How Malaysia ended up owing $15 billion to a sultan’s heirs

By Rozanna Latiff and A. Ananthalakshmi

KUALA LUMPUR (Reuters) – Malaysia is scrambling to guard its property because the descendants of the final sultan of the distant Philippine area of Sulu look to implement a $15 billion arbitration award in a dispute over a colonial-era land deal.

In 1878, two European colonists signed a cope with the sultan for the use of his territory in present-day Malaysia – an settlement that impartial Malaysia honoured till 2013, paying the monarch’s descendants about $1,000 a 12 months.

Now, 144 years later after the unique deal, Malaysia is on the hook for the second largest arbitration award on file for stopping the funds after a bloody incursion by supporters of Sultan Mohammed Jamalul Alam’s heirs during which greater than 50 folks have been killed.

“It’s a fascinating and strange case,” stated lawyer Paul Cohen, a lead co-counsel for the sultan’s heirs from British legislation agency 4-5 Grey’s Inn Sq..

For years, Malaysia largely dismissed the claims however in July, two Luxembourg-based subsidiaries of state vitality agency Petronas have been served with a seizure discover to implement the award that the heirs gained in February.

The arbitration ruling in France adopted an eight-year authorized effort by the heirs and $20 million in funds raised for them from unidentified third-party traders, in line with interviews with primary figures within the case and authorized paperwork seen by Reuters.

Malaysia didn’t take part in nor recognise the arbitration – permitting the heirs to current their case with out rebuttal – regardless of warnings that it could be harmful to disregard the method.

The claimants, together with some retirees, are Filipino residents main middle-class lives, a far cry from their royal ancestors of the Sulu sultanate that when spanned rainforest-covered islands within the southern Philippines and elements of Borneo island.

The heirs argue that the nineteenth century deal was a industrial lease, which is why they selected arbitration. In addition they claimed compensation for the huge vitality reserves which have since been found within 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 classy fiction, veiled as a authorized course of,” Uria Menendez, a Spanish legislation agency representing Malaysia, advised Reuters.

Malaysia has obtained a keep in France pending an attraction – a course of that might take years – however the award stays enforceable globally beneath a U.N. conference on arbitration.

‘POOREST SULTAN’

Malaysia honoured the colonial-era deal till 2013, when supporters of the late Jamalul Kiram III, who claimed to be the rightful sultan of Sulu, tried to reclaim Sabah.

Clashes erupted when about 200 supporters arrived in boats from the Philippines and lasted practically a month.

Kiram, who claimed to be the “poorest sultan on this planet”, was not one of many court-recognised heirs who acquired funds from Malaysia.

The eight claimants within the arbitration – together with Kiram’s daughter and cousins – who acquired the annual fee have condemned the assault.

Up till the intrusion, the Malaysian embassy in Manila wrote a cheque to the claimants yearly for “cession cash”, in line with cheques and correspondence from the embassy to the heirs and shared with Reuters by the heirs’ legal professionals.   

Malaysia’s then-prime minister, Najib Razak, advised Reuters he had stopped the funds as a consequence of public anger over the incursion, acknowledging the explanation publicly for the primary time. 

“I felt it was incumbent upon my obligation and duty to guard the sovereignty of Sabah and the folks of Sabah,” he stated, including he had not anticipated retaliatory authorized motion. 

The claimants, by means of their legal professionals, declined to be interviewed.  

Cohen, the heirs’ lawyer, first heard of their claims from an oil and fuel knowledgeable he cross examined in 2014 in an unrelated case.

Realizing they didn’t have the monetary means, Cohen in 2016 introduced on board Therium, a British agency that has bankrolled authorized actions by elevating cash from institutional traders, together with a sovereign wealth fund.

Therium carried out 9 rounds of funding for the case, throughout which third-party traders repeatedly assessed its deserves, stated Elisabeth Mason, a lead co-counsel for the claimants with 4-5 Grey’s Inn Sq..

The case has value over $20 million, together with legal professionals and researchers in eight jurisdictions, she stated.

“Buyers do not make investments evenly in such issues,” she stated. 

Therium stated it could proceed to finance efforts to implement the award. It declined to offer particulars.

‘LUDICROUS’

The heirs notified their intention to start arbitration in 2017 in Spain and initially sought $32.2 billion in compensation, in line with the award assertion.

Malaysia’s first response got here in 2019 when then-attorney normal Tommy Thomas provided to renew the annual funds and pay 48,000 ringgit ($10,800) in arrears and curiosity if the arbitration was dropped.   

Thomas believed the calls for have been “absurd and ludicrous” however made the supply after colleagues suggested him that it was “perilous” to ignore the arbitration as Malaysia’s overseas property could possibly be in danger, he wrote in a 2021 memoir.  

The heirs rejected Thomas’ supply and the arbitration went on with out Malaysia’s participation. 

Malaysia efficiently challenged the appointment of Gonzalo Stampa as the only arbitrator in a Spanish courtroom final 12 months.

However Stampa argued in his award assertion that the courts didn’t have jurisdiction over arbitration, and moved the case to France to ship the award – actions that Malaysia says have been illegal.

Stampa is now dealing with prison proceedings in Spain following a criticism filed by Malaysia. He declined to remark to Reuters.

By snubbing the arbitration, Malaysia is confined to arguing the procedural validity reasonably than making a case in opposition to the heirs’ claims, stated N. Jansen Calamita, head of Funding Legislation and Coverage on the Nationwide College of Singapore.  

“It was a dangerous technique and finally, I do not assume it has served them nicely,” he stated.

(Reporting by Rozanna Latiff and A. Ananthalakshmi; Modifying by Robert Birsel)