Untangling Colonial Thorns: Heirs to the Sultanate of Sulu v. Malaysia

Scholarship over the previous decade or so has been within the imperial origins of worldwide funding legislation. As a lot as the present regime has undergone reform, some relics proceed to current thorns within the present ‘decolonised’ panorama. They expose its problematic origins and, extra importantly, its present-day ramifications.

This put up cautions towards the revival of colonial relics by analyzing one among these ‘thorns’: an 1878 settlement between the Sultan of Sulu and colonial retailers regarding North Borneo (modern-day Sabah in East Malaysia), which has discovered new life in worldwide arbitration. In 2017, the Sultan’s heirs (“the Heirs”), serving as successors-in-title to the 1878 settlement, started proceedings in Madrid towards the Authorities of Malaysia. In 2022, they acquired a Closing Award of $14.92 billion.

The Heirs have since didn’t implement the Closing Award within the Netherlands. And, as of final month, Malaysia efficiently annulled each the Closing Award and a Preliminary Award in France as nicely. The Dutch and French choices, together with the tribunal’s Preliminary Award, rested upon distinct interpretations of the 1878 dispute decision clause. This put up additionally focuses on their differing responses to the validity and applicability of the arbitration settlement.

 The 1878 Settlement and Dispute Decision Clause

The 1878 settlement transferred the Sultan’s “rights and powers” over North Borneo in perpetuity to British inheritor Alfred Dent and Austrian Consul to Hong Kong Gustav von Overbeck in consideration of $5,000 every year. Confronted with looming threats of Spanish invasion, the Sultan accepted the proposed settlement to safe British army help and keep competing spheres of affect. Overbeck and Dent have been named joint heirs and successors of the territory. Collectively, they established the British North Borneo Firm (“the Firm”).

The settlement additionally included a dispute decision clause offering that “[s]hould there be any dispute, or reviving of all grievances of any type, between us, and our heirs and successors […] then the matter might be introduced for consideration or judgment of Their Majesties’ Consul-Normal in Brunei”. In different phrases, an workplace holder representing the British Crown was chosen to adjudicate over any disputes between the events.

By 1946, the Firm had bought its rights to the British Authorities. In establishing North Borneo as a colony, the British Authorities additionally assumed the annual fee to the Heirs. At this stage, the annual charge amounted to $5,300 after the Sultan signed a confirmatory deed of the settlement in 1903 which revised the unique quantity. In 1963, Malaysia inherited these obligations as successor-in-title when North Borneo joined the Federation of Malaya. Malaysia continued to pay the Heirs till 2013 when it stopped all funds on nationwide safety grounds after a army disaster emerged in Sabah. No additional funds have since been made.

 Procedural Quagmire

 In 2018, having acquired third-party funding, the Heirs pursued arbitration. Crucially, their claims had been revised. The Heirs have been now in search of, amongst different various reliefs, damages price as a lot as $32.2 billion in gentle of the “discovery of pure sources” in Sabah. The quantity was imagined to characterize the “restitution worth” of their alleged “rights over […] North Borneo” (Closing Award, para. 250). Malaysia irrefutably denied all claims.

To revive the arbitration clause, the claimants requested for the UK to nominate an “acceptable individual […] to fulfil the Consul-Normal’s position” because the place not existed (Preliminary Award, para. 70). The British Authorities declined, contemplating the request inappropriate on condition that the Colony of North Borneo ceased to exist in 1963.

Because of this, the claimants turned in 2019 to the Madrid Excessive Court docket, in search of the judicial appointment of an arbitrator. The Court docket addressed this request in two levels in favour of the claimants.

First, it carried out a prima facie evaluation of the existence and validity of the arbitration settlement, leaving a correct examination on jurisdiction to the arbitral tribunal (para. 27). To this finish, it held that the “submission to arbitration [in the dispute resolution clause] was unequivocally agreed” upon (para. 33). Second, the Court docket determined to nominate an arbitrator solely within the absence of an agreed process between the events. Having thought-about their pre-litigation conduct, the Court docket held that Malaysia’s “unwillingness” to have interaction within the proceedings shouldn’t bar the claimants’ request to offer impact to the arbitration settlement (para. 32).

Following this determination, the Madrid Excessive Court docket appointed a sole arbitrator in 2019. A yr later, the tribunal delivered a Preliminary Award on jurisdiction.

Nevertheless, in June 2021, Malaysia annulled the proceedings in Madrid on account of improper service. Accordingly, the appointment of the arbitrator, together with any conduct thereafter, was retroactively nullified.

In a placing response, the tribunal moved the seat of arbitration from Madrid to Paris. This was in flagrant defiance of the Madrid Excessive Court docket’s directions to “cease and shut” the arbitration “instantly” (Closing Award, para. 116). It additionally contravened widely-established arbitration ideas, not least as a result of the tribunal not had the mandate to proceed the arbitration “unconnected with any municipal system of legislation” (Financial institution Mellat v Helliniki Techniki SA [1984] 1 QB 291, p. 301).

In any case, the circumstances surrounding the arbitration didn’t attain the excessive threshold to warrant a change of the arbitral seat. Earlier choices sometimes concerned a basic change in “political, authorized, or related circumstances” which rendered proceedings demonstrably hostile or inoperable (see Born, Worldwide Business Arbitration (Vol. II, 2nd edn, 2014, p. 2081). None of those components have been current.

Slightly, the tribunal characterised the Madrid Excessive Court docket’s 2021 determination as “an unauthorised native courtroom intrusion” and chosen Paris as a substitute as a “well-established neutral and impartial venue” (Closing Award, paras. 141 and 142). In 2022, the tribunal delivered a Closing Award in Paris.  

Preliminary Award on Jurisdiction: Perpetuating Colonial Myths

Because the Madrid Excessive Court docket beforehand decided the prima facie existence and validity of the arbitration settlement, the tribunal revisited this query in its Preliminary Award. It upheld its jurisdiction primarily based on two causes.

First, the tribunal interpreted the dispute decision clause as a mirrored image of the events’ intention for a non-judicial technique of dispute decision. The tribunal described the selection of the Consul Normal as intuitu personae as a result of “the Events trusted him or have been ready to undergo his authority, as he would be capable of devise a passable resolution to the dispute” (para. 114). His workplace was thought-about a “personal impartial get together” whose willpower meant the withdrawal of any disputes from the jurisdiction of home courts (para. 114). 

Second, the tribunal affirmed the validity of the arbitration settlement regardless of the place of the British Consul-Normal in Brunei not current. It maintained {that a} “cheap interpretation [of the 1878 Agreement] could treatment a pathological facet by severing what makes it unenforceable” (para. 119). To protect the arbitration settlement, it prevented viewing the non-existence of the Consul-Normal’s workplace as a bar to enforceability.

The tribunal’s reasoning is regrettable on many counts, not least as a result of it perpetuates colonial myths. Its studying of the 1878 settlement is totally devoid of context: little regard is given to the worldwide authorized order on the time through which the settlement was made.

Removed from serving as a impartial get together, the British Consul-Normal was concerned within the negotiation of the 1878 settlement. And by the point Dent acquired the British Royal Constitution in 1881, the Consul-Normal’s workplace as a consultant of the British Authorities would have introduced additional conflicts. For Dent and Overbeck, any step to facilitate their colonial pursuit was cloaked with a skinny veil of authorized legitimacy. The tribunal’s omission of such vital context leaves a lot to be desired.

 French and Dutch Courts’ Selections: Remedying Colonial Understandings of Worldwide Legislation

In a collection of welcomed choices, French and Dutch courts have subsequently declared the arbitration settlement inapplicable. Each courts recognised the inherent conflicts related to the selection of Consul-Normal as named arbitrator within the 1878 settlement. They dismissed the tribunal’s jurisdiction accordingly.

The Paris Court docket of Enchantment reviewed the validity of the arbitration settlement twice in separate annulment proceedings introduced by Malaysia for the Preliminary Award and the Closing Award in 2023 and 2025, respectively. Whereas it accepted the clause itself as legitimate, the courtroom rendered the arbitration settlement inapplicable for 2 causes (Paris CA 2023, para. 76; Paris CA 2025, para 79). It relied on the identical reasoning for each choices.

First, the courtroom understood the events’ intention to arbitrate solely with the British Consul-Normal in Brunei. The selection of arbitrator was deemed “inseparable from the intention to arbitrate” (Paris CA 2023, para. 78). The place the tribunal held the Consul-Normal to be intuitu personae, the correct description was relatively intuitu officium (associated to its workplace and performance) (Paris CA 2025, para. 87). Given the non-existence of the establishment, the events’ will to arbitration was rendered void.

Second, from the date at which the British Authorities succeeded to the rights of the Firm, the Consul-Normal might not be considered an “unbiased third get together.” The courtroom decided {that a} revised post-1946 settlement would have been vital with an up to date selection of arbitrator to make sure this “important aspect” remained intact (Paris CA 2023 determination, paras. 77-80). That this was not carried out confirmed the inapplicability of the arbitration settlement.

In the meantime, in enforcement proceedings for the Closing Award introduced by the Heirs in 2023, the Hague Court docket of Enchantment discovered the dispute decision clause to be inappropriate by present requirements. It “interpreted [the arbitration agreement] with regard to the context prevailing in 1878” amidst “colonial relations that might be unthinkable immediately” (para. 6.24). In doing so, it discovered that there was no arbitration settlement in any respect.

Given the Consul Normal’s involvement within the negotiation of the settlement and the believable assumption that he was appointed to characterize British pursuits, the courtroom dismissed the claimants’ request (paras. 6.24-25). This ruling was later upheld by the Dutch Supreme Court docket.

Conclusion

The Sulu arbitration and its ancillary courtroom proceedings introduced a conflict of histories over the origins of the 1878 settlement. Whereas the tribunal insisted on an unconventional understanding of worldwide legislation, courts in Paris and The Hague subsequently provided a extra correct portrait of the historic panorama and disaffirmed the continued applicability of such an settlement. The proceedings concerned Malaysia defending its sovereignty towards an exploitative colonial-era settlement to which it was not an unique get together and a tribunal that didn’t play by the principles.

Final month, Malaysia celebrated the Paris Court docket of Enchantment determination annulling the Closing Award as a “victory”. Extra broadly, the choice drew a line underneath the 1878 settlement, quashing one more try and revive what ought to stay a colonial relic.