KUALA LUMPUR: Malaysia is scrambling to protect its assets as the descendants of the last sultan of the remote Philippine region of Sulu look to enforce a $15 billion arbitration award in a dispute over a colonial-era land deal.
In 1878, two European colonists signed a deal with the sultan for the use of his territory in present-day Malaysia – an agreement that independent Malaysia honoured until 2013, paying the monarch's descendants about $1,000 a year.
Now, 144 years later after the original deal, Malaysia is on the hook for the second largest arbitration award on record for stopping the payments after a bloody incursion by supporters of Sultan Mohammed Jamalul Alam's heirs in which more than 50 people were killed.
"It is a fascinating and unusual case," said lawyer Paul Cohen, a lead co-counsel for the sultan's heirs from British law firm 4-5 Gray's Inn Square.
For years, Malaysia largely dismissed the claims but in July, two Luxembourg-based subsidiaries of state energy firm Petronas were served with a seizure notice to enforce the award that the heirs won in February.
The arbitration ruling in France followed an eight-year legal effort by the heirs and $20 million in funds raised for them from unidentified third-party investors, according to interviews with main figures in the case and legal documents seen by Reuters.
Malaysia did not participate in nor recognise the arbitration - allowing the heirs to present their case without rebuttal - despite warnings that it would be dangerous to ignore the process.
The claimants, including some retirees, are Filipino citizens leading middle-class lives, a far cry from their royal ancestors of the Sulu sultanate that once spanned rainforest-covered islands in the southern Philippines and parts of Borneo island.
The heirs argue that the 19th century deal was a commercial lease, which is why they chose arbitration. They also claimed compensation for the vast energy reserves that have since been discovered in the territory they gave up in Malaysia's Sabah state on Borneo.
Malaysia disputes that, saying the sultanate ceded sovereignty and the arbitration was illegitimate.
"The arbitration is a sophisticated fiction, veiled as a legal process," Uria Menendez, a Spanish law firm representing Malaysia, told Reuters.
Malaysia has obtained a stay in France pending an appeal – a process that could take years – but the award remains enforceable globally under a U.N. convention on arbitration.
'POOREST SULTAN'
Malaysia honoured the colonial-era deal until 2013, when supporters of the late Jamalul Kiram III, who claimed to be the rightful sultan of Sulu, attempted to reclaim Sabah.
Clashes erupted when about 200 supporters arrived in boats from the Philippines and lasted nearly a month.
Kiram, who claimed to be the "poorest sultan in the world", was not one of the court-recognised heirs who received payments from Malaysia.
The eight claimants in the arbitration - including Kiram's daughter and cousins - who received the annual payment have condemned the attack.
Up until the intrusion, the Malaysian embassy in Manila wrote a cheque to the claimants every year for "cession money", according to cheques and correspondence from the embassy to the heirs and shared with Reuters by the heirs' lawyers.
Malaysia's then-prime minister, Najib Razak, told Reuters he had stopped the payments due to public anger over the incursion, acknowledging the reason publicly for the first time.
"I felt it was incumbent upon my duty and responsibility to protect the sovereignty of Sabah and the people of Sabah," he said, adding he had not anticipated retaliatory legal action.
The claimants, through their lawyers, declined to be interviewed.
Cohen, the heirs' lawyer, first heard of their claims from an oil and gas expert he cross examined in 2014 in an unrelated case.
Knowing they did not have the financial means, Cohen in 2016 brought on board Therium, a British firm that has bankrolled legal actions by raising money from institutional investors, including a sovereign wealth fund.
Therium conducted nine rounds of funding for the case, during which third-party investors repeatedly assessed its merits, said Elisabeth Mason, a lead co-counsel for the claimants with 4-5 Gray's Inn Square.
The case has cost over $20 million, including lawyers and researchers in eight jurisdictions, she said.
"Investors don't invest lightly in such matters," she said.
Therium said it would continue to finance efforts to enforce the award. It declined to provide details.
'LUDICROUS'
The heirs notified their intention to commence arbitration in 2017 in Spain and initially sought $32.2 billion in compensation, according to the award statement.
Malaysia's first response came in 2019 when then-attorney general Tommy Thomas offered to resume the annual payments and pay 48,000 ringgit ($10,800) in arrears and interest if the arbitration was dropped.
Thomas believed the demands were "absurd and ludicrous" but made the offer after colleagues advised him that it was "perilous" to disregard the arbitration as Malaysia's foreign assets could be at risk, he wrote in a 2021 memoir.
The heirs rejected Thomas' offer and the arbitration went on without Malaysia's participation.
Malaysia successfully challenged the appointment of Gonzalo Stampa as the sole arbitrator in a Spanish court last year.
But Stampa argued in his award statement that the courts did not have jurisdiction over arbitration, and moved the case to France to deliver the award - actions that Malaysia says were unlawful.
Stampa is now facing criminal proceedings in Spain following a complaint filed by Malaysia. He declined to comment to Reuters.
By snubbing the arbitration, Malaysia is confined to arguing the procedural validity rather than making a case against the heirs' claims, said N. Jansen Calamita, head of Investment Law and Policy at the National University of Singapore.
"It was a risky strategy and ultimately, I don't think it has served them well," he said.
Reuters
Thu Aug 04 2022
Jamalul Kiram III, a former Sultan of the Sulu region of the southern Philippines, surrounded by his followers, during a brief news conference in front of the Blue Mosque in Taguig city, south of Manila February 22, 2013. - REUTERS/Filepic
ISIS Malaysia's perspective of Budget 2025
An excellent rakyat-centric budget under the overarching principle of a caring and humane economy.
Budget 2025: Record increase in STR, SARA aid initiatives
The government will provide a significant boost to the Sumbangan Tunai Rahmah (STR) and Sumbangan Asas Rahmah (SARA) initiatives next year.
Budget 2025: EPF contributions to be made mandatory for foreign workers – PM Anwar
The government plans to make it compulsory for all non-citizen workers to contribute to the Employees Provident Fund (EPF).
What policies to expect from Indonesia's new President Prabowo
Prabowo will be open to foreign investment, his aide has said, such as by offering investors management of airports and sea ports.
Budget 2025: Govt allocates RM470 mil to empower women's participation in PMKS
The Women's Leadership Apprenticeship Program will be intensified as an effort to produce more female corporate personalities.
Israel sends more troops into north Gaza, deepens raid
Residents of Jabalia in northern Gaza said Israeli tanks had reached the heart of the camp, using heavy air and ground fire.
Indonesia ramps up security ahead of Prabowo's inauguration
Prabowo Subianto will be sworn in as Indonesia's president on Sunday with Vice President-elect, Gibran Rakabuming Raka, also taking office.
Immediate allocation of RM150 mil for local authorities, DID to tackle flash floods
Datuk Seri Anwar Ibrahim said this allocation is intended to address the recent flash floods that hit the capital and several major towns.
Budget 2025: Sabah, Sarawak to continue receiving among highest allocations - PM
Sabah and Sarawak continues to be prioritised under Budget 2025, with allocations of RM6.7 billion and RM5.9 billion respectively.
NFOF will be operational in November 2024 with funding of RM1 bil
PM Anwar Ibrahim said NFOF will support venture capital fund managers to invest in startup companies with RM300 million set aside for 2025.
Minimum wage to increase to RM1,700 effective Feb 1, 2025
The Progressive Wage Policy would be fully enforced next year with an allocation of RM200 million, benefiting 50,000 workers.
Bursa Malaysia ends higher on Budget 2025 optimism
The benchmark index, which opened 1.85 points higher at 1,643.29, moved between 1,641.71 and 1,649.31 throughout the trading session.
Five important aspects relating to people’s lives in Budget 2025 - PM
The focus is on driving the MADANI Economy, speeding reforms, cutting red tape, raising wages, and tackling the cost of living.
Economic outlook: Govt plans to leverage, expand existing city transit system
The expansion aims to provide a more efficient and reliable public transportation network, reduce congestion, and improve accessibility.
Economic outlook: Budget 2025 to lay foundation for a digital-driven economy
The report said Budget 2025 will entail efforts to position Kuala Lumpur as a top 20 global startup hub by 2030 through the KL20 initiative.
Economic outlook: Corruption and lack of accountability hinder economic progress
Special Cabinet Committee on National governance is established to curb corruption, law reforms to modernise outdate regulations, MoF said.
National Wages Consultative Council will be strengthened
The govt will also incentivise hiring women returning from career breaks, offer job matching and improve care services facilities.
Economic outlook: Ensuring 11 years of compulsory education for all children
Budget 2025 will continue prioritising upskilling and retraining initiatives to equip workers with the latest skill sets necessary.
Consolidated public sector projected to record lower surplus of RM41.7 bil 2024
The MoF said the consolidated general government revenue is estimated to increase slightly to RM384.7 billion in 2024.
PM announces substantial Budget 2025 hastening Malaysia to become Asian economic powerhouse
Datuk Seri Anwar Ibrahim said it would create jobs and also tackle financial leakages to enhance public spending efficiency.