Shanaka Gunasekara and Avindra Rodrigo of FJ & G de Saram set out the salient characteristics of dispute resolution in Sri Lanka, where ADR methods have been statutorily embedded in the system
Jurisdiction of a court over a dispute is ordinarily determined by the place of the residence of the defendant, where the land in dispute situates, where the cause of action arises or where the contract sought to be enforced is made.
However, the power to hear and determine certain causes of action may specifically be vested with a court by an act of the parliament and such power may also be subject to other limitations such as pecuniary limitations imposed by law.
Accordingly, the jurisdiction of a court over a particular dispute is mostly not under the control of the parties. Being partly a common law jurisdiction, the doctrine of stare decisis (doctrine of judicial precedent) is applicable in Sri Lanka.
Commercial, IP and company law litigation
The High Court of the Provinces (Special Provisions) Act (10 of 1996) resulted in the establishment of the Commercial High Court of Colombo (CHC). It bestows on the CHC exclusive jurisdiction over all actions where the cause of action arises from commercial transactions including: causes of action relating to banking; export or import of merchandise; services affreightment; insurance; mercantile agency; mercantile usage; and, the construction of any mercantile document in which the debt, damage or demand is for a sum exceeding LKR 5 million ($76,000).
With the view of introducing speedy solutions to commercial disputes between parties (local and foreign), the number of appeals available against an interlocutory or final order made by the CHC is limited to one. Further, the appeal should be lodged with the apex court of the country (the Supreme Court of Sri Lanka).
All applications and proceedings under the provisions of the Companies Act 07 of 2007, the Intellectual Property Act 36 of 2003 and the Arbitration Act 11 of 1995 should also be instituted in the CHC.
It takes an average of two to three years for the CHC to pronounce its verdict on a dispute arising from a commercial transaction governed by the ordinary procedure or on a typical dispute over intellectual property. Matters such as those arising from bills of exchange, applications under the Companies Act such as minority suits, derivative actions, and shareholder actions governed by shortened forms of special procedure may take up to one year to conclude.
It has been customary for parties, whether local or foreign, to prefer an appeal against verdicts given by the CHC to the Supreme Court.
While leave should be first obtained from the Supreme Court for an appeal lodged against an interlocutory order to proceed to the stage of argument, an appeal lodged against a final order is usually subject to a formal argument.
An investor who engages in a business such as banking, finance, import or export that is regulated by a statutory authority and is affected by an illegal and unreasonable act or decision by the authority, may invoke the writ jurisdiction of the Court of Appeal to have prerogative writs such as certiorari, mandamus and prohibition issued against such authority.
Admiralty jurisdiction (over all ships, local or foreign owned, within the jurisdiction of Sri Lanka) pertaining to actions in rem and in personam should be instituted before the High Court of Colombo. An ex parte warrant of arrest may be obtained against any ship within the jurisdiction of Sri Lanka upon showing a valid cause.
A party who invokes the jurisdiction of a court can seek interim relief pending the determination of the dispute. A party may also obtain ex parte interim relief enjoining or restraining the other from doing or performing any act. Such ex parte orders may be vacated on the application of the aggrieved party on showing sound and valid reasons to the court.
Sri Lanka does not recognise or permit class-action-style litigation. As an initiative, a special committee has been appointed by the Bar Association of Sri Lanka to suggest amendments to the civil procedure of Sri Lanka. One such proposed amendment made by the committee is the introduction of class-action-style litigation to Sri Lanka.
The practice of forum shopping common to western jurisdictions, which allows parties to file or transfer an action to the court which is most likely to grant the desired result, is neither recognised nor permitted in Sri Lanka.
Every party to an action is required, no less than 15 days before the date fixed for the trial of an action, to file in court (after notice to the opposite party) a list of witnesses to be called by such party at the trial. Additionally, a list of the documents relied on by such party and to be produced at the trial must be also filed within such time limit.
Parties are allowed to present interrogatories to clarify facts and help to determine in advance what facts will be presented at the trial. This procedure is used to obtain admissions of facts from the party interrogated, which is necessary for the party interrogating, to prove and establish their case.
Any party may, at any time before the hearing and with leave of the court obtained ex parte, deliver interrogatories in writing for the examination of the opposing party, with a footnote stating which of such interrogatories each person is required to answer. However, no defendant is permitted to deliver interrogatories for the examination of the plaintiff unless such defendant has previously tendered his answer.
A party may apply also to court to compel the other party, by way of an affidavit, to declare all documents in their possession which are relevant to the matter in dispute.
A party may also obtain an order from court, ex parte to compel the opposing party to produce any documents referred to in their pleadings, or affidavits for inspection of the party making such application and to obtain copies of such documents.
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Alternative dispute resolution
The alternative dispute resolution (ADR) mechanisms in Sri Lanka have been embraced and accepted by disputants in Sri Lanka as ways to avoid litigation.
Accordingly, initiatives have been taken towards institutionalising conciliation, mediation and arbitration.
In Sri Lanka, both mediation and arbitration mechanisms have been statutorily recognised under the Mediation Boards Act 72 of 1998 (MBA) and Arbitration Act 11 of 1995 (Arbitration Act) respectively.
This recognition has now allowed the parties to enter into contracts, such as commercial contracts including clauses stipulating that any dispute arising out of such contract should be settled by less conventional and more efficient mechanisms such as mediation and arbitration.
Whilst mediation and conciliation are more settlement-oriented ADR mechanisms, arbitration is an effective and expeditious method of ADR capable of producing legally enforceable awards.
In terms of the Arbitration Act, if a party to an arbitration agreement institutes legal proceedings in court against another party to such agreement, the court will have no jurisdiction to hear and determine such matters if the other party objects to the court exercising such jurisdiction. However, parties can mutually agree to resolve disputes by way of litigation, despite having such a clause in the contract.
Under the Arbitration Act, the parties are free to determine the procedure of arbitration and the appointments of arbitrators. Where the arbitration agreement is silent on such matters, the Act provides for the same.
Sri Lanka, as a signatory to the New York Convention on the recognition of foreign arbitral awards, enacted the Arbitration Act among other things to give effect to the New York Convention. Accordingly, the Arbitration Act provides for the enforcement of both foreign (defined in the Act to mean an arbitration conducted outside Sri Lanka) and local (arbitrations conducted in Sri Lanka) arbitral awards.
A party to an arbitration award made in Sri Lanka may apply to the CHC within 60 days of the receipt of the award, to have it set aside on the limited grounds set out in the Arbitration Act. Such grounds include incapacity of a party, the award being contrary to public policy, and the award dealing with a subject matter outside the scope of the arbitration agreement.
A party who obtains an arbitration award (foreign or local) who wishes to have it enforced in Sri Lanka should make an application to the CHC, within one year of the expiry of 14 days of making the award.
Where the court sees no cause to refuse recognition and enforcement of the arbitral award under the Arbitration Act, the court will enter a judgment accordingly. After the judgment is entered, the decree will be entered. An appeal may be lodged to the Supreme Court only on questions of law and with the prior leave of the Supreme Court. The parties may also agree in writing to exclude any such right to appeal, thereby making the judgment of the CHC enforcing the arbitral award final between the parties.
The recognition and enforcement of a foreign arbitral award under the Arbitration Act may be refused on certain limited grounds including: where a party to the arbitration agreement was under some incapacity; the agreement is not valid under the law to which the parties have subjected it; the party against whom the award is invoked was not given proper notice of the appointment of an arbitrator or of the arbitral proceeding or was otherwise unable to present his case; the award deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration; or, recognition or enforcement of the award is contrary to the public policy of Sri Lanka.
It has been held that the court has limited jurisdiction to grant interim relief. This may be sought, ex parte, to a party to an arbitration agreement pending the constitution of the arbitral panel, where such party proves to the satisfaction of the court that they would suffer irreparable and irremediable loss if the other party were not restrained until the tribunal is constituted and appropriate application is made to the tribunal.
Former chief justice of Sri Lanka, in his court ruling in Ceylon Petroleum v Ocean Spirit Maritime, set an important precedent both in relation to arbitration and maritime law. A dispute between the parties arose in relation to a carriage of goods by sea contract, where the respondent alleged a short payment of freight in respect of the goods shipped to the appellant.
In addition to the charter party, the parties entered into a separate arbitration agreement. However, the appellant refused to participate in the arbitration proceedings on the basis that it was not bound by the arbitration agreement as the main contract of the charter party was defective.
The court, having had recourse to the doctrine of separability, arrived at the conclusion that the arbitration agreement in any event survived the main contract, irrespective of whether the main contract was defective or not.
Moreover, considering the evidence produced before the court, it was held that even though the contract was not signed, it created rights and liabilities on the respective parties as the attendant circumstances inferred the intentions of the parties to be bound by such terms. It further established that grounds to set aside an arbitral award under the Arbitration Act, should be operative at the time of enforcement of the award.
In Sri Lanka, there is no system of sealed court records. Therefore, the disputants (particularly multinational companies) may opt for arbitration as the most preferable method to maintain the confidentiality of the proceedings.
In recent years, several arbitration centres, such as the Sri Lanka National Arbitration Centre, ICLP and Colombo International Arbitration Centre have emerged in Sri Lanka to facilitate and accommodate arbitration tribunals.
Where both parties reside within the boundaries of the country, in order to minimise costs, it is best to choose a centre which is located in Sri Lanka.
The Institute for the Development of Commercial Law and Practice (ICLP Arbitration Centre) is one of the most effective arbitration centres in the country. ICLP has the full range of facilities, including conference, multimedia, recording, transcribing, and catering facilities. A list of qualified arbitrators who have registered with ICLP is available, who are at all times subject to the rules of the ICLP Code of Ethics.
The government of Sri Lanka also recently set up an arbitration centre, providing all necessary facilities, to attract international arbitrations.
However, South East Asia's Singapore International Arbitration Centre (SIAC) has over the years emerged as the premier arbitration centre in the region.
Foreign corporations, especially Fortune 500 companies and other multinational giants, often opt for SIAC for their arbitration agreements with local entities, including the government of Sri Lanka (such as in Citibank v Sri Lanka).
Not only does SIAC have a comprehensive set of rules to conduct arbitrations, but the centre arguably provides the best facilities to conduct international arbitrations in the region.
ADR: clarity is key
The parties may customise and refine the basic ADR procedures to better suit their demands, keeping in line with the existing laws that may govern the particular mechanism. It is imperative that the clause is clear as to the scope of the resolution and the types of disputes which may be covered, tailoring them to the contract at hand.
In an arbitration clause, it is best to always prescribe the number of arbitrators, the arbitration institute, the rules that will govern the process and the language in which it will be conducted to avoid any future conflict. The following clause has been recommended by ICLP which is widely used in Sri Lanka;
Any doubt, difference, dispute, controversy or claim arising from, out of or in connection with this contract, or on the interpretation thereof or on the rights, duties, obligation, or liabilities of any parties thereto or on the operation, breach, termination or invalidity thereof, shall be settled by arbitration in accordance with the Rules of the Arbitration Centre of the Institute for the Development of Commercial Law and Practice.
Although the law provides for seeking interim relief pending the constitution of the arbitral panel under limited circumstances, it is advisable to state so with clarity in the arbitration agreement itself.
There is no domestic legislation specifically dealing with the question of state or sovereign immunity in Sri Lanka. It is necessary to refer to guidance from customary international law or other jurisdictions whenever a plea of immunity is raised.
However, under the Constitution of Sri Lanka, the President of Sri Lanka enjoys immunity from suits for anything done or omitted in the President's official or private capacity. Public corporations in Sri Lanka have no state immunity in relation to the commercial transactions they enter into.
However, decrees cannot be executed by courts against the property and assets belonging to the state.
Sri Lanka has, over the years, signed a number of bilateral investment treaties (Bits) with a number of countries. The majority of Bits provide for arbitration as the final dispute resolution mechanism.
Sri Lanka is also a signatory to the ICSID Convention.
There have not been many international arbitrations involving the state of Sri Lanka. In AAPL v Sri Lanka, Sri Lanka complied with the arbitration award made against it.
Enforcement of foreign judgments
The Foreign Judgments Ordinance 04 of 1937 is in place for the enforcement of judgments given in certain countries. The Ordinance was enacted during the colonial era to cause reciprocal enforcement judgments given under Her Majesty's dominion. The application of the Ordnance is therefore limited.
Judgments given in countries such as the UK, Northern Ireland, Hong Kong, Mauritius, New South Wales, Tanganyika, Uganda, Victoria, the Federation of Malaya, the Australian Capital Territory, the Northern Territory of Australia, New Zealand and the Trust Territory of Western Samoa, Queensland, Western Australia, South Australia and Tasmania are recognised and can be enforced in Sri Lanka.
A person, as a judgment-creditor under a judgment to which the Ordinance applies, may apply to the District Court of Colombo at any time within six years of the date of the judgment (or after the date of the last judgment given in those proceedings) to have the judgment registered.
Registration of the judgement may be set aside on certain grounds, including: where the court is of the view that the enforcement of the judgment would be contrary to public policy in Sri Lanka; if the court that delivered the judgment is deemed to have no jurisdiction; and, if the defendant did not received notice in time to appear and defend the proceedings.
The main consideration for an investor choosing a foreign court is to ascertain whether such court's judgments are recognised under the Ordinance. Judgments by courts that are not recognised, including any other proposed court systems such as the European Commission's global investment court, will have little or no value when it comes to enforceability in Sri Lanka.
However, investors are free to select any international arbitration forum to arbitrate their disputes as the foreign arbitral awards are recognised and enforced under the Arbitration Act.
First published by our sister publication IFLR magazine. Take your free trial today.
FJ & G de Saram
About the author
Avindra Rodrigo is a Barrister at Grey's Inn and a practitioner with extensive experience in dispute resolution in Sri Lanka. He focuses on hostile takeovers and mergers, minority protection and derivative actions, telecommunications, intellectual property disputes, banking actions and public law actions.
Rodrigo has appeared on behalf of leading corporations in numerous contentious local and international litigation and arbitration proceedings. He is counsel for F J & G De Saram, which is the oldest and one of the leading law firms in Sri Lanka. He has assisted pro bono in the establishment of the Institute for the Development of Commercial Law and Practice (ICLP) Arbitration Centre. He is a prominent member of the Bar Association of Sri Lanka and has lectured at legal conferences, prepared course material for the LLB programme of the Open University of Sri Lanka and conducted practical training courses for the Sri Lanka Law College.
FJ & G de Saram
About the author
Shanaka Gunasekara is a senior litigator at FJ & G de Saram. He practises corporate and commercial litigation and arbitration and has appeared as junior counsel and counsel in judicial and quasi-judicial proceedings before courts, tribunals and other administrative bodies. His main practice areas include administrative law, admiralty law, company law, insolvency law, international commercial credit and customs law. During his tenor as litigator, he has appeared for and advised several local and international leading banking, finance and information technology service companies and conglomerates in negotiation, arbitration and commercial litigation proceedings.