Sri Lanka’s economic crisis before the Supreme Court

By Sanjit Dias

The Supreme Court of Sri Lanka issued a landmark decision holding several high-ranking executive officials responsible for the economic crisis of 2021-2022.  This was widely regarded as the worst economic crisis the country had experienced post-independence; it manifested itself in a rapid depreciation of the currency, dramatic shortages of fuel which saw vehicles in mile-long queues at fueling stations, and rolling electricity cuts throughout the island. 

In mid-2022, two petitions were filed in the Supreme Court alleging that several officials named as respondents were responsible for this economic crisis. The petitions claimed that several decisions and the continued inaction of these officials in the face of numerous warnings about the impact of their policies constituted arbitrary, irrational or manifestly unreasonable action on their part, which was a violation of the right to equality and to equal protection of the law enshrined in Article 12 of the constitution. 

In this [article], I argue that the court’s decision has significant implications for the scope of the fundamental rights jurisdiction, and for the court’s potential role in future controversies.

Three policy failures

In brief, the petitions were filed in the public interest, and focused on three key policy failures on the part of the then government: (i) the drastic tax cuts implemented following Gotabaya Rajapakse’s election as President in November 2019, (ii) the delay in seeking assistance from the IMF, and (iii) artificially maintaining the exchange rate of the rupee to the dollar by using dollar reserves. 

Four judges of the five-judge bench agreed with the petitioners, and in detailed reasoning over 119 pages, found several respondents responsible for their actions (and omissions) on each of the issues listed above. These respondents included the then Prime Minister and finance minister (and former President) Mahinda Rajapakse, the succeeding finance minister Basil Rajapakse, the then President Gotabaya Rajapakse, the president’s secretary P.B. Jayasundera, the Governor of the Central Bank Ajith Nivard Cabraal, and the Monetary Board of the Central Bank.  The majority held that their continuing inaction and failure to take remedial measures was a breach of the public trust reposed in them, which was a facet of the right to equal protection of the law guaranteed by the constitution. Because the petitioners had not sought any compensation from the respondents, the decision was limited to a declaration that these respondents had breached the fundamental rights of the petitioners and all citizens. In a 146-page dissent, one judge held that the respondents were not liable for any violation.

A full analysis of the decision is beyond the scope of this [article]. Instead, I wish to discuss four significant implications of the judgment, in terms of its reasoning and outcome. First, the court’s jurisdiction in political/policy questions; second, the expansion of the exception to the time bar in fundamental rights applications; third, the potential seeds of a jurisprudence on a right to effective government, and finally, the court’s assertion of its authority vis-à-vis the political branches of government.

A Question of Policy?

We begin with the dissent. One of the preliminary objections which the dissent accepted was that the court was venturing into policy, traditionally the domain of the political branches. The respondents bolstered their argument by referring explicitly to the doctrine of political questions found in the U.S. The majority rejected the contention for two reasons. First, the court’s jurisprudence already acknowledged that the court could intervene where a policy was manifestly unreasonable or arbitrary, or implicated an issue of constitutionality – the very claim of the petitions.  Second, the court was, in fact, not setting policy: it was not making a policy prescription, but engaging in a post-mortem. The majority was very clear that it was only reviewing whether the relevant actors had exercised their discretion improperly (in a manifestly unreasonable, irrational, or arbitrary manner) in failing to take remedial measures once the original policy had failed. For instance, in relation to the government’s tax cuts at the end of 2019, the court notes that the tax cuts led to a dramatic loss of revenue, which in turn caused international rating agencies to downgrade Sri Lanka’s credit-rating, which then locked the country out of international capital markets.  The court does not fault the respondents for the initial tax cuts, but for failing to take remedial measures when it became clear that the policy had failed.  The principle appears to be that the court will not prescribe policy decisions prospectively, but that it retains the power to review the process and outcomes retrospectively, in exceptional circumstances. 

Only a matter of time

Another obstacle the petitions had to overcome was that of the time bar. The constitution requires a fundamental rights application to be filed within one month of the alleged infringement.  Over time, the court has created certain exceptions to this rule, for instance, where the aggrieved party had no opportunity to access a lawyer in time (such as in incommunicado detention),  or where the violation of rights was of a continuing nature, comprising a series of official acts.  However, this case did not neatly fit either of the two categories, and lawyers for the respondents predictably argued that the petitions were filed much longer than a month after each of the impugned decisions was taken, and should therefore be dismissed – an argument ultimately accepted by the dissent.

The majority, however, accepted the petitioners’ counterargument that the nature of the violation only became apparent following the disclosure of previously unknown information and that the petitioners required further time thereafter to gather all the relevant documents, analyse the information, and file a petition. They noted further that the actions were filed in the public interest, and that such an exception was in keeping with its jurisprudence on continuing violations. For these reasons, the time bar objection was overruled. The majority could have dealt with this in more detail and provided a surer footing for the exception – in reality, they did not specify from what date the one-month was reckoned. 

Together, the first two implications raise interesting questions on the temporal scope of fundamental rights actions. A court will not interfere with a policy decision prospectively, unless wildly unreasonable or unconstitutional. But it will (in exceptional cases) exercise its fundamental rights jurisdiction retrospectively. Does this mean that a decision which cannot be challenged initially, becomes liable to challenge with the passage of time?

In fact, what the judgment seems to suggest is that it is not the same decision. The first decision – to chart a specific policy course, is usually beyond the court’s jurisdiction. The second decision is the one to ignore overwhelming evidence of the failure of the policy pursued by the first decision, and to knowingly continue down the same path. That decision is reviewable if it is manifestly unreasonable, irrational or arbitrary. In short, it is the uncertainty inherent initially (how will the policy play out?) that gives the political branches a margin of appreciation from the court. Once the uncertainty is removed, the court has a clearer basis when reviewing the second decision.

Effective Government and Separation of Powers

This leads to the third implication: whether the above position creates – in the words of some respondents – “a right to infallible decisions”? The majority explicitly rejects this notion, and says it is merely a recognition of a continuing duty of public officers to discharge their duties in a manner commensurate with the public trust reposed in them. The judgment may, however, signal the gradual crystallisation of jurisprudence on a “right to effective government” – a nascent field in constitutional law scholarship.  In one passage, the majority says, “On assumption of public office, it was their duty to ensure that the existing issues were addressed and resolved in the best interest of the country and take every possible measure to avoid an aggravation to the detriment of the people.” It may be that in future, “effectiveness” becomes a more regular lens through which government policy and legislation are scrutinized in constitutional review. 

Finally, this judgment is significant because it can be seen as asserting the court’s authority in its constitutional sphere. In two recent controversies, the court came close to a clash with the other branches of government. When the Supreme Court made interim orders relating to the conduct of elections, several members of Parliament claimed this was a breach of their privileges, and called for the judges involved to be summoned before Parliament.  In another incident, the President made remarks in the context of legal challenges to the government’s domestic debt “optimization” (restructuring) plan, which were likewise seen as a threat to the judiciary. 

In the case under discussion too, a parliamentary select committee had been constituted to examine the causes of the economic crisis, and respondents argued that the court ought not to hear these cases given that a collateral branch (Parliament) was currently investigating the matter. The majority in firm language noted that the court was supreme in the judicial sphere, and had full jurisdiction to exercise its powers in relation to fundamental rights cases.  It noted that the only exception was that Parliament could exercise judicial power directly in the case of a breach of parliamentary privilege.  The relevant passage went so far as to point out (correctly) that this arrangement could only be changed by way of a constitutional amendment. The majority then cited British parliamentary practice (to which the Sri Lankan Parliament may have recourse) and noted that it was in fact Parliament that had to defer to the courts when litigation was pending (the sub judice rule). It then concluded by noting that the select committee had been constituted several months after the court had granted the petitions leave to proceed and therefore rejected the argument that it should not exercise its jurisdiction. The dissent did not contradict the majority on this point. Therefore, in this case, the court has spoken firmly to establish its sphere of authority, which can be read as signaling to the political branches its commitment to ensuring constitutionalism and the separation of powers.

This judgment is another in the string of recent decisions in which the court has engaged with issues of great political controversy.  However, its strict focus on the legal and constitutional implications enhances its credibility, and its reasoning will have a significant impact on the development of constitutional jurisprudence in the future. 

This article was originally published as a blogpost on Verfassungsblog, at https://verfassungsblog.de/sri-lankas-economic-crisis-before-the-supreme-court/ 

(The writer is an Attorney-at-Law)