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  >  Article 12   >  Sri Lanka Appeal Court affirms its non-interference with the government’s economic and restructuring policies, particularly during financial crisis
October 31, 2023 11:02 pm
Case Sathosa

Sri Lanka Appeal Court affirms its non-interference with the government’s economic and restructuring policies, particularly during financial crisis

Sathosa Employees’ compulsory retirement case

By Staff Writer

The Court of Appeal of Sri Lanka dismissed and refused to issue notice in a case brought by several employees of the “Sathosa” against government compulsory retirement scheme (CRS). The order (in C. A. Writ No. 548/2023) was made on October 03 by Justice D.N. Samarakoon and Justice Iddawala. This decision is a landmark as it clearly exposes the judicial approach in respect of government economic and restructuring policies. 

The five petitioners in the case have claimed to represent the entire 292 employees of the Cooperative Wholesale Establishment (CWE). They have sought writ jurisdiction of the court against the circular issued by the chairman of CWE dated 14.09.2023, as  due to the restructuring of the CWE all employees would be sent on compulsory retirement from 30.09.2023. The petitioners allege that the proposed restructuring was not a restructuring but a complete and final closure of the CWE and the grant of approval to Cabinet Memorandum (P.03) by Cabinet Decision (P.05) and thereby the closing down of the CWE is ultra vires the provisions of the Co Operative Wholesale Establishment Act No. 47 of 1949, especially its sections 35 and 36. Petitioners seek, among others, writs of certiorari quashing the cabinet decision and the decision of the Minister of Trade, Commerce and Food Security to restructure the CWE.

Justice Samarakoon holds that “the CRS is the first step and that liquidation will commence thereafter...the petitioners ask to stall the whole process of restructuring. It appears, on the face of it, that it is a remedy almost disproportionate”.

Court decides that “[i]n the context of restructuring, CRS being only an initial component, the petitioners cannot ask this court to question the entire restructuring process.”

“In the context of restructuring, CRS being only an initial component, the petitioners cannot ask this court to question the entire restructuring process.”

“In this case…the proposal to restructure CWE was agreed on principle by the Minister of Finance, Economic Stabilization and National Policies. The policies in 2003 and 2006 were a VRS. But the present policy is a CRS.”

“Therefore it appears that this court cannot, in judicial review, question the planning policy. In the circumstances, the court refuses to issue notices and the application is dismissed, however without costs.”

Justice Iddawala, while agreeing with the order of Justice Samarakoon, writing separately, extends his input on the subject matter with regard to the government policies and restructuring of the Cooperative Wholesale Establishment (CWE).

The main contention of the petitioners in this matter is with regard to the Cooperative Wholesale Establishment Director Board Circular (P2) No: 01/2023. Prior to which, the Minister of Trade, Commerce and Food Security had presented a Cabinet Memorandum (P3) titled “Restructuring Cooperative Wholesale Establishment (CWE)” No: 23/1208/627/018 dated 26.06.2023 which was approved by the decision of the Cabinet of Ministers (P5) on 10.07.2023 and accordingly approval was given for a Compulsory Retirement Scheme (CRS) for the employees of the CWE. This was put to implementation through the Co-operative Wholesale Establishment Director Board Circular No: 01/2023, which was brought into force with the Cabinet decision dated 10.07.2023 granting approval to the Cabinet Memorandum titled “Restructuring Cooperative Wholesale Establishment (CWE)”. Cabinet Decision was based on the Cabinet Memorandum titled “Restructuring Cooperative Wholesale Establishment (CWE)” and  observations (P4) of the Minister of Finance, Economic Stabilization and National Policies with regard to the Cabinet Memorandum.

The Co-operative Wholesale Establishment Director Board Circular No: 01/2023 (P2) elaborated the entitlements of all employees subject to the CRS. Accordingly all employees who are terminated under the CRS will be entitled to the salary up to the month of September 2023, a compensation package according to the compensation formula  as per annexure 1, and all statutory entitlements including EPF, ETF and Gratuity.

Cabinet Memorandum further states that the CWE spends Rs. 19 million monthly in order to pay salaries, benefits and other payments for these 292 employees. The Order also states that “it was revealed that the loss caused by the CWE during the year of 2022 alone is Rs. 79 million”.

Court identifies the fact “that the sole method of income generation of CWE is currently based on the transportation services provided by the lorries and by renting out the storage area and buildings. However, it was reiterated that the income generated is not sufficient to pay the employees and this matter is a continuing burden on the treasury as well. Given the circumstances of the economic crisis in the country it could be said that the losses incurred by CWE would be accelerating day by day.”

P2, P3 and P5 are all based on the government policy considerations set forward by P4, and these policy considerations are enhanced along with the economic policy and status of the country. Therefore, I am of the view that the courts should restrain from interfering with the government’s economic and restructuring policies, particularly during financial crisis, unless such policies are illegal or patently unreasonable. It is a well rooted principle in the concept of judicial deference to executive and legislative decisions in matters of economic policy. This approach acknowledges that government authorities are better positioned to evaluate and address complex economic issues. Courts generally intervene only when these policies violate the law or are glaringly irrational. As my brother judge explained in his judgment there is no illegality or unreasonableness in the decision of P2.”

Court relied on several English law jurisprudence: 

Liversidge v. Anderson [1942] AC 206: is a landmark United Kingdom administrative law case which concerned the relationship between the courts and the state, and in particular the assistance that the judiciary should give to the executive in times of national emergency or crisis. In this case, the House of Lords emphasized that courts should not intervene in matters relating to national security and war time actions unless the government’s actions are clearly illegal.

Council of Civil Service Unions v. Minister for the Civil Service [1985] AC 374: The House of Lords, in this case, highlighted the principle of deference to the government’s exercise of prerogative powers, especially in the realm of national security and public interest, provided such exercise is within the bounds of legality.

Fire Brigades Union v. Minister for the Environment [1995] 2 AC 513: this case underscores the principle of judicial restraint when reviewing government policies and actions, emphasizing that the courts should respect the political nature of many decisions and should not intervene unless there is a clear breach of law or irrationality.

“In these cases, the courts upheld the principle of non-interference with government policies, affirming the importance of deference to the executive branch in economic matters, particularly during times of crisis, as long as those policies remain within the bounds of legality and reasonableness,” Justice Iddawala writes. 

“The court also needs to examine carefully whether the employees are the vulnerable party in this matter. Furthermore, consideration must be given to see whether if the government continues without the proposed restructuring whether there will be an impact economically on the government as well as the treasury. And at such an instance where there is an impact negatively on the government, the policy change cannot be considered illegal or unreasonable. This is mainly because it would eventually impact the public/ citizens of the nation and their rights.

“During times of financial crisis, the need for economic development and stability is paramount. However, the importance of upholding the rule of law and ensuring legality and reasonableness in government actions remains crucial. The courts should adopt a balanced approach, recognizing the significance of economic development while safeguarding legal principles and individual rights through the process of judicial review.

“It is essential to emphasize that the principle of judicial review does not seek to hinder economic growth but aims to ensure that re-structuring occurs within the boundaries of the law and respects the rights of individuals and the broader community. Striking the right balance between economic needs and legal safeguards is fundamental to a just and equitable society.

When matters are related to government development and restructuring activities, the courts should exercise with caution and consider the balance between allowing government actions for economic development and ensuring compliance with legal standards. English courts have upheld the principle of non-interference unless the government’s decisions are deemed to be “manifestly unreasonable” or unlawful. In the case of Associated British Ports v. Department for Transport [2001] EWCA Civ 1195, in which the Court of Appeal discussed the principle of deference to government decisions in economic matters. This case involved the expansion of an airport and raised concerns about environmental impact. The court emphasized the need to strike a balance between judicial restraint and the right to challenge governmental decisions. The court acknowledged the importance of economic and development considerations while also highlighting the duty of the court to intervene if the decision is “manifestly unreasonable”. In this instant case I cannot see any illegality or unreasonableness of the decision of the Board of Directors (P2).

Considering the above mentioned I do not find any illegality nor unreasonableness in the policy implementation through P2.”

Judicial deference to and siding with neoliberal austerity policies of the post-2008 Recession period  is a world-wide phenomenon. 

In the landmark judgement of  Thomas Pringle v. Government of Ireland (2012) ECJ, C-370/12 in the  European Court of Justice (ECJ), which was a reference by the Supreme Court of Ireland for a preliminary ruling concerning the validity of the European Council Decision on the Amending Article 136 of TFEU and interpretation of several other articles thereof, the Court affirmed the market logic of the EU as follows:

“The prohibition laid down in Article 125 TFEU ensures that the Member States remain subject to the logic of the market when they enter into debt, since that ought to prompt them to maintain budgetary discipline. Compliance with such discipline contributes at Union level to the attainment of a higher objective, namely maintaining the financial stability of the monetary union.

“…. ‘accordingly, the “logic of the market” is the standard of legality of financial assistance to indebted member States under EU law and, ultimately, the legal justification for strict conditionality and the imposition of austerity.’” [Neoliberal Constitutionalism and the Austerity State: The Resurgence of Authoritarianism in the Service of Market by Sanjaya Wilson, Neptune Publications, 2018. Reference to part 4.3]

In “The counter-majoritarian difficulty in a neoliberal world: Socio-economic rights and deference in post-2008 austerity cases”, the article by K.H. Ragnarsson [Global Constitutionalism, Volume 8, Issue 3, November 2019, pp. 605 – 638,Cambridge University Press, 2019] the relationship between judicial deference and neoliberal market policy is extensively discussed. Ragnarsson explaims this politics as follows:

“In the aftermath of the 2008 financial crisis, courts and rights took a backseat to demands of markets and international financial institutions for austerity. Deference and judicial restraint were prevalent in austerity litigation across various European jurisdictions. …the traditional view of deference to political branches on socio-economic rights should be revised in our political-economic context. ….law’s abnegation in this sphere has the effect of securing and legitimising neoliberal hegemony and serves the interests of owners of financial capital. Deference in order to avoid judicial overreach does not entail deference to democracy as legislatures have come to view financial markets as their constituency alongside the general citizenry. As public finances have become marketised, deference to legislatures amounts to deference to markets. Judicial minimalism creates not more democracy but a specific set of winners and losers. In light of severe representation failures where legislatures become tools of market justice we might, subject to various caveats, view a more active judicial role as democracy-enhancing and as a potential counterweight in favour of social justice.”

Ragnarsson’s starts with the following passage: 

“A decade of austerity following the 2008 financial crisis has caused ‘drastic and lasting’ effects on socio-economic rights. Meanwhile, neoliberalism is still alive, if not well, as ‘social justice [was] necessarily trumped by the goal of returning to business-as-usual’. Even though the idea that socio-economic rights are justiciable had gained support around the same time, with few exceptions, courts and rights played only a minimal role in the aftermath of the crisis. Instead courts explicitly adopted restraint expressed in terms of deference to other branches of government.”

The globally integrated capitalist crisis is such that no jurisdiction is spared from this political fact. The Sri Lankan judiciary cannot be an exception. The decision of the court thus exactly fits with and approves the government’s economic restructuring and austerity policy, including privatization, commercialization and mass layoffs,  as dictated by the International Monetary Fund (IMF). 

Ragnarsson’s Conclusion is noteworthy: 

“In the neoliberal era, the rise of markets has come at the expense of democracy; the ideals of market justice at the expense of social justice. The question raised here is whether we can view courts as an element of a strategy towards rebalancing this dynamic. We have seen how the issue surfaces in austerity litigation, where the state responds to financial markets’ demands by reducing their commitment to socio-economic rights programmes and courts respond by deferring to the political institutions and thereby to the market by proxy. The article has shown that courts have some tools to alter the dynamic between the public and financial markets. The state’s dependence on and deference to financial markets allows us to argue that such influence by courts is legitimate and democratic.”

[Featured image: Sathosa employers commenced a Sathyagraha protest against the compulsory leave scheme on September 26. Courtesy of lankaskynews.com]

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