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ESTABLISHMENT OF THE MOST COMMON GROUND ON WHICH
LOCAL ARBITRAL AWARDS BECOME UNENFORCEABLE IN
SRI LANKA
Manathunga D. Hemantha* and L.D. Indunil P. Seneviratne
Department of Building Economics, University of Moratuwa, Sri Lanka
ABSTRACT
The parties select more adversarial arbitration process over other alternative dispute resolution
methods mainly due to the enforceability of the arbitral award. If the arbitral award becomes
unenforceable due to any reason, the selection of arbitral process is useless. In this scenario,
aresearch was conducted specially to find out the most common ground on which local arbitral
awards become unenforceable in Sri Lanka and to explore the reasons to occur the unenforceability
under that most common ground with the expectation that this improved knowledge would assist to
minimize the unenforceability of local arbitral awards.
The research was conducted under the quantitative research approach. A cross-sectional,
retrospective and non-experimental study design was adopted. The local arbitration cases registered
at the High Court-Colombo during 2009-2012 for the setting aside or for the enforcement of the
awards and the courts had completed the proceedings were selected as the convenient sample. The
sample contained 910 cases.
The data collection process was a two tiered process. In the first tier, a cross sectional survey was
carried out at the High Court-Colombo to find out arbitral awards become unenforceable due to
setting aside or refusal of the enforcement by the High Court. If the judgment of the High Court was
appealed to the Supreme Court the judgment of the Supreme Court was also considered. Through the
first tier of data collection, it was found that non adherence to the enforcement procedure is the most
common ground on which local arbitral awards become unenforceable in Sri Lanka.
During the second tier of data collection, semi structured interviews were conducted with the parties
who failed to enforce the arbitral award due to non adherence to enforcement procedure, those parties
were mainly financial institutions and contained 16 organizations. Through the interviews it was found
that performance defects of the legal counsel and the performance defects of the officer in charge of
the case are the main reasons for the unenforceability of arbitral awards under the most common
ground. Therefore it is recommended to establish proper reporting and monitoring systems within the
organizations dealing with arbitration.
Keywords: Arbitration; Setting Aside; Enforcement; Unenforceability.
1. INTRODUCTION
According to Arbitration Act No.11 of 1995 of Sri Lanka, there are two broad reasons which make local
arbitral awards unenforceable in Sri Lanka. The first is the setting aside of arbitral awards by local courts
under section 32 of the Arbitration Act. The second is the refusal to enforce the arbitral award by the local
courts. The courts may refuse enforcement on non-adherence of the parties to the procedure laid down in
section 31 or section 40 of the Act.
This paper presents the findings of a research conducted to establish the most common ground which
leads to the unenforceability of local arbitral awards in Sri Lanka and to find out the reasons to occur the
most common ground leading to unenforceability.
*Corresponding Author: E-mail - manathunga75@yahoo.com
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2. BACKGROUND
Mustill and Boyed (1989) described that misconduct of arbitrators, error on the face of the award, excess
of jurisdiction by arbitrators, patent defects in the award, misunderstandings of one of the parties which
prevented that party to present his case effectively, mistakes by arbitrators and fresh evidence which was
not available at the hearing stage, leads to remit the award or to set aside the award by courts. The Court
has the discretion to decide whether the setting aside of the award or the remitting is most appropriate
remedy and to decide which part of the award to set aside or to remit. The court has to consider all the
circumstances of the case, when exercising this discretion. A serious error or miscarriage of justice, in
most of the cases will lead to setting aside of the award.
When considering the arbitration law in Sri Lanka, the grounds for invalidity or setting aside of an arbitral
award are stated in section 32 of Arbitration Act No. 11 of 1995, and correspond generally to the
provisions of the New York Convention 1958 (Amerasinghe, 2011). Kanag-Isvaran (2011) pointed out
that as per Section 32 of the Act, an arbitration award made in Sri Lanka may be set aside by the High
Court only on very specific, limited grounds.
Section 31 of Arbitration Act 1995 enacts that an application for recognition and enforcement of an
arbitral award to be made to the appropriate High Court within 1 year of the expiry of 14 days period
from the making of the award (Amerasinghe, 2011). In addition, s.31 of Arbitration Act No.11 of 1995,
requires that the application to enforce the award to be accompanied by the original of the award or duly
certified copy of the award and original of the arbitration agreement or duly certified copy of such
agreement. If a document or part of a document above mentioned is written in a language other than the
official language of the court or other than in English, a certified translation of the relevant document or
such part to be submitted along with the application.
Further s.40 of the Arbitration Act No.11 of 1995 provides that every application to the High Court under
the provisions of the Act is to be by way of petition and affidavit and all the parties to the arbitration other
than petitioner should be named as respondents and shall be given the notice of the application. Therefore
if the applicant does not adhere to the above described procedures required for the enforcement, the courts
have the discretion to refuse the enforcement of the arbitral award.
Recognition and enforcement are essential elements in arbitration. If the wining party is not able to
enforce the award, the whole process of arbitration is pointless (Nacimiento and Bamashov, 2010).
Nacimiento and Barmashov (2010) further added that the parties will only recognize arbitration as a
viable alternative to litigation, only if the arbitral award can be enforced with the equivalent effects as a
state court’s judgment.
In any of the events of setting aside or refusal to enforce the arbitral award, the effort given on the arbitral
process will be in vain. Therefore it is important to identify the most common ground which leads to
setting aside or refusal to enforce the arbitral awards in Sri Lanka. After identifying this most common
ground it can be searched for the reasons to occur this most common ground.
By identifying the reasons for the most common ground leading to unenforceability of arbitral awards in
Sri Lanka, it would be easy to find ways to minimize such adverse effects on arbitral awards. It would
facilitate to save the value of resources spent on arbitral process and to uphold the arbitration practice in
Sri Lanka.
3. AIM AND OBJECTIVES
The aim of the study was focused to establish the status of enforcement of local arbitral awards in Sri
Lanka. To achieve above aim, following objectives were set.
1. Determine the most common ground which leads to setting aside or refusal of enforcement of the
local arbitral awards by local courts, where the arbitral proceeding were conducted under the
purview of Arbitration Act No.11 of 1995.
2. Find out the reasons to occur above most common ground which leads to setting aside or refusal
enforcement of local arbitral awards.
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4. RESEARCH METHODOLOGY
A preliminary investigation revealed that it is difficult to find out old arbitration case records at the High
Court. Further it was found that enforcement and setting aside proceedings of arbitral awards at the High
Court and Supreme Court take a considerable time. Therefore considering the access to data and
finalization of the law suit on arbitral awards, it was decided to select a convenient sample. The
convenient sample of the study was selected as arbitral awards based on arbitral proceedings commenced
in Sri Lanka after the appointed date of the Arbitration Act No. 11 of 1995 and falling within the purview
of the Arbitration Act and the arbitration cases registered at the High Court Colombo during 2009-2012
for the setting aside or for the enforcement of the arbitral awards and such arbitration cases were finalized
by the courts. The sample contains 910 arbitration cases. To achieve the objectives, quantitative research
approach with a retrospective, cross-sectional, non-experimental study design was adopted.
In addition, to achieve the second objective, semi structured interviews were conducted with the parties
who failed to get the arbitral award enforced due to non-adherence to enforcement procedure. Interviewed
parties were mainly financial institutions and banks and contained 16 organizations.
5. DATA COLLECTION AND ANALYSIS
5.1. AN OVERVIEW OF THE DATA COLLECTION
Table 1 gives a summary of completed arbitration cases by the High Court on local arbitral awards.
Table 1: Summary of Completed Cases by High Court on Local Arbitral Awards
Year Completed
cases on
local
arbitral
awards
Applications
for setting
aside
Awards
set aside
Applications
for
enforcement
Awards
been
refused
to
enforce
Awards become
unenforceable and
percentage of
unenforceability
2009 204 1 0 203 4 4 1.96%
2010 405 4 1 401 3 4 0.99%
2011 196 3 2 193 6 8 4.08%
2012 105 0 0 105 14 14 13.33%
Total 910 8 3 902 27 30 3.30%
As indicated in Table 1, 30 numbers of arbitral awards become unenforceable from 910 arbitral awards,
either due to setting aside or refusal to enforce by the High Court. The percentage of unenforceability is
very low in 2009 and 2010 with 1.96% and 0.99% respectively. The percentage is moderate in 2011 and
recorded as 4.08%. However when considering the year 2012 the rejection rate is high and recorded as
13.33%. The overall result indicate that the percentage of unenforceable award as 3.30%.
5.2. ANALYSIS OF ARBITRAL CASES BASED ON INDUSTRY
It is important to analyze the composition of the sample and how awards become unenforceable with
respect to the relevant industry. Table 2 shows that 95.93% cases from the sample are belonging to
financial and insurance industry. The contribution from construction industry is 1.87%. When considering
the percentage of unenforceable awards, only 3.09% of awards become unenforceable in financial and
insurance industry. However the percentage is considerably high for the construction industry, which is
recorded as 11.76%.
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Table 2: Categorization of Arbitration Cases Based on Industry
Industry Total cases
from 2009
to 2012
Percentage
contribution of
the industry
Awards
become
unenforceable
Percentage of
unenforceable
awards
Financial and insurance 873 95.93% 27 3.09%
Construction 17 1.87% 2 11.76%
Whole sale and retail 4 0.44% 0 0%
Real estate activities 5 0.55% 0 0%
Electricity, gas, steam and air
conditioning supply
4 0.44% 0 0%
Transportation and storage 2 0.22% 1 50%
Manufacturing 1 0.11% 0 0%
Other 4 0.44% 0 0%
5.3. ANALYSIS OF ARBITRATION CASES BASED ON THE GROUND FOR REJECTION
One of main objectives of this study is to find out the most common ground on which local arbitral
awards become unenforceable. Table 3 provides a categorization of arbitral cases based on the ground for
rejection of the arbitral awards.
Table 3: Grounds Leading to Unenforceability of Arbitral Awards
Ground for setting aside or refusal to enforcement Total for the
category
Non adherence to enforcement procedure 17
Violation of due process 3
Excess of authority 1
Irregular constitution of the arbitral tribunal or irregularity
of arbitral procedure
1
Award conflicts with the Public Policy 8
As per Table 3, it is clear that “non-adherence to enforcement procedure” is the most common ground
which leads to unenforceability of local arbitral awards. From 30 numbers of unenforceable awards, the
above ground is responsible for 17 awards to become unenforceable. The result given in Table 3 is
graphically presented in Figure 1.
A close look at Figure 1 shows that 57% of unenforceable arbitral awards are belonging to non-adherence
to enforcement procedure while public policy grounds lie next corresponding to 27% of unenforceable
awards. Therefore the former is more than twice the size of latter. Violation of due process constitutes
10% of unenforceable awards while other two grounds constitute only 6%.
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Figure 1: Grounds for Setting Aside or Refusal Recognition and Enforcement
The primary grounds to refuse the enforcement under non adherence to enforcement procedure are given
in Table 4. This categorization is corresponding to the Arbitration Act. Figure 2 graphically presents the
results of Table 4.
Table 4: Categories of the Default in Enforcement Process which Lead to Refusal of Enforcement
Category of the default Number of cases
Not adhering legal principles or court procedures outside Arbitration Act 1
Not submitting arbitration agreement as required 6
Not submitting arbitral award as required 1
Not submitting a formal affidavit 1
Delay in application for enforcement 8
Figure 2: Refusal of Enforcement due to Non-adherence to Enforcement Procedure
Excess of
authority
3%
Irregular
constitution of the
arbitral tribunal or
irregularity of
arbitral procedure
3%
Award conflicts
with the Public
Policy
27%
Not submitting a
formal affidavit
6%
Delay in
application for
enforcement
47%
Non adherence to
enforcement
procedure
57%
Violation of due
process
10%
Not adhering legal
principles or court
procedures outside
Arbitration Act
6%
Not submitting
arbitral award as
required
6%
Not submitting
arbitration
agreement as
required
35%
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5.4. FINDING OUT THE REASONS TO OCCUR THE MOST COMMON GROUND LEADING TO
UNENFORCEABILITY
During the second tier of data collection, the data collection process was aimed to find out the reasons for
the most common ground leading to the unenforceability of arbitral awards. Table 5 summarizes the
results of the interviews carried out. Figure 3 gives a graphical representation of the contribution of the
reasons which leads to non-adherence to enforcement procedure.
Table 5: Result of the Interviews
Reasons for non-adherence Numbers of cases
Performance defects of legal counsel 9
Not understanding the requirements of s.31of the Arbitration Act 1
Failure of the company strategy on the award 1
Performance defects of the officer in charge of the case 3
Relevant officers are not knowing the actual reason 2
Figure 3: Reasons for Non-adherence to Enforcement Procedure
Figure 3 indicates that 64% of arbitral awards belonging to “non-adherence to enforcement procedure”
become unenforceable due to the performance defects of the legal counsel. Performance defects of the
relevant officer in charge (to follow up the case) are responsible for 22% of arbitral awards to become
unenforceable in the category. Another 7% of arbitral awards become unenforceable due to failure of the
company strategy on the arbitral award. Lack of understanding of the requirements of section 31 of the
Act is responsible for 7% of arbitral awards to become unenforceable under this category.
Further as per Table 1 and Table 3, from 30 unenforceable arbitral awards, other than 3 arbitral awards
been set aside and 17 arbitral awards become unenforceable under non-adherence to enforcement
procedure, there are another 10 unenforceable arbitral awards. Those 10 arbitral awards become
unenforceable due to refusal of enforcement under section 34 of the Arbitration Act. Further in the total
sample of 910 cases only 8 cases are registered under section 32 and from those 8 cases only in the 3
cases above mentioned the arbitral awards have been set aside. Therefore it can be concluded that though
there are ground for setting aside of arbitral awards, the parties involved in arbitral process do not obtain
the precise usage of the provisions in section 32 of the Act for challenging arbitral awards. A close
scrutiny of the data collection revealed that all the 10 cases where the arbitral awards were not challenged
Not understanding
the requirements of
s.31
7%
Failure of the
company strategy
on the award
7%
Performance
defects of the
officer in charge
22%
Performance
defects of legal
counsel
64%
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under section 32 are from financial and insurance industry and the lessee or the borrower had not utilized
their rights.
However in a recent case Hatton National Bank vs. Sella Hennadige Chandrasiri (2015), the Supreme
Court of Sri Lanka set aside the High Court judgment on the arbitration case HC/ARB/388/2011 whereby
the High Court refused to enforce an arbitral award on the grounds mentioned in section 34 of the Act. In
the Supreme Court judgment, it was held that section 34 of the Arbitration Act is for foreign arbitral
awards and cannot be applied to local arbitral awards. This makes more pressure on the parties involving
in arbitral process to exercise their right under section 32 of the Arbitration Act more vigilantly and
promptly.
6. CONCLUSIONS AND RECOMMENDATIONS
Non-adherence to enforcement procedure is the most common ground which leads to the unenforceability
of local arbitral awards in Sri Lanka. Performance defects of the legal counsel and officer in charge of the
case are the main reasons for the non-adherence to enforcement procedure. These two reasons are
responsible for 86% of the unenforceability within the non-adherence to enforcement procedure.
Therefore it is important to establish proper reporting and monitoring systems within the organizations
dealing with arbitration to follow up arbitral cases properly.
Borrowers and lessees of financial industry do not properly utilize the provisions in section 32 of the
Arbitration Act, when the awards are having grounds for setting aside. As the Arbitration Act does not
provide any other opportunity to prevent enforcement of unfair local arbitral awards, it is very important
to utilize section 32 for setting aside. Therefore an awareness programme is to be carried out aiming the
relevant strata of the society to improve their knowledge on the impact of arbitration agreement they sign
when they obtain financial facilities and to improve their knowledge on the repercussion they would face
if they do not utilize the provisions in Arbitration Act for their good. This is very important to uphold the
arbitration practice in Sri Lanka as the financial and insurance industry constitutes around 95% of the
arbitration cases referred to the courts.
During the interviews with finance companies and banks, most of them expressed that enforcement
proceedings at courts become cumbersome and very time consuming. Due to these reasons one bank and
one finance company have removed the arbitration clause from their loan and leasing agreements. This
difficulty in enforcement process is a considerable drawback in the arbitration sphere in Sri Lanka.
Therefore it is highly recommended that the government should take some steps to smoothen and speedup
the enforcement proceedings of arbitral awards in the courts.
7. REFERENCES
Amerasinghe, A.R.B., 2011. The Sri Lanka Arbitration Act No. 11of 1995 – A presentation. In: K. Kanag-Isvaran
and S.S. Wijerathne. Eds.  Arbitration Law in Sri Lanka, Sri Lanka: ICLP, 9-30.
Arbitration Act, No 11 of 1995, 1995. Colombo: Government publication of Bureau.
Hatton National Bank v. Sella Hennadige Chandrasiri, 2015. SC Appeal 63/2013(LK) [Online]. Colombo: High
Court of Sri lanka. Available from http://www.supremecourt.lk/images/documents/sc_appeal_63_2013ed.pdf
Kanag-Isvaran, K., 2011. The new law on arbitration. In: K. Kanag-Isvaran& S.S. Wijerathne. Eds. Arbitration law
in Sri Lanka, Sri Lanka: ICLP, 31-46.
Mustill,M.J., and Boyed, S.C., 1989. The Law and Practice of Commercial Arbitration in England. 2nd ed. United
Kingdom: Butterworth.
Nacimiento, P., and Bamashov.A., 2010. Recognition and enforcement of arbitral awards in Russia. Journal of
International Arbitration, 27(3), 295-306.