Dato’ Mah Weng Kwai gives keynote address at the launch of Asia ADR (Alternative Dispute Resolution) Week 2019
The Asia ADR Week this year took place from 27-29 June 2019 at the Asian International Arbitration Centre in Kuala Lumpur and was themed “The Kintsukuroi Perspective: the Asian ADR Revolution”. This year’s theme revolved around the term Kintsukuroi which means to ‘repair with gold’. By adapting this term accordingly, the Japanese art of Kintsukuroi is an evolution in the global economy through the medium of ADR to commercial parties which tells the story of trial and error, and of constantly striving for a beautiful end-product. Our Dato’ Mah Weng Kwai was invited to give the keynote address at the launch of AIAC Asia’s ADR Week, an honour in which Dato’ Mah addressed arbitrators and lawyers from across Asia. The full text of the address is reproduced below:
Salam Sejahtera Good morning, Honourable Judges, Director of the AIAC – Mr. Vinayak Pradhan, Distinguished Speakers, Ladies and Gentlemen.
I have been invited to address you all today on the broad theme of international global order and its impact on commerce. In the world we live in today, there is nothing to guarantee that, in the time that I take to deliver this keynote address, something about the world order would not have changed. So in the interest of being relevant for the next 20 minutes, I will focus on one critical element of this changing global order, that is the rule of law. After decades of writing submissions, arguing the law and writing judgments, habit forces me to begin with definitions. These days, any concept of systemic change incapable of precise definition is passed off as being part of the “new world order”. For today’s conference, however, I will define the “changing world order” by one of its most critical elements: its changing concept of the rule of law. As the world order changes, it must keep abreast with a newer understanding of the rule of law, not just nationally, but globally.
In that context, I will proceed to say this: which is that arbitration and ADR have helped transform the concept of the law and will continue to do so for the foreseeable future. This statement is not a novel one. Lawyers have been saying this for many years, but today I would like you to consider in depth how arbitration has affected the rule of law, and in doing so, has helped usher in the new world order.
How far have we come?
Before I proceed further it is perhaps worthy of mention that arbitration has not always enjoyed the status and reverence it has today. In 1290, Scotland was at the brink of civil war because of competing stakes to the throne. John Balliol and Robert Bruce, the leading contenders to the throne, turned to arbitration in an attempt to avoid an armed conflict. They agreed on Edward I of House Plantaget as the arbitrator. In what is maybe history’s worst use of the doctrine of kompetenz-kompetenz, the arbitrator declared that he had full jurisdiction to determine the rightful heir of the throne beyond the two contenders: and eventually appointed himself as the King of Scotland. Safe to say, no more kingly disputes were settled by arbitration after that. ADR was not off to a great start.
A little closer to modern history, the Macao Sardine case is yet another example of why it has taken us so long to embrace arbitration. The story is about how a sardine producer sold about 280,000 tins of sardine to a Taiwanese customer: with the small twist that instead of packing the tins with sardines, he packed it with dirt of roughly the same weight. There was much at stake: involvement of government parties, and consequently, large sums of public funds. The arbitration that followed roughly took about 15 to 20 years. It took 2 years alone to appoint the tribunal. The delays, the errors, the procedural improprieties prompted the legal community then to pretty much condemn the use of arbitration as a valuable method.
These are the stories from the old world orders from when arbitration had little, if not an outright regressive impact on the rule of law. Fast forward a few centuries and here we are: in a world where arbitration is the preferred mode of dispute resolution, case laws are rich with judicial deference, proceedings can take as little as 90 days, and importantly: there is no risk of usurping the Scottish throne. Now that the impact of arbitration on the rule of law is undeniable, we can consider how it achieves this effect and to understand what our role is today in this conference. I think there are three main ways in which this impact is felt on the rule of law.
Impact 1: Arbitration allows courts to do more, not less.
Back in 2010, I was fortunate enough to be part of a panel of judicial commissioners tasked with assisting in the clearance of the severe backlog of civil and commercial cases. There was a heavy burden on our domestic courts, attributed to frequent adjournments and requests for extension liberally abused by parties. I am happy to say that we discharged our mission with some measure of success. And I am carefully mindful of the role arbitration has played in easing this burden today. The increase in arbitration of commercial disputes allows the judiciary to dedicate more time to other areas of law. There is a direct correlation between the deference to arbitral awards and the swifter development of other areas of law. This would especially be useful in countries which do not practice a specialized bench system. These are the positive aspects arbitration, whose benefits travel far outside the confidential confines of a hearing room. As the judges retire from the Courts and join the parties at the table as arbitrators, all at the same level with mutual expectations, even they are compelled to develop a discipline in the manner of resolving disputes and rendering decisions.
Impact 2: Arbitration puts old wine in newer, but decidedly better bottles.
The second impact on the rule of law is that the proliferation of arbitration has brought in new dimensions to what was considered commercial disputes, and with it, newer considerations in assessing them. The disputes continue to be fought under the framework of contracts and investment treaties, but the subjects they cover have gone far beyond simple sale and purchase agreements, supply and construction contracts. The disputes these days include issues on human rights, public interest, public funds, and even taxation policy. During my time with the National Human Rights Commission of Malaysia (SUHAKAM), I was particularly concerned with the problem of how to effectively redress human rights abuses in the country. The new global order is one which places human rights at the top of primary considerations in sustainable commerce especially when we consider business and human rights.The advent of arbitration in this field is attributable to the advent of these new commercial considerations of running “green” businesses, in stark contrast to our last century’s infatuation with making profit alone. I can discern roughly 3 ways in which arbitration and human rights interact with each other. I will leave the rigour of elaboration to the panels that will be discussing this today, and restrict myself to the broad issues necessary to highlight the case:
- The first type is claims by victims of human rights violations against businesses, usually having a relation to employment terms under a contract. Although this has been met with some objections over issues on whether or not there is sufficient pre-existing consent to arbitrate, our industry has innovated timely solutions, a notable example being the Bangladesh Accord. This accord is signed by global retailers which commits them to arbitrate disputes raised by their employees with an aim to secure their human rights.
- The second type is disputes arising between two commercial parties, usually in the supply chain, over contracts which require one or both of the parties to meet some human rights obligations as a condition of supply. Although this is arbitration more like we know and are comfortable with, innovation in this field too is staggering. To begin with, one of the significant elements of the proposed UN treaty on business and human rights is to ensure businesses incorporate substantive human rights obligations in transnational transactions. Arbitral institutions have been very quick to respond: by producing The Hague International Business and Human Rights Arbitration Rules, for the purpose of administering disputes arising out of such obligations. It is my hope that arbitral institutions that we know today, lending much of their weight and workforce to adjudication of payment disputes, will begin adopting their own versions of these rules and become a hub for human rights adjudication as well.
- The third notable type of human rights arbitration is in investment arbitration, possibly due to its proximity to public interest issues. Although human rights claims in investment arbitration is rare, they are not unheard of. States take recourse to human rights considerations as having priority over free business activities to justify their regulation measures. To take this one step forward, this may also see states raising a counter claim to disqualify the investment of any protection due to its failure to uphold human rights standards. Maybe a greater appreciation of human rights defenses in investments will balance out much of the “investor-centric” criticism of Investor-State Dispute Settlement (ISDS) as it stands today. This criticism is also the cornerstone of the towering movement to end all form of existing ISDS and replace them completely with Investment Courts. If we stay true to this conference’s theme, these courts must remember the journey of ISDS and its mistakes, for part of the journey is also the end. As individual tribunals fade away and take the shape of permanent courts, I hope the reluctance of tribunals now in touching human rights aspects will similarly fade.
To put this in context of my main contention today, it is useful to remember that the rule of law is most famously depicted as the scales of justice. If the current criticism of ISDS is seen as weighing too heavily in investor’s interests and disrupting the balance, the growing weight of issues that can be subject to arbitration can quickly bring us back to equilibrium and harmony.
These developments need to be celebrated in a larger context in the manner in which international human rights are currently managed: With perhaps the exception of the European Court of Human Rights, the primary “treaty bodies” such as the Human Rights Commission, Child Rights Commission etc. have been described, perhaps unfairly, as mere paper tigers. It is my hope that soon it will not be uncommon to see the interaction of human rights in international business with as much authority, efficiency and predictability as the New York Convention or the The International Centre for Settlement of Investment Disputes (ICSID) Convention.
The stage has now been set and the dice has been cast: now we must lead the charge by answering the questions that follow: What kind of judges will be suitable to hear these cases? How should lawyers, trained to think on commercial considerations alone, be tailored to guide this goal to fruition? Both of these questions will require the arbitral community to take charge of capacity building for both young lawyers and existing arbitrators, so that they may learn to unlearn the way they assess commercial disputes and relearn to look at them with a fresh human rights flavor. And further, how do we secure a reasonable method to generate a rich body of arbitral practice in the field of human rights and business? This question will require us to go into the inevitable question of the utility of confidentiality in arbitration, and where it deserves an exception.
To summarize, this is the second way in which arbitration has impacted the rule of law: by taking subject matters that have always been regulated by law, and giving them new framework for their effective enforcement. That is, it puts the old wine in a newer, but decidedly better bottle. The jury is still out on the success of this transformation: but it is certainly incumbent on us to guide the movement to a favourable conclusion by answering the above-stated questions effectively.
Impact 3: Arbitration brings new wine entirely
Let me now proceed to the third and final way in which the rule of law has received a new lease of life from arbitration. This one, in my opinion, is a direct result of the crowning glory of all arbitration benefits: specialization. Phrases like “fashion arbitration” and “art arbitration” have been popping up in the newsfeeds of lawyers who never once considered the two words would go together. The foundation, naturally, remains embedded in commercial relationships, but the existence of effective dispute resolution in such a specialized form has allowed greater rule of law principles to seep into subjects it barely bothered with before.
Let me take the example of the art industry. Unlike construction or public projects, this is a rather quiet industry, maybe known best to a handful elite around the world. The heavy attention that arbitration over public projects, large contracts, financial systems have inherited has silently skipped the niche art industry. Although art derives its value from being accessible to the public eye and adoration, its owners prefer to be in the shadows. This has led to a long tradition of shying away from proper documentation, in preference to “handshake” deals and “gentlemen’s agreements” Consequently, big disputes arise out of lack of proper documentation, competing ownership claims, intellectual property claims and the most significant of them all: counterfeit sales.
I am happy to note now that there exists a Court of Arbitration of Art in the Netherlands, designed to address much of the woes of an industry shrouded in mystery and secretly. This court employs industry experts as part of tribunals which are specialized in assessing forensic evidence and are careful in their valuation approach. There is also a greater emphasis on confidentiality for parties who prefer it. Although much of the discussion relating to arbitration of art has been about paintings, it is also important to remember that as Courts are beginning to grapple with unique issues over art forms, they are silently also nudging some of them towards arbitration, although much less emphasis is given to this new emerging idea. This is unfortunate, because in my experience, they have the potential to make for better stories. Let me give you an example:
Deep in the Indonesian Island of Sulawesi, Naruto is the name of a six year old monkey (a crested macaque). In 2015, Naruto the monkey had the distinguished pleasure of grabbing a camera and clicked a series of selfies. For the entire world, this became a viral sensation. For the photographer, this was a gold mine. Subsequently People for the Ethical Treatment of Animals (PETA) sued the photographer on behalf of the monkey, and claimed that the copyright over the artwork belonged to the monkey. In what is a bizarre discussion, the Ninth Court of Appeals in the United States had an interesting discussion on whether animals can hold copyright. Although it held in the favour of the photographer, the Court was careful not to definitively rule whether humans could own copyrights for photographs shot by an animal. For the purposes of our discussion, my only thought was a strange implication: Arbitration is not likely to decide copyright claims, but we will one day inevitably have arbitrations over contractual assignments of artwork produced by animals. To conclude, I am happy to say, with complete awareness of how perplexing it sounds, that arbitration has the potential to literally bring the rule of law to the law of the jungle. With its grip over fashion, art, online transactions, intellectual property rights, domain name, specialist arbitration is rearing its head to be a promising pivot in how the global world order will meet the demands of its specializing industries.
Through these three effects: allowing courts to do more, transferring old legal concepts into new frameworks, and engulfing new concepts into law entirely, arbitration has the cumulative effect of being the single most important concept in law that has shown the capability to innovate as fast as the world can. The pace of change of the world order is adrenaline inducing, and ADR serves as the mitigating dose that ensures that it does not abruptly come to a grinding halt.
Threats to Rule of Law?
As with my discussion on the positive effects, I must add that for the myriad of innovations arbitration brings, it brings with it consequences that might also threaten the rule of law. Of the many complaints of the opponents, let me refer to two which, in my opinion have a direct bearing on the theme of my speech this morning.
First, I will address one of the hottest topics in international circles for the last few years: third party funding. So far, much of the possible apprehension lies on questions of possible bias, security for costs etc. I will focus on the greater pitfall to the rule of law through an example. The award in Yukos v. Russia is perhaps well known to all as the biggest claim ever arbitrated, amounting to USD 50 billion. Less is known about a quieter, smaller case called Quasar de Valores v. the Russian Federation. The one thing both cases have in common is a group of companies called Menatep. Group Menatep was one of the former shareholders of the Russian oil company Yukos. Contemplating an action against Russia, they decided to field-test their claims first. They acted as a third party funder for some smaller shareholders in Quasar de Valores v. Russia, which eventually yielded a meagre USD 2.6 million. In pure funding terms, this may not sound like a big rate of return. However, the investment paid off when Group Menatep was able to use the Quasar award as a source of precedent in ultimately winning 50 Billion dollars, when they decided to pursue a similar claim in Yukos v. Russia. All three awards of Yukos v. Russia elaborately cite the smaller Quasar de Valores case. Although the award was later set aside due to jurisdictional reasons, the uncomfortable question on everyone’s minds is whether third party funding allows big-pocket investors to now begin investing in precedents.
Another oft-quoted concern recently is that an increase in arbitration has the effect of starving state courts of the cases it needs to develop the common law. With the advent of online dispute resolution and smart contracts, there is lesser issues of cutting edge contract law issues reaching courts. The rule of law is at threat when there is not sufficient law to be developed, keeping in pace with technological advancements.
Call to arms and conclusion
Both these issues are illustrations of some common concerns that arbitration might halt the development of the rule of law. I admit that these are difficult issues to solve: one cannot snap one’s fingers and make half of them fade away. However, I believe that the benefits accorded far outweigh the challenges, especially if they are tackled head on by the community in conferences like these. For example, third party funders themselves realize the legitimacy threat they face, and are often spurred to self-regulation like in the UK. Countries have begun to supplement this by statutory regulation. As for the latter concern, there are now proposals of strengthening the judicial scrutiny of awards involving important questions of contract law. This can, if carefully determined, ensure the courts have sufficient opportunities to advance common law while still retaining the benefits of arbitration.
In this concerted effort, arbitral institutions must be the one to lead the charge, and must continuously adapt so they are fit to do so on these newly emerging issues. I am happy to note that the AIAC is seeking to be a promising knight in this regard. With hundreds of capacity building sessions training young, old and future lawyers the institution as an example of how arbitral institutions must keep an eye to the future while actively serving the needs of the present. In several countries, where adequate attention is not paid to these institutions, they have become a venue only for post-retirement government jobs. In Malaysia, I am proud to say that our institution does not tire: AIAC has grown from being a regional arbitration centre to what is now a holistic multi-service hub. As always, there will be critics of these new developments. There are those that cry wolf and raise panic over these issues, but I am steadfast in my belief that this community today, in a concerted effort with arbitral institutions like AIAC, has the potential to (borrowing the words from Mr. Pradhan), investigate the cracks, mend it with gold, and produce a product that is ready to meet the needs of the new world order.
As I come to a close, I would like to say that, this is also the duty that is on our shoulders for the next few days: if arbitration really has the potential to impact the rule of law as well as threaten it, then our duty in this conference is not merely to determine where arbitration is going, but instead to map the course of the rule of law itself. These are hard choices to make, but the hardest choices require the strongest of wills. While we should readily embrace all the advancements that arbitration can offer us, we must be careful to shape how they affect the broader conception of rule of law.
With that Ladies and Gentlemen, I wish to thank Mr. Pradhan and the AIAC for this opportunity to share some of my thoughts with you this morning. I welcome all of you to an engaging three days of discussions and may I wish you a very successful Asia ADR Week 2019.