INVESTING IN SRI LANKA:
LEGAL FRAMEWORK AND HUMAN RIGHTS PROTECTIONS FOR COMMERCIAL INVESTORS
Pulasthi Hewamanna1
“Ceylon (former name of Sri Lanka) is… the finest island of its size in the world”-
By Marco Polo, Venetian Explorer in the Travelogue ‘Travels of Marco Polo’ (II Milione)
Strategically located in the Indian Ocean, Sri Lanka is a growing economy fundamentally built on tourism, services, apparel manufacturing and agricultural exports. With the international trade routes crossing the island, the Government has planned to transform Sri Lanka into a strategically important economic centre by developing five strategic hubs; a knowledge hub, a commercial hub, a naval & maritime hub, an aviation hub and an energy hub.2 The Government of Sri Lanka has embraced policies and initiatives that are supportive and beneficial to international investment, which include measures such as ‘no restrictions on repatriation of earnings, fees, capital and on forex transactions relating to current account payments, total foreign ownership permission across almost all areas of the economy, transparent investment laws and bilateral investment protection agreements with 28 countries’.3
Regarding the State backed investment incentives, it is significant to note the multiple efforts by the Government to foster business development. The Board of Investment of Sri Lanka (BOI),4 as the apex agency for foreign direct investment in Sri Lanka, navigates and regulates investor operations to reach its true and highest potential throughout the lifespan of the enterprise. To protect foreign investment, Sri Lanka has signed Double Taxation Avoidance Agreements (DTAAs) with 45 countries which provide relief from double taxation for foreign investors,5 and entered into 26 Bilateral Investment Promotion and Protection Treaties (BITs).6 These treaties ensure the security and sustainability of foreign investments and reflect the country’s commitment to incorporating sustainable development principles in its investment frameworks.
Further to the above there are investment incentives such as concessions being granted under an agreement with the Board of Investment for qualifying investment projects remaining valid over the lifetime of the enterprise and exemptions in customs duty/airport levy/tax for project related items. Additionally, national level programs,7 and policy measures aimed at fostering transparent governance, digital infrastructure, trade investment, supportive tax and legal framework along with operational assistance to encourage productive growth and attract investment are also in place to enhance economic development and quality of life in Sri Lanka.
Sri Lanka is also a founder member of the Multilateral Investment Guarantee Agency (MIGA), an investment guarantee agency of the World Bank which provides a safeguard against expropriation and non-commercial risks.8 Foreign investment in Sri Lanka, though regulated and supported by many State authorities, departments and ministries, Sri Lanka faces challenges and gaps in the system.
While there is easy access to justice for commercial disputes, the administrative delays and backlog of cases in the court system have prompted parties to look at alternative dispute resolution (ADR) in the country which can offer both swift and tailor-made business solutions. The legislative framework in place for commercial litigation covers a wide range of areas such as intellectual property, company law, contractual disputes, employment related, insurance, banking, debt recovery and any type of commercial transaction. While there is a well-established legal framework for commercial litigation, Sri Lanka is also making progress in the digital court system with virtual hearings and in the field of contract enforcement where Sri Lanka ratified the UN Convention on International Settlement Agreements Resulting from Mediation.9 ‘This is to offer the country an improved dispute resolution regime that will be attractive to investors and business partners engaged in cross-border trade and business. Importantly, it signals to investors that Sri Lanka has a universally accepted regime for the enforcement of international mediated settlement agreements. Efficient contract enforcement is vital to attract foreign investment and facilitate domestic commercial activities’.10 Aiming for a special court focusing on investment to enable swift resolution of investment disputes, Sri Lanka’s Government had given the go ahead to draw up an Investment Disputes High Court Act under proposals made by Commercial Law Reform Sub-Committee operating under a special unit of the Ministry of Justice.11
With development and economic expansion, inevitably occurs commercial disputes and they could be commercial or sometimes even “rights-rooted”. In cases of inequality based on discriminatory government practices that could give an investor or a business enterprise preferential treatment, public law remedies such as writs to compel/prohibit/quash, injunctions to refrain a public body from performing an illegal act and declarations can be obtained. The Government can thus, be held accountable for any unlawful decision or activity. With rich jurisprudence on doctrines such as legitimate expectations, writs, fundamental rights, rule of law, unreasonableness, abuse of power, administrative and executive action, directive principles of state policy and administrative law, together with progressive legal interpretation have advanced justice and recognition of rights. Though purely commercial activities do not usually lend themselves to public law remedies, Sri Lanka has recognised that contracts with State entities can, in certain appropriate instances, be subject to public law rights related remedies, indicating that the State cannot always hide behind a Dr. Jekyll and Mister Hyde dichotomy to escape the public law. 12
The Judiciary has recognized the limits of both administrative and discretionary power in ensuring fairness as ‘justice demands that a public authority be prevented from frustrating an expectation generated by it, occasioned either by sudden changes to its governing policy or due to extraneous or collateral reasons’.13
All the above public authorities remain subject to constitutional scrutiny as the supremacy of the Constitution. 14 The Constitution serves as the ultimate expression of the sovereignty of the People.15 Under the Public Trust Doctrine, public authorities do not exercise absolute power but hold it in trust for the People; thus, constitutional scrutiny via fundamental rights and writ jurisdiction is the essential mechanism that prevents the betrayal of that trust by executive or administrative action.. Fundamental rights jurisdiction16 and writ jurisdiction under Article 140, therefore operate as an important constitutional safety net against arbitrary, unreasonable or unfair State action including in the investment and commercial sphere. This protection may extend even to changes in government policy where such changes defeat legitimate expectations created by prior representations, approvals or consistent conduct of public authorities. In Dayarathna v Minister of Health [1999] 1 SLR 393, the Court recognised that although the State is free to alter policy, it cannot ignore expectations engendered by its own actions or conduct; policies may develop but a public authority should not depart from a representation or published criteria relied upon by an individual unless overriding public interest requires it and then only after a hearing. Similarly, in Zamrath v Sri Lanka Medical Council, SC FR 119/2019, SCM 23.07.2019, it was held that legitimate expectation prevents administrative authorities from abusing discretionary powers against expectations generated by their prior conduct and that legal certainty is a basic tenet of the rule of law. Accordingly, even policy-level decisions affecting investors may, in appropriate cases, be reviewed through public law remedies where they are arbitrary, unreasonable, procedurally unfair or inconsistent with legitimate expectations.
The extensive experience in handling a range of human rights court cases, writ applications, inquiries at Public Commissions such as Human Rights Commission and Right to Information Commission has enabled the right decision in litigation along with the fitting approach for the case. Rights-based approach in commercial litigation or integrating human rights into commercial investment will protect the investors, safeguard business operations, enhance transparency in Government decision making and ensure impartiality in commercial opportunities. As such, Sri Lanka’s public law framework not only provides remedial protection after a dispute arises but also encourages better governance, accountability and legal certainty at every stage of the investment process. This reinforces confidence for commercial investors that investment decisions and State interactions will be measured against constitutional standards of fairness, reasonableness and the rule of law.
