Mon, 20 May 2024


Sulu claimants exploited a loophole
Published on: Sunday, July 23, 2023
By: Hamid Sultan Abu Backer
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The Sulu case is a classic example to say little or inadequate knowledge of law, practice and ethics may ultimately destroy the growth of a nation. - illustration pix by datagenix
FRAUD and issue of arbitrability have been an ongoing debate even before the New York Convention 1958 (NYC 1958) which deals with Enforcement of Foreign Arbitration Awards.

This debate has not abated even in countries which have also adopted the UNCITRAL Model Law 1985 wholly or partly to support the Convention obligation by providing a civilised arbitration process as well as enforcement of awards which are not in breach of the Convention itself.

One of the main shortcomings of NYC 1958 is that it can promote the issuance of fraudulent awards without the participation of the victim i.e respondent to the award: which is not within the prescribed terms of the Convention and get it enforced through the courts by an ex-parte order if the enforcement court is not vigilant. 

Basically, what it means in crude terms is that a purported claimant can sit in a coffee shop and purportedly appoint an arbitrator who may not even have any qualifications and get him to issue an award, which need not be approved by the state court, and enforce it in about 170 countries now who are signatories – provided the enforcement court is naïve enough to allow the enforcement of the award or at least provide an ex-parte attachment order against the victim of fraud.

The framers of the Convention must have envisaged high ethical standards in the arbitration industry as well as the legal industry at that time, and the tragedy that Malaysia is suffering now would not have happened at all if ethics was present.

The framers removed a safety net for the respondent by not sustaining “Double Exequatur Rule” which would have given legitimacy to the award. 

In simple terms, this rule requires, after obtaining the award, to get leave of the state court as well as the enforcement court for its enforcement. In practice, leave may not be given if the respondent is not notified of the leave application.

Prior to the Convention, the “Double Exequatur Rule” was in place as per the Geneva Convention 1927. However, the NYC 1958 as well as UNCITRAL Model Law 1985 has not preserved that rule to check fraudulent awards at the earliest opportunity.

The irony in the Sulu case arose because of the government’s refusal to pay a small payment, which can be construed as symbolic in nature under the terms of an agreement.

That breach which technically can be construed as a self-inflicted wound is still bleeding. However, the government’s case for refusal of payment was further fortified based on media reports when the Sabah Court had ruled that the Sulu heirs have no legitimate claim. 

To the surprise of all legal pundits, the claimant managed to get an arbitrator to issue an award purportedly under the Convention even though there is a strong legal argument to say that the claimants have no locus to rely on the Convention based on the condition precedent which is required to initiate the arbitration process under NYC 1958.

The problem was further compounded when the legal pundits, on behalf of the government, took the position that the arbitration process was illegal and the government will not participate – ignoring a fundamental principle under the UNCITRAL Model Law 1985 related to the arbitrator having the right to determine his jurisdiction to hear the dispute which is often referred to “Kompetenz – Kompetenz” principle.

This basically means that a victim-respondent cannot take a passive approach when rightly or wrongly an arbitration process has been commenced, and that too against a sovereign state. 

In addition, the legal pundits in the past regime also appear not to have taken any court orders or committal orders against the claimant or initiated an action in the state court to stop the arbitration process. There are also other steps the legal pundits could have advised the government to stop this nuisance at limine.

The Sulu case is a classic example to say little or inadequate knowledge of law, practice and ethics may ultimately destroy the growth of a nation. Moreover, a country which is infested with single-degree holders (with some exceptions to seniors) in the legal industry at this time and era is not a reflection of a learned society sufficient to protect the rule of law and public interest.

The Sulu case also reflects the need for the government to strengthen legal knowledge of the legal industry itself by legislation or constitutional amendment by increasing the qualification and expertise of our legal industry to sustain the rule of law in the country, as well as to protect the country from being invaded by fraudulent awards or oppressive conduct against our sovereignty in breach of Private and Public International Law inclusive of Convention obligations. 

One easy and inexpensive path for the government to get our academia and legal industry to become robust in legal knowledge is to introduce the University cum Court Annexed Arbitration concept to inspire them to enhance their qualifications and expertise to sit as arbitrators and assist to clear the backlog of court cases.

Details of this concept and the letter to the prime minister were published by The Vibes on April 29, 2023 under the title “To clear case backlog, judiciary must not have to try facts”.

It is heartening to note that the current law minister is putting a major effort to correct the blunders of the past which may have caused the government substantial costs and could be ongoing for many more years to come.

It is also inspiring to note that the judiciary is giving an opportunity to doctorate holders from academia and practitioners to sit as judges, and this will inspire the legal industry to acquire additional qualifications.

On my part, I have acquired a string of qualifications without being a full-time scholar in any university or professional bodies inclusive of qualifying as a Barrister, paying only a small sum in fees and without any scholarship from the government or public bodies. I went to London to do Law at the age of 28 and before that, I was a master chef.

I am confident all in the legal industry who have passion for the law can acquire these qualifications and contribute in a robust manner to uphold social justice, ethics as well as rule of law as per our Constitutional Framework.

Madani policymakers must take note that the security of the nation in this time and era is not only dependent on a strong police and military force but it also needs an ethical and knowledgeable legal industry to preserve, protect and defend the rule of law and sovereignty from internal and external aggression.

The government must take immediate steps to ensure that the legal industry does not become a paradise for single-degree holders. – The Vibes

Prof Datuk Hamid Sultan Abu Backer is a retired judge of the Court of Appeal, and professor of Arbitration and Dispute Resolution at MAHSA University


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