KUALA LUMPUR: In the modern and otherwise cordial relationship between Malaysia and the Philippines, there has scarcely been an issue more contentious than the Philippine claim over Sabah. I was born and raised in Sabah, and I never shied away from opining that Sabah is and should remain a constituent part of Malaysia. There are domestic and other sorts of reasons for this assertion of mine, and over the years I have attempted and will continue to lay them out. I understand, of course, that a large number of Filipinos may hold the opposite position, and I welcome peaceful and healthy exchange of views. In any case, I was most elated to see that unlike in many previous rounds, during the latest Philippine presidential election, the Sabah issue was not as conspicuously touted as a nationalist cause by the various candidates in their effort to secure more votes. I hope this positive trend which bodes well for bilateral relations will continue into the future.
But meanwhile, back in February, it was reported that some sort of arbitration court in Paris has awarded the purported descendants of the Sultan of Sulu a sum of $15 billion against the Malaysian government. The arbitral award was supposedly due to a breach of an 1878 agreement signed by the then Sultan of Sulu with the founders of the British North Borneo Company.
The latter proceeded to effectively colonize the whole of Sabah (then called North Borneo), but made annual payments to the tune of approximately $1,200 to the Sultan of Sulu. When Sabah became part of Malaysia in 1963, Malaysia continued to make such payments via the Philippine government, in their respective capacities as successor states to Sabah and the Sulu Sultanate.
In 2013, after armed personnel claiming allegiance to the Sulu Sultanate (and not denied by the most recognized of the descendants of the Sultan of Sulu) invaded the east coast of Sabah and precipitated a war with the Malaysian armed forces, the Malaysian government decided to stop the annual payments. The alleged "breach" of the agreement arose from this cessation of payment. Malaysia claimed sovereign immunity over the arbitration suit which it did not consent to, and did not recognize the arbitral award.
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The case came into focus again last week, when it was reported that Luxembourgian authorities had seized two Luxembourg-registered subsidiaries of Petronas, Malaysia's national petroleum company. Luxembourg (as well as Malaysia) are signatories to the New York Convention, which deals with cross-border recognition and enforcement of arbitral awards. From the Luxembourgian perspective, it was fulfilling its treaty obligation under the New York Convention. Malaysia was understandably displeased. Petronas quickly claimed that it had divested its assets from the two subsidiaries in the spotlight, and thus implied that the Luxembourgian seizure was more symbolic in nature. In any case, Malaysia continues to claim sovereign immunity and is reported to have appealed the arbitral award.
I am of the opinion that this arbitral award with its astronomical monetary amount is most illogical, and is at best stretching the envelope of the evolution of international law. To start with, the alleged "missed" annual payments amounted to less than $10,000. Even with interest compounded (if there were such provisions in the agreement), it would still amount to perhaps a small increment over the "missed" sum. Even if the agreement is thus breached, it defies both normal and legal logic for the arbitration panel to award a sum of $15 billion. It is understandable that in civil suits, exemplary damages could sometimes be awarded when the injury caused is egregious, but to award a sum which is millions of times over the sum in dispute is simply unconscionable.
On the other hand, the question over the status of a sovereign state in international arbitration proceedings is an evolving legal field. The New York Convention straddles both public and private international laws. It allows for a state to be party to an arbitration proceeding if the state was acting in a commercial and not sovereign capacity, and if the state consents. Malaysia was of course not acting in a commercial capacity in this case, and did not consent to participate in the arbitration proceedings. States acting only in their sovereign capacity over the subject matter (such as the agreement in question) of the case can claim sovereign immunity and refuse to participate in such arbitral proceedings. These are settled, widely accepted legal principles at the cusp between public and private international laws. In recent years, however, there appears to be an emerging trend of some arbitral tribunals taking on ex parte (with appearance of only one party) suits, even if the non-appearing party is a sovereign state, and these suits might even be non-commercial in nature, such as the agreement in question. And the awards of such arbitral suits would not surprisingly most often favor the instigating party. Worse, some New York Convention jurisdictions are perhaps overzealous in fulfilling their treaty obligations, to the extent that they went overboard in recognizing and even enforcing such ex parte arbitral awards, even if it involves the assets of a sovereign state. These ambivalent practices certainly do not constitute settled international law. The Petronas subsidiaries were unfortunately caught up in the swells of such disputable international legal trends.
Strictly speaking, this arbitral case is civil in nature and does not immediately diminish Malaysia's sovereignty over Sabah. But if left to fester, it will set a very bad legal precedent for the very notion of national sovereignty. Imagine if any non-state actor claiming dispute with a sovereign state could forum-shop for a most willing arbitration panel to accept its suit on an ex parte basis, and most likely rule in its favor, even if the dispute in question is non-commercial in nature. And if such an arbitral award were to be widely enforced around the world, then the whole notion of national sovereignty would gradually be diluted. And diluted sovereignty would of course invite many ambitious elements that would like to seize power, sometimes by force. In a world which is turbulent enough as is, we need to carefully consider if this is indeed what we would like to embrace.