How Malaysia Ended Up Owing $15 Billion to a Sultan’s Heirs


Kuala Lumpur: Malaysia struggles to protect its assets as descendants of the last sultan from the remote Philippines region of Sulu are seeking to enforce a $15 billion arbitration award in a dispute over a colonial-era land deal.

In 1878, two European settlers signed an agreement with the sultan for the use of its territory today Malaysia – an independent agreement Malaysia honored until 2013, paying the monarch’s descendants about $1,000 a year.

Now, 144 years later after the original agreement, Malaysia is set to secure the second-largest arbitration award on record to stop payments after a bloody raid by supporters of Sultan The heirs of Mohammed Jamalul Alam in which more than 50 people were killed.

“This is a fascinating and unusual case,” said attorney Paul Cohen, co-lead counsel for the sultanare the heirs of the British law firm 4-5 Gray’s Inn Square.

For years, Malaysia largely denied the claims, but in July two Luxembourg subsidiaries of state-owned energy company Petronas received a notice of seizure to enforce the award the heirs won in February.

The arbitration decision in France follows an eight-year legal effort by the heirs and $20 million in funds raised for them from unidentified third-party investors, according to interviews with key figures in the case and legal documents seen by Reuters.

Malaysia did not participate in or recognize arbitration – allowing heirs to present their case without rebuttal – despite warnings that it would be dangerous to ignore the process.

The plaintiffs, some of whom are retirees, are Filipino citizens leading middle-class lives, a far cry from their royal Sulu ancestors sultanate that once spanned rainforest-covered islands in the southern Philippines and parts of the island of Borneo.

The heirs argue that the 19th century agreement was a commercial lease, which is why they chose arbitration. They also demanded compensation for the vast reserves of energy that have since been discovered in the territory they ceded in Malaysiais the state of Sabah in Borneo.

Malaysia dispute that, saying that sultanate ceded its sovereignty and the arbitration was illegitimate.

“Arbitration is a sophisticated fiction, disguised as a legal process,” said Uria Menendez, a Spanish law firm representing Malaysiatold Reuters.

Malaysia was granted a stay in France pending an appeal – a process that could take years – but the award remains enforceable worldwide under a UN convention on arbitration.

“The Poorest Sultan”

Malaysia honored the colonial-era deal until 2013, when supporters of the late Jamalul Kiram III, who claimed to be the rightful sultan from Sulu, tried to recover Sabah.

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

Kiram, who claimed to be the “poorest sultan in the world”, was not one of the heirs recognized by justice who received payments from Malaysia.

The eight arbitration claimants – including Kiram’s daughter and cousins ​​- who received the annual payment condemned the attack.

Until the intrusion, the Malaysian embassy in Manila sent a check to claimants each year for “surrender money,” according to checks and correspondence from the embassy to heirs and shared with Reuters by lawyers for the heirs.

MalaysiaThen-Prime Minister Najib Razak told Reuters he stopped the payments due to public anger over the incursion, publicly acknowledging the reason for the first time.

“I felt it was my duty and responsibility to protect the sovereignty of Sabah and the people of Sabah,” he said, adding that he had no plans for judicial retaliation.

The applicants, through their attorneys, declined to be interviewed.

Cohen, the attorney for the heirs, first heard about their claims from an oil and gas expert he cross-examined in 2014 in an unrelated case.

Knowing they didn’t have the financial means, in 2016 Cohen turned to Therium, a British company that funded legal actions by raising funds from institutional investors, including a sovereign wealth fund.

Therium conducted nine funding rounds for the case, during which third-party investors repeatedly assessed its merits, said Elisabeth Mason, co-lead plaintiffs’ attorney at 4-5 Gray’s Inn Square.

The case cost more than $20 million, including attorneys and researchers in eight jurisdictions, she said.

“Investors do not invest lightly in such matters,” she said.

Therium said it would continue to fund efforts to enforce the sentence. He declined to provide details.


The heirs gave notice of their intention to start arbitration in 2017 in Spain and initially sought $32.2 billion in compensation, according to the statement of award.

MalaysiaThe company’s first response came in 2019 when then-Attorney General Tommy Thomas offered to resume annual payments and pay 48,000 ringgit ($10,800) in arrears and interest if the arbitration was abandoned.

Thomas said the demands were ‘absurd and ridiculous’ but made the offer after colleagues informed him it was ‘dangerous’ to ignore arbitration because MalaysiaThe company’s foreign assets could be at risk, he wrote in a 2021 memoir.

The heirs rejected Thomas’s offer and the arbitration continued without Malaysiahis participation.

Malaysia successfully challenged the appointment of Gonzalo Stampa as sole arbitrator in a Spanish court last year.

But Stampa argued in his statement of award that the courts lacked jurisdiction to arbitrate and transferred the case to France to make the award – actions that Malaysia said were illegal.

Stampa is now facing criminal proceedings in Spain following a complaint filed by Malaysia. He declined to comment to Reuters.

By snubbing arbitration, Malaysia is limited to arguing procedural validity rather than arguing against heirs’ claims, said N. Jansen Calamita, head of investment law and policy at the National University of Singapore.

“It was a risky strategy and ultimately I don’t think it served them well,” he said.



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