Spanish arbitrator Gonzalo Stampa recently ordered Malaysia to pay US$14.92 billion (RM62.56 billion) plus interest and costs to the heirs to the Sulu sultanate. According to the Global Arbitration Review, the arbitrator further criticised Malaysia’s “intimidatory and coercive” tactics when issuing the award in Paris and directed the Malaysian government to pay the amount.
The families of the Sulu descendants who had been receiving an annual payment of RM5,300 for 135 years under the agreement signed during the British era had threatened legal action against Malaysia. But this was not taken seriously by the past administration. However, in 2019, the government was served demand letters which were sent by lawyers from London, acting on behalf of the descendants, seeking Malaysia’s participation in arbitration proceedings before a single Spanish arbitrator in Spain.
Map showing the extent of the Sultanate of Sulu
in 1822 with borders of modern nation states
(Source: https://en.wikipedia.org)
Since there was no arbitration agreement in the 1878 and 1903 documents pertaining to their claims, the Sulu heirs had applied to the courts in Spain, which appointed a Spanish arbitrator to determine a dispute between Philippine citizens and Malaysia.
The Sabah Law Society offered an insightful and detailed legal opinion on the latest development.
The Sultan signed an agreement in 1878 with a group of British and German entrepreneurs for the exploitation of minerals and forest products in territory under his control, in return for annual payments. The entrepreneurs’ rights were passed to Sabah state upon its independence in 1963.
Malaysia continued to make annual payments of approximately US$1,000 (RM4,190) but stopped making payments in 2013. The claimants pointed out that Malaysia’s ex-attorney general Tan Sri Tommy Thomas admitted in his autobiography that there were no legal grounds for Malaysia to refuse to continue making the payments and that Sabah was in breach of the agreement.
The tribunal, consisting of sole arbitrator Gonzalo Stampa, held that the 1878 agreement was an international private lease agreement of a commercial nature. He found that the arbitration agreement was reflected in the arbitration clause contained in the deed.
On March 29, 2019, the Civil and Criminal Chamber of the Superior Court of Justice of Madrid rendered Judgement 11/2019 had earlier also upheld the arbitration agreement. The arbitrator found that Malaysia had breached the agreement by not continuing to make payments as of January 2012 and that the contract was terminated. The tribunal held that the claimants were entitled to recover the restitution value of the rights over the leased territory.
This sum amounted to US$14.92 billion (RM62.56 billion) including pre-award interest.
As Malaysia is a member of the New York Convention, it is obliged to enforce the award, but has the option of making an application to set the award aside in France, where the award was rendered. If Malaysia refuses to make payment, the claimants will have the right under the New York Convention to enforce the award against Malaysian state assets in any of the 167 signatory state parties around the world.
There will be a very interesting situation if the claimants decide to enforce the award. If anything we only have to blame ourselves. So is Sabah part of Malaysia? Yes it is, as this is not on sovereignty but commercial interests signed over by the Sultan. Should we have come to this? Of course not if we had wisdom to re-negotiate things!
Reference:
Much ado about RM63 bil “arbitration award’ to Sulu Sultan’s descendants – Sabah Law Society, 1 March 2022, www.thevibes.com
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