Heirs to the Sultanate of Sulu vs Malaysia

Last of 2 parts

SAUL HOFILEÑA JR. Daniel S. Hofileña, a professor in international law and economics assisted with the research. Prof. Ma. Isabel P. Romero suggested the topic. The bare facts concerning the arbitration award were from Jus Mundi.



The Manila Times



LAST week’s column provoked a flurry of questions: If the heirs of the Sultanate were supposed to receive only $5,300 per year and payment was discontinued only in 2012, why did the Spanish arbitrator mandate a payment of $14.9 billion to the heirs to the Sultanate? Was Malaysia given the right to be heard? Isn’t Malaysia immune from suit? Should the Philippines file a case with the International Court of Justice (ICJ) to help the heirs? Malaysia acknowledged that it had failed to tender yearly payments from 2012, so the arbitrator ruled that such failure was a material breach of the 1878 Sabah Lease Agreement and the 1903 Confirmation Deed. Both agreement and deed were then deemed terminated as of Jan. 1, 2013. Because of the abovementioned terminations and the inherent impracticability of awarding the return of Sabah to the heirs, the arbitrator ruled that as restitution, the heirs are entitled to the value of the rights over the leased territory, and the value of said rights is a portion of the economic benefits Malaysia obtains and will obtain from the exploitation of the natural resources of Sabah. The 1878 Sabah Lease Agreement by its very nature was a long-term private lease agreement, the purpose of which was the use and the extraction of the resources of Sabah by private individuals. Malaysia is the successor-in-title of the British North Borneo Company, that fact did not change the nature of the agreement even if more than a century has lapsed from the time the agreement was signed. Malaysia’s continuous payment of monies until 2012 is proof of the commercial nature of the contract. To resolve the case, the arbitrator applied the UNIDROIT Principles, which are principles that govern international commercial contracts endorsed by the International Institute for the Unification of Private Law. To prove their claim, the heirs submitted several reports, the most important of which was the Brattle Report that focused its analysis on the economic benefits of Malaysia from the extraction of oil and natural gas, and from the palm oil industry. The Brattle Report disclosed that Sabah produced 1,916 million barrels of oil from 1965 to 2020; it forecasted 1,154 million barrels for 2020 up to 2044. As for natural gas, 364 million barrels of oil equivalent have been produced since 2020, and the forecast is 1,365 million barrels of oil equivalent from 2020 to 2044. The Brattle Report also computed the projected production of palm oil in Sabah. The forecasts ended in 2044 because the certainty of new drilling campaigns or new discoveries leading to a continuation of production beyond that period could not be reliably ascertained. Limited forecasting was necessary because an end-of-time scenario based on the original deed of 1878 was not possible. (The 1878 Agreement expressed that the lease of Sabah is forever and shall exist “until the end of time.”) In the fine, the heirs were awarded 15-percent share of Malaysia’s economic benefits from Sabah. The restitution value of the rights over the leased territory was declared by the arbitrator to be in the amount of $14.92 billion covering the years 2013 to 2044. As to the question of whether Malaysia was notified of the proceedings, Malaysia’s representatives were indeed informed, but Malaysia refused to participate in the arbitration. With regard to the issue of State immunity of Malaysia, the arbitrator cited the doctrine of jure gestionis. The case involved commercial and not public acts; therefore, State immunity was deemed inapplicable. As to the propriety of asking the help of the ICJ, it is a matter involving the exercise of State prerogative that may eventually muddle the issues in the commercial arbitration case. The heirs have already obtained a humongous arbitral award in their favor without the participation of the Philippine Republic. Moreover, only States can be parties to an ICJ case and both States must give their consent for the ICJ to sit in judgment. Not even for all the tea in China will Malaysia give its consent to be sued over Sabah. Some pundits say that we may file a case in the ICJ citing diplomatic protection (the eight heirs are reportedly all Filipinos). Diplomatic protection refers to the protection given by a State to their citizens whose personal or property rights have been violated by a foreign government. The two most famous ICJ cases involving diplomatic protection were Liechtenstein vs Guatemala, wherein the former took up the cudgels for a certain Friedrich Nottebohm. Friedrich eventually lost everything he had in Guatemala. The other is Germany vs United States of America, which involved two German bank robbers who were brothers, both sentenced to death and executed by the State of Arizona, one by lethal gas and the other by lethal injection. Diplomatic protection is invoked when a citizen of a State is in trouble. In this case, the heirs to the Sultanate of Sulu are not — Malaysia is. ***