Business Law Module 11

This homework assignment examines the different methods of Alternative Dispute Resolution (ADR) in commercial disputes, particularly in Sri Lanka. It covers arbitration, mediation, conciliation, and ombudsmen schemes, analyzing their advantages, disadvantages, and legal frameworks. The assignment also explores the history and current state of ADR in Sri Lanka, highlighting key legislation and case studies.

Business Law Module
Commercial Disputes- Alternative Dispute
Resolution (ADR)
(Lecture 11)
BBA (Special) Honours Degree
Sri Lanka Institute Of Information & Technology (SLIIT)
12-Sep-20 1

Course Outline
 The Legal System and the Legal Environment of Business
 Business Ethics and Corporate Governance
 Laws associated with different Organizational Structures
 Sole Proprietorship & Partnership Business
 Law relating to Companies
 Contract Law – Part A-Definition and Contract Types
 Contract Law-Part B
 Contract for Sale of Goods
 Employment Law-Part A
 Agency and Employment Law-Part B
 Intellectual Property Law Commercial Disputes-Alternative Disputes Resolutions-ADR Introduction to Negligence in Business
12-Sep-20 2

QUESTION
• What are the different methods of Alternate
Dispute Resolution (ADR)?
-Introduction to or explanation of methods of ADR
(2 marks)
-Identification of Conciliation, Mediation,
Arbitration, Ombudsmen Schemes (at least 3
methods –1 method carry 1 mark-total 3 marks)

Alternative Dispute Resolution (ADR)
• Arbitration
• Mediation
• Conciliation
• Ombudsmen Schemes
Alternative Dispute Resolution processes, often
referred to as "ADR" are dispute resolution
processes that are alternatives to litigation and
which provide for the resolution of disputes outside
of courts of law.

Perils of Litigation
• There is a pervading disappointment over the
court system/litigation for several reasons. Long delays in the court system notwithstanding
the saying that ‘Justice delayed is justice denied’. Litigation is also costly especially the fees payable
to lawyers. It is said that the real winners in
litigation are only lawyers who appear for both
sides! The English adversarial method that is followed in
Sri Lanka is also not the best suited to the
commercial world.

• Litigation is a process where opposing parties
to a dispute (the disputants) assume positions
to enforce or defend a legal right in a court of
law presided over by a judge who gives a
verdict on the rights and liabilities of the
disputants.

Introduction to ADR
• Generally businessmen know the perils and
uncertainty of litigation and will do to their best
to avoid resorting to judicial process to resolves
their disputes.
• ADR is settlement oriented.
ADR methods & procedures (arbitration, mediation,
conciliation, ombudsmen schemes) are looked
upon more favorably and also helps facilitate trade
and business.

ADR in Sri Lanka
• In Sri Lanka, the two ADR mechanisms which
are recognized by law are Arbitration and
Mediation.
Arbitration is used largely for the resolution of
commercial disputes and is governed by the
Arbitration Act, No. 11 of 1995. There are
Centers that have been established, which
facilitate the conduct of arbitrations in
compliance with the rules of those centers.

ADR in Sri Lanka..
There is not much public awareness of the
availability of ADR methods in place of litigation.
• Banks have increasingly been referring issues
regarding debts to mediation boards and
ombudsman schemes.
• Commercial disputes have been settled through
arbitration.
• Labour legislation provides for the resolution of
labour disputes by reference to arbitration,
conciliation and out of court settlements.

WHY ADR in commercial disputes?
• Where commercial disputes are concerned,
the faster a dispute is resolved by parties, it is
far better for parties who can continue their
commercial activities without being tied down
to a long and tedious adjudicatory process.
• This is where ADR methods have gained
increasing popularity.

Advantages of ADR
• ADR is a private process, which is an
advantage to those who do not want details of
their dispute to be disclosed in open court as
such disclosure before the public and the
attendant publicity can jeopardize business
interest which are vital in case of commercial
enterprises.

Advantages of ADR..
• In principle ADR methods are flexible and
adaptable and as a result quicker & more
efficient then expensive litigation. Parties are
also free to agree to limit the extent of
disclosure of documents, to submit evidence
in writing, to impose time limits on
submissions and generally to agree to any
other measures to save time and money.

Summing up advantages of
ADR..
• ADR is an attempt to improve the quality of
justice, avoidance of the stress of litigation,
reduction of expenses, the elimination of delays,
greater accessibility and better awareness of
what is happening and an appreciation of why it
must happen, greater confidence of the system
and the process and finally an acceptance of the
end result being just.
• Amicable dispute resolution as opposed to the
traditional adjudicatory process has been a very
much a part of the Sri Lankan Cultural heritage.

ADR in Sri Lanka
ADR methods in Sri Lanka
• Mediation
• Conciliation
• Arbitration
• Ombudsmen Schemes Out of the ADR Schemes in Sri Lanka,
arbitration & mediation are pre-dominant.

Mediation in Sri Lanka
• Mediation is an effective form of ADR in Sri
Lanka which has gained favour in many areas
of private and commercial disputes.
• Mediation is a process by which disputing
parties engage the assistance of a neutral
third party to act as a mediator-a facilitating
intermediary.

• Mediation is a non-adversarial process which is
managed by a third Party (the Mediator) who
facilitates the process and assists the disputing
parties to reach a settlement which is acceptable
to them.
• Mediators do not intervene proactively in the
dispute resolution process to take sides, offer
judgments or give directions to the parties. This is
the essence of the difference between Mediation
and other ADR processes.

Community Mediation in Sri Lanka
• Government support had led to a successful
community mediation projects.
• In Sri Lanka, mediation has a long history. ‘Duk
ganna rala’ meaning one who listens to the
sorrow and woes of others, were found in Sri
Lanka during the ancient times of the kings.

Mediation Board Act 1988 There was no formal mediation system in Sri
Lanka until the Mediation Act 1988. So until
1988, disputants either resolved their disputes
informally or by resorting to costly and time –
consuming litigation or arbitration. As a result
the courts were overloaded with litigation. In modern Sri Lanka, mediation was
introduced by legislation.;
The Mediation Boards Act No. 72 of 1988.

• Under the Act the Mediation Commission appoints a panel
of mediators for each area.
• The community mediators follow a preliminary training
course in mediation skills and techniques.
• There are currently 309 mediation boards in Sri Lanka with
over 7000 trained mediators.
• Any person may make an application to the chairman of the
Mediation Board for settlement by mediation of any
dispute.

Mediation Board Act 1988..
• The Mediation Board may require any person
notified to be present to bring to any mediation
conference, witnesses or documents which may
assist the disputants in arriving at a settlement and
convene as many mediation conferences as
necessary to arrive at a settlement.

Mediation Board (Amendment)
Act No. 9 of 2016
• Under this amendment, when the value of a
claim is below Rs.500,000/-, it is mandatory that
mediation is resorted to first since court action is
permitted only in the event of a failure to resolve
the dispute at mediation.
• A non-settlement certificate issued by the
Mediation Board is required if subsequently court
action is chosen by one of the parties to the
dispute.

Advantages of
Mediation
• The majority of cases dealt with by mediation are land
disputes, minor criminal offences, debt collection and
family disputes.
• Instead of polarising parties into enemy camps,
mediation encourages them to focus on the problem
between them and not on each other.
• Further admissions made during mediation are not
admissible in court. This protective confidentiality
enables parties to express their emotions freely.
• Mediation may have disadvantages, however certainly
is ‘user-friendly’ to the public.

Disadvantages of mediation
• Sometimes it is difficult to proceed beyond the initial discussion
due to power imbalance of the parties, which could disrupt the
process. This may become apparent in the case of commercial
disputes. Hence, there is potential for abuse of the process of
mediation. Hence, there is scope for exploitation by the dominant
party and infringement of the rights of weaker parties.
• Mediators must be aware of the risk of manipulation by one party.
A mediator acting improperly could pass judgment on important
matters.
• It requires commitment from parties to be open to negotiation,
There could be pressure to mediate and reach an outcome, where
one is not ready for it, which may lead to poor mediation.

• Is mediation more suitable where the issues are
personal and emotional rather than legal?
• Mediation is suitable in all cases where the
parties are clearly able to discuss matters and
have an interest in a continuing relationship or in
confidentiality or cost. It is important that the disadvantages of
mediation be minimized and mediation enter the
mainstream of dispute resolution to offer as and
effective ADR mechanism in place of litigation.

Conciliation
• Conciliation is a continuity of ‘Gamsabhawa’
or the old village court.
• Conciliation is like mediation to the extent
that a third neutral party called a conciliator,
nominated by the parties is involved.
• The conciliators role is to help the parties
reach an agreement. It is a consensual and
non-binding mechanism which does not
involve a court of law.

• The conciliator will actively participate in a discussion
with the disputants and contribute to the discussion
between them by analyzing each other’s position and
listening to their views and expressing his own views
on the merits.
• Conciliation is more like a round table settlement
negotiation. The advantage is that disputants are
effectively participating in the decision making of the
dispute with the help of an agreed neutral and thus are
in a position to agree on a settlement without delay.

Debt Conciliation Act
Debt Conciliation Act to give relief either at the
request of a mortgagor or mortgagee of agricultural
land.
The Conciliation Board may make an inquiry into
the dispute ant attempt at a settlement acceptable
to all parties. If an amicable settlement is possible it
has the effect of a court decree. If a settlement is
not possible the parties may proceed to court.
Lawyers are allowed to appear before the Board.

Conciliation of industrial disputes
• The Commissioner of labour on his own or an
the application of a party, may hold an inquiry
into an industrial dispute or dispute between
an employer and employee/s.

The Conciliation Board Act No.10 of
1958
• A conciliation board consists of three or more members of the
Panel of Conciliators appointed by the Chairman under the
Act for each area.
• The Act outlines the disputes and offences that may be
referred to a conciliation board. (Example any dispute in
relation to a movable property or immovable property-There
is no monetary qualification).
• The duty of the conciliators is to inquire into a dispute and
make every effort to induce the parties to settle such dispute
in an informal setting.
• However the enforcement procedure to enforce the right of
parties to a settlement seem to be lacking.

Disadvantages of
Conciliation
• Conciliators have no specific power to make
binding orders and thus do not exercise
judicial function.
• Conciliation of commercial disputes need to
be done by officers who have solid knowledge
of business and in the process of conciliation
with adequate training.

Mediation & Conciliation in settlement
of Commercial Disputes
• Commercial Mediation Center of Sri Lanka Act No. 44 of
2000, established the Commercial Mediation Center of Sri
Lanka (CMCSL)and mandated to promote the wider
acceptance of mediation and conciliation for the resolution
and settlement of commercial disputes by mediation and
conciliation.
• CMCSL was in existence for a brief period from 2001 but
terminated its services thereafter. In 2017 CMCSL has been
re-appointed by the Justice Ministry and mandated with
the task of re-activating the Centre to provide mediation
services.
• The Center has its own rules and a code of conduct for the
mediators.

Alternate Dispute Resolution
(ADR)
ARBITRATION
mediation
negotiation

Arbitration
• The enactment of the Arbitration Act was a response to the
need for expeditious resolution of commercial disputes.
What is arbitration?
Arbitration is an alternative to resolving disputes through
litigation and is a non-adversarial means by which parties seek
to reach a negotiated resolution of their disputes, either with
or without the assistance of a third party such as a mediator.
By contrast, arbitration is a means by which parties can secure
an enforceable decision given by a third party in accordance
with established legal principles.

Why choose arbitration?
Final and binding.
Easier to enforce than a court judgment.
Less formal than litigation but more formal than other
forms of ADR.
Allows parties to choose a “neutral” forum instead of the
court system.
Expeditious.
Less expensive than litigation.
A private trial.

Arbitrability of Disputes
• All disputes are not capable of settlement
through arbitration, since arbitration is a
consensual and private method of dispute
resolution.
• Where an arbitration clause in a contract states
that a dispute between the parties must be
referred to arbitration before any litigation, a
court of law must refer the dispute to arbitration
and the court should not hear it. So the dispute
must arise out of the contractual relations
between the parties.

Arbitration Act of Sri Lanka
• Sri Lanka adopted a modern arbitration law by
Act No. 11 of 1995. The Sri Lankan law was
influenced by UNCITRAL Model Law on
Arbitration and more specifically the draft
Swedish Law on International Commercial
Arbitration.

The main features of the Arbitration
Act of Sri Lanka
• A valid agreement for arbitration is a bar to court
proceedings.
• The principle of party autonomy is safeguarded in the
appointment and determination of the number of
arbitrators, the place of arbitration, the procedure to
follow in arbitration proceedings.
• The arbitration awards are final and the courts have no
power to interfere in the merits. The award can be set
aside by the court only on defined grounds.
• There is provision for enforcement of foreign
arbitration awards.

Appointment of arbitrators
• Parties are free to determine the number of
arbitrators. In the case of an even number, the
arbitrators so appointed shall jointly appoint
an ‘additional arbitrator’ who shall act as the
chairman.
• Parties are free to agree on the procedure for
appointment. If there is no such agreement,
the High Court can make the appointment.

Mandate of arbitrators
• Arbitrators can encourage settlement of the dispute. If the parties settle the
dispute, the settlement is recorded as an award which is enforceable by
courts.
• The arbitrators must deal with the dispute in an ‘impartial, practical and
expeditious manner’. Section 15 (1). The arbitrator must afford all the
parties ‘an opportunity of presenting their respective case and of examining
all documents and other materials furnished by the other party or any other
person’- Section 15 (2).
• The decision shall be by a majority of arbitrators.
• The chairman has the power to ‘administer the conduct of the arbitral
proceedings’.
• The arbitral tribunal can determine the ‘admissibility, relevance and weight
of the evidence’.

Sri Lankan Arbitration Act
No 11 of 1995
The provisions of the Arbitration Act
of 1995 of Sri Lanka govern the
enforcement of arbitral awards both
domestic and foreign in line with the
New York Convention.

Enforceability of arbitral
awards
• The parties who agreed to submit a dispute
for arbitration, accept the award and abide by
it. If any party ignore or refuse to abide by it,
the other party can apply to court for
enforcement of the award.

Southern Group Civil Construction
V. Ocean Lanka (Pvt) Ltd
• In this case the arbitrator had given an award.
Thereafter one of the parties applied to court to
enforce the award. The other party objected to
enforcement of the award on the basis that the
arbitral award was contrary to public policy. It
was argued that such objection had not been
raised earlier.
• Hence the court held that the arbitral award was
enforceable.

Institutional Arbitration Centers
• ICLP Arbitration Centre is a separate body of
the Institute for the Development of
Commercial Law and Practice (ICLP) which is a
corporate body established in 1992.
• ICPL is established and operating as an
arbitration centre of international standards
to resolve commercial disputes.

ICPLS Recommended
Arbitration Clause
"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".

Criticism of arbitration in Sri Lanka
• Some argue that arbitration has not been
successful in eliminating the weaknesses of
the adversarial process. It is argued that it has
the potential to be expensive as time
consuming and as disappointing to the users.

International Commercial
Arbitration
• International Arbitrationis well established
as a successful method for resolving disputes
between parties to international commercial
agreements.
• Arbitration clausesin international
commercial contracts have become the
starting point for resolution of commercial
disputes.

International
Commercial
Arbitration
• Speed !
• Distrust of foreign legal system !
• Resolution by expert in business !
• Control of rules !
• Awards easier to enforce !
• Secrecy !
Why favoured?

Advantages of International
Commercial Arbitration
Arbitration gives the parties substantial autonomy
and control over the process that will be used to
resolve their disputes.
This is particularly important in international
commercial arbitration because parties do not want
to be subject to the jurisdiction of the other party’s
court system. Each party fears the other party’s
“home court advantage.”

Disadvantages of international
commercial arbitration
• Lack of any significant right of appeal in most
arbitrations maybe a benefit in terms of
ending the dispute, but if an arbitrator has
rendered a decision that is clearly wrong on
the law or the facts, the lack of ability to
vacate an award on those grounds can be
frustrating to a party.

Sri Lanka Ombudsmen
Schemes
Ombudsmen Schemes are quite new to Sri Lanka.
Current Ombudsmen Schemes in Sri Lanka Parliamentary Ombudsman Financial Ombudsman Insurance Ombudsman Tax Ombudsman Press Complaints Ombudsman Commissioner for Tourism Administration

The Financial
Ombudsman
• The Financial Ombudsman was set up in 2003
with the approval of the Central Bank, by the
banking industry and other financial institutions
such as finance companies, leasing companies
and the primary dealers.
• The incorporated company; Financial
Ombudsman Sri Lanka (Guarantee) Ltd selects the
Financial Ombudsman on an open advertisement
in the newspaper.

Powers and Functions of the
Financial Ombudsman
• Inquires into complaints by customers of the
banks and other financial institutions who are
members of the scheme. Such banks and
institutions will be bound by the decisions of the
Ombudsman.
• The Ombudsman is freed from having to observe
legal rules and lawyers cannot appear before the
Ombudsman.
• Ombudsman is expected to act fairly, reasonably
in arriving at decisions and awards.

Insurance Ombudsman
The insurance industry has set up an insurance
Ombudsman to inquire into;
• Non-settlement or delay in the settlement of claims
• Unfair interpretations of insurance policies
• Any complaint by a policy holder
• Any matter referred by the Insurance Board of Sri
Lanka
• Any matter referred to by the Consumer Affairs
Authority of Sri Lanka;

Tax Ombudsman
• The Ombudsman can inquire into complaints
of any injustice arising in consequence of any
mal-administration on the part of any officers
of the Department of Inland Revenue.