Winning the Battle and the War
By Sharon Arnolda
In keeping up with shedding light on all things business-related post pandemic, the fifth episode of the SL Law Review Series, hosted by American Chamber of Commerce in Sri Lanka, focused on, ‘Legal Avenues for Money Recovery’. The discussion was enlightened by an esteemed panel consisting of Attorney-at-Law, Notary Public, and Commissioner for Oaths specialising in Commercial/Civil Law Nithi Murugesu, Attorney-at-Law with over 18 years of experience in the fields of Civil and Commercial law Senaka De Seram, and Attorney-at-Law specialising in Commercial Law, Banking Law, Intellectual Property, Insurance, Telecommunications, and Labour Law Shivan Cooray. The discussion was moderated by Attorney-at-Law and Academic Thiloma Chandraseka-Thenuwara.
In last week’s (25 Sunday) article Ceylon Today discussed all matters related to recovering money through legal avenues is cussed in the fifth session of the SL Legal Review Series. This article will focus on the contribution made by De Seram in his presentation which focused on the practical aspects of money recovery, to ensure that corporates and individuals don’t lose the war while focusing on the battles.
As pointed out by Murugesu it is important to keep in mind that, “Mortgages on movables should be registered within 21 days in the land registry in order for an action to be instigated upon such property.”
Drawing from the last comments made by the previous panellist, De Seram once again pointed out that the legislation in the country provides for such comprehensive dispute resolution mechanisms that one must exercise all such opportunities before going to courts.
De Seram focused his discussion on money recovery through the Debt Recovery Act, Finance and Leasing Act, and through means of mediation and arbitration. The first two are mechanisms available only to banks and financial institutions while the latter are available to everyone.
Mediation can be sought in the event that the amount owed exceeds Rs 500,000. In the event it doesn’t exceed Rs 500,000 a ‘certificate of non-settlement’ needs to be obtained prior commencing the mediation proceedings.
In sharing from his practical experience De Seram further added that it is better for banks and institutions to wait till the amount exceeds Rs 500,000 ( with added interest) and then move on to instigating a procedure as opposed to getting the said certificate, as such a process causes delays.
He also went on to state that in the light of the current pandemic, mediation is being carried out in schools and educational institutions causing further delays.
Debt Recovery Act
The Act provides for the process of money recovery that can be followed by registered banks and financial institutions. And since such institutions have many avenues of money recovery, it is upto the lawyers to figure out which option is most suitable in recovering the amounts owed. Elaborating on execution actions in regard to apartment complexes, which was discussed in the previous article, De Seram stated that, in the event a bank/institution is defaulted by a developer of an apartment complex and the complex is already occupied by tenants who have no direct connection with the money lending institution, executing parate actions and gaining possession of the property can become problematic considering that most of the tenants would file objections to such orders together.
And while the institution would have the legal ownership of the land without the actual possession of it, the money owned cannot be recovered; such issues also arise with Government land and money lent to Board of Investment (BOI) operations, he added.
Instigating an action under the Act
It provides for the instigation of a summary procedure by the institution where a supported plaint is filed together with an affidavit, and the defendant is summoned and given a date to appear before courts and file an answer.
What happens if the defendant doesn’t appear?
De Seram pointed out that under the said Act the defendant is not entitled to, “Take a date,” and should ideally be present with their lawyer on the given date.
If the defendant fails to do so, the decree nisi (the interim decree) will be made absolute and the defendant will have no recourse over such decision.
De Seram also pointed out that the damage done by an incompetent lawyer in such an instance is much greater than the position a client would be in if they were to represent themselves in a court of law. He further added that it is important that lawyers understand the provisions of the statues completely prior to assisting their clients and further went on to generously offer such advice to young legal professionals who need guidance in such matters.
He once again elaborated on the importance of attending to any and all legal documentation received as done by the previous panellists.
Finance and Leasing Act
The act provides for a summary procedure in the District Court by which an interim order can be sought to regain the possession of the leased property.
De Seram commented on the recent events in which debtors and creditors have resorted to violence in regaining leased property.
He further added in such matters it is better if the institutions can make an entry in the Police station and get their help in recovering the leased property. However, he added that with the pandemic situation least preference is given to such matters at the moment.
He added that what is important to keep in mind is that when it comes to such situations maintaining the reputation of the institution is more important than regaining possession of one leased property, and that how an institution treats its customers sets a precedent in what has now become a highly competitive field.
In sharing from his experience he mentioned that, the recovery team was encouraged to go and meet the clients and arrive at settlements with them, and that recovery matters were handled in a peaceful manner as opposed to instigating violence. He further added that even in the event the institution instigated a claim against the debtor, the client was spoken to and a payment agreement was reached within the first few dates of court appearances.
According to De Seram entering into such agreements are beneficial to institutions since it reduces the time of litigation and costs associated with it in addition to creating a document/agreement that the debtor has to be bound by. He further added that in the event the payment is defaulted by the debtor the institution can seek a writ against the debtor,“Which is the ‘end game’,” he added.
In giving advice to debtors in this situation he shared that, it is of utmost importance to only enter into an agreement if the payment terms are feasible. It would be better to go on with the case than to be bound by an agreement that cannot be practically complied with.
He further went on to state that in summary, in proceedings such as these the traditional system of leading evidence is not followed and the case is based on the initial documentation provided. Therefore, it is crucial that all documentation is maintained properly and presented accordingly, he added.
He also pointed out that the Act lays down three criteria under which the applicable District Court can be selected. He added that lawyers should look in to taking such matters to other jurisdictions in order to efficiently complete these matters since the overcrowding of cases of this nature is causing delays to all parties.
A Dispute resolution mechanism available, provided that the parties have agreed to an arbitration clause via the signing of the agreement in question.
In sharing his opinion on the situation of arbitration in Sri Lanka De Seram stated that the system did not take the intended spirit which led to lengthy and costly procedures, and such a situation has caused arbitration to lose the practicality it was intended to have with many staying clear of the clause all together.
He further added that a recent gazette conferred jurisdiction to the High Court of both Kandy and Jaffna to enforce arbitration awards. He also added that this calls for lawyers in the jurisdiction to be more prepared to handle such matters effectively.
He also pointed out that since arbitration is not a court procedure, parties tend to avoid notices sent to be present at arbitration. He further added that when parties fail to appear the matters are carried out without the participation of the debtor and therefore, an award is granted. Once such award is enforced in a court of law there is very little that can be done about it, he added.
He also took a moment to emphasise on the importance of being present at such hearings.
“In my experience 50 to 60 per cent of cases happen without the other party being present. This had led to institutions using arbitration as method for recovery,” De Seram said.
In closing he added that over time, there are ad hoc arbitration centres which are within the gambit of the law but whose ethics he did not comment which step in to resolve corporate disputes. He also added that it is important to be mindful of the arbitration clause in signing documents and also pay close attention to the ‘Set of Arbitration’ when doing so.
In the ending of the discussion the importance of leaving, “No stone unturned and no letter unopened,” when it comes to corporate legal documentation was once more emphasised.