THE arbitration process is a voluntary form of alternative dispute settlement for parties to resolve disputes through arbitrators. Arbitration is used extensively and forms an important part of the justice system today.

It is considered an attractive form of alternative dispute resolution as it offers privacy to the 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, like judges, have the power to adjudicate matters. However, unlike judges, who cannot be appointed by the parties involved, arbitrators 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, it is not foreign concept in Malaysia, which has been home to the Asian International Arbitration Centre, 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, did not have an arbitration clause as the eight claimants did not have an agreement with the government of Malaysia. The purported final award resulting from the sham arbitration was issued illegally by a Spanish arbitrator, Dr Gonzalo Stampa, to the claimants despite the prior annulment of his appointment as an arbitrator by the Spanish court. 

This case has raised critical concern about ethical conduct, integrity, professionalism, and good practice of arbitrators, which are the cornerstones of the arbitral process. These qualities inform the parties’ choice of the 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 elements of professionalism and ethical conduct are 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). 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 the failure of arbitrators to adhere to strict professional and ethical standards. A strict code of ethics for arbitrators will cut off 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 hold to a strict standard of ethics. 

The arbitration process is not immune to abuse. It 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 financed by a litigation fund and investors with seemingly deep pockets in pursuit of a percentage of the award. The pursuit could be endless. For Malaysia, the expenses in the form of money and resources needed to defend its sovereignty and security are paid for by the taxpayers. 

From Malaysia’s perspective, this is not a commercial battle but a defence of 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 made airtight against abuse. 

Among these efforts is the upcoming Sabah edition of the International Arbitration Colloquium on July 4.  The event, which was held in Kuala Lumpur on May 9, 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. No country, whether rich or poor, should fall victim to rogue arbitrators or be held to ransom via abuse of legal processes.

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 full disclosure. This is to mitigate any potential risk of abuse and prevent unethical or reckless practices by litigation funders in the name of profit. Malaysia will continue to do everything it can to end the Sulu arbitration forum shopping and put a halt to the financial impact of this sham award on the government and taxpayers of Malaysia. – June 24, 2023.

* Azalina Othman Said is minister (law and institutional reform) in the Prime Minister’s Department.

* This is the opinion of the writer or publication and does not necessarily represent the views of The Malaysian Insight. Article may be edited for brevity and clarity.