“Commercial Mediation Bill”: Problem or solution?

President’s Counsel Harsha Fernando

Sri Lanka’s recently gazetted Mediation (Civil and Commercial Disputes) Bill, 2025 aims to institutionalise mediation and reduce court backlog. Some critics argue that it will not fully serve its intended purpose. 

This is an interview with President’s Counsel Harsha Fernando, who, in addition to litigation, has been practicing commercial negotiations and mediation, both locally and overseas, for over 20 years. 

Q: The Government has proposed a Commercial Mediation Bill. What are your initial thoughts on it?

A: Mediation is an important tool in the broader continuum of dispute resolution options available, ranging from direct negotiation between parties, to mediation involving a neutral third party, to arbitration and ultimately court-based adjudication. In that context, I believe introducing a legislative framework to support and institutionalise mediation is both timely and necessary. It reflects a progressive step toward strengthening access to justice, reducing court congestion, and offering businesses a cost-effective and efficient mechanism for resolving disputes. Overall, it’s a positive move in the right direction.

Q: What are the differences between mediation, conciliation, and arbitration that a party to a commercial transaction should be aware of?

A: In commercial disputes, parties typically have a range of dispute resolution options, including negotiation, mediation, conciliation, arbitration, and litigation. These fall into two broad categories. Mediation, conciliation, and negotiation are consensual processes where the parties themselves determine the outcome. Arbitration and court proceedings, on the other hand, are adjudicatory processes where a third party imposes a binding decision, often resulting in a win/lose outcome.

With arbitration and court-based adjudication, once you agree to submit a dispute, you are bound by the result, whether it’s in your favour or not. Basically, it’s “winner takes all,” forcing the parties to behave in an adversarial manner, damaging a long-standing business relationship, and destroying future collaborative value. Mediation and conciliation offer a more constructive alternative. There’s no imposition of a third party’s will. A mediator facilitates dialogue, helping parties to understand each other’s interests and arrive at a mutually acceptable solution. As a commercial mediator, I view every commercial dispute not as a deadlock, but as a creative opportunity, a chance to help parties unlock more value, preserve relationships, and find outcomes that courts or Arbitrators cannot provide. To illustrate: one party might say, “I’m willing to compromise on this issue if we can work together on a future project.” That kind of thinking is simply not available in arbitration or court. Mediation is actually a negotiation between the parties, supported by a third party. 

Q: What is the difference between mediation and conciliation?

A: I am surprised to note that the word “conciliation” is nowhere mentioned in the draft Bill, although the earlier Act that this Bill seeks to repeal had it. We need to consider mediation and conciliation together. The difference between the two essentially lies in the mediator’s role. A conciliator takes a more advisory role, offering suggestions and proposing solutions based on their understanding of the commercial context. In complex commercial matters, I often find that conciliation is more effective, especially when the neutral party has a deep understanding of how businesses operate. In such cases, the line between mediation and conciliation naturally blurs, and that added guidance can be invaluable. In my experience, a good mediator requires both a sound understanding and experience of commercial disputes to effectively conciliate the dispute and possess high-level mediation skills. 

Q: Is there a difference between community mediation and commercial mediation?

A: Yes, and it’s an important and often overlooked distinction. At a basic level, both processes use similar tools such as facilitation, dialogue, interest-based negotiation, but the context, skillsets, and objectives differ significantly.

Commercial mediation or conciliation deals with business disputes, contractual issues, and commercial relationships. It’s in a way is transactional, strategic, and often time-sensitive. A good commercial mediator must understand business dynamics, commercial value, and the need to preserve or restructure relationships for future collaboration. Community mediation, by contrast, is more restorative and relationship-driven. It typically involves personal, neighbourhood, or social disputes, and is deeply rooted in community engagement, local trust, and cultural sensitivity. The focus is on healing relationships, restoring harmony, and building understanding within the fabric of the community. A skilled commercial mediator, with the right orientation, can often adapt to community mediation. However, the reverse isn’t always true. A community mediator may lack the commercial acumen or strategic thinking necessary for complex business disputes. That’s why policymakers must differentiate between the two roles. One size does not fit all. 

Q: Do you think the proposed Bill is capable of creating a strong environment for commercial mediation in Sri Lanka?

A: As I mentioned earlier, this is a timely and important piece of legislation. If crafted and implemented well, it has the potential to significantly improve the way business disputes are resolved, offering speed, cost-effectiveness, confidentiality, and the chance to preserve commercial relationships. It provides a welcome alternative to the adversarial nature of courts and the rigidity of arbitration. That said, based on my review of the version of the Bill currently available online, I do believe there is room for improvement. While the intention is commendable, the framework must be carefully calibrated. If we get the design and implementation right, this Bill could be transformative. But it must be flexible, investor-friendly, and aligned with international standards if it is to create the enabling environment that businesses expect.

Q: What are the areas that particularly stand out as needing “re-calibration”? 

A: From a careful reading of the Bill, I get the strong impression that its approach is heavily influenced by Sri Lanka’s success with community mediation, which is commendable in its own right, but not directly transferable to commercial settings. This influence has resulted in several structural weaknesses that need to be addressed if the Bill is to serve the needs of commercial disputants effectively.

First and foremost, the Bill does not adequately respect party autonomy, which is a cornerstone of commercial mediation. For example, once parties select a Mediation Service Provider (MSP), which they are effectively required to do, they are bound by that MSP’s internal rules. There is no explicit provision allowing the parties to override or modify those rules, even by mutual agreement with the support of the Mediator. That undermines the flexibility needed to tailor the process to the nature of the dispute.

Second, there is an inherent conflict in some of the Bill’s provisions. On one hand, it says that the MSP appoints the mediator [Section 8(3)], while elsewhere it implies that parties can select their own mediator [e.g., Section 9(2)(c)]. This creates avoidable legal ambiguity and introduces unnecessary confusion.

Third, the requirement that procedural rules must be set by the MSP is, in my view, a fundamental violation of the principles of mediation. In commercial mediation, the process must be dynamic and responsive to the specific dispute. The parties and a skilled mediator must have full discretion to craft the procedure after they meet. They should not be constrained by the rules of the MSP. To give a practical example: a shareholder dispute between family members and a similar dispute between business or corporate partners may both be “shareholder disputes,” but they demand very different approaches. Only a skilled mediator with the flexibility to adapt can make that distinction meaningful. The Bill could be clearer on this aspect.

Finally, while standardisation may be helpful for community mediation boards, which deal with a high volume of similar disputes, the same logic does not apply to complex commercial mediation. In commercial disputes, state involvement must be minimal. The success of mediation often hinges on the mediator’s personal skill, rather than their compliance with rigid procedural templates developed by a third-party mediator (MSP) or an institution. The Bill must reflect a more sophisticated understanding of conflict dynamics. 

Q: Do you think anyone can be a mediator? 

A: There’s a common belief that anyone with basic communication skills can mediate. I tend to disagree with that notion. In my experience, both locally and internationally, commercial mediation requires a high degree of sophistication, especially as disputes become more complex. I’ve been offering commercial conciliation, mediation, and negotiation services for nearly three decades, and I still consider myself a student of the process. Each dispute teaches you something new. The reality is, a two to three-day training course doesn’t make someone a competent mediator, certainly not in the commercial context, where you may be dealing with multi-party negotiations, cross-border contracts, or shareholder disputes involving competing interests and emotional undercurrents. 

Good mediators need more than technical knowledge. They require a comprehensive understanding of business dynamics, behavioural psychology, legal frameworks, and interpersonal strategies. They also need the ability to remain neutral while guiding parties toward creative solutions. That level of competence only comes with serious training, continuous learning, and real-world experience. Mediation is not for everyone, and assuming otherwise risks doing a disservice to both parties and the integrity of the process. Having said that, finally, the market forces will decide who would be the most sought after based on performance. 

Q: Do lawyers make good mediators?

A: We can, but not automatically. While lawyers bring valuable skills to the table, such as legal knowledge, analytical thinking, and familiarity with dispute dynamics, mediation requires a very different mindset from litigation or arbitration. The traditional legal approach is often adversarial: identify the strengths of your client’s case, weaken the opponent’s position, and aim for a win. Mediation, by contrast, is about facilitation, neutrality, and guiding parties toward mutually acceptable outcomes. That requires emotional intelligence, active listening, creativity, and an ability to work with ambiguity, qualities that aren’t always emphasised in legal training. 

Some lawyers transition into mediation beautifully, especially those who embrace the collaborative nature of the process and are willing to set aside the “judge and jury” mentality. Others struggle because they approach mediation like a courtroom, trying to control or decide outcomes. So while legal training can be an asset, being a good lawyer does not automatically make you a good mediator. It depends on the individual’s ability to unlearn certain habits and acquire the unique skillset that meditation demands.

Q: The Bill appears to limit the involvement of lawyers in the mediation process. What are your thoughts?

A: The Bill doesn’t outright ban legal representation, but it does limit the role of lawyers to that of assisting parties, rather than fully representing them. This is obviously to make the process free from adversarial approaches. While Section 13 allows a party to be accompanied by an attorney-at-law or another person, they may only speak at the party’s request and under the mediator’s control. In principle, this reflects a traditional view of mediation as a non-adversarial, party-led process. And since mediation cannot impose a binding outcome unless the parties agree, one could argue that the absence of full legal representation doesn’t prejudice the parties. 

However, in practice, this limitation raises concerns, especially in complex commercial disputes. When disputes involve intricate contractual terms, regulatory obligations, or cross-border elements, parties often rely on legal counsel not just for advice but for active participation in negotiations. If the framework discourages or constrains that role, lawyers may advise their clients not to participate in the system altogether. That would be counterproductive. The entire purpose of this Bill is to expand the use of mediation in commercial disputes, not confine it to low-value claims. 

Unless the role of legal professionals is clearly rationalised and properly integrated into the mediation framework, there’s a real risk that the system will be underutilised and confined to small-scale disputes, which would defeat the Bill’s original intent. Moreover, there’s a constitutional argument to be made: the right to legal representation cannot be arbitrarily denied. Ultimately, the key lies in balance, ensuring that lawyers support the mediation process without dominating it, while giving parties the freedom to decide when and how to involve them.

Q: You said lawyers can help ensure a mediated agreement is legally enforceable. But if a lawyer represents only one party, how can they act in the best interests of both?

A: That’s a fair question, but in a properly conducted mediation, this dilemma rarely arises. Mediation is not about one party overpowering the other; it’s about finding mutually acceptable solutions. A good mediator ensures that the process remains balanced, transparent, and interest-based. A lawyer’s role in this context is to advise their client, not both parties. And that’s perfectly acceptable, as long as the mediator maintains neutrality and ensures that all parties have the opportunity to understand and negotiate terms fairly. Lawyers are bound by professional ethics to act in the best interests of their own clients. That doesn’t mean they act unfairly toward the other party. In fact, their involvement can elevate the quality and enforceability of the settlement.

Q: Should the proposed Act prohibit people from offering mediation services unless they are experienced?

A: No, I don’t believe such a restriction is appropriate, at least not in the context of private commercial mediation. Mediation is, at its core, a voluntary and party-driven process. The parties should have the freedom to choose any person they trust to help them resolve their dispute.

Take the example of a family-owned business: the most effective mediator may not be a trained professional, but a respected family elder who understands the relationships and dynamics involved. As long as that person has a basic understanding of what a mediator does or does not do, that should be enough in view of the unique relationship she has with the parties. The law should support, not hinder, such choices. One could argue that the proposed bill’s structure, particularly Section 14, curtails this freedom. It restricts mediation services to registered Mediation Service Providers (MSPs). That effectively even bars any independent or international mediator from being selected unless they are channelled through a domestic MSP. This represents a significant departure from Sri Lanka’s arbitration framework, which allows parties to appoint any individual as an arbitrator, tailored to the specific needs of the dispute. 

On the other hand, the MSP can guide the parties as to who a good Mediator could be. Then their role would be similar to that of a Registered Attorney, where the Counsel is chosen by the Registered Attorney based on the nature of the dispute. This has to be carefully thought out. Another troubling aspect is that the Bill fails to reconcile with other existing legislation. For example, the Colombo Port City Economic Commission Act of 2021 explicitly allows parties to adopt international mediation mechanisms. Under the new Bill, would a foreign investor seeking to mediate a dispute under a bilateral investment treaty be prevented from appointing an international mediator directly, unless they go through a local MSP? That could undercut investor confidence and send a negative message to the international business community.

As I mentioned earlier, the 2000 Act, which is being repealed, recognised both mediation and conciliation; however, this new Bill drops the conciliatory aspect entirely. That’s a significant omission, as conciliation plays a vital role in commercial dispute resolution, particularly when a mediator with in-depth sectoral knowledge is needed to guide parties toward a solution. Lastly, by insisting on the involvement of registered MSPs, the Bill may also hinder the development of online and tech-enabled mediation platforms, something the rest of the world is actively investing in. 

While other jurisdictions are exploring AI-assisted mediation and virtual dispute resolution, we seem to be moving backward by making the process overly formal and institution and two person dependent, even for a single simple dispute. Experience matters, but party choice matters more. The legal framework should empower parties to resolve disputes in a way that works best for them, rather than constraining them with unnecessary institutional filters.

Q: Does that mean you are advocating for a mediation without a set procedure?

A: Certainly not. Procedure is essential, but it must be fit for purpose. In mediation, the procedure should be tailored to the nature of the dispute, the nature of the relationship between the parties, and other factors such as time pressures. Ideally, it should be defined and agreed upon by the parties and the mediator. What I’m advocating for is flexibility, not the absence of structure and to leave the decision to the parties and the mediator, not the MSP. The problem with the current Bill is that it gives procedural control to the MSP, not to the parties. That’s a fundamental shift away from what makes mediation so effective, its adaptability. 

A one-size-fits-all procedural rulebook developed by an institution or an MSP can’t capture the nuances of different disputes. In commercial matters, especially, every dispute is unique. A contractual dispute between two multinational corporations requires a very different approach than, say, a dispute between shareholders in a family business. Only the parties and the mediator, working together, can craft a procedure that reflects those differences. So yes, I believe in procedure. But it should be collaboratively developed, not institutionally imposed.

Q: If mediation is as good as you say, do we really need a separate law to enforce mediation settlements?

A: As a commercial mediator, my instinctive answer is no, at least not always. In my commercial mediation practice, I employ the interest-based approach, where the goal is to help parties reach an agreement that genuinely meets their underlying needs and concerns. When that happens, implementation follows naturally, because the outcome reflects the parties’ own interests, not something imposed on them. That said, we also live in a world where legal certainty matters. Businesses want assurance that if the other side fails to uphold their end of the agreement, they have recourse to enforcement. In that sense, having a legal mechanism to enforce mediated settlements, particularly in commercial matters, is a positive step.

However, we must also recognise that a mediation settlement agreement cannot and should not be considered equivalent to an arbitral award. An arbitral award is a third-party decision that becomes binding regardless of party consent. A mediation settlement, by contrast, is a contractual agreement by consent. It only works because both parties agree to it. And like any contract, it must satisfy the basic legal elements of contract law. As per the Bill, it’s the Mediator or an authorised official of the MSP that attests the settlement agreement. 

The court’s role is essentially limited to enforcement and entered as a decree of the High Court (section 22). The grounds on which the High Court can refuse, as given in Section 26, can be further expanded. But that would delay the process. This is why legal input during mediation is important. If we allow settlements to be enforced like Arbitration awards without verifying their legal soundness, we run the risk of enforcing agreements that may not be legally valid or commercially viable in the long run. That could do more harm than good. 

This approach needs more careful thought. Courts must at least retain the ability to ensure that what is being enforced truly qualifies as a valid and enforceable contract. We may be able to waive or shorten certain procedural requirements. Enforcement must be balanced with legal safeguards. Otherwise, we risk undermining the very integrity of the mediation process. I also have concerns as to why the enforcement is given to the Provincial High Court. I personally feel that the District Court could be a better option in terms of both access and efficiency. 

Q: Isn’t this just another step in the process that adds time instead of delivering the finality of a court decision? Should the Act remove court involvement altogether?

A: That’s a valid concern, but it’s important to see mediation differently. Unlike litigation, mediation is not about rushing to finality. It’s about resolving the dispute in a way that addresses the real interests of the parties. When a settlement is reached through genuine dialogue, one that truly meets the parties’ needs, it usually gets implemented without any enforcement mechanism. In such cases, you may not even need a formal contract. But of course, in commercial transactions, a legally executed agreement helps to manage the risk of breach. And having the ability to enforce that agreement in court is an important safeguard. So yes, court involvement in enforcement is positive, but it should not interfere with the mediation process itself. That is the real power of mediation. Anyway, a 12-month period is given to obtain a Court degree. That’s sufficient time for self-enforcement. 

Another concern is that if courts are positioned too centrally in the process, especially if settlements are automatically converted into decrees, it may unintentionally encourage mediators to rush parties (especially those with an unbalanced power orientation) towards an agreement rather than spending the time needed to uncover their true interests and generate meaningful options. That undermines the very essence of mediation. 

It will be very difficult to prove mediator bias or conduct as no record of proceedings is generally maintained. We must not ignore that the Bill introduces the all-important aspect of referring Court cases to mediation. Rules must specify if the reference is limited to the dispute before the court, which would be very narrowly defined, or if the mediator can expand the dispute, for example, to consider relationship dynamics that the court processes will not allow. 

 

Q: Does the Bill unnecessarily curtail private mediators from providing services?

A: Yes, it does appear to have that effect, although the rationale for doing so is unclear. While the establishment of Mediation Service Providers has certain advantages, such as administrative support, standardisation, and quality assurance, it should not come at the cost of flexibility or the exclusion of experienced professionals. Under the proposed Bill, all mediations must be administered by a registered MSP (Section 14). This means that ad hoc mediators or institutional models, even those widely respected or with years of experience, are effectively excluded unless they operate through a recognised MSP. 

To give a practical example: a retired judge, a professional arbitrator, or a subject matter expert who is well known in a particular industry would not be able to mediate a commercial dispute independently under this Bill unless affiliated with an MSP. Most commercial mediation globally is done outside formal institutional settings, and the number of institutional mediations tends to be relatively low. By over-emphasising the institutional gatekeeping function, the Bill risks shrinking the available pool of qualified mediators. This defeats the very objective of promoting mediation as an accessible and business-friendly voluntary dispute resolution mechanism.

Q: What are the three key amendments you would propose to improve the Bill?

A: If I had to propose just three key changes. Firstly, preserve party autonomy in selecting mediators. Commercial disputants, especially in the private sector, must have the absolute freedom to select any mediator, from anywhere, at any time, based on the nature of the dispute. This is a fundamental principle in commercial mediation. The requirement to go through a registered MSP is an unnecessary burden and may actually increase the cost and complexity of the process. A system that allows, but does not mandate, MSP involvement would be more appropriate.

Secondly, minimise the confusion between community mediation and commercial mediation. Much of the Bill appears to be influenced by the success of Sri Lanka’s community mediation model, which is valuable but not transferable in full to the commercial context. Community mediation thrives on standardised procedures and government oversight. Commercial mediation, by contrast, requires flexibility, sectoral expertise, and confidentiality. The Bill must be more nuanced in differentiating these two models.

Thirdly, reframe the role of the MSP: Even if the Bill allows even a single person to act as an MSP, this creates a duplicative structure requiring both an MSP and a mediator. That’s overly formalistic. MSPs can play an important supporting role, especially in maintaining panels and setting best practices. But their role should be enabling, not mandatory. The law should empower parties to proceed without an MSP if they so choose, especially in high-trust or high-stakes commercial disputes.