Chief Justice Menon’s Keynote Address to CIArb International Arbitration Conference

The Honourable the Chief Justice Sundaresh Menon (“Menon CJ“) delivered the keynote address to the Chartered Institute of Arbitrators International Arbitration Conference in Penang, Malaysia on 22 August 2013. The title of his keynote address was Some Cautionary Notes for an Age of Opportunity.

In this keynote address, Menon CJ identified “three distinct issues which [he] believe[d] the community need[ed] to take cognizance of“.

Explosive growth in number of new entrants

The first was the “explosive growth in the number of new entrants to the global arbitration community, many from diverse legal traditions“. The result, he feared, was that  

“[i]mplied understandings or shared values no longer provide any meaningful means of shaping or influencing conduct in this context. Arbitrators can no longer consider themselves bound by peer standards, because there are no peers in the true sense, amidst all this diversity.”

Menon CJ cited a disconcerting recent survey in which 68% of respondents had (at least on one occasion) “experienced ethical misconduct, and even the deployment of guerrilla tactics in international arbitration, such as the strategic change of counsel to create a conflict with an arbitrator, and the deliberate issuance of abusive correspondence to the arbitrator so as to create a situation from which to launch a challenge founded on alleged bias“.

In a related vein, the “absence of common or defined ethical standards to guide such a great diversity of practitioners obviously poses serious difficulties and has the potential to create an uneven battleground that can ultimately affect fairness and integrity in international arbitrations“.

Third Party Funding

The second issue was “the growing incidence of third party funding and the participation of funds in international arbitration” and the “virtual absence of any form of regulation” in contrast to third party funding for litigation.

Menon CJ highlighted certain elements of international arbitration in which such third party funding poses potential problems.

For example, there is “the unique situation of counsel and arbitrators often being drawn from essentially the same pool“. This raises the possibility of a funder funding multiple claims such that a practitioner might act as arbitrator in one but counsel for the claimant in another. In such a situation, given that the funder is the “practitioner’s direct paymaster in the case where he is counsel“, Menon CJ stressed the need for “meaningful guidance…as to the appropriate obligation on the prospective arbitrator to conduct conflict checks with due diligence and then to make disclosure“.

Menon CJ also raised concerns about the influence of the third party funder to the extent that the funder becomes the party that effectively selects and appoints the claimant’s arbitrator. If so, what disclosure obligations (if any) does such a situation raise?

He also raised the prospect of such third party funders replicating the so-called vulture funds of the 1990s through the “emergence of a market for the sale of the payment obligation that will be owed by the claimant in the event of success, as a chose in action to third party speculators“. He argued that it would be possible to package many sub-prime claims with otherwise meritorious claims and sell this portfolio to third party speculators. This would “make it possible to profit from frivolous and unmeritorious claims that would not otherwise have a market with speculators if they were sold individually“.

Rising Cost

Finally, Menon CJ raised the issue of the rising costs of international commercial arbitration and warned that there was a “growing recognition amongst users that the level of costs in international arbitration is rising at an unsustainable rate“. Whilst he acknowledged the multi-faceted reasons for such rising costs, Menon CJ stated that it was “unsatisfactory that the international arbitral community has not acted with dispatch to address this issue. On the contrary, the trend might even point somewhat the other way“.

Menon CJ suggested two ways to combat these three issues.

The first is to develop codes of conduct for both arbitrators as well as for counsel. It was imperative here to have appropriate sanctions for breaches of those codes of conduct.

The second would be for arbitration institutions (and arbitration think tanks) to play a bigger role in regulation. In this respect, Menon CJ identified various possible ways that such institutions could contribute. Institutes could:

  • draft and modify their rules to implement ethical codes of conduct where acceptance of such codes would be a pre-condition to appointment on the institution’s panel or participation in the institution’s arbitration.
  • build and establish formal processes to handle complaints of misconduct. In this respect, arbitrators and counsel would subject themselves to the professional or disciplinary jurisdiction of the institution.
  • implement an accreditation system in which such accreditation could be suspended or revoked for misconduct.
  • curb the costs of arbitration because institutes are best placed to do so. This might include the introduction of cost assessment services by the institution itself.
  • provide a “database containing relevant information on empanelled arbitrators” to provide more information (and transparency) to users of arbitration.
  • create “users’ committees so that they are listening directly to the sentiments of those they aim to serve” .

Menon CJ’s keynote address in many ways develops some of the key ideas that he first raised in his keynote speech at the 21st International Council for Commercial Arbitration Conference, at the time when he was the Attorney General. At the time, we reported that,

[Menon CJ] called on the international arbitration community to self-regulate, put in place a code of conduct and ensure practitioners are up to acceptable standards.

 [Menon CJ] raised particular concerns about “runaway” costs of arbitration and suggested that a unified code of conduct should be put in place to serve as a reference guide for arbitrators globally. The code would include rules on the fixing of costs.

[Menon CJ] also discussed the possibility of arbitral bodies acting as regulators in the way Bar associations do for lawyers and said that arbitral bodies could impose sanctions based on an internationally approved list of penalty benchmarks.

[Menon CJ] ended on a positive note however, saying: “The growth in numbers is testament to the fact that, despite all the worries and concerns that I have canvassed, arbitration is still the only choice for many who seek resolution to their disputes”.

Agreeing with [Menon CJ]’s comments about the need for self-regulation Professor Jan Paulsson, president of ICCA, said in his closing speech: “The time to innovate and reform is when you do so from a position of strength, not when you are heading to crash in the sand and are doing so out of desperation”.

This speech was subsequently awarded Global Arbitration Review’s “Best Lecture or Speech Award for 2012”.

About Shaun Lee

Dual-qualified International Dispute Resolution and Arbitration lawyer (Singapore and England & Wales). Chartered Institute of Arbitration Fellow. Member of SIAC Reserve Panel of Arbitrators. Panel of Arbitrators and Panelist for Domain Name Dispute Resolution at the AIAC.
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