What is Arbitration?
Arbitration is a means of non-judicial dispute resolution by referring a dispute to a neutral party (an Arbitrator) for a binding decision, or “Award”, which is enforceable in Court. Arbitration is generally sought by parties as it provides more flexibility in resolving the dispute when compared to litigation in Court. For example, Arbitration has the advantage of allowing parties to formulate a more flexible and efficient timeframe to conclude proceedings. Parties may also appoint Arbitrators who are specialized in the area in which the dispute lies.
What Governs Arbitration in Sri Lanka?
The conduct of arbitration proceedings in Sri Lanka is governed by the Arbitration Act No. 11 of 1995 (“The Act”). The territorial application of the Act is limited to the jurisdiction of Sri Lanka and will not apply to arbitrations held outside of Sri Lanka using it as the substantive law . In addition to regulating arbitration in Sri Lanka, the Act also includes a chapter pertaining to the recognition and enforcement of foreign arbitral awards pursuant the New York Convention.
Are All Disputes Arbitrable?
While there is no definition for “arbitrability”, in Sri Lanka, any dispute which the parties have agreed to be subject to arbitration, may be so decided, provided they are not contrary to public policy or matters which are not capable of being determined by arbitration . For example, neither crimes nor matrimonial disputes seeking divorce are arbitrable in Sri Lanka. Accordingly, any award made on such disputes may be impeached.
How are Arbitration Proceedings Commenced?
A general prerequisite to Arbitration Proceedings is that the parties must have consented in the first instance to enter into Arbitration by means of an Arbitration Agreement. Thereafter, a formal reference to arbitration by way of Notice must be made in accordance with the provisions of the particular Arbitration Agreement in order for Arbitration Proceedings to formally commence.
What is an Arbitration Agreement?
An Arbitration Agreement is a written agreement by parties to submit to arbitration all or certain disputes which have arisen or which may arise between them in respect of a defined legal relationship, whether contractual or not. This agreement may be in the form of a clause forming part of a greater contract, which is usually the case in, for example, commercial contracts, or in the form of a separate Arbitration Agreement. The Arbitration Agreement allows parties to decide the number of Arbitrators, the procedure for their appointment, the place and language of arbitration and the applicable substantive law.
Accordingly, when parties have agreed to refer disputes to arbitration instead of referring them to a Court of law for litigation, the fundamental principle in the law of arbitration is that a party cannot then unilaterally depart from that agreement. Therefore, if a party to the Arbitration Agreement institutes action in a Court of law with respect to a matter covered by such Arbitration Agreement, the Court will not assume jurisdiction where a party to the same objects on the basis of the said Agreement. However, there are a number of exceptions to this principle, including, but not limited to, where the other party does not object to this deviation, or where the Arbitration Agreement specifically allows seeking relief in a Court of law, or where the dispute in question can be shown to be outside the ambit of the Arbitration Agreement, or in other extreme circumstances.
What is the Procedure for instituting an Arbitration?
An arbitration may either be institutional or ad hoc. Institutional arbitrations have the procedural infrastructure of the arbitration provided for by the institute. While the Sri Lanka National Arbitration Centre (SLNAC) and the ICLP Arbitration Centre (Institute for the Development of Commercial Law and Practice) are local institutes, the ICC International Court of Arbitration and the Singapore International Arbitration Center (SIAC) operate on a global scale. On the other hand, parties choosing ad hoc arbitrations must determine such arbitral proceedings determined within the Arbitration Agreement. They may use the UNCITRAL Model Rules of Arbitration as a framework in determining the aforementioned aspects of the arbitration.
What is the Composition of an Arbitral Tribunal?
As aforesaid, the parties may determine the number of Arbitrators via the Arbitration Agreement. Where the Arbitration Agreement does not provide for this, the number of Arbitrators shall be three . Where parties appoint an even number of Arbitrators, the said Arbitrators shall jointly appoint an additional Arbitrator who will act as Chair.
The general practice is for an Arbitral Tribunal to consist of either one or three Arbitrators. In the case of a sole Arbitrator, if the parties cannot agree on the Arbitrator, the High Court will appoint an Arbitrator in their place, upon request by one party. In the case of three Arbitrators, the parties shall each appoint an Arbitrator, following which the two appointed Arbitrators will appoint the third Arbitrator who will act as Chair. If a party fails to appoint an Arbitrator within 60 days of the request by the other party or if the appointed Arbitrators fail to appoint the third Arbitrator within 60 days of their appointment, the High Court will appoint an Arbitrator in their stead, upon request by one party.
An appointed Arbitrator may only be challenged on the basis of justifiable doubts as to his impartiality or independence . Accordingly, Arbitrators have a duty to disclose without delay, both before their appointment and thereafter anything which may raise justifiable doubts in relation to the same. A party shall, unless otherwise agreed, first challenge an Arbitrator before the Arbitral Tribunal within 30 days of them becoming aware of the circumstances which give rise to the aforesaid doubts. Where such party is dissatisfied with the Order of the Tribunal, they may within 30 days of receiving the same, Appeal the order in the High Court.
How Can an Arbitral Award be Enforced?
A party may, within 1 year after the expiry of 14 days of the Arbitral Award being made, apply to the High Court for the enforcement of the Award. Where such application is made and there is no application for the setting aside of such Award or the Court sees no cause to refuse the enforcement of such Award under the Act, it shall give judgment and decree accordingly. On the other hand, an Arbitral Award made in an arbitration held in Sri Lanka may be set aside by the High Court where the party making the application furnishes proof that the criteria set out in Section 32 of the Arbitration Act is satisfied, within 60 days of the receipt of the Award.
Can an Arbitral Award be Appealed?
The Act provides that an Appeal or Revision in respect of any Order, Judgment or Decree of the High Court in the exercise of its jurisdiction under the Act may arise only from an Order, Judgment or Decree of the High Court for reference to the Supreme Court only on a question of law and only with the leave of the Supreme Court.
What are some Current Issues Prevalent in Arbitration in Sri Lanka?
The current system of arbitration in Sri Lanka faces a number of challenges. For example, a lack of awareness and education of the principles of arbitration among arbitration practitioners perpetuates the bringing of ‘courtroom procedure’ into arbitrations, thereby stultifying arbitration proceedings. Similarly, a lack of proper trained transcription service providers and modern platforms for the provision of such services are another two factors that contribute to the delay and loss of confidence in the arbitration system in Sri Lanka.
The Commercial Law Reform Sub-Committee recognized the requirement to study the facts surrounding the field of Arbitration in Sri Lanka and introduce a new Act. Accordingly, in February of this year (2022) a proposal was tabled to the Cabinet of Ministers to introduce a new Arbitration Act. The proposed Act would address existing barriers at the settlement and enforcement stages of decisions and enable large scale foreign and domestic investment in Sri Lanka by, inter alia, providing a clearer definition of what constitutes an Arbitration Agreement, expediting the process of appointment of Arbitrators, and facilitating the joinder of parties and consolidation of Arbitration proceedings. Cabinet approval has been obtained in respect of the said draft and the Bill is currently before the Legal Draftsman
This is only an overview of the applicable law and should not be relied upon as legal advice or recommendation by D. L. & F. De Saram, a leading law firm in Sri Lanka.
If you require our advice, please do send us a message - contact us