Saul Hofileña Jr.



The Manila Times


Front Page

MALAYSIA might be on the brink of losing $14.9 billion due to the threat of seizure of its assets because of an arbitral award obtained by the heirs of the Sultan of Sulu. The Sultanate of Sulu once ruled over an eponymous archipelago, parts of Mindanao and Palawan Islands (of the Philippine Republic) and North Borneo or Sabah. Allow me to clarify matters regarding the case. The case was filed by the Sultan’s heirs and not by the Sultanate because it is a matter involving a commercial arbitration and does not concern sovereignty over North Borneo. The seat of the arbitration is in Paris and the rules of arbitration followed were the 2010 UNCITRAL Arbitration Rules. What is the basis of the claim of the heirs of the Sultanate? In 1878, Gustavus Baron Von Overbeck, Austrian consul-general in Hong Kong, and Alfred Dent, an Englishman, secured a lease from Sultan Al-Sultan Mohammad Jamalul Ahlam of Sulu for more than 73,000 square kilometers of land, now called North Borneo or Sabah. The lessees agreed to pay the Sultan of Sulu an annual rent of 5,000 Mexican dollars (at that time the preferred currency in Southeast Asia due to its size and silver content). They then established the British North Borneo Company. On Nov. 1, 1881, it was granted a Royal Charter of Incorporation by the British Parliament. In 1903, in what is called a “Confirmatory Deed,” the Company leased additional outlying islands from the Sultan and the lease payment was increased to 5,300 Mexican dollars. In 1936, Sultan Jamal-ul Kiram, then successor to the Sulu throne, decried the withholding of rental payments which compelled him and other heirs to file a case in the High Court of the State of North Borneo. Strangely enough, in a decision dated Sept. 18, 1939, the contract of lease was repeatedly referred to as a “deed of cession” instead of a lease. A copy of the deed was found in Washington, D.C. The word “padjak” appears in the document to refer to the payment. It means “lease” in Bahasa Melayu (the Sultan’s language) and was written in Arabic script. In 1946, the British North Borneo Company transferred its rights and powers to the British Crown. In 1963, the Federation of Malaysia was formed with the help of the British government. It included North Borneo (now Sabah); the territory leased by the Sultan of Sulu. This inclusion became a matter of grave concern to the Philippine government. A referendum was held, and the people of Sabah opted to join the Malaysian Federation. The Philippine government denounced the referendum as rigged and refused to accept its results. Since then, relations between Malaysia and the Philippines have been rather strained, even if both States are members of Asean. In 2013, approximately 200 troops of the “Royal Army of Sulu” landed at Lahad Datu in Sabah to claim what they considered the territory of the Sultanate. The Malaysian press called the attack a “standoff” staged by “Filipino Gunmen.” Malaysian security forces repelled the attack. After the incident, Malaysia refused to pay further rental payments to the heirs of the Sultan of Sulu. The Sultan’s heirs then filed an application for the judicial appointment of an arbitrator before the Civil and Criminal Chamber of the Superior Court of Justice of Madrid. Dr. Gonzalo Stampa, a Spaniard, was appointed the lone arbitrator. Madrid was replaced by Paris as the seat of the arbitration upon request of the Sultan’s heirs. Dr. Stampa then rendered an arbitral award in the reported sum of $14.9 billion to the Sultan’s heirs. Enforcing the arbitral award, bailiffs of a court in Luxembourg seized assets of Petronas Azerbaijan and Petronas South Caucasus. Seizure was justified by the New York Convention of 1958. The convention, wherein Malaysia is a signatory, allows “recognition and enforcement of arbitral awards made in the territory of a State other than the State where the recognition and enforcement of such awards are sought, and arising out of differences between persons, whether physical or legal.” Invoking the said convention was a brilliant strategy to enforce the rights of the Sultan’s heirs which are private rights that do not involve sovereignty. They sought partial satisfaction of the award in Luxembourg, a country outside the territorial jurisdiction of the venue where the arbitral award was made and a signatory to the 1958 Convention. Although enforcement was suspended by the Paris court, the assets of oil-rich Malaysia are global, and the heirs can very well ask for enforcement of the arbitral award from the more than 160 other countries that are signatories to the treaty. The mills of God grind slowly, as in the case of the Sultan of Sulu. However, the amount of the award is so Brobdingnagian, it boggles the mind. It also guarantees that the Sultan’s heirs will never run out of lawyers to pursue their claim.