were not happy with Silva's judgments, should have gone up for review immediately, instead of waiting until Silva retired, as they did before trying to challenge his decisions.

He also said that if relevant documents were not considered in the Supreme Court case, a review would at least have made them public.

"Parties are scared to do it," Wikramanayake said. "They were scared of this one individual. Let's be very frank about it. That’s what happened."

Wickremanayake said there were instances of very good cases of public interest litigation. In the case of the three recent cases, the private sector itself had complained about them.

Without specifying he said one transaction was "arguably good", the other bad and the third ugly.

Senior lawyer and president's counsel K Kanag-Isvaran said that while the Supreme Court is the final court; it has an inherent jurisdiction to correct errors in the interest of justice.

"The future is for the court itself to examine and advice it self and ourselves as to what are the limits on the exercise of its jurisdiction in the light of concerns expressed across the board on the exercise of it."

Kanag-Isvaran, who is a member of the Law Reform Commission, said there were concerns about the suitability of the Supreme Court to hear complex privatization cases.

"This is one of the problems which I believe has to be addressed urgently. Because before you find a person liable in law - say for wrongful transactions or fraudulent transactions - it is fundamental they should have the right to be heard fully and be represented.

"Now the problem is that the Supreme Court - for resolution of such disputed questions - in my mind is not the appropriate forum."

He said that the court has discretion to review judgments if there is fresh evidence available after the delivery of the judgment which the court must examine because "had it been before, it could not have come to that view."

Lawyer and regulatory specialist Rohan Samarajiva said reforming the legal system was a long-term solution and that an immediate remedy would have been to have the cases reviewed by a five judge bench.

"I think there have been egregious violations of natural justice where significant documents have been placed before the courts and they have not been paid attention to and where decisions have been given on matters that have not been argued before that particular bench."

Samarajiva also queried whether at least in one case, the privatization of bunker supplier Lanka Marine Services (LMS), dragged on, which prevented a quick review.

"This particular judgment, the LMS judgment, it didn’t have a closing date. It went on and on for several months with all kinds of labour matters and resignation letters and various other things. In a way one could say that this was dragged on to prevent a real challenge.

Two separate cases were filed against the LMS deal - one the privatization itself and a second on a tax holiday. The second case was not fully heard. The first judgement dealt with both issues.

Kanag-Isvaran said there was need for guidance in the application of laws where legal reforms could help in order to maintain confidence in the judicial system.

A "fear psychosis" has been created because of the three judgments and public interest litigation, he said.

"That's why I posed those questions whether time is not right for the court to take cognizance of these anxieties," he said. "They can do it on their own - and say these are the limitation we will place.

"Are there any limitation on the type of cases you will entertain under a public interest litigation, because of the inappropriateness of the matter for an inquiry by the Supreme Court, where the cross examining of a witness, the testing of evidence and things like that are not unfortunately possible, it's not the forum? I would seek guidance from the Supreme Court."