KUALA LUMPUR, July 31 — Why did Malaysia pay RM5,300 every year to the alleged heirs of the now-defunct Sulu sultanate in the Philippines over Sabah, and why are these Sulu heirs now claiming US$14.92 billion (RM66.4 billion) from Malaysia and even taking action to seize Petronas assets?

Here’s Malay Mail’s quick summary of everything you need to know about how this came to be:

1. Did the Sulu sultanate just rent out or give away Sabah for annual payments?

This is perhaps the biggest disagreement between the purported Sulu heirs and the Malaysian government, due to different translations of the original 1878 agreement which was written in the Jawi script.

The alleged Sulu heirs claim that the Sulu sultanate had only given a “lease” for Sabah in exchange for a purported rent of RM5,300 every year, but Malaysia insists that the Sulu sultanate had 144 years ago given away Sabah in return for the yearly payment.

In January 1878, Sulu ruler Sultan Jamalul Alam signed an agreement with both Gustavus Baron de Overbeck and Alfred Dent — as representatives of a British company — to receive 5,000 local dollars every year from them in return for rights over North Borneo (as Sabah was then known).

In the translation which Malaysia relies on, the Sulu sultan in 1878 agreed to “grant and cede” and assign forever all rights and powers over Sabah to Overbeck and Dent as the company’s representatives and their successors in exchange for 5,000 dollars per year in “compensation” to the Sulu sultan, the sultan’s heirs and successors for the “grant.”

But the alleged Sulu heirs rely on translations where the sultan agrees to receive 5,000 dollars every year for the “lease” of Sabah.

On April 22, 1903, Sulu ruler Sultan Jamalul Kiram II signed an agreement with the government of British North Borneo to confirm that he has “ceded” a list of islands near Sabah — as these islands were not specifically mentioned in the 1878 document — as part of the 1878 agreement. An additional payment of 300 dollars per year was stated for these islands.

From this point onwards, the annual payment to the Sulu sultan became a total of 5,300 dollars. (Malaysia’s currency used to be known as the dollar, but subsequently was known as Ringgit Malaysia and denoted with the RM symbol.)

2. Fast forward to 2013: Invasion of land in Sabah and discontinued payment

Malaysia paid RM5,300 as agreed without fail for 49 years from 1963 until 2012.

But from 2013 onwards, Malaysia — which was then under Datuk Seri Najib Razak’s leadership — stopped making the RM5,300 payment.

The unofficial reason was the February 2013 intrusion by armed men linked to self-proclaimed Sulu sultan Jamalul Kiram III into Lahad Datu, Sabah — which resulted in deaths.

But the Sulu claimants, who won the US$14.92 billion award, have sought to distance themselves from the intrusion, with their lawyer claiming to the arbitrator that it is “reckless and irresponsible” to insinuate that they are “fighting a proxy legal battle for extremists who launched a violent attack” on Sabah in 2013.

Malaysia did offer in September 2019 to resume paying the RM5,300 and to also pay the outstanding sums for 2013 to 2019 along with 10 per cent interest, but this was rejected by the Sulu claimants’ lawyer in October 2019 who highlighted Sabah’s much higher current value now due to its oil and gas resources.

3. It’s all about the money, money, money now

On April 28, 2017, the Sulu claimants wrote to Malaysia to seek renegotiation of the 1878 deal, which they said was now “unbalanced” after rich natural resources were found in Sabah.

The Sulu claimants said the “game-changing” discovery of petroleum gave Malaysia massive revenue which could not be foreseen when the 1878 deal was signed, and said such revenue for Sabah was about 20 million times more than the RM5,300 annual sum. Malaysia was said to have not responded to this letter.

On November 2, 2017, eight individuals — Nurhima Kiram Fornan, Fuad A. Kiram, Sheramar T. Kiram, Permaisuli Kiram-Guerzon, Taj-Mahal Kiram-Tarsum Nuqui, Ahmad Nazard Kiram Sampang, Jenny K.A. Sampang, Widz-Raunda Kiram Sampang — began their bid as alleged heirs of the Sulu sultan to receive more money from Malaysia over Sabah.

They informed the Malaysian embassy in Madrid, Spain of their intention to start the arbitration by serving a November 2, 2017 notice.

To start the arbitration, they applied on February 1, 2018 for the Spanish courts to appoint an arbitrator. The High Court in Madrid on March 29, 209 agreed to appoint an arbitrator, and on May 22, 2019 appointed Gonzalo Stampa as the sole arbitrator.

On July 30, 2019, the eight claimants filed their notice of arbitration, seeking for the 1878 deal’s rebalancing and for compensation which would “more fairly” reflect its value.

Alternatively, the eight claimants wanted the 1878 agreement to be terminated and for Malaysia to pay compensation, if the deal is not rebalanced.

Basically, they wanted Malaysia to pay them more than the RM5,300 sum agreed back in 1878 and 1903 by the Sulu sultans.

In a statement of claim filed on June 20, 2020, the eight claimants claimed as much as US$32.2 billion from Malaysia if the 1878 agreement was terminated.

4. Malaysia gets court orders in Sabah, Spain to stop arbitration

In the 1878 agreement, there is a clause stating that any dispute between the Sulu sultan or his heirs and the British company is to be submitted to the British consul-general for Borneo. This consul-general position no longer exists.

The British government had via a December 8, 2017 letter by the UK Foreign & Commonwealth Office rejected the Sulu claimants’ request to appoint an arbitrator due to reasons such as the claimants’ unclear identity, and suggested they take up their claim directly to the Malaysian government.

In his memoir, former attorney-general Tan Sri Tommy Thomas criticised the Sulu claimants’ move to seek arbitration in Spain, when the proper court for it should be in Sabah.

Could this be a case of forum shopping, as the Sulu claimants have been accused of doing? “Forum shopping” refers to the choosing of the courts based on which court is most likely to give a favourable outcome to your case.

In December 2019, the Malaysian government filed a lawsuit in the High Court of Sabah and Sarawak — with the judge sitting in Kota Kinabalu, Sabah — against the eight claimants and the Spanish arbitrator Stampa, with the ultimate aim of stopping the Spanish arbitration.

On January 14, 2020, the High Court of Sabah and Sarawak granted all nine court orders sought by Malaysia, including declarations that there is no arbitration agreement in the 1878 document or between Malaysia and the eight; declarations that Malaysia did not waive its sovereign immunity to confer jurisdiction for the Madrid court to appoint Stampa as arbitrator and that he has no jurisdiction over the sovereign state of Malaysia.

The High Court also declared that the courts in Sabah, Malaysia would be the “natural and proper forum” to determine any claims by the eight Sulu claimants.

The High Court in Sabah also granted Malaysia injunctions to stop the eight claimants from continuing the arbitration in Spain and to stop them from enforcing awards made in the Spanish arbitration.

Malaysia asked the High Court in Madrid to enforce the High Court’s January 2020 decision in Sabah, which said the Spanish arbitration should stop.

On May 25, 2020, Stampa dismissed Malaysia’s objections against the arbitration as he decided the purported arbitration agreement is valid, and decided that Madrid will be the arbitration venue and declared that he has jurisdiction to be the arbitrator for the Sulu claimants’ claims. He also affirmed the Madrid court’s March 2019 decision to appoint an arbitrator.

On November 18, 2020, Stampa received a judicial order from the court in Madrid requesting for the recognition and enforcement of the Malaysian courts’ January 2020 ruling, which would have required the arbitration to stop.

But Stampa proceeded to hear the arbitration case online on February 15 and February 16, 2021 amid the Covid-19 pandemic, and closed the arbitration proceedings on March 26, 2021.

Malaysia continued trying to stop the arbitration. The High Court in Madrid on June 29, 2021 in a majority decision ruled in favour of Malaysia and nullified the earlier March 29, 2019 decision to appoint an arbitrator, which would now mean the whole arbitration has to stop.

Malaysia argued this June 2021 decision meant Stampa is not an arbitrator for the Sulu claimants’ case and that all his decisions are null and void.

While Malaysia’s Spain-based lawyers and the Madrid courts asked Stampa to end the arbitration due to the June 2021 decision, the Sulu claimants challenged this and Stampa decided on July 20, 2021 to remain as the arbitrator and stayed the arbitration proceedings and asked both sides to say what steps could be taken to continue the arbitration.

In short: Yes, Malaysia tried to stop the arbitration, but Stampa and the Sulu claimants ignored the Spanish court’s orders (which had effectively meant the arbitration was invalid), and then moved the entire arbitration to Paris, France in order to continue the arbitration.

5. If Spain says ‘stop’, I’ll just go to France: The persistent efforts to continue the arbitration

How did this happen? The Sulu claimants on September 17, 2021 obtained an “exequatur order” from the High Court in Paris, France, to recognise Stampa’s May 2020 decision where he had decided he could carry out the arbitration.

Relying on the “exequatur 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.

Stampa then decided to shift the arbitration venue to Paris, which he said was a “neutral venue.”

On December 16, 2021, Malaysia obtained an order from the Paris Court of Appeal to suspend the “exequatur order”, which the Sulu claimants had relied on to have Stampa change the arbitration venue to France and continue the arbitration.

Despite the Paris Court of Appeal’s court order which would effectively have required the arbitration to stop, Stampa rejected Malaysia’s December 17, 2021 request to immediately stop the arbitration by December 20, 2021.

Malaysia’s France-based lawyer on February 18, 2022 asked Stampa to immediately stop the arbitration, pointing out that the Spanish courts’ June 2021 decision and the Paris courts’ December 2021 suspension order meant that the arbitration was illegitimate.

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.”

6. What the arbitrator finally decided: Termination of RM5,300 agreement; US$14.92 billion compensation by Malaysia with 10 per cent interest if unpaid

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.

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.

While the Sulu claimants claimed a termination of the 1878 agreement should require Malaysia to return the rights of exploiting Sabah’s natural resources, they acknowledged this would be “impossible” as Malaysia considers Sabah to be its own and would not surrender the territory or any related rights attached to the land.

Since that was “impossible”, the Sulu claimants asked for money to compensate them for the “loss of what should be theirs” after the 1878 agreement is terminated, adding that they should be paid in US dollars to prevent them from suffering further losses due to the delay in payments and fluctuation of exchange rates.

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 will apply until Malaysia fully pays the US$14.92 billion to the eight claimants.

In short: Stampa ordered Malaysia to pay US$14.92 billion to the eight claimants, and ordered for interest to be charged if Malaysia does not pay after a three-month period.

7. Are they actually the legitimate heirs of the Sulu sultanate? And should it be decided in Sabah?

In June 1936, Sulu ruler Sultan Jamalul Kiram II died, which later resulted in internal disputes by rival factions on who would be the successor.

In 1939, nine claimants brought a lawsuit in the High Court of the State of North Borneo against the government of North Borneo, which decided that the claimants — who were named in Sulu sultan Jamalul Kiram II’s will — are entitled to be paid the 5,300 sum.

These nine claimants in the 1939 lawsuit are said to be the predecessors of the eight claimants in the current arbitration. A Philippine news outlet had in 2013 reported that court orders in 2011 had established those who became the administrators of the estates of the original nine claimants, with some of these names seen as matching the names of the eight Sulu claimants in the arbitration.

Stampa had stressed that Madrid and Paris would be “neutral” venues as they are in a third country which neither the eight claimants — who are Philippine citizens — and Malaysia belong to.

But the High Court in Sabah in January 2020 stressed that it was the natural and proper venue to decide on disputes in relation to Sabah, pointing out that the eight Sulu claimants' alleged predecessors had in 1939 themselves recognised the jurisdiction of the High Court then in North Borneo in relation to matters relating to the 1878 document.

It also said the Malaysian judiciary's independence is recognised globally and the current eight Sulu claimants do not have to be worried of facing any disadvantages if they pursue their claim in the courts in Sabah.

8. Who funds all these international efforts?

The eight claimants used the services of at least five different law firms in the Philippines, UK, Spain, France and Luxembourg.

Based on a news report by local financial publication The Edge, they comprise of three retirees (aged 68, 68, 74), three unemployed persons (aged 51, 65, 70), one school administrator (aged 54) and one businessman (aged 70).

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 finalised 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.

So how are they funding the whole international arbitration process?

Therium, a 13-year-old company which channels investments it receives into “litigation funding”, was reported to be funding the Sulu claimants. Therium’s website states that it had funded US$100 billion worth of cases across the world.

Describing itself as one of the world’s largest litigation funding firms, Therium’s website explains that 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.

9. The bid to grab Malaysia-linked assets begins

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.

But Thomas on July 27 said 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.

10. What’s next for Malaysia?

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.

But the Sulu claimants' lawyers reportedly insisted the arbitration award can still be enforced in 169 other countries besides France.

Malaysia has filed criminal proceedings against Stampa in the Madrid courts for alleged contempt of court, with these proceedings still in progress.

On July 14, Malaysia decided to form a special task force to study and formulate an appropriate action plan to tackle the Sulu claim.