Does Malaysia have to pay billions to Sulu heirs?

If Malaysia refuses to pay the award, it could be vulnerable to having its assets seized globally under the New York Convention which allows for the enforcement of arbitral awards.

(FMT) – News about the Malaysian government being instructed by a French arbitration court to pay at least RM62.59 billion (US$14.92 billion) to the descendants of the last Sulu sultan has created a buzz on social media.

The arbitrator, Gonzalo Stampa, ruled on Feb 28 that Malaysia violated the 1878 agreements between the old Sulu kingdom in the Philippines and a representative of the British North Borneo Company that used to administer what is now Sabah.

The arbitration process originated in Spain, but has now moved to Paris.

FMT takes a closer look into the issue and its consequences.

What is the dispute about?

The dispute itself concerns the 1878 Deed of Cession between the then sultan of Sulu, Sultan Jamal al Alam, and Baron de Overbeck, the then Maharaja of Sabah, and British North Borneo Company’s Alfred Dent.

Under the agreement, Jamal ceded sovereignty over large parts of Sabah – from the northwest coast and extending beyond the east coast as far as the Sibuco River in the South – to Dent and Overbeck.

In exchange Dent, Overbeck and their future heirs were to pay the heirs of the sultan 5,000 Mexican dollars annually.

In 1936, the last formally recognised sultan of Sulu, Jamalul Kiram II, died without heirs and payments temporarily ceased until North Borneo High Court chief justice Charles F Macaskie named nine court-appointed heirs in 1939.

Payments to the heirs continued into modern times as Malaysia became the successor of the agreement following Sabah’s independence and the formation of the Federation of Malaysia in 1963.

But in 2013, after the Lahad Datu incursion, Malaysia stopped paying the sultan of Sulu’s heirs their annual compensation, which is equivalent to RM5,300.

For the record, in Tommy Thomas’ book “My Story: Justice in the Wilderness”, he said there was no evidence linking the Sulu descendants who were receiving the annual fees from Malaysia to the armed invaders into Lahad Datu.

What is happening?

In 2017, attorneys for the heirs petitioned a Spanish court to provide an arbitrator. The heirs are represented by London-based lawyers Paul Cohen and Elisabeth Mason.

The basis of a Spanish claim over Sabah originates from the assertion that Spain at the time exercised direct sovereignty over the Sulu sultanate and all of its dependencies.

However, in 2020, Kota Kinabalu High Court judge Martin Idang said Malaysian courts, and not Spanish courts, should resolve disputes arising from the 1878 Deed of Cession.

He said this was because Spanish courts do not have authority or jurisdiction over Malaysia.

The arbitration case was originally heard in Madrid. A source familiar with the matter explained that although the Malaysian government was invited and informed, it chose not to engage with the arbitrator.

However, in 2021, Malaysia successfully argued that protocols for communication from the Spanish court to the government were incorrect. On this basis, the Madrid high court annulled Stampa’s original appointment.

While this point is being appealed, the French courts adopted the arbitration, which was announced on Feb 28.

Yesterday, Spanish news website La Información reported that arbitrator Gonzalo Stampa ruled that the 1878 treaty constituted a commercial “international private lease agreement” and as such was liable.

Consequences

In his autobiography, Thomas admitted that Malaysia was in breach of the agreement when payments stopped in 2013.

Cohen told FMT that arbitration is about a contract dispute and not long-held grievances over sovereignty.

“This case is not about sovereignty. Malaysia has admitted to breaching its long-standing agreement with the Sulu heirs,” he said.

“Therefore, the question at issue is simply one of how to rebalance the payments now that the current value of the contract to Malaysia is worth an unconscionable three million times the original bargain.”

Meanwhile, a source in the know said if Malaysia refuses to pay the award, it could be vulnerable to having its assets seized globally under the New York Convention which allows for the enforcement of arbitral awards.

“This could lead to an extended campaign of court-authorised seizures around the world,” said the source.