Sri Lankan businesses with disputes can look to Singapore for arbitration

OVER the last 15 years, Sri Lanka has recorded average economic growth of about 6 per cent per annum. In particular, the country has seen a significant surge in its import and export activities, and this cross-border trade demands a fast and cost-effective dispute-resolution mechanism.

While litigation remains the primary and traditional way of resolving disputes between commercial parties, Sri Lanka's record of handling commercial disputes, unfortunately, leaves a lot to be desired. The process in Sri Lanka is known to be costly and time-consuming. Many distressed investors have been forced to pursue out-of-court settlements in the hope of achieving a speedier resolution.

Arbitration is thus becoming widely recognised among commercial investors as the most preferred form of resolution for cross-border disputes. Preference for arbitration is often premised on a number of benefits, including the privacy and confidentiality of arbitral proceedings, and the finality and ease of enforcement of arbitral awards.

An arbitral award may be enforceable worldwide in comparison to enforcing court judgments, due to the widespread adoption of the United Nations Commission of Trade and Law (UNCITRAL) Convention on the Recognition and Enforcement of Foreign Arbitral Awards 1958 (the "New York Convention"), which has created a robust framework for the recognition and enforcement of foreign arbitral awards globally. Sri Lanka is a signatory to the New York Convention.

LONG HISTORY

In Sri Lanka, the key legislation pertaining to arbitration is the Arbitration Act No. 11 of 1995. Although arbitration has a long history in Sri Lanka, it is nevertheless presently mired in challenges - anecdotes on multiple delays in the arbitration process and arbitrators who conduct the proceedings in a quasi-litigation manner are rife.

As noted by Kanag-lsvaran, President's Counsel, in "Arbitration - Why has it not worked? A comment on the operation of the Arbitration Act", most arbitrators are retired judges who brought their style and practices in the conduct of court proceedings to arbitration. It is also unfortunate that many lawyers representing parties in arbitration are busy practitioners who are able to allocate time for arbitration only after office hours.

Arbitration proceedings in Sri Lanka are thus often delayed and held sporadically, extending over a prolonged period of time. In sum, the lack of expertise and professional arbitration practitioners (both arbitrators and lawyers) have hampered the growth of arbitration in Sri Lanka.

On the other hand, Singapore - supported by its enviable geographic location, strong legislative framework, and world-class arbitration infrastructure such as Maxwell Chambers, a modern purpose-built arbitration facility - is well-placed to be an alternative dispute resolution forum for businesses in Sri Lanka. As one of the leading economies in Asia, Singapore has become one of the most popular forums in recent years for commercial parties around the world to resolve their disputes through arbitration.

ASIA'S LEADING ARBITRATION HUB

Parties seeking to adjudicate their disputes in Asia are spoilt for choice, as there is a growing menu of options for sorting out disputes without going to courts. In particular, both Singapore and Hong Kong are premier arbitral destinations in Asia. Both jurisdictions are known for adopting competitive and innovative arbitration laws to promote themselves as leading seats of arbitration; many leading international arbitration institutions have presence in these countries; for example, the International Court of Arbitration of the International Chamber of Commerce (ICC) and China International Economic and Trade Arbitration Commission (CIETAC) in Hong Kong. The ICC and the Permanent Court of Arbitration (PCA) will be setting up offices in Singapore this year.

That said, Hong Kong is generally favoured by Chinese clients, whereas Singapore is the venue of choice for many South-east and South Asian businesses. In addition to its cultural, geographic and linguistic attractions, Singapore is globally recognised as the No. 1 seat of ICC Arbitration in Asia and is one of the world's top five most preferred arbitration seats.

There are many reasons for Singapore's increased popularity as a seat. These include its location in the centre of South-east Asia and its prominence as a commercial and financial hub; its up-to-date arbitration law, which gives effect to the UNCITRAL Model Law; the pro-arbitration approach of the courts; and the availability of arbitral institutions, particularly the Singapore International Arbitration Centre (SIAC) and the expansion of Maxwell Chambers, which will house institutions, including the ICC and PCA offices.

SIAC

One of the key drivers of Singapore's growth as an arbitration hub is the immense popularity of the SIAC - as an administrative centre and the widespread use of the SIAC arbitration rules.

Over the last couple of years, the SIAC has seen widespread acceptance among Asian investors; its caseload involving, for example, Indian, Chinese and South Korean parties has increased manifold.

But only four SIAC cases involved Sri Lankan parties in 2016. This may be attributed to the lack of knowledge and awareness in Sri Lanka of the benefits of an arbitration administered by the SIAC.

The SIAC is a prominent arbitration centre in Singapore that aims to cater to the demands of the global business community for a neutral, efficient and reliable dispute resolution institution in Asia. Over the last decade, its case filings have increased by over 300 per cent. In 2016, it took on 343 new cases involving parties from 56 jurisdictions; 84 per cent of these were international in nature, and 42 per cent had no connection with Singapore.

Given that Singapore and Sri Lanka are only about four hours' flight apart, the Republic is a convenient and neutral arbitration venue for Sri Lankan commercial parties who wish to resolve their disputes outside the courts.

Despite the obvious commercial advantages brought about by arbitration, its recent developments have been somewhat impeded by criticisms of its costs and lengthy processes. To this end, the SIAC introduced several amendments and fine-tuned some existing processes by virtue of the SIAC Rules that came into force on Aug 1, 2016. Some of these changes include, inter alia, early dismissal of claims and defences, joinder of third parties, and consolidation of arbitrations. The amendments highlight SIAC's continuing efforts to respond to and accommodate the needs of its users so as to improve arbitration, both in Singapore and internationally.

INVESTMENT ARBITRATION

In order to meet the demands of investment arbitration while retaining the core advantages of commercial arbitration proceedings, the SIAC has also become the first major commercial arbitral institution to release a separate set of rules specifically customised to address issues in international investment arbitrations - the SIAC Investment Arbitration Rules (1st edition, Jan 1, 2017). These apply to disputes between commercial parties or investors and/or states and state-owned entities, arising from commercial agreements or investment treaties, and attempt to deal with the spiralling costs, frivolous claims, impartiality and public-interest interventions in investor-state arbitrations, by drawing on best practices from bodies such as the PCA, the International Centre for Settlement of Investment Disputes (ICSID) and UNCITRAL.

The SIAC IA Rules 2017 are, in large part, drafted based on the 2016 SIAC Rules. Thus, subject to some differences in time limits, a majority of the key features of the SIAC IA Rules 2017 replicate those of the 2016 SIAC Rules such as in the allowing of applications for the early dismissal of fundamentally flawed claims.

SRI LANKA-SINGAPORE FTA

On Jan 23, 2018, Sri Lanka signed a free-trade agreement (FTA) with Singapore.

The signing of the Sri Lanka-Singapore Free Trade Agreement (SLSFTA) indicates the commitment of both governments to promote stronger economic ties and enhance trade flows by lowering entry barriers and providing increased market access for both Singapore and Sri Lankan companies.

It is also Sri Lanka's most comprehensive trade agreement with any country and her first bilateral trade agreement since 2005.

Notably, the SLSFTA lists the SIAC as a venue for investor-state disputes. This is another shot in the arm in accepting Singapore as the Asian hub for international arbitration and is in line with the SIAC's objective of publishing the SIAC IA Rules 2017.

Arbitration has certainly become an increasingly popular way of resolving disputes because of the advantages it offers over litigation. Singapore's rise in prominence as an arbitration hub is supported by its observance of the rule of law, neutrality and minimal judicial interference. Sri Lankan commercial parties can thus be assured that their disputes can be resolved in a timely and efficient manner.