Sulu claim: Absence of monitoring mechanism causes misuse of arbitration process - Azalina

KUALA LUMPUR - The absence of a monitoring mechanism and the failure of arbitrators to comply with strict ethical and professional standards has caused the arbitration process to be misused to threaten sovereign countries, said the Minister in the Prime Minister's Department (Law and Institutional Reform) Datuk Seri Azalina Othman Said.

She said the oversight mechanism is vital to ensure arbitrators are held to strict ethical standards to avoid any case of ‘rogue arbitrators’ or bias since they can be appointed by the parties involved in the arbitration.

Taking the case of the claim made by the Sulu group against Malaysia as an example, Azalina who is also a legal practitioner said the course of the case reflects how the arbitration process can be misused and exposed to abuse by parties acting as arbitrators.

"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 itself.

"In the Sulu case, there was no element of professionalism and ethical conduct as the arbitration process was not agreed upon by both parties involved (the claimants and the Malaysian government) and the award order was issued illegally because of the prior annulment of the arbitrator's appointment by the Spanish court, therefore, the arbitrator does not have the authority to handle the case," she said in a statement, here, today.

Previously, eight individuals claiming to be the heirs of the deceased Sultan of Sulu made a US$15 billion claim against Malaysia.

"The purported final award resulting from the sham arbitration was issued illegally by a Spanish arbitrator, Dr Gonzalo Stampa,” she said.

Elaborating, Azalina said 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, adding that 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.

Azalina said the arbitration process of today is not immune to abuse as the seat of arbitration could be moved, for example before the judgment in Spain was concluded, the arbitrator in the Sulu case moved the seat of arbitration to Paris and the claimants 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,” she said.

She said from Malaysia’s perspective, the claim is not a commercial battle but a sovereign nation defending its security and sovereignty against sham arbitration because the expense in dollars, cents, and resources needed to defend its sovereignty and security comes from taxpayers’ contributions.

According to her, 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 such as the upcoming International Arbitration Colloquium 2023 which will take place on July 4 in Sabah and the United Kingdom later this year.

The colloquium, which was also held in Kuala Lumpur on May 9 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, she said.

"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,” she said.

Azalina said the government will implement all efforts to end the Sulu claims that also use other countries to enforce the invalid award order and put an end to the financial impact of this sham award on the country and the people.

"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,” she added. - BERNAMA