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The much hyped Colombo Port City is one of the most important projects of the country with tremendous potential. However, many legal experts have contended that the 'Colombo Port City Economic Zones Special Commission Bill' attempts to create an all-powerful Commission that was answerable only to the Executive.

This financial center is lining up USD 4 billion in investments, a signal that the challenging mega project is on track to start attracting foreign direct investment into the country.


Financial Center or Fantasy Island ?

However, legal experts explained that there is a difference between a “Financial Center” (which is what should be created) and a ‘Fantasy Island’ (which is what is being created – a sinister fantasy island, at the ‘whim, fancy and the fantasy’ of a “Commission”.

It could be sinister because it poses a great threat of a potential economic take-over, not only of the port city area, but of the rest of Sri Lanka, via the construct of a ‘Port City’, they pointed out.

The Draft Bill titled Colombo Port City Economic Commission Act 2021 is an important piece of legislation with some calling it a game-changer for Sri Lanka.

An all-powerful “Commission” is sought to be created by this new Bill, with independent corporate personality, which will be controlled, possibly by non-nationals, possibly sitting abroad.

 

This purported Bill strikes at the heart of, inter alia: The Sovereignty of the People; The Rule of Law; The Doctrine of the Separation of Powers; And several other fundamental principles enshrined in our Constitution.

It also violates and/or is inconsistent with and/or is repugnant to the Constitution, including Articles 1 – 9, the Chapter on Fundamental Rights, Parliamentary Control over Public Finance and several other Articles including Articles 75, 76, 105, 148, 154 and so on.

 

11 points for public discourse

This new ‘Commission’ is akin to the East India Company or the VOC of old - where several monopolies are granted, which makes it a very powerful entity indeed, which will henceforth be given recognition by Sri Lankan law, legal experts noted.

Once the Bill is passed, the entity (Commission) is formed and it can then assume a ‘life of its own’ (i.e. it may be possible for the Commission itself to file action in our courts and/or international tribunals and/or port city courts and obtain various orders against the state and/or the President).

 

1. All powerful “Commission”: Clause 3(1) stand-alone

Clause 3(1) of the Bill provides that the Commission “…shall be entrusted with the administration, regulation and control of, all matters connected with businesses and other operations, in and from the Area of Authority of the Colombo Port City”

This is a stand-alone clause which gives the “Commission” dominion over the Port City (this power is not even made subject to any other written or unwritten law).

It’s a body corporate (Clause 3(2) of the Bill) and consists of a Membership of 5 to 7 persons (Clause 7(1)) who need not even be Sri Lankan Citizens and meetings maybe held abroad (i.e. they may never have to come to Sri Lanka. I.e. Port city may be controlled by foreigners sitting in a foreign Country who may not have to even visit Sri Lanka).

It is not a Public Corporation in terms of our law, which means Parliament has little or no power over it and the Minister does not have power to wind it up.

Its capital (initial contribution) is provided by Chinese Investor (LKR 400 million) – Clause 23(2)(a) of the Bill;

It is a sui generis entity, which may mean that it may not be subject to the FR jurisdiction and/or writ jurisdiction (may not be executive and/or administrative action).

2. Monopoly over all aspects of human living and interaction

It has the power to make rules, codes, directions and guidelines - Clause 6(1)(u) and (w).

If anyone fails to comply with a rule, code, direction or guideline, they can be criminally liable (Summary trial before Magistrate, fine between LKR 1 million and 5 million and/or imprisonment) – Clause 68(1)(f) of the Bill.

By making such rules, codes, directions, guidelines violation of which carry serious penal consequences, it is possible for the Commission to regulate all aspects of human life within the 446.6 hectares of Port City.

For example, with these provisions, it may be possible for the Commission to makes rules, codes, directions, guidelines. For instance:

  • Altering the Common law (Ex: law of nuisance, law of servitudes); and/or
  • Specifying to as to what language should be used and/or what religions can and cannot be practiced.

If these are not followed, could there be jail time?

3. Wide tax/Taxation Powers

The Commission has wide and various tax powers, a lot of which need not be placed before Parliament and/or approved;

  • Charge fees and other charges – Clause 6(1)(n)
  • Fees payable in order to obtain a License – Clause 27(1)/28(2)(b)
  • Levy to be paid by a citizen of Sri Lanka or a resident on goods purchased at retail facilities – Clause 40(2)
  • Fees in respect of Offshore Companies – Clause 41(3)(f) 41(9)
  • Fees in respect of Offshore Bank – Clause 41(3)(f) and 41(9)
  • Penalty in respect of Off-shore banking – Clause 49(2)

Fees chargeable by the Estate Manager – Clause 60(c) and (g), berthing levy, vehicle parking charges, utility charges, management fees, user fees, and other such fees from authorized persons, employees of authorized persons, residents, occupiers and visitors within the area of the Colombo Port City and credit the total of the sum so collected to a “Bank Account” as directed by the Commission.

However, there is no mention of whether this “Bank Account” has to be in Sri Lanka.

Furthermore, most of these are not credited to the Consolidated Fund and is out of the financial supervision of Parliament.

4. Accountability/checks and balances

It is not an Audit-entity in terms National Audit Act No. 19 of 2918, which means the Auditor General has no power over it. In any event, it is left out of the jurisdiction of the Auditor General.

Commission Members are not public officers/public servants.

It does not fall under the purview of the Committee on Public Enterprises (COPE), Bribery Commission and there is no accountability to Parliament.

Immunity given under Clause 20 where the Commission and its Officers shall not be liable for any act done or purported to be done or any omission made, in good faith during the exercise, performance or discharge of its or their powers, duties or functions under this Act except for Criminal Offences and regulations and for any act done in contravention of the provisions of the Port City Bill, or any other applicable written law, or any regulations made thereunder.

As such, it is possible that acts cannot be challenged before the Supreme Court or the Court of Appeal.

 

5. Judiciary/implications

Compulsory Arbitration where all disputes between the Commission and all residents and occupants within the Port City and/or persons authorized to do Business in or from the Port City (all vertical disputes) should be referred to the International Commercial Dispute Resolution Center in the Port City.

This in effect is a separate Court that is outside our Court structure.

This is a clear implication on Article 105 of the Constitution.

Because this Court can formulate its own rules, it may formulate a rule stating that an appeal from this Court to for instance lies to a Court in China (For example: Belt and Road ICC in Shanghai).

With regard to other disputes – civil and commercial matters- (i.e. horizontal disputes between persons in the Port City where the cause of action arises in the Port City have to be given priority in the normal courts including day to day hearings) - disputes with the “Commission” are sorted out in their Courts, whereas our taxpayers pay for our court system to be used “on a high priority day to day basis” for disputes among people who reside there.

Clause 62(6) may allow for foreign lawyers to practice in the Port City Court. this is contrary to Supreme Court rules, in particular Rule: 70.

 

6. Land

Land is to be vested in the Commission – Clause 65 of the Bill

There is a question as to whether this is Private Land or State Land.

If it is private land, can the Commission deny entry to Sri Lankan citizens to this territory?

Can they have their own security within this territory akin to Police?

Further, land could be alienated by way of leases and sale of condominium parcels effectively transferring freehold land to whoever they please.

 

7. Monopoly over business

Only “Authorized Persons” can do business in the territory and the Commission solely decides who is given authorization to (Clause 26)

Definition of Business very wide includes financial and non-financial services (Clause 74). This could include lawyers, doctors and other professionals.

In granting a license, the Commission can compel any regulatory authority in Sri Lanka to grant concurrence/approval (Clause: 30(3).

Commission can give large tax exemptions (i.e. no tax even for 40 years – Clauses 52(3) and (7).

Once a License is granted, it may be subject to the terms of the document and that document alone – Clause 31(3).

 

8. Public Finance (Article 148) – Parliament will lose Control

Many implications will also arise due to this clause.

  • Very wide powers of licensing any business
  • Power to refuse people to do business in the territory (which may be difficult to challenge).

Once a business is set-up in the Port City, it is possible for business to be done in other parts of Sri Lanka, through branches, offices etc. and because it is a Port City Business, there is no tax. In such a situation, how can other businesses in the country compete? (in other words, Government revenue can be brought to naught). Therefore, Parliament will lose economic control of taxation. Parliament will lose control of public finance. This strikes directly at the heart of sovereignty of the people.

 

Furthermore, Parliament has little or/ no control over most of the taxes imposed by the Port City and/or has no financial oversight of the Port City Commission.

 

9. Schedule II and Schedule III

  • Schedule III – Wide power of completely exempting business entities from tax (Tax including income tax, value added tax, corporate tax etc.).

However, this does not have the in-built safeguards of the BOI law (where Regulations have to be placed before Parliament) or the Strategic Development Projects Act (where such exemptions have to be specifically approved by Parliament).

  • Schedule III – Completely takes away laws such as UDA Act, Municipal Council Ordinance etc. which perform important functions of day-today life.

This phenomenon is not found in other laws. Even the Board of Investment (BOI) is given the power in exercising the powers of the Municipality in terms of the Municipal Council Ordinance (not excluding the application of the Act completely).

 

10. Provincial Councils

Several objectives are laid down in the proposed Bill, for example, gaming.

A lot of these subjects are under Provincial List (for examples: Betting and Gaming, land powers etc. is in Ninth Schedule).

Therefore, in terms of Article 154G(3), this has to be placed before all the Provincial Councils.

 

11.   Other

There are also many Customs, Treaty Obligations and implications with regard to Article 157 that warrant public scrutiny.