Financial Times

Arbitration -impetus for conducive investment climate in Sri Lanka
By Sunil Karunanayake
Conflict resolution has been associated with the Sri Lankan culture for a long time even before the foreign dominance. Today alternate dispute resolution methods like mediation, conciliation and adjudication are becoming more popular and effective given the long delays associated with the court system.

Sri Lanka went ahead in the region with the enactment of the Arbitration Act no 11 of 1995, which replaced the outdated provisions of the civil procedure code and the Arbitration Ordinance. India followed suit but such mechanisms are still not found in most countries in the SAARC region. Sri Lanka is also a signatory to the New York Convention, which facilitates enforcement and recognition of foreign arbitral awards. Foreign investors look forward to arbitration to facilitate conflicts in commercial contracts hence legally enforceable dispute resolution mechanisms enhances the quality of the Investment climate. These observations came from S. S. Wijeratne, Secretary General of the Institute for Development Of Commercial Law & Practice (ICLP) Sri Lanka, in his key note address at a recent seminar on “Construction Arbitration” held in Colombo.

ICLP which hosted this seminar has enacted a modern arbitration law with the assistance of SWEDECORP (Swedish International Enterprise Development Corporation) and SILD (Swedish Institute for legal Development). Arbitration is conducted at the centre according to the ICLP rules facilitating both domestic and foreign arbitrations. The rules are modeled on the rules of the Arbitration Institute of Stockholm Chamber of Commerce. ICLP also conducts a Diploma course to promote a wider knowledge of law and practice of Arbitration.

Construction Industry
Construction, a highly globalised industry, is said to be the barometer of the economic activity of a country and a complex venture involving experts from the fields of engineering, architectural, legal and banking etc apart from the employer and the contractor.

These are also high-risk, short-term ventures. During a given period a large number of foreign and local construction contractors are actively engaged in Sri Lanka in many projects involving buildings, road works, water works, power generation, etc resulting in a need for speedy conflict resolution without hampering the project progress.

Hence the theme of the seminar “Construction Arbitration” seems appropriate and timely for Sri Lanka now embarking on a large number of infrastructure projects in addition to the tsunami rebuilding.

Applicable Law
K. Kanag Isvaran, an eminent Commercial Law expert who is considered as the father of the Arbitration Act of Sri Lanka, making his presentation on Applicable Law of Contract explained the need to select the appropriate law by the Arbitral Tribunal when parties have failed any designation of law, by applying the law determined by the Conflict of Laws rules (also referred as the private International Laws) which it considers as applicable.

These situations arise when contracts are performed in a foreign country or parties themselves being foreigners. He said Sri Lankan laws permits consideration of general justice and fairness or trade usages only if the parties have expressly authorized it to do so and quoted common trade usages found in practice.

Disputes must be resolved with regard to the law as the International Commercial Arbitration does not exist in a legal vacuum, apart from the wishes of the parties governing law or the law of the place or seat of the arbitration must be taken in to account. Different legal systems or legal rules may impact on the international arbitral process. Selection of the applicable law is crucial to govern the several potential issues in a dispute resolution.

Justice Saleem Marsoof in his presentation on recognition & enforcement of arbitral awards in construction cases emphasized that arbitration has become one of the most popular means of dispute resolution in construction cases. Sri Lanka has fully acceded to the New York Convention providing for universal recognition and enforcement of arbitral awards.

Notwithstanding this position important issues could still arise in regard to the uniform application of the provisions of the convention. Sri Lankan courts have much to learn from the experiences of other convention states. Countries like Angola, Bhutan, Kosovo, Maldives, Myanmar, Iraq and Taiwan have still not become party to any such conventions. Given this background the Arbitration Act of Sri Lanka is a new law of vital importance in construction cases given the large-scale foreign investment and international joint ventures in this field. Justice Marsoof further reiterated that our courts which have generally been conscious of the “responsibility and Commitment” associated with Sri Lanka’s international obligations have endeavoured to honour foreign arbitral awards without resorting to technicalities.

He went on to state that Sri Lanka has complied with such awards even prior to the enactment of the Arbitration Act. Justice Marsoof was confident that in time to come our courts would show greater sensitivity and strive to hold the scales even in making their unique contribution to the development of the law in this field.

(Comments on this article could be sent to the writer at suvink@eureka.lk)

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