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For a dispute to be resolved through arbitration it is necessary that the two parties had agreed and
had a clause on arbitration as the dispute resolution procedure at the time of getting in to the
contract. Disputes arising from the contract will be referred to the arbitrators. It is a dispute
resolution process where the opposing parties select or appoint an individual called an Arbitrator
or a panel of arbitrators.
Usually one arbitrator is appointed from each party and the two arbitrators appointed will select
the third arbitrator to act as the chairman of the panel. Upon appointment, the Arbitrators will
arrange the process to hear and consider the evidence, review arguments and afterwards will
publish an award in which the items of dispute are decided.
Legislation governing arbitration in Sri Lanka is the Arbitration act of 1995. Main highlights of
this act include Safeguarding party autonomy with regard to arbitration procedure, eliminate
interference of courts, possibility to exclude appeals to supreme court, provision for enforcement
of foreign arbitration award.
Advantages of arbitration includes less cost compared to litigation, non disclosure of company
information as it is privately held and flexibility. But the companies are bound to accept the
decision of the arbitrator and it will create a win lose situation.
Arbitration is today most commonly used for the resolution of commercial disputes. It is also
widely used in international commercial transactions. Arbitration is most suitable when
 The issue is already a win-lose situation.
 The parties agree that they will abide by an arbitrator’s decision.
 They do not need the court to enforce the decision which would make the dispute public
In arbitration the parties give up their power to agree on a decision and empower the arbitration
board to give the final decision.

Mediation makes use of a third party called the Mediator for dispute resolution. The Mediator is
selected by the parties and once selected, the Mediator along with the parties will arrange the
mediation process.
The Mediator can make no binding decisions but acts as a facilitator by using various
procedures, techniques and skills to help the parties resolve their issues by negotiated
agreements. The mediator can have separate consultation with the parties and draw up terms
which he considers to be fair to solve the dispute. He will also advise parties on probable
consequences of going for arbitration or litigation if mediation fails.
If the parties can't reach a settlement agreement, they are free to pursue other options. It is
particularly valuable to try mediation in situations where the parties are going to need to keep
working together in the future.
Settlement is achieved by agreeing to take into account a broad range of aspects, especially
concerning commercial and business interests. The process is flexible and can be tailored to the
individual needs of parties.
The act governing mediation in Sri Lanka is the Mediation act of 1988. Under this act when the
value of a claim is less than Rs25,000 it is mandatory that mediation is resorted first since court
action is permitted only in the event of failure of mediation

Conciliation is a dispute resolution process in which the parties freely choose to participate and
any agreements reached to settle disputes is done solely by the parties, without interference. It is
also a non binding mechanism which does not involve a court of law.
Once the parties agree to utilize a conciliator, the parties along with the conciliator will engage in
more like round table discussions. Conciliator will actively participate in discussions with
disputants and contribute to the discussion between them by analyzing their positions and
listening to their viewpoints and expressing his own views. Conciliation unlike mediation will
not have separate discussions with parties and the conciliator will not give any terms or solutions
for parties to consider.
The conciliator aims to lower tensions between the parties by improving communication,
interpreting issues in dispute and exploring solutions to reach a settlement which both parties
would be agreeable too.
Advantage of this is the disputants will effectively participate in the discussions and will be in a
position to agree on settlement without a delay.
Conciliation can often help the parties understand each other’s position. It is less likely to create
the hard feelings that can happen in arbitration or litigation’s win lose approach. Thus,
conciliation will work better where the parties are ready to compromise to create a win-win
The legislation related to conciliation in Sri Lanka are Debt conciliation ordinance no 39 of
1949, the conciliation board act no 10 of 1958 and Judicature act no 2 of 1978.