by Karisma Putera Abd Rahman, Research & Advocacy Analyst of Bait Al Amanah and Fikry A. Rahman, Head of Foreign Affairs of Bait Al Amanah.
Malaysia has been putting up with a nearly decade-long headache in the form of threats posed by the supposed heirs of the defunct Sulu Sultanate.
For much of the past century, a string of external parties have made claims to the state of Sabah that seek to question Malaysia’s sovereignty over the state. This issue burst into the public sphere in July after Petronas, the state oil company, had two Luxembourgian assets seized following a French commercial arbitration ruling in February in favor of the heirs of the Sulu Sultanate. Therefore, prompt discussion of this issue is necessary to highlight shortcomings in the validity of the case.
Under an 1878 agreement, North Borneo – today’s Sabah – was conceded by the late Sultan of Sulu to a British company, which later became a Crown colony before finally evolving into a Malaysian state. As per the agreement, the government of Malaysia paid an annual cession payment amounting to roughly $1,000 to the heirs of the Sultan – payments that Kuala Lumpur only halted following the February 2013 Lahad Datu incursion by Jamalul Kiram III, who claimed to be an heir of the Sultanate. This involved some 200 militants of the self-proclaimed Royal Sulu Army invading the eastern town of Lahad Datu in Sabah. Jamalul Kiram III stated that the objective of the incursion was to return Sabah to the Philippines. The ensuing stand-off resulted in the loss of more than 60 lives.
In the aftermath of the incursion, Sabah has experienced increased physical security threats. Malaysia’s government has also been confronted with legal contests, reigniting previously dormant sovereignty claims to Sabah from Filipino senators and heirs to the Sulu Sultanate related to Jamalul Kiram III.
In 2018, the heirs, through their U.K.-based lawyer Paul Cohen, initiated an international arbitration case in Paris against the government of Malaysia seeking compensation for the halted cession payments and claiming that the government was in breach of the 1878 agreement. In February, the French court ruled in favor of the heirs and awarded them an arbitrator’s judgment worth approximately $15 billion, resulting in the seizure of the Petronas assets. Petronas is not the same entity as the government of Malaysia and yet the claimants still sought its assets. This highlights the fact that the ruling poses a substantial threat and dangerous precedent to governments around the world.
From the beginning, the Sulu heirs have engaged in a substantial degree of “forum shopping,” hopping from one foreign jurisdiction to the next to find a court that was willing to hear their claim. They initially intended the case to be heard in the United Kingdom, but their application was denied by the Foreign and Commonwealth Office (FCO). The heirs then moved on to a court in Madrid, Spain, where they had mixed success. The Madrid court appointed the Spanish lawyer Gonzalo Stampa as the arbitrator for the case. As an arbitrator, Stampa does not represent the heirs but rather the Spanish court. As such, he was expected to arbitrate the case in a neutral manner to determine the fairest ruling for all of the parties involved. However, later developments in this case highlight Stampa’s determination to rule against the government of Malaysia and his complicity in the activity of “forum shopping.”
His role as an appointed arbitrator was annulled by the Spanish court after the government of Malaysia invoked sovereign immunity, as any other state would. He resisted the court’s decision and instead moved the case to a third country – this time to France, where Stampa issued a Final Award worth nearly $15 billion. However, the Paris Court of Appeals suspended the enforcement of the award following an application by the Malaysian government.
This demonstrated Stampa’s level of dedication to pursuing this case – even against court orders that spelt out his annulment. In fact, it highlights a degree of bias toward Cohen and the Sulu heirs. Stampa has chosen to go out of his way to ensure that he can rule against Malaysia, even though he is supposed to be a neutral arbitrator.
An important question remains: Why did the Sulu heirs not file their case in the appropriate court? The 1878 Agreement states that any contest concerning the agreement itself must be brought upon Her Britannic Majesty’s Consul-General for Borneo – a defunct position. The claimants are aware of this clause, as their denied request to the FCO can be seen as requesting a person to fulfill the role of consul-general. Arguably, in the absence of such a proxy, the High Court of Sabah is the natural avenue for proceedings and is the proper forum in which to resolve any disagreement vis-à-vis the ownership of Sabah. And on January 14, 2020, the High Court of Sabah rendered a judgment on the Sulu heirs’ claim that made three crucial points:
There is no arbitration clause in the 1878 Agreement.
Malaysia has not waived its sovereign immunity.
The arbitrator does not have the jurisdiction to arbitrate contests that arise from the 1878 Agreement.
Even so, Stampa chose to ignore the judgment of the appropriate court. Instead, he went forum shopping in Europe, hoping that a court would hear the case.
Why did the arbitrator and the claimants not respect the decision of the High Court of Sabah? It is likely due to them knowing that the 1878 Agreement does not allow for any arbitration. Instead, the arbitrator and claimants brought the case to a French court that seemingly does not have the same familiarity with the Agreement.
Understandably, it was a strategic decision to pursue a neutral court to minimize conflict of interest. However, why was a court of another Association of Southeast Asian Nations (ASEAN) member state not chosen? For example, a Bruneian court would be knowledgeable in the case matter, as Brunei has an extensive history of interactions with North Borneo. Moreover, 91 percent of respondents in a legal survey found Singaporean courts to be highly effective in enforcing international arbitration awards. It could therefore be said that fair justice could be obtained in ASEAN.
However, the claimants could also be attempting to leverage colonial sentiments by forum shopping in the courts of the U.K. and Spain – the former colonial rulers of Malaysia and the Philippines, respectively. A previous international arbitration case saw European claimants invest large sums of money in the Kazakh oil industry before being harassed by Astana to sell their companies to the government at a fire sale price. This case featured European plaintiffs and respondents and, as such, was held in Sweden. In the case of the Dutch arm of Vodafone versus the government of India, the proceedings were heard at The Hague.
The above case raises two points. Firstly, there was no intention on behalf of the claimants to go forum shopping. These two cases involved European companies and as such, it was only natural that they should take place in a European court. Secondly, the claimants in the latter case decided to take the case to the Permanent Court of Arbitration in The Hague, which is considered a truly neutral court of proceedings and thus helps bind the judgment cohesively. Indeed, it is curious that the European courts decided to hear the heirs’ case in the first place – especially when any surface-level research into the topic would reveal the lack of an arbitration clause in the first place. That should be sufficient to null and void any hearing – especially an international one – involving the 1878 Agreement.
Additionally, it can be argued that the 2013 Lahad Datu incursion is a double-edged sword for the claimants of this case. On the one hand, it provides a rationale for the case’s basis, since the cession payments were suspended after the incursion. On the other hand, it presents an outright violation of the agreement by the Sulu heirs. As a result, the incursion put the viability of the entire case into question. Arguably, the claimants violated the longstanding agreement by invading Sabah and then sought compensation for halted payments, creating a gap in the claimants’ argument.
The government of Malaysia has the right to suspend the payments until all perpetrators of the incursion have been charged and sentenced. Knowing this, Stampa omitted the crucial events of 2013 when considering the Final Award. This omission can be interpreted in two ways. If Stampa purposely excluded the 2013 incursion from influencing the Final Award, it was arguably intended to deceive the courts – especially those likely to be unfamiliar with the historical nuances of the case. If it was unintentional, it casts doubts on Stampa’s competence, given that the 2013 incursion was an unprecedented event in Sabah-Sulu relations that cannot be excluded from the Final Award.
More than that, Stampa went forum shopping not only for a court that would hear the case but also for one that would recognize him as an arbitrator. In June 2021, the Spanish High Court of Justice in Madrid concluded that the proceedings that led to the appointment of Stampa as an arbitrator were not adequately serving the government of Malaysia. As a result, his appointment and decisions regarding the arbitration proceedings, including a previous Partial Award, were declared null and void. Instead of standing down, he sought an Exequatur Order from France and resumed the case in Paris, where he subsequently issued the Final Award. Following this, the government of Malaysia filed two applications – one in Paris that sought to suspend the enforcement of the Final Award and another in Madrid to initiate criminal proceedings against Stampa for his contempt of court.
As well as being legally dubious, forum shopping has contributed to the shortcomings of how this case has been reported by the international media, which has misrepresented the case in the eyes of the Malaysian public and the international community. The proceedings have been painted as monolithic, one-dimensional, and static in nature. In reality, the case has been withdrawn and nullified on multiple occasions. By ignoring the Madrid court’s decision to cease proceedings and then going to a French court, Stampa has created a legal overlap. On September 29, 2021, the latter recognized Stampa’s Partial Award as they were unaware that the former had canceled Stampa’s appointment merely two weeks prior. This has led to inconsistent judgments that eventually allowed the seizure of Petronas assets in Luxembourg. Media coverage does not represent this intricacy of the arbitration and does not truly represent the proceedings of the case.
It sets a dangerous precedent for governments worldwide if untenable cases such as those by the Sulu heirs are heard without due consideration and diligence. Forum shopping by a biased arbitrator in distant courts undermines the rightful authority of local and regional courts in handling cases with intricate nuances, especially when the appropriate courts have rendered a judgment on the matter. Some Malaysians see the action of the government invoking sovereign immunity as a cowardly move. However, any government’s job is to protect the public purse – especially if the threat amounts to nearly $15 billion over an agreement worth just $1,000 annually. If a country has an agreement with an external party, and the latter violates the agreement by invading the former, the government has a right to review the terms of the arrangement with no objection – and certainly no arbitration claim – from the perpetrators.
*This article is originally published on The Diplomat.
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