Prospective Amendments to the Arbitration Act: What it Holds for the Future of Sri Lanka

The Legal Profession, being amongst the oldest in the world, is one that requires its practitioners to persevere and to strive for continuous improvement. This applies to both established practitioners and Law students alike. Continuous improvement stems not only through execution but also in the acquisition of knowledge. Amidst the organizing of a prestigious annual venture honouring a great legal legacy, a group of Law students attempt to achieve this.

The H. V. Perera QC Memorial Moot Competition, also known as The Victor's Moot, is Sri Lanka’s first International Commercial Arbitration Moot Court Competition, organized by the Moot Society of Sri Lanka Law College. Since 2018, the Victor’s Moot has been held as an annual event honoring the name of Dr Herbert Victor Perera QC, a distinguished personality in the practice of law in Sri Lanka. This competition strives to provide a platform for all legal students to engage with their national and

international counterparts in head-to-head competition. Preparations are now underway by the Moot Society of Sri Lanka Law College to host the fifth edition of the H.V. Perera QC Memorial Moot Competition. This year, the competition is set to take place on a virtual platform on the 6th and 7th of August, 2022.

In the buildup to this year's competition, the Moot Society of Sri Lanka Law College engaged in discussion with an eminent legal personality in Sri Lanka, namely, Dr Kanaganayagam Kanag-Isvaran, President’s Counsel, on the subject of Commercial Arbitration in the Sri Lankan context.

Dr. Kanaganayagam Kanag-Isvaran is a distinguished President’s Counsel with 56 years of active practice at the Sri Lankan Bar. Today, he provides counsel to several Sri Lankan blue-chip enterprises and foreign corporations in the Original and Appellate courts. Dr Kanag-Isvaran PC specializes in Corporate law, Intellectual Property law, Banking and Finance, Shipping and Admiralty, Telecommunications and Information Technology and International Commercial Arbitration.

From 1994 to 2009, Dr Kanag-Isvaran PC served as a member of the Law Commission of Sri Lanka. He also served as a Member of the Council of the University of Colombo from 2005 to 2016. He was the Director of the Law & Society Trust from 2002 to 2013 and was also a Founder Director of the Institute for the Development of Commercial Law and Practice Arbitration Centre in 1996. He has also chaired several committees providing advice on new legislation. Furthermore, he has rendered an immense service as a visiting lecturer at the Sri Lanka Law College and the Faculty of Law, University of Colombo.

The following is a transcript of Dr Kanag-Isvaran's interview, where he shared his thoughts with the students of Sri Lanka Law College on the “Prospective Amendments to the Sri Lankan Arbitration Act: What it holds for the Future”.

1. Good Morning Sir. What do you see as one major reform to be made to the Sri Lankan Arbitration Act to make it more effective?

Remember that Amendments give more power for State functionaries to be involved in party autonomous consensual Arbitration proceedings which may or may not be desirable given the context. It needs to be fashioned to allow their involvement to make the arbitral environment more conducive to the aspirations of the parties. Legislative amendments need to play a supportive role in the arbitration process. What requires help in the Arbitral process are methods to make consensual arbitral process more effective.

That is to say, there needs to be less interference and unnecessary intervention by courts in arbitral proceedings because it's a consensual autonomous process. Generally, it's implied that parties agree to cooperate in arbitral proceedings. Parties even have the liberty to select the applicable law. There is an enormity of autonomy given to the parties.

Any amendment to be made to the Arbitration Act must therefore be to assist the arbitral process. For example, they need to identify what's lacking in the process, what steps cannot be done except by compulsion or assistance of a third-party judicial process.

When we look at the current Act we need to identify its deficiencies, in order to spruce up the present Act, to play a supportive role. Outside of the legislation we find that a great deficiency lies in the litigious cultural ethos of our society – which the lawyers carry into the arbitral process where party autonomy should reign supreme but does not.  Moreover, there are several instances where the Courts get involved in the arbitral proceedings, when they should not be doing so. The ideal situation is that Courts will intervene only when they are required to play a supportive role or questions of public policy arise which the legislature requires the courts to adjudicate the question.  

Therefore, any major reform should be directed at involving the Courts in a supportive role in the arbitral process and courts should not intervene except as provided in the law. Additionally, including provisions on Interimmeasures of protection is an area for consideration.

Arbitration is highly dependent on the autonomy of the parties and parties should be free to agree how their disputes are resolved subject only to safeguards as are necessary in the public interest. 

The involvement of the arbitrators is activated only after their appointment. During the period between the initiation of the dispute and appointment of arbitrators, if any issue arises there might arise a need to issue Interim measures of protection relating to the subject matter of the dispute.

Accordingly, in such a situation, the party can go to Court and seek an Interim Measure of protection. Section 5 of the Arbitration Act  which ousts the jurisdiction of the courts in relation to a matter that must be submitted to arbitration as per the agreement of the parties, however, does not prohibit the request for the  issue of Interim measures of protection as it is not in violation of Section 5 of the Act as the Court is not asked to resolve the parties’ dispute but rather to assist by issuing Interim measures to protect the subject matter of the dispute pending the constitution of the arbitral tribunal.

The Sri Lankan Arbitration Act lacks any provision dealing with Interim measures of protection prior to the constitution of the arbitral tribunal. Thus, it's an area we can say that needs to be legislated for.

In a decided case heard by the Court of Appeal, the last paragraph of the judgement addresses the issue of Interim reliefs. However, it has wrongfully held that the Interim measures ordered by court can last till the conclusion of the arbitral proceedings. The Interim Measure of Protection sought from Court in pending arbitral proceedings need to be consistent with Section 5 of the Arbitration Act. Accordingly, the Interim measure of protection needs to last only till the tribunal is constituted following which the tribunal decides on the Interim Reliefs. This is because only the arbitral tribunal is given the power to issue Interim Reliefs in Section 13 of the Arbitration Act.

2. Given the onset of the COVID 19 Pandemic and the transition to virtual hearings, how can the current Arbitration Act be amended to facilitate such virtual hearings?

The entire arbitral process is a private and confidential affair. Subject to the provisions of the Act, specifically Section 17, parties are free to agree on the procedure to be followed, owing to the concept of Party Autonomy. At present, there are many virtual hearing guidelines made by international bodies which can be adopted into the parties’ agreed procedure. Therefore, it will be counterproductive to have separate acts or amendments made to the current Arbitration Act in that regard because it defeats party autonomy if made compulsory and moreover once it's incorporated into the legislature, such legislations and procedures cannot be easily amended or changed later, even if it is to be used only as guidelines.

Therefore, in order to facilitate efficient virtual hearings, the rules made by institutions like IBA, ICLP, LCIA, SIAC can be followed as guidelines and these can be incorporated into the party’s own arbitration agreement. Further, public bodies like the Bar Association of Sri Lanka or other Arbitration Institutions could have virtual hearing guidelines made as rules to suit local conditions and make it available for people to voluntarily adopt them. No amendments to the Arbitration Act should be made in this regard.

3. Does the Arbitration Act permit joinders and consolidations and what is your opinion on their role in arbitration in Sri Lanka?

It depends. It is again up to the parties’ discretion to decide whether a multi-party Arbitral Proceeding should take place or not. This is because it becomes difficult to determine whether it's the same tribunal that should hear the dispute or a different tribunal. At the same time, there are rules which permit multi-party proceedings and this is up to the parties to decide. The law or the Arbitration Act doesn’t have to provide for it. However, there are rules published by certain institutions related to how these proceedings are done and how such proceedings need to be managed. Hence, the Arbitration Act could permit such consolidations and joinders but it is for the parties to decide whether they wish to do so or not. It cannot be made compulsory by an Act. There are certain rules that can be adopted in this regard and such can be followed for the purpose of consolidation, depending on the nature of the case. Therefore, it is up to the parties to decide and the Act should neither permit this nor prohibit it. This solely depends on the consent of the parties.

4. An Arbitration Proceeding in Sri Lanka was once controversially prolonged for more than 15 years. Should expedited procedures be introduced into the Arbitration Act to prevent such delays? If not, what are your suggestions for preventing such delays?

The Procedure doesn’t work by itself. It's worked by human beings. So, the delay in doing things is not the fault of the procedure but rather the fault of the people working the procedure. This is where the cultural ethos and discipline matter. Delays cannot be corrected unless sanctions are imposed.

Therefore, having a swift arbitration is in the hands of the parties involved. Some institutionalized arbitral bodies have time bars for the arbitrators to give the award for the Arbitration. This can be seen in the ICLP Expedited Arbitration Rules. If any party wants an extension of time, they must request for it, and depending on the nature of the Arbitration and according to the Rules, the institution has the discretion as to whether or not to grant an extension time. It's always in the interest of the parties to expedite the proceedings because International Arbitration is costly. People come from all over the world for Arbitration to Sri Lanka. Although they may not physically travel to Sri Lanka, they can take part in the proceedings from their respective countries.

On one occasion, we did an arbitration which involved an American, an Italian and an Englishman. They came here only for a period of two weeks for hearing oral testimony.

Prior to the completion of the pleadings, the exchange of pleading, and all directions and orders were all done from abroad. It was agreed that orders can be made in consultation with the other Arbitrators by the Chairman of the Tribunal alone. Since the chairman was empowered, all three Arbitrators needed not sign. So, there are little details that an experienced arbitrator will suggest to the Parties to expedite the process of Arbitration.

Even in the case of Ad-hoc Arbitrations where the procedure has to be agreed upon by both parties, they themselves can agree on processes that are swift and efficient. The progress and swiftness of arbitral proceedings rests entirely in the hands of the parties involved. England permits more applications to the courts in arbitration related matters because the English courts are swift.

Since the same cannot be said about our local courts, if this is permitted, a lot of time may be wasted – sometimes years. An arbitration that we started in the early 1990’s before the Arbitration Act of 1995 is awaiting disposal in the Supreme Court! Unfortunately, delays cannot be stopped because it is not possible to impose punctuality on anyone.

5. The Arbitration Act sets out that the Evidence Ordinance does not apply in the taking of evidence during arbitral proceedings. Which guidelines or rules govern such taking of evidence (eg. Cross-examination of expert witnesses)?

The International Bar Association [IBA] is another body that is integral in supporting the efficient practice of Arbitration around the globe. They publish various rules and soft laws including “Rules for Taking Evidence in Arbitration”. These rules also govern expert evidence and witnesses.

The importance of these rules is that they are very carefully crafted to apply across different jurisdictions.  It has been used here very often in construction contracts, where expert opinion often is required.

When experts are required, they are given the mandate to present their expert opinion on a matter. Both parties to the arbitration are entitled to this opportunity. It is common practice in international arbitral proceedings, that the experts will exchange their professional opinions, agree on common points and itemize matters on which they have not agreed before the actual hearing. Thereby, they minimize the differences and it is on these differences that the cross-examination will take place, making the process less time consuming and cost efficient.

In the case of an International Commercial Arbitration held in Colombo concerning a particular stretch of the Southern Expressway, there were three experts from Hong Kong who were the experts of the foreign contractor and who made their reports available to the experts appointed by the Local Employer. The local experts disagreed with the reports of the foreign experts. Later, oral evidence was led followed by the Arbitral Tribunal questioning them. Subsequently, they agreed to some of the points presented. The Tribunal then requested the Local experts to meet the foreign experts and agree on common points to save time. Unfortunately, the Local experts refused to do so. 

The party who refuses to proffer evidence will suffer and will be condemned in costs. The result was that the foreign employer got an award of an enormous amount in its favour. The arbitral process in international commercial arbitrations is very different from the traditional approach in the local court of law. It is better managed, more disciplined. No amount of legislative amendments to the Arbitration Act can assist one in this.  

One need not be told which evidence rules need to be followed. One must be free to do as they seem fit. This freedom can be used to cut off a lot of old baggage. Our Ordinance governing the submission of evidence is the 1886 Evidence Ordinance.

We haven't changed it much.  

A lot of baggage that can be cut off in that regard is for example, the Hearsay rule. It is abandoned in other jurisdictions. It's a question of assessment of whether you are believable or not.

Arbitral Institutions such as the ICLP, SIAC and HKIAC have rules and guidelines on expertevidence. They are basically the same. Expert evidence simply means that if someone is proficient in a certain subject, which I may not be aware of, I am guided by such a person.

There is a very interesting case which gives us an idea as to how expert evidence works. Many years ago, fishermen in Negombo stored the fish that they caught on ice. There was a company selling refrigerators, especially for fishermen. Since the fish came in batches to the seashore, the refrigerator doors were constantly opened and closed to store the fish. This affected the cooling of fish, which was important to preserve freshness.

The client bought one such fridge after communicating the requirements to the seller. The refrigerator functioned for a couple of months and then the ice started melting. Although repairs were done, it never functioned properly. So the company was sued in the District Court, on the basis that the refrigerator was not of a proper merchantable quality.

The Defendant disagreed. Therefore, the legal team had to lead evidence on the fact that the client specified what the requirements were. There must be expert evidence to show that repeated opening and closing of the refrigerator door would result in the reduction of the cooling process, and thus the fridge would not reach the optimum temperature required to operate over a day. The Plaintiff got a refrigeration expert to give evidence. Opposing evidence was also presented, after which he was cross-examined. Subsequently, the judgement was given in favour of the Plaintiff.

The expert has to be properly selected. Therefore, one must understand what the problem is and experts must be properly instructed. Everything cannot be provided by the law and rules. It'll be up to the individuals to decide on the material of discussion and evidence because if a party is dealing with expert evidence, it depends on the instructions given to him/her. If he is asked to examine the subject areas of A, B and C only, he cannot speak on D, E and F. Therefore, a common practice if we want an expert cross-examined is to ask him/her, “What were your instructions?”, “What were you told to look at and what were you asked to report on?” 

It cannot be legislated for. The law has been looked at in the wrong fashion. It is not for the law but for the parties to decide upon.

The statutes are merely intended to help the arbitral process, it cannot direct it or control it in anyway.

Standard formats are the norm, not rules or strict procedure. Hence, the

flexibility that you have in Arbitration is not found in court proceedings.

It is important that we don’t turn to the Arbitration Act to correct the arbitral process. Rather, one should look at the Act with the view of using it as an instrument to help the arbitral process. You, the parties, are the master of the whole process.

6. Which industries in Sri Lanka would reap the most benefits from Arbitration being made an effective method of Alternate Dispute Resolution?

Any dispute in any industry would benefit from Arbitration, provided that such dispute is arbitrable.

Essentially, Arbitration is available for all disputes except for that cannot be the subject of arbitration – not arbitrable – as a matter of public policy. This issue the Tribunal can now decide itself on the jurisdictional basis of kompetenz-kompetenz.

7. What steps could be taken to make Sri Lanka a viable seat of Arbitration for International Disputes?

Sri Lanka’s popularity as a viable seat of arbitration will rely on how alluring the overall package is. It depends on predominant matters such as the arbitral process being driven by Party Autonomy, having the least amount of judicial interference in the Arbitral process and reasonable logistics-related expenses. For example, the parties must be provided access to the relevant facilities that are required for the smooth conduct of arbitral proceedings not excluding accommodation, entertainment and other ancillary factors.

8. Given that Arbitration is an important field of Alternate Dispute Resolution and legal practice, do you believe Arbitration should be integrated into the law school curriculum and made more aware of within the law student community?

Yes, Arbitration and other modes of alternative dispute resolution are becoming more preferred than traditional litigation at present. It would be an added benefit for a law student to receive a comprehensive knowledge on the subject via the curriculum in their legal studies. Knowledge on Arbitration also has a wide application not limited to the domestic jurisdiction of Sri Lanka.

Therefore, learning Arbitration as a part of a student’s legal studies would open a number of diverse avenues for them in the field of law.

9. Would you endorse competitions like The Victor’s Moot to enhance the awareness and skill required to establish Arbitration as a viable mode of dispute resolution in Sri Lanka as opposed to traditional litigation?

Yes, the theoretical knowledge on arbitration may be received via a student’s curriculum, however opportunities to enhance the required level of practical knowledge is minimal. An Arbitration proceeding consists of both written and oral elements so developing oral advocacy is an important aspect. Mooting competitions such as The Victor’s Moot will allow students to develop their oral advocacy in a simulated environment much similar to the actual scenarios. Furthermore, the awareness on Alternative Dispute Resolution created by The Victor’s Moot will be beneficial to the legal student community as a whole.

The valuable insight of legal luminaries and forefathers have benefited the legal profession on numerous occasions. The Moot Society of Sri Lanka Law College expresses its heartfelt gratitude to Dr. Kanag-Isvaran PC. for allocating some of his valuable time to educate young law students and the Sri Lankan community as a whole on the timely issues related to the field of Arbitration.

The legal profession and legal landscape is ever evolving. As such, it is crucial that methods of Alternative Dispute Resolution are invested in and developed in order to facilitate Sri Lanka’s recognition as a hub for dispute resolution. The economic crisis Sri Lanka faces today will no doubt open the minds of its citizens to think critically, to think out of the box, and to identify key areas in which to capitalize on. Through this, and through the support of the state, Sri Lanka can strive to become a sought-after destination for local and international arbitration matters to be heard.