Arbitration in Sri Lanka is governed by the Arbitration Act No. 11 of 1995 (“The Act”). It is modelled on UNCITRAL principles and reinforced by Sri Lanka’s ratification of the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards.
1. What Is Arbitration?
Arbitration is a method to resolve disputes between parties. It is an alternative to instituting court proceedings. It is a process, in terms of which parties appoint a neutral third party(ies) (the arbitrator/s) to determine the outcome of the dispute. The decision of the arbitrator is final and binding on the parties to the dispute. The parties usually commit to arbitration as a dispute resolution mechanism, by inserting an arbitration clause in the relevant agreement between the parties. Typically, the commitment to resolve disputes through arbitration is established through the inclusion of an arbitration clause in the pertinent contractual agreement between the parties.
In Sri Lanka, the following types of commercial arrangements would most commonly include arbitration clauses:
- Construction and infrastructure agreements;
- International trade agreements; and
- Joint ventures, shareholder agreements, franchising arrangements, and long-term supply contracts.
Arbitration enables parties to retain control over process. This includes, the appointment of the arbitrators, including the number of arbitrators, the language of proceedings, the venue, and the applicable rules of evidence. Hearings are private, and awards are not published, which is of particular interest to businesses when their commercial terms or counterparty relationships are at stake. Critically, arbitration can be substantially faster than court proceedings, where complex commercial disputes frequently extend over several years in court proceedings.
Arbitration also enables the parties to appoint arbitrators with specific expertise in the subject matter and the underlying commercial transactions. For instance, a party in a construction dispute can seat a quantity surveyor alongside a lawyer or a former judge.
2. The Arbitration Act No. 11 of 1995 (“Act”)
The Act governs all arbitration proceedings in Sri Lanka. It applies to both domestic and international disputes provided the parties vested jurisdiction with Sri Lanka – i.e. place (seat) of arbitration.
2.1 Scope of application
The Act applies to all arbitration proceedings commenced in Sri Lanka.
2.2 Party autonomy
Parties are free to design their own process, in that they may agree on the number of arbitrators, the rules of procedure, the language of proceedings, the venue, and the applicable substantive law. (Sections 6, 7, 16 & 17 of the Act) Subject to the terms of the arbitration agreement, parties may choose institutional arbitration, such as through the Sri Lanka National Arbitration Centre (SLNAC) or ICLP Arbitration Centre or proceed on an ad hoc basis.
2.3 Judicial restraint
Courts are not permitted to intervene in the arbitral proceedings except as specified in the Act. For example, assisting with appointment of arbitrators where parties have not been able to agree on such appointments. Section 05 the Act specifies that where a party to an arbitration agreement institutes legal proceedings in a court against another party to such agreement instead of arbitration, the Court shall have no jurisdiction to hear the case if the other party objects to the court exercising jurisdiction. However, there are limited exceptions such as instances where Court may intervene for limited purposes such as the grant interim relief pending arbitration proceedings.
2.4 Enforcement
An arbitral award must be enforced through court under the provisions of Part VII of the Act. Such awards will be treated similarly to a judgment delivered by the courts itself.
2.5 New York Convention (“Convention”)
Sri Lanka’s ratification of the Convention is implemented through the Act, enabling the recognition and enforcement of foreign awards in Sri Lanka and, reciprocally, the enforcement of Sri Lankan awards in over all the signatories (170 signatory states) to the Convention.
3. How to Initiate Arbitration Proceedings in Sri Lanka?
The right to refer a matter to arbitration does not arise automatically from a contractual disagreement. It must be included in a valid arbitration agreement – i.e. typically contained in the underlying agreement between the parties to the dispute. The process must be initiated through a formal triggering act such as a written notice of arbitration.
3.1 The arbitration agreement
The underlying agreement between the parties agreeing to arbitration as a dispute resolution process. Section 03 of The Act requires it to be in writing, which in practice means either a standalone arbitration agreement or far more commonly, an arbitration clause included in a commercial contract. Sri Lankan courts will generally decline to exercise jurisdiction in terms of section 05 of the Act over disputes where the underlying contract contains an agreement between the parties to refer disputes to arbitration (subject to limited exceptions such as maintaining status quo until the constitution of the arbitral tribunal etc).
3.2 Commencement of arbitration
The Arbitration is deemed to commence when, after a dispute has arisen, a party receives notice requiring the dispute to be referred to arbitration, or requiring that party to appoint, join in appointing, or concur in appointing an arbitral tribunal. The party seeking to commence arbitration proceeding must serve a formal notice on the other party to the dispute.
3.3 Appointment of the tribunal
Section 07 of The Act specifics that the parties shall be free to agree on a procedure for appointing the arbitrators, subject to the provisions of this Act. Usually, upon receipt of notice of arbitration, the respondent then nominates its arbitrator or concurs with the appointment of the sole arbitrator (based on the arbitration agreement). Where two parties appoint separate arbitrators, both arbitrators thereafter jointly select the presiding arbitrator, typically a retired judge or senior practitioner. If a party fails to nominate within the agreed or statutory timeframe, either party may apply to the commercial high court to make the requisite appointment.
3.4 Arbitrators
The parties are free to agree on the number of arbitrators and the procedure of their appointment under section 6 and 7 of the Act respectively (subject to the provisions of the Act). For example, in a three-member tribunal, each party appoints one arbitrator and the two appointed arbitrators appoint the third. but if the appointment process fails, the High Court may make the necessary appointment upon the application of a party basis. Arbitrators must be independent and impartial when conducting the proceedings.
4. Enforcement of Arbitral Awards in Sri Lanka
4.1 Domestic enforcement
As provided by the Act (Section 31) a party to an arbitration agreement pursuant to which an arbitral award is made may, within one year after the expiry of fourteen days of the making of the at award apply to the High Court for the enforcement of the award. An arbitral award made in Sri Lanka is enforced by filing an application with the Commercial High Court. The Court will, in the ordinary course, treat the award as equivalent to a court judgment and issue the necessary enforcement orders. Conversely a party dissatisfied with an arbitral award has the option of making an application to the Commercial High Court under Section 32 of the Act within 60 days of the receipt of the award requesting for the award to be set aside. The grounds on which it may refuse enforcement, or set an award aside, are clearly defined and limited to, lack of jurisdiction, incapacity of a party, invalidity of the arbitration agreement, a fundamental denial of natural justice, or conflict with public policy.
4.2 Foreign awards
A party holding an award made in a Convention signatory state may apply to enforce it in Sri Lanka under Section 33 of the Act. The courts will recognize the award unless one of the grounds for refusing recognition and enforcement as set out in Section 34 of the Act (similar to the convention’s enumerated defences) is successfully raised.
4.3 Appeals
Section 37 of the Act provides for a limited right of appeal to the Supreme Court against an order/ judgment/ decree of the Commercial High Court which is restricted to a question of law. Here, an applicant will be required to initially obtain leave (i.e. permission) of the Supreme Court to proceed with such an appeal in the first instance.
5. Why arbitration?
5.1 Confidentiality
Court proceedings in Sri Lanka are generally public. Arbitration is not. Where the dispute involves sensitive pricing, proprietary process information, or a commercial relationship the parties wish to preserve, this difference is significant.
5.2 Technical expertise
An arbitral tribunal can be constituted to include practitioners or experts with directly relevant domain knowledge, e.g. construction, shipping, or finance, that a court may not possess.
5.3 Speed
Institutional arbitrations in Sri Lanka commonly resolve disputes more expeditiously than courts.
5.4 International enforceability
As Sri Lanka is a signatory to The New York Convention, this gives arbitral awards a global enforcement footprint that court judgments do not automatically enjoy.
5.5 Procedural control
Language, venue, timetable, and process are all negotiable, and that flexibility has real commercial value. If any party identifies a conflict of interest concerning the appointed arbitrators, they have the right to formally express their concerns and request the appointment of a different arbitrator.
5.6 Preservation of Relationships
The arbitration process can be less adversarial than litigation, which may help preserve business relationships between the parties post-dispute.
6. FAQ’s
The Arbitration Act No. 11 of 1995 is broad in its scope, and most commercial disputes, including those arising from construction contracts, shipping and logistics agreements, joint ventures, franchise arrangements, supply contracts, and service agreements, are capable of resolution through arbitration. The primary limitation is that certain matters are not arbitrable, such as, disputes involving status, criminal liability, or matters reserved by statute for court determination cannot be referred to arbitration.
Duration varies considerably depending on the complexity of the dispute, the procedural approach adopted, and whether proceedings are institutional or ad hoc. Relatively straightforward disputes managed efficiently by the parties can conclude in six to twelve months. Complex, multi-party cases, particularly those with voluminous documents, expert evidence, and multiple hearing days may take considerably longer. Domestic arbitrations, which account for the larger share of cases seated in Sri Lanka, generally proceed faster than international proceedings.
Yes. A domestic arbitral award may be enforced by application to court, which treats it with the same legal force as a court judgment. The grounds on which a court may decline to enforce or may set aside an award are narrow and confined to jurisdictional defects, incapacity, invalidity of the arbitration agreement, denial of natural justice, and public policy.
Courts in Sri Lanka will, in principle, uphold a valid, written arbitration clause and decline jurisdiction over matters within its scope. A clause may be challenged on grounds such as invalidity of the underlying contract, incapacity of a party, fraud, or duress.
The SLNAC and ICLP Arbitration Centres are the country’s principal arbitration institutions, providing administrative infrastructure, a maintained panel of arbitrators, procedural rules, and hearing facilities. Parties who adopt the SLNAC or ICLP rules in their contracts benefit from a structured framework that covers everything from the filing of a notice of arbitration to the issuance of the final award.
7. Conclusion
Arbitration in Sri Lanka offers businesses a mature, internationally compatible dispute resolution option grounded in a principled statute and supported by capable institutions. For parties with significant commercial relationships, cross-border exposure, or technically complex disputes, arbitration will often be the most rational choice, not as a fallback, but as a deliberate strategic decision made at the contract drafting stage.
Choosing the right arbitration clause, the right institutional rules, and the right seat at the outset is considerably easier and less expensive, than untangling a poorly drafted dispute resolution provision after a disagreement has arisen. Engaged, early-stage legal advice on these questions pays dividends that are difficult to quantify but impossible to miss when a dispute actually materialises.
