Part 2 By Ado Paglinawan
To fast-forward the case, Malaysia attempted to stop the Madrid proceedings.
But while Malaysia’s Spain-based lawyers asked Stampa to end the arbitration due to a High Court’s decision In Madrid, the Sulu claimants challenged this and Stampa decided on July 20, 2021 to remain as the arbitrator and stay the arbitration proceedings.
The Sulu claimants, obtained on September 17, 2021 an “exequatur order” from the High Court in Paris, France, recognizing Stampa’s decision to carry out the arbitration. Relying on this order and the Madrid courts’ alleged interference to stop the arbitration, the Sulu claimants on October 11, 2021 applied to change the place of arbitration to Paris, which Stampa said was a “neutral venue.”
Stampa ultimately decided to continue with the arbitration proceedings, and on February 28, 2022 gave his decision in the arbitration, otherwise known as his “final award.”
In his 148-page February 28 arbitration award or “final award”, Stampa concluded that the 1878 agreement could be described as an international private lease agreement of commercial nature between a local ruler and international private investors.
Stampa said the eight claimants are direct descendants and legal heirs of the last Sulu Sultan and are his successors in title for the 1878 agreement and would be the “landlord” of North Borneo, while Malaysia became the successor in title of the British North Borneo Company under both the 1878 and 1903 documents upon the formation of Malaysia in 1963 and would allegedly be the “tenant”.
In short, Stampa accepted the views of the claimants that Sabah was rented out via a commercial agreement, instead of Malaysia’s arguments that the 1878 agreement was an international treaty where there was “cession” or permanent transfer of all rights of sovereignty over Sabah.
This bolsters the absurdity of allegation that an international treaty could be consummated between a private company and a sovereign Sultanate. So how could that the British North Borneo Chartered Company surrender its duties and how could the British crown colony cede North Borneo on that basis as it did on July 10, 1946? Or plainly, on what force of any law could a commercial agreement morph into a case for sovereignty, outside of a naked grab for possession of territory.
Moreover, Stampa said Malaysia breached the 1878 deal by stopping the annual payments in 2013 and not showing any lawful or contractual excuse for not performing the contractual duty of paying. He declared the 1878 agreement terminated from January 1, 2013 onwards.
Since the main remedy sought was a termination of both the 1878 and 1903 deals, Stampa did not proceed to explore the alternative remedy of rebalancing the agreement. In deciding that Malaysia should pay US$14.92 billion, he adopted the figure in The Brattle Group’s expert report for the Sulu claimants.
The report claimed the Sulu claimants are entitled to the equivalent of US$4.87 billion (15 per cent of Malaysia’s US$32.49 billion benefits from January 2013 to February 2020) and US$10.05 billion (15 per cent of Malaysia’s expected US$66.69 billion from continued oil and gas development in Sabah until 2022 and ongoing cultivation of oil plans in Sabah to perpetuity.
Stampa gave Malaysia a three-month grace period from February 28, where there will be no interest imposed if the awarded amount has yet to be paid, to enable Malaysia to handle the necessary financial and administrative matters for the significant sum of US$14.92 billion.
After the three-month grace period ends, a simple interest rate of 10 per cent per annum would apply until Malaysia fully pays the US$14.92 billion to the eight claimants.
Malaysian Blame Game
Though his actions as prime minister led to the present-day dispute, Najib Razak has nevertheless started pointing the finger at the Mahathir Mohamad who succeeded him in 2018, saying he dropped the ball as the arbitration notice was only served after the election on May 9 that year.
Following the 2013 Lahad Datu stamndoff, Najib was often portrayed as a heroic figure who thwarted a foreign “invasion”.
His political opponents, however, have been quick to highlight that the current legal battle in Europe stems from the unilateral move to cease paying the Sulu heirs outside proper legal channels. Rafizi Ramli, a senior member of opposition party Anwar Ibrahim’s Parti Keadilan Rakyat, mobilized 100 party members to file police reports against Najib claiming his negligence had led to the stand-off.
“I believe Najib should take responsibility for the failure and negligence as prime minister … that led to these claims by the heirs of the Sulu Sultanate that now burdens every federal government administration after his,” Rafizi said.
For his part, Prime Minister Ismail Sabri Yaakob has pledged that Malaysia will not budge “an inch” over Sabah and gave assurances that the government will protect the country’s assets. He also set up a special task force to formulate an action plan to address the issue.
Seed Funding for Arbitration
Arbitration costs a lot of money. The Hague-based Permanent Court of Arbitration that ruled on the Philippine case on the so-called West Philippine Seas against China cost almost one billion pesos, with the bulk of it some $7 million for American lawyers.
The eight surviving claimant heirs used the services of at least five different law firms in the Philippines, UK, Spain, France and Luxembourg.
Based on Stampa’s written award, the Sulu claimants had spent over US$3.5 million on the fees and costs for their lawyers in UK, Spain and Philippines and fees for experts; and had also put up US$3.35 million as deposits for both themselves and Malaysia for arbitration fees and costs. This would come up to a total US$6,852,394.24 or over US$6.8 million.
The arbitration costs eventually were finalized to be a total of US$2,351,502.64 (US$2.338 million in arbitrator’s fees and US$13,345.22 for hearing costs and transcripts), with the remaining amount of over US$998,000 from the US$3.35 million deposit returned to the Sulu claimants.
Therium, a 13-year-old company describing itself as one of the world’s largest litigation funding firms, was reported to be funding the Sulu claimants. Its website says it had funded US$100 billion worth of cases across the world. Litigation funding is where the funder pays part or all of the legal costs for a case on a non-recourse basis, which means the claimant does not owe the company any money if the case fails.
But unlike the PCA ruling on the Philippine case against China, the enforcement of the arbitral ruling against Malaysia have already started. On July 11, Luxembourg bailiffs seized two Petronas subsidiaries and their assets to enforce the US$14.92 billion arbitration award, as applied for by the Sulu claimants’ lawyers.
On July 12, Petronas said its two subsidiaries — Petronas Azerbaijan (Shah Deniz) and Petronas South Caucasus — had previously sold their assets in the Republic of Azerbaijan and had already sent the funds back, adding that it viewed the actions taken against the company as “baseless” and is working vigorously to defend its legal position on this matter.
Likewise on July 12, the Paris Court of Appeal allowed Malaysia’s application to suspend the US$14.92 billion award.
Malaysia’s de facto law minister Datuk Seri Wan Junaidi Tuanku Jaafar on July 13 said the Paris court’s suspension order means the US$14.92 billion award cannot be enforced in any country, before the Paris courts decide on Malaysia’s bid to cancel the arbitration award.
On July 27 it was also asserted that the US$14.92 billion award was made against Malaysia and can only be executed against Malaysia’s assets, arguing that the award does not bind Petronas which is a separate entity from Malaysia and cannot be enforced against the company’s assets.
But the Sulu claimants’ lawyers reportedly insisted that besides France, the arbitration award can still be enforced in 169 other countries that signed the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, commonly known as the New York Convention, adopted by a United Nations diplomatic conference on June 10, 1958 and went into force on June 7, 1959.
Be that as it may, serious cracks have already shattered Malaysia’s moral ascendancy and legal and historical positions on the issue.
Heretofore, the issues against Malaysia may further intensify from sheer proprietary to sovereignty issues. There are three rulings by the arbitrator that messed things up for the British and the Malaysians:
1. The 1878 Agreement is an international private lease agreement, of commercial nature; not a cession.
2. The respondent Malaysia breached the 1878 Agreement; and the
3. The 1878 Agreement Decision is considered terminated as of January 1, 2013.
This ought to teach the Malaysians that unmitigated greed does not pay, and that the Manila Accord, signed on July 31,1963 by the Federation of Malaya, the Republic of Indonesia and the Republic of the Philippines, should now be enforced.
Former Palace spokesman Harry Roque Jr. says the next step is for the Philippine government to file a petition with the International Court of Justice (ICJ) to secure a ruling on the disputed territory.
Roque said President Ferdinand Marcos Jr. can use as leverage the French arbitral ruling that awarded $14.9 billion to the Sulu Sultanate.
Roque reiterated “The Philippines has never surrendered its claim to the territory and since the Sultanate of Sulu heirs ceded or transferred sovereignty of Sabah to the Philippines in 1962, the President should establish a firm direction on this most important matter.
In sum, what is most devastating for Malaysia, beyond paying the award money to the established heirs of the Sultanate, is the question whether a private company entering into a commercial agreement, can transfer its rights to a third party, in this case a government, without the expressed permission of the second party?
The British government’s usurpation of a commercial transaction and its unilateral novation of the same, onto sovereignty over territory, definitely open a can of worms.
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