OPENING CEREMONY OF 4th ASIA ALTERNATIVE DISPUTE RESOLUTION (ADR) WEEK 2022 CONFERENCE

KEYNOTE ADDRESS

BY

HIS ROYAL HIGHNESS

SULTAN NAZRIN MUIZZUDDIN SHAH

AT THE

OPENING CEREMONY OF

4^th ASIA ALTERNATIVE DISPUTE RESOLUTION (ADR) WEEK 2022 CONFERENCE

OF THE ASIAN INTERNATIONAL ARBITRATION CENTRE (AIAC)

DATE: THURSDAY, 6 OCTOBER 2022; TIME: 9.00 AM

VENUE: ASIAN INTERNATIONAL ARBITRATION CENTRE,

BANGUNAN SULAIMAN, KUALA LUMPUR.

 

Ladies and gentlemen,

1. The theme of this year’s conference – “Compassus: The Odyssean Course to Modern ADR”– immediately brings to mind questions of future direction, and the path to be charted. The Odyssean course refers to the Greek hero Odysseus, who tied himself to the mast of his ship as he passed the Sirens, to avoid the temptation that might cause him to steer his ship off course. Listening to the Sirens and their alluring melody would have sent him on a path to destruction. It took Odysseus more than a decade to return home, steered by great feats of determination and intellect. The journey was an arduous one, but he was rewarded by the satisfaction of being re-united with his family.

 

1. With that in mind, this year’s Asia ADR Week is aptly themed. It encapsulates the spirit and meaning of guidance, and the need to stay the course, however difficult, if we are to achieve our goals.
2. I am delighted to be invited to address such a stellar panel of speakers and participants at this year’s Asia ADR Week. I understand that this conference is now an established tradition of the AIAC. It has become a showcase of knowledge, content, diversity and accessibility for the global ADR community, and as such is already a highly anticipated event.
3. Let me state at the outset that unlike most of you, I am not a legally-trained person. But as a Ruler, I hold the Federal and State Constitutions, and the laws of the land, close to my heart. I have a layperson’s knowledge of the Arbitration Act 2005 (as amended), and of the work of AIAC and other arbitral institutions such as the Malaysian Institute of Arbitrators. I am eager to learn more about the work of all arbitral institutions.
4. The peaceful resolution of disputes is one of the hallmarks of a developed and civilised society. By providing a means of resolving disputes outside the Courts, ADR lightens their burden. The mediation, arbitration and conciliation efforts of the AIAC thus make an important contribution to justice and the rule of law in our country, region, and beyond. AIAC provides a structured, interactive process, whereby an impartial third party assists the disputing parties to resolve conflict, using specialized communication and negotiation techniques. Though its role is not yet widely acknowledged, the AIAC is very much part of the legal pluralism of our land.
5. Without seeking to undermine traditional judicial proceedings, let me reflect briefly on what many commentators say are the advantages of arbitration proceedings as compared to judicial ones.

• First, as it is confidential and private, arbitration enables businesses to keep their affairs away from public and media attention. Litigation, on the other hand, takes place in open court.
• Second, the arbitrator is selected by both parties based on their expertise, whereas a trial judge in court may be a generalist who is assigned without input from the parties.
• Third, in court proceedings there is a winner and a loser. In arbitration, mediation and conciliation proceedings, middle paths can be forged.
• Fourth, arbitration generally provides a speedier resolution than litigation. Due to the backlog of litigation cases, pre-trial discovery and the appeal process can be painfully slow. Arbitration is usually less time-consuming.
• Fifth, arbitration is considered to be more flexible than litigation, in part because the legal framework for litigation processes is extremely complex. Litigation must follow the laws of civil and criminal procedures and evidence. In arbitration, there is no strict procedural code, and the arbitrator and parties are said to have procedural flexibility.

The diverse range of ADR mechanisms – from mediation, to conciliation to arbitration and adjudication – as well as its hybrid forms – provides additional flexibility.

• Sixth, some forms of ADR such as mediation are less costly than court proceedings. However, there are conflicting opinions on this matter in relation to the costs of arbitration.
• Finally, arbitral awards rendered in Malaysia are enforceable in 168 contracting countries, under the UN-backed New York Convention of 1958.

1. Litigation, arbitration, mediation and other forms of ADR can be thought of as being like rivers. They flow side by side, all of them heading towards the ultimate goal of a peaceful and amicable solution. But let us not forget the wise words of Joseph Grynbaum who said: “An ounce of mediation is worth a pound of arbitration and a ton of litigation!”
2. The various advantages of ADR have contributed to its increased use, and the AIAC has, in turn, benefitted from this growth. As I understand it, the current expertise of the AIAC is focussed on maritime arbitration; cross-border investment arbitration; construction arbitration; sports arbitration; as well as Domain Name Dispute arbitration. In order to benefit from the growth in international arbitration, and to ensure our own expertise matches that of other leading arbitration institutions, the industry will require experts in other kinds of disputes.
3. As a starting point, we can focus on disputes concerning energy and natural resources. The Covid-19 pandemic, and the increasing effects of climate change, have led many businesses to re-think how best to protect themselves against the adverse consequences of unforeseeable events. But even with greater awareness of the types of disputes that may arise in the context of unexpected occurrences such as extreme weather, defining what constitutes ‘unforeseeable’ is highly challenging. Moreover, what is reasonably foreseeable may vary across different jurisdictions. This greater degree of unpredictability is likely to generate disputes.
4. Whatever the kind of unexpected event, the particular characteristics of the natural resources and energy sectors will need to be taken into consideration. The evolving markets in these sectors, with their complex contractual arrangements, international supply chains, and operations spanning a number of jurisdictions, are likely to be a rich source of the kind of disputes that are best suited to international arbitration.
5. Another area of growing interest is that of banking and finance. Historically, financial institutions have preferred to resolve disputes in courts, persuaded by a large body of judicial decisions that this route results in more predictable outcomes. However, arbitral institutions have been reporting growing activity in this sector. For the London Court of International Arbitration in 2021, for example, the financial services sector was the source of more international arbitrations than any other sector. So we need to be better prepared to attract the disputes that arise out of complex, multi-jurisdictional financial transactions.
6. One welcome development in specialized financial arbitration is the P.R.I.M.E Finance Arbitration rules, which came into force on 1st January 2022. P.R.I.M.E. stands for the Panel of Recognised International Market Experts in Finance. It is an independent, not-for-profit foundation, which retains a large panel of specialist arbitrators in the sector. Its mission is to ensure that the requisite expertise is available to address any disputes that may arise in financial markets. The AIAC must ensure that it keeps well abreast of these and other relevant rules in this sector.
7. Expertise is also needed in the field of technology, including in cutting-edge areas such as space exploration. In disputes related to emerging and developing technologies, expert decision-makers are often the best-placed to determine novel issues of fact and law. Through international arbitration, disputing parties can benefit from the appointment of such experts with specialist understanding of the industry context, and/or the technical aspects of the technology in question. Again, the AIAC must develop sufficient expertise to be able to take advantage of expected growth in this area.
8. We are likely to see an increase in disputes in many other sectors. They may arise as businesses seek to adapt to the removal of temporary statutory protections in a post-pandemic world, and as businesses try to recover and expand in the midst of geopolitical instability and a global economic downturn. International arbitration is perfectly poised to act as a forum to resolve such disputes. It is particularly suitable to settle disputes involving incorporeal and borderless technologies such as blockchain, as well as in many other areas. The New York Convention helps greatly by simplifying the process of obtaining an award for enforcement in foreign jurisdictions.
9. Moving closer to home, it is good to see dispute resolution mechanisms evolving from the conventional mechanisms, in particular, conventional arbitration, to Islamic Arbitration. It is indeed commendable that the AIAC has promulgated its own i-Arbitration Rules. First published in 2012, this important innovation was recognised in a prestigious international award from the Global Arbitration Review. These rules were recently revised and updated in the i-Arbitration Rules of 2021.
10. As a leading centre for Islamic finance, Malaysia should continue to focus on this area of dispute resolution within the general framework of Islam. The AIAC would do well to gather a pool of experts in this area to become the preferred hub in Asia, specialising in Islamic finance arbitration, as well as in disputes within Halal industries.

17. However, two challenges should be highlighted in this regard.

The first relates to the low uptake of Islamic arbitration. Despite Malaysia having a comprehensive and up-to-date legal framework for Islamic arbitration in place – through the AIAC – arbitration of Islamic finance disputes is not a popular option. Rather, litigation is still preferred. One reason for this – according to the ICC Task Force on Financial Institutions and International Arbitration in their 2018 report – is that Islamic financial institutions are reluctant to have their disputes decided by arbitrators in accordance with Shariah, because of the greater uncertainty of the outcome.

18. A lack of awareness of the various products and services that deliver Islamic forms of arbitration could be another reason for the limited uptake. So increasing understanding of Islamic arbitration and of its benefits among stakeholders is another important task. Islamic arbitration provides a unique path to amicable dispute resolution for businesses in this space. By providing a confidential means of settling disputes and maintaining the mutual goodwill of the parties, it helps to promote more stable business relationships.

19. A distinctive feature of Islamic arbitration is the need for an additional layer of consultation with either the Shariah Council or a Shariah expert. According to Rule 29 of the i-Arbitration Rules 2021, the Shariah Council has a maximum of 90 days to make its ruling. After this, the arbitrator may decide the issue on his own. This pre-arbitration tier increases the time taken to resolve any case.

20. To address this issue, steps could be taken to train those with specialisation in Shariah, fiqh and muamalat as Islamic arbitrators. This would enable disputes to be resolved without the need to involve a Shariah Council or expert. This would make Islamic arbitration more attractive and ‘easier’ than litigation. To enable this, incentives and career paths must be formulated so that graduates of Shariah can pursue a career as Islamic arbitrators. In other words, talent and human resources should be developed in the field of Islamic arbitration.

21. Measures can also be introduced in relation to conventional arbitration, to ensure that we continue to build our capacity more broadly in all areas relevant to ADR. So schools, colleges and universities could incorporate negotiation-based ADR as part of their curriculum. Training institutions can also be mobilised to share skills and help to develop effective ADR practitioners.

22. The judiciary has and continues to play an important role in promoting Malaysia as an arbitration-friendly jurisdiction. In recent years, the judiciary has consistently taken a pro-arbitration stance. In numerous cases, the courts have upheld arbitration agreements despite minor flaws, supporting the choice of the parties to resolve their issues in this way. As well as refraining from interfering with the decisions of arbitral tribunals, the Courts here have also passed a number of landmark arbitration-friendly judgements.

23. Some key issues remain however, especially with regard to questions of jurisdiction. Arbitration can, of course, only be applied in limited areas, as assigned by the law in Section 4 of the Arbitration Act. Many areas are excluded. Why this should be so is a matter for discussion. Perhaps in more and more civil and commercial matters, ADR should precede court processes. As US Justice Sandra Day O’Connor once said: “The courts of this country should not be the places where resolution of disputes begins. They should be the places where the disputes end after alternative methods of resolving disputes have been considered and tried.” It is my impression that in some countries, judge ordered, non-binding arbitration is permissible for certain types of cases.

24. Even within those areas where ADR is applicable, challenges to its jurisdiction may arise. Any party can appeal to the courts within 30 days of an arbitral tribunal’s finding that it does have jurisdiction. So for example in Arch Reinsurance v Akay Holdings [2019] 5 MLJ 186, it was held that the rights of a chargee under the National Land Code could not be taken away by a private arbitrable agreement.

25. Raja Azlan Shah (as he then was) delivered an authoritative ruling in Sharikat Pemborong Pertanian & Perumahan v Federal Land Development Authority [1971] 2 MLJ 210, on when a civil court is entitled to interfere with the award of an arbitrator. If knowingly, a specific question of law has been referred to an arbitrator, then there should be finality to the arbitrator’s decision, and no judicial interference should take place. But where an arbitrator’s decision raises a material question of law, the court may interfere to give guidance if an error of law is evident.

Ladies and gentlemen,

26. Arbitration was initially conceived as a tool to lighten the burden of the courts. It started as a regulatory system for settling commercial disputes pertaining to contracts and international commercial transactions. Arbitration mechanisms have since evolved from this original rule-based compliance, to provide greater flexibility. This has enabled ADR to cope with the increasing complexity of the cases it deals with, many of which now involve multiple stakeholders and claims.

27. As a result, the sector has grown to become an independent and much preferred method for dispute resolution. The type of disputes being referred to arbitration are also changing. These are no longer limited to contractual issues in construction contracts, cross-border transactions, trade and investment, and financial technology. They now encompass more complex multilateral non-contractual claims related to sovereignty and territory, expropriation of property, and international human rights. Dynamic regulatory frameworks are thus required in order to cater to the complex and evolving nature of both the contracts and the non-contractual claims that are now dealt with through ADR.

28. The AIAC is well-positioned to serve as a compass in charting through this new and challenging terrain. It is often said that the road to success is paved with obstacles. But remember also that a journey which is difficult to navigate is made far easier with a compass and guiding hand.

29. With the theme of this year’s event “Compassus: The Odyssean Course to Modern ADR” befitting this notion, I encourage all participants to be inquisitive and open, and to learn from your colleagues with their different areas of expertise. I wish all the presenters and participants a most fruitful 5-day journey. Let us hold fast to the mast, as Odysseus did, and not drift off course, but rather persevere, in order to leave the conference with greatly enhanced knowledge and understanding.