The Iconic Case To The Heirs Of The Sultan Of Sulu vs. Malaysia

• Published date: 05 January 2023
• Subject Matter: Corporate/Commercial Law, Litigation, Mediation & Arbitration, Corporate and Company Law, Contracts and Commercial Law, Arbitration & Dispute Resolution
• Law Firm: Queritius
• Author: Mr Wojciech Sadowski and Marcin J. Menkes

Both the outcome of that matter and the chain of events that led to it, are simply astounding, and - it is submitted here - wrong at every possible level.

The factual background of the case dates back to the colonial times of Borneo. In 1878, the Sultan of Sulu, who was then the sovereign over certain territories that are now part of Malaysia, issued a document granting the coastal territory in Sabah, along with certain islands, to Messrs. Alfred Dent and Baron de Overbeck, for perpetual lease, including the right to 'profit from its minerals, forest products and animals'. In exchange, they promised to pay an annual rent of 5000, and then 5300 pesos, to the Sultan. The two gentlemen subsequently formed the British North Borneo Company, a company chartered in the Victorian Great Britain, which took over the management of the leased territory. In 1903 the Sultan of Sulu and the British North Borneo Company reconfirmed the 1878 agreement by way of a deed.

After the devastation of the area during the World War II, the British North Borneo Company assigned all the rights and obligations under the 1878 and 1903 instruments to the British Crown in 1946. One year later, the British Government, fearing that its effective control over the Sabah region could result in political tensions, decided to search for the Sultan of Sulu heirs and resumed payments under the 1878 agreement. In 1963, the state of Malaysia was formed. Its territories included the province of Sabah. Malaysia continued to pay a yearly nominal rent to the heirs of the Sultan until 2013, when the payments stopped due to a military conflict. Malaysia had intended to resume the payments in 2020, but by then the arbitration instituted by the heirs of the Sultan of Sulu was already in full swing.

The claimants applied to a Spanish for the appointment of an arbitrator. The application was submitted under Article 15.3 of the Spanish Arbitration Act, which provides for the general power of the state courts to appoint an arbitrator 'if it results impossible to appoint an arbitrator according to the mechanism agreed by the Parties'.

The problem is that the validity of the arbitration agreement is highly questionable at best. The dispute settlement provision of the 1903 deed, which apparently was used by Claimants as the basis of their notice of arbitration, read: '(')Should there be any dispute, or reviving of all grievances of any kind, between us, and our heirs and successors, with Mr. Gustavus Baron de...