JUNE 24 — The arbitration process is a voluntary form of alternative dispute settlement where concerned parties resolve disputes through arbitrators. Arbitration is used extensively and forms an important part of the justice system of our society today.
It is considered an attractive form of alternative dispute resolution as it offers privacy to all parties and is perceived to be cost-effective, time efficient, and flexible. For any case to undergo the arbitration process, there must be an arbitration clause in the original agreement. The outcome of an arbitration award is binding and enforceable in any court as long as it is pursuant to the law.
Arbitrators, similar to judges, have the power to adjudicate matters. However, unlike judges who cannot be appointed by parties involved, arbitrators on the other hand can be appointed by the parties involved in the arbitration. This being the case, an oversight mechanism is vital to ensure arbitrators are held to strict ethical standards to avoid any case of ‘rogue arbitrators’ or bias.
Although arbitration is not part of the judicial system, arbitration is not a foreign concept in Malaysia as Malaysia is home to the Asian International Arbitration Centre (AIAC), a global hub for alternative dispute resolution for the past four decades.
The Sulu case, in which eight individuals claiming to be heirs of the deceased Sultan of Sulu staked a US$15 billion claim against Malaysia, had no arbitration clause as there wasn’t any agreement between the Government of Malaysia and the eight claimants. The purported final award resulting from the sham arbitration was issued illegally by a Spanish arbitrator, Gonzalo Stampa, to the eight claimants despite the prior annulment of his appointment as an arbitrator by the Spanish court.
This case has raised critical concern about the importance of ethical conduct, integrity, professionalism and good practice by arbitrators, which is the cornerstone of the arbitral process. These qualities inform the choice made by parties involved in choosing an arbitrator to settle their dispute. Any person who acts as an arbitrator is expected to undertake serious responsibilities to the public, as well as to the parties involved, which include ethical obligations, failing which, could cause the whole arbitration system to be undermined. In the Sulu case, the element of professionalism and ethical conduct is absent as the arbitration process was not mutually agreed upon by the parties involved (in this case, the eight claimants and the Government of Malaysia) (note 1) and the purported final award was illegally issued by an arbitrator whose appointment, as mentioned earlier, had been annulled by the Spanish court, and therefore has no jurisdiction to adjudicate the matter.
The Sulu case also exemplifies how an arbitration process can be abused to threaten sovereign countries in the absence of an oversight mechanism and a failing of arbitrators to adhere to strict professional and ethical standards. A strict code of ethics for arbitrators will cut any sham arbitration — that could go so far as to try to cripple sovereign nations — at its knees. No sovereign nation should be held at ransom by conspirators because of the failure of arbitrators to be held to a strict standard of ethics.
The arbitration process of today is not immune to abuse. The arbitration process allows for the seat of arbitration to be moved. Before the judgment in Spain was concluded, the arbitrator in the Sulu case moved the seat of arbitration to Paris. The claimants then continued to pursue the recognition and enforcement of the purported final award in other countries such as the Netherlands and Luxembourg. Hypothetically, the claimants could continue forum shopping indefinitely in as many countries (that are party to the New York Convention 1958) as they choose until they reach an outcome which they find satisfactory.
They are able to pursue this as they are funded by a litigation fund with seemingly deep pockets and investors backing their pursuit, hoping that the claimants win in order to pocket a percentage of commission from the award. The pursuit could be endless. For Malaysia, the expense in dollars, cents, and resources needed to defend its sovereignty and security comes from taxpayers’ contributions.
From Malaysia’s perspective, this is not a commercial battle but rather a sovereign nation defending its security and sovereignty against sham arbitration. As Malaysia continues to defend itself, efforts are being made in tandem to better understand the Sulu case and how the arbitral process can be further made airtight to avoid being abused.
Among these efforts is the upcoming Sabah Edition of the International Arbitration Colloquium 2023 which will take place on July 4, 2023 in Sabah. The colloquium, which was also held in Kuala Lumpur on May 9, 2023, has successfully brought together academics, legal practitioners, historians, and the international arbitration community and served as a platform to encourage discussion on the Sulu case. The colloquium will be brought to the United Kingdom later this year
I am hopeful that the international arbitration community will take effective and joint action to maintain the sanctity of the arbitral process and the practice of arbitration. Any country, regardless rich or poor, should NOT fall victim to rogue arbitrators nor be held at ransom via abuse of legal processes, such in the Sulu case, which was from the start, a sophisticated abuse of the arbitral process.
As a lawmaker and former legal practitioner, I support the strengthening of the global arbitration system and call for the regulation of litigation funding especially for transparency and proper disclosure. This is to mitigate any potential risk of abuse and prevent unethical or reckless practices by litigation funders in the name of profit. The Government of Malaysia will continue to do everything we can to end the Sulu arbitration forum shopping, and put an end to the financial impact of this sham award on the Government of Malaysia and Malaysian taxpayers.
* Datuk Seri Azalina Othman Said is minister in Prime Minister’s Department (Law and Institutional Reform).
* This is the personal opinion of the writer or publication and does not necessarily represent the views of Malay Mail.
