An old sultanate, oil and $14.9 million ruling against Malaysia

By Gaspar Ruiz-Canela

Bangkok Desk, Mar 17 (EFE).- Malaysia has rejected a French arbitration ruling ordering the country to pay compensation of $14.9 billion to the descendants of the last sultan of Sulu in the Philippines.

Spanish arbitrator Gonzalo Stampa issued the award in Paris last month, ordering Malaysia to pay the sultan’s descendants as beneficiaries of a commercial agreement signed in 1878 for the exploitation of northern Borneo’s natural resources.

The origin of this unusual story dates back to colonial times at the end of the 19th century when Spain ruled the Philippines archipelago but had only limited control over the now-defunct Sulu sultanate, a Muslim state spread across the south.

In 1878, Sultan of Sulu Mohammed Jamalul Alam signed an agreement which ceded territories in northern Borneo, currently in Sabah (Malaysia), to Britain’s North Borneo Chartered Company to exploit the natural resources in exchange for annual rent payments.

After Malaysia’s independence in 1963, the authorities continued paying 5,300 ringgit ($1,200) to the Sultan’s descendants in the Philippines.

However, the Malaysian government stopped the payments in 2013 when a group of the old sultanate’s followers tried to invade and claim the former territories in Sabah, but were forced out by the Malaysian armed forces after more than a month of fighting.

The sultan’s heirs opted to find a way to force Malaysia to pay compensation for breaching the 1878 agreement unilaterally, adding into the calculation a percentage of the benefits for the exploitation of natural resources in the area, including oil and gas.

First, they tried to initiate arbitration proceedings in the United Kingdom, but were unsuccessful. In 2017, they decided to field an application before the Superior Court of Justice in Madrid, which appointed Stampa as arbitrator in 2019.

However, the arbitration process has been controversial.

In 2021, the Superior Court of Justice revoked Stampa’s appointment as arbitrator, alleging that Malaysia had not been informed of the proceedings through the appropriate communication protocols. The Spanish lawyer, who has also been accused of contempt of court and professional intrusiveness, has appealed.

After being dismissed in Spain, Stampa transferred the arbitration proceedings to Paris, where he issued the award in favor of the sultan’s descendants on Feb. 28 this year.

The $14.9 billion final award, which partly accounts for the revenue derived from the exploitation of oil and gas in Borneo, represents more than 4 percent of Malaysia’s GDP.

In a statement sent to Efe, the Malaysian government said that the award is null and void because of a suspension order by the Court of Appeal in Paris and the dismissal of Stampa as arbitrator.

“The Malaysian Government maintains its position that it does not recognize any of the actions taken by Mr Stampa in the purported arbitration proceedings, nor does it recognize his illegal decisions and awards,” said the Malaysian authorities.

Malaysia claimed that the arbitration violated its immunity as a sovereign state and added that the identity of the claimants “are doubtful and have not yet been verified.”

However, one of the defense lawyers representing the sultan’s descendants, Bernardo M. Cremades, told Efe that Stampa is still in the process of appealing his suspension before Spain’s Constitutional Court, and no judicial order has nullified the arbitration proceedings or the award.

“We believe that Gonzalo Stampa has acted in accordance with the law,” the lawyer said in an email.

Cremades added that the arbitration refers to a commercial agreement that was honored by Malaysia “continuously from 1878 to 2013” and, therefore, it does not violate the country’s sovereignty.

Malaysia refused to participate in the arbitration from the beginning, while the descendants’ lawyers assure that they will seek the award’s recognition and execution according to the New York Convention of 1958. EFE