Management, Procurement and Law Proceedings of the Institution of Civil Engineers

Management, Procurement and Law 165

Volume 165 Issue MP2
May 2012 Issue MP2
Pages 91–94 http://dx.doi.org/10.1680/mpal.10.00010
Paper 1000010
Construction arbitration in Sri Lanka Received 10/04/2010 Accepted 29/11/2010
Ranasinghe
Keywords: contracts & law/disputes & arbitration

ICE Publishing: All rights reserved

Construction arbitration
in Sri Lanka
Ananda Ranasinghe MEng, MTech, PGD, CEng, IPEng, AIStructE, FIE (SL), MICE
Attorney-at-Law, Battramulla, Sri Lanka

In the process of dispute resolution, arbitration has been practised by commercial personnel over a long period. With
the introduction of the Arbitration Act No. 11 of 1995, the process of arbitration has been refined and regularised in Sri
Lanka. As the grounds for appeal in the Sri Lanka Arbitration Act are very limited, arbitration has become a popular
way of resolving disputes. According to the Sri Lanka Arbitration Act, unless the parties agree otherwise, when an
arbitration clause is incorporated into the contract, the jurisdiction of the court is denied. The procedure followed in Sri
Lanka is a mostly ad hoc procedure. This is due to the fact that parties are reluctant to follow the institutionalised pro-
cedures as they are in some instances inconsistent with the Arbitration Act. There are three widely accepted procedures
adopted in Sri Lanka and they are namely – document only, the short procedure and full procedure. The full procedure
adopted in Sri Lanka is identical to the court procedure in Sri Lanka. It is important that arbitrators involved in arbitra-
tion must gain knowledge in construction law and technical knowledge in order to conduct arbitration successfully.

1. Introduction it becomes incumbent to briefly review the other methods that

Arbitration as a means of resolving disputes has been practised
from the time man was old enough to argue. The first recorded
reference to a form of arbitration is in Plato’s ‘The Laws’ written
about 350 BC which stated that ‘in the first place there shall be
elected judges in the courts who shall be chosen by the plaintiff
and the defendant in common: these shall be called arbiters
rather than judges’. This was followed by the wide acceptance
of this procedure in Greece where the pressures on courts were
relieved by the appointment of private arbitrators for the equita-
ble settlement of disputes (Kanag-Iswaran and Wijeratne, 2007).
Other countries also began to accept arbitration as a means of
dispute resolution and laws began to emerge which gave legal
recognition to the system and brought about a formalisation
of the procedures.
In Sri Lanka the first enactment was the Arbitration Ordinance
of 1886 which gave legal recognition to arbitration by agree-
ment. This Ordinance and certain sections of the Civil
Procedure Code dealing with arbitration have now been
repealed and replaced by the Sri Lankan Arbitration Act
(No. 11 of 1995) (Parliament of Sri Lanka, 1995) bringing all
arbitration in Sri Lanka within the purview of this Act. It is
therefore in the context of this Act that it would be relevant
to examine the feasibility of adopting arbitration as a means
of dispute resolution in the construction industry.
2. Recognised forms of dispute resolution
When considering a particular system for the resolution of
disputes in the construction industry, in this case arbitration,
are available for resolving such disputes.
Of these, litigation, which is conducted under the jurisdiction of
the courts, can be placed in the category with arbitration which
is governed by a statute, usually the Arbitration Act. They are
both well established and they produce results that are binding
on the parties in dispute. Whereas there are clear rules of
procedure applicable to litigation, arbitration in Sri Lanka is
generally not subjected to any well accepted rules of procedure
such as International Chamber of Commerce (ICC) rules or the
United Nations Commission of International Trade Law
(Uncitral) rules but are conducted in terms of ad hoc
procedures agreed between the parties or imposed by the
arbitral tribunal subject to the provisions relating to certain
procedures in the Sri Lankan Arbitration Act. Some parties
have agreements to arbitrate under ICC or Uncitral rules but
situations may arise where these rules may stipulate certain
procedures to be followed which are not consistent with the
Sri Lanka Arbitration Act.
Mediation, conciliation and other forms of alternative dispute
resolution which are independent of the processes in the first
category and which are not adversarial and non-binding on
the parties, fall into a second category. There are no laws
governing these mechanisms for resolving a dispute. Various
institutions have laid down sets of rules of some of these
processes. For instance the Uncitral, ICC and a number of
American arbitration associations have laid down rules for
conciliation or mediation but they leave the procedural aspects
for their conduct in the hands of the conciliator or mediator.

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 Management, Procurement and Law
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For instance, the ICC conciliation rules state: ‘the conciliator
shall conduct the conciliation process as he thinks fit’.
The terms mediation and conciliation have no clear definitions
and different institutions use one term or the other to mean the
same process. The difference between the two processes is that
in one case a neutral and independent person assists the two
parties concerned to reach a mutually acceptable solution
whereas in the other case the person assisting plays a more
active role and proceeds to make his own formal recommenda-
tion for a settlement which may be either accepted or used as a
basis for the parties to further negotiate and reach a settlement.
This latter process is well established in many countries and
institutions such as Uncitral, ICC and so on.
At this stage attention has to be drawn to a provision in the
Sri Lankan Arbitration Act (Parliament of Sri Lanka, 1995)
which permits an arbitral tribunal to encourage a settlement
of the dispute using mediation or conciliation or other means
at any stage of the arbitral proceedings. Having understood
what these procedures are, it would seem unusual for an arbitra-
tor to assume the role of a conciliator or a mediator half way
through the arbitration and then to resume arbitration if
conciliation or mediation fails. There the wording seems to
indicate that he may do so before the arbitration commences
and resumes arbitration proceedings if conciliation fails. In
Sri Lanka an adversarial procedure is used in arbitration similar
to litigation. Once an arbitrator commences an arbitration he
does not involve himself directly in the process to the extent
that he will not go on a voyage of discovery to seek documents,
evidence, etc. unlike in an inquisitorial system. The decision of
the arbitrator is based on the information provided by the
parties. Therefore, when an arbitrator commences an arbitra-
tion it is the responsibility of the parties to lead evidence and
prove or disprove their assertions. Therefore, the arbitrator
does not assume the role of mediator or conciliator not
because the arbitrator lacks the skills needed by a mediator or
conciliator, but the procedure prevents him from taking a
different stand. However, there might be situations where the
arbitrator lacks the skills and experience of a mediator or a
conciliator.
The above-mentioned second category of dispute resolution
processes is usually adopted at a stage when there is a desire
on the part of the parties in dispute, with the assistance of a
neutral party, to reach an objective solution to the problem
without the entire process becoming adversarial in nature.
Unlike the first category, these forms of dispute resolution do
not derive any authority from any statute and an agreement
between the parties is necessary to conclude a settlement. Never-
theless it has been found that resolving a dispute under this
second category is operating successfully outside the jurisdiction
of the courts and its usage is expanding.
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Construction arbitration in Sri Lanka
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Reference is also made here to the more recent inclusion of
an adjudicator or a dispute adjudication board (DAB) in
the recent amendments to the Fédération Internationale des
Ingénieurs-Conseils (Fidic) forms of contract and the World
Bank form, whose services must be sought to resolve any differ-
ences that may arise. In contracts under these forms, a dispute is
required to be referred to adjudication in the first instance, and
if the decision is not acceptable or the recommendation had not
become final and binding in terms of the procedure laid down in
the relevant contract, then the party who is not satisfied with the
decision of the adjudicator may refer the dispute to arbitration.
The special features of this process are that the adjudicator or
DAB is expected to be experienced in the construction work
related to the contract and in the interpretation of contracts,
and that they are appointed with the agreement of the parties
at the time of commencement of the work so that any differ-
ences are referred to them as they arise. Not all Fidic contracts
provide for the DAB to be in place from commencement of the
contract – the Fidic Yellow Book (Fidic, 1999) provides for the
DAB to be appointed when the dispute arises.
These developments indicate a clear trend, even when an agree-
ment to arbitrate exists, to initially attempt other more friendly
methods of resolving a dispute with the help of an independent
and neutral person or body, which is a desirable step in the right
direction. It should be appreciated that the adoption of any of
the methods referred to under the second category; that is,
other more friendly methods, does not always end in the dispute
being resolved. In such a case it only amounts to a pre-arbitral
attempt to settle the dispute, which finally would have to be
resolved through arbitration or litigation.
3. Arbitration and litigation
Dispute resolution through arbitration is well entrenched in the
construction industry. In most construction contracts there is a
clause dealing with dispute resolution where the final recourse,
if any other stipulated pre-arbitral alternate dispute resolution
mechanism fails, is to arbitrate. In a case where a party
having had an agreement to submit all disputes to arbitration,
wishes to litigate on a dispute, the Sri Lankan Arbitration Act
of 1995 (Parliament of Sri Lanka, 1995) denies jurisdiction to
a court to hear and determine such a matter if the other party
objects. However, if, despite these provisions, for some reason
the parties agree to refer a dispute to court or if one party
having taken up a matter in court the other party does not
object, then the parties will proceed to resolve the dispute
through litigation. In this context attention is here drawn to
some of the characteristics of litigation and arbitration in
relation to construction disputes, which are likely to influence
ones decision to litigate if given the opportunity.
In litigation the tribunal ( judges), in the selection of whom the
parties have no choice, are learned in the law and conduct the
 Management, Procurement and Law
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proceedings including giving evidence in court in terms of the rele-
vant laws and the codes of procedure. In arbitration the parties
select the tribunal and all matters relating to procedures, docu-
mentary evidence and the hearing will be determined by the tribu-
nal in consultation with the parties. In practice, however, it is not
uncommon to see that these procedures are identical with the
court proceedings. One of the main advantages of arbitration
over litigation is that the arbitrator can be chosen for their exper-
tise as regards the particular dispute in hand. For example, in a
dispute involving costs/payment an arbitrator with quantity sur-
veying expertise is ideal, whereas in a dispute involving ground
conditions an arbitrator with civil engineering expertise would
be most suitable. There is no such scope for choosing the back-
ground/expertise of the judge in litigation.
Generally, in litigations the parties are represented by lawyers
and in arbitration the parties will be represented by lawyers or
technical persons. Proceedings before court are open to the
public and take place on working days and during court
hours. Arbitral proceeding are conducted privately and
awards are not usually available to others. Hearings are held
at an agreed location and working times are not limited.
In litigation there is no payment made for the services of the
judges and use of the courtroom, and payment of costs ordered
by court are subject to taxing in terms of scale of fee and other
charges fixed by court, which are usually less than what an arbi-
tral tribunal would award. However, in both systems there is no
control over fees that legal or other representatives may actually
charge from their clients, this being a matter for negotiation in
both systems. In arbitration, awards for costs are based on
actual fees paid.
In litigation the parties have right to appeal against an award but
in arbitration the grounds for challenging an award are limited,
mainly on procedural matters. They are laid down in the Sri
Lankan Arbitration Act (Parliament of Sri Lanka, 1995). From
the viewpoint of the construction industry, litigation provides
the opportunity for the development of the construction law in
the country. According to the Sri Lankan Arbitration Act, the
arbitrator has the discretion to determine the actual cost incurred
at the arbitration that can be awarded to the innocent party.
However, the tendency in Sri Lanka is to award as costs a
minor sum which is disproportionate to the expenses made by
the innocent party, and it is the author’s belief that this tendency
of awarding minimal costs is a reflection of court practice.
4. Making arbitration attractive
Arbitration has been developed as an alternative to litigation in
order to provide a mechanism for the fair, speedy and cost-
effective resolution of a dispute. However, judging from the
various commentaries on arbitration as a means of dispute
resolution, there is general dissatisfaction in that it does not
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Construction arbitration in Sri Lanka
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fully serve the purpose for which it was developed, and the
user of this mechanism would like to see this process being
made more effective. Therefore an attempt should be made to
examine the areas which need to be addressed in order to
bring about a change that will optimise the advantages of
arbitration and make the processes more attractive.
One of the main shortcomings that continue to be highlighted
and which has drawn widespread comment is that arbitration
procedures are being made identical to the court procedures
and as such are subject to undue delay and cost. The Sri
Lankan Arbitration Act attempts to overcome this by casting
a duty on the tribunal to deal with the arbitration in a practical
and expeditious manner (Section 15). At the same time the Act
gives the freedom to the parties to agree on procedures for the
conduct of the proceedings with no specific powers to the tribu-
nal in this respect. It is the author’s view that his latter provision
negates the effect on the duty of expeditious procedure to be
exercised by the tribunal and it is here that arbitrators may
fail to maintain a proper balance between the two provisions
and lose control over the proceedings.
Questions of procedure arise throughout the proceedings in the
submission of pleadings and their subsequent amendments,
production of documents, framing of issues, type of hearing,
presentation of evidence, examinations of witnesses and most
importantly on the timetable for the proceedings. These are all
matters which are influenced by the type and nature of the dispute,
the remedies sought and the attitudes of the parties and their
representative and thus a common formula cannot be applied to
the procedures. The only common factor in any arbitration is
the tribunal who is charged with the duty to be impartial, practical
and fair and conclude the arbitration expeditiously.
Procedures should therefore be agreed at an early stage. As a
first step, the form of procedure that is most appropriate to
the dispute should be agreed. The three accepted forms of
procedure are listed here.
(a) Documents only, which does not involve an oral evidence
and the disputed sums are small and do not warrant the
cost of oral evidence.
(b) Short hearing which is based on written submissions of
claim and cross examination of witnesses is permitted but
the times allowed are very limited.
(c) Full procedure, with written submissions, documentary
evidence, issues, oral submissions, examination of
witnesses and experts, etc.
In deciding the procedures, a tribunal should adopt a positive/
active role rather than allowing the parties and their representa-
tives to decide the course of the arbitration. Having obtained
some idea of the dispute and material which the parties are relying
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Volume 165 Issue MP2
on, the tribunal should be in a position to reject any procedures
which would result in a long delay of the proceedings. It should
decide a procedure where it is possible to carry out proceedings
in an expeditious manner. The procedure to be decided should
be such that it is consistent with the importance and the value
of the dispute and issues involved. In addition it must allow
reasonable time for making submissions, oral evidence, etc.
In the conduct of arbitration in Sri Lanka in particular, where
most arbitrators do not have the training and experience of
functioning as arbitrators, tend to take the initiative to act in
the manner proposed above. Reference has already been made
to the provisions of the Act from which arbitrators may
derive their power to rule on procedures. The provision on
determining procedures is brief and not properly defined.
With regard to cost, the practice followed by most of the arbi-
trators is that the unsuccessful party is ordered to reimburse
the cost of the successful party. But the delay in arbitration
proceeding may also be caused by both parties and therefore
the cost has to be worked out depending on the lapses of the
parties in participation at the proceedings.
Similar to the model law and other arbitration acts, the Sri
Lanka Arbitration Act (Parliament of Sri Lanka, 1995) also
attempts to resolve construction as well as other disputes in
order to give a finality to a dispute between the disputing parties.
The arbitration procedure in general leaves very little room for
further litigation and instances where a party could appeal an
arbitration decision is extremely limited according to the Sri
Lankan Arbitration Act. This is equally applicable when enfor-
cing awards where the arbitration had taken place in a foreign
country. In Sri Lanka, as the Arbitration Act has been intro-
duced very recently, still the people who are participating in arbi-
tration are reluctant to apply standard arbitration procedures
like the Uncitral rules. Therefore, Sri Lankan arbitration pro-
cedures are mostly conducted using ad hoc procedures, which
would lead to delays and extra cost to the parties. The legal
and procedural issues also crop up in arbitration due to the
adoption of ad hoc procedures. Although the arbitration centres
in Sri Lanka have their own procedures, still the construction
industry in Sri Lanka has not widely accepted these procedures.
Therefore, the industry has to link with these arbitration centres
in order to popularise these standards procedures.
5. Conclusion
Due to its tendency to follow court procedures the arbitration
procedure is not always successful in serving as an expedient
and cost-effective mechanism for resolution of disputes in the
construction industry. In order to meet this shortcoming, the
traditional institutions in the engineering field have searched
and developed mechanisms which are more suited to the
needs of the industry. These non-adversarial, user-friendly
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Construction arbitration in Sri Lanka
Ranasinghe
mechanisms such as mediation, conciliation, dispute review,
adjudication, etc. have been woven into the dispute resolution
system in the standard form of contract with arbitration retain-
ing its place as the last resort for achieving a binding and
enforceable settlement. The decisions arrived through these
mechanisms, except through arbitration, are not final and
binding and its effectiveness depends on the will of the parties.
A significant trend shown in the above changes to the dispute
resolution mechanism in standard contract forms is the recogni-
tion of the need to have independent, impartial persons with
experience in the work related to the dispute as members of
dispute review boards, a role the experienced engineering pro-
fessional in the construction industry will be called upon to fill.
Pressure is also building up for arbitration tribunals to be
assigned a more positive and active role which will make the
arbitration process speedier and more cost effective. Regardless
of whether the arbitrators are lawyers or technical personnel, in
future it will require them to play a more active role, and in
order to achieve this they would have to extend their knowledge
beyond their field of expertise. While all arbitrators will have
to extend their knowledge of the contract forms and their
interpretation, technical arbitrators will have to develop their
knowledge of the relevant laws and lawyers will have to be
knowledgeable on how the construction industry operates and
on construction matters.
REFERENCES
Fidic (Fédération Internationale des Ingénieurs-Conseils)
(1999) Conditions of Contract for Plant and Design-Build,
1st edn. Fidic, Geneva, Switzerland.
Kanag-Iswaran K and Wijeratne SS (eds) (2007) Arbitration
Law in Sri Lanka, 2nd edn. Institute for the Development
of Commercial Law and Practice, Colombo, Sri Lanka.
Parliament of Sri Lanka (1995) Arbitration Act (No. 11 of
1995). Parliament of Sri Lanka, Colombo, Sri Lanka.
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