KL has to pay up

There is growing acceptance in Malaysian legal circles that their government is obliged to honor the $14.9 billion or P746 billion award by a French arbitration court to the descendants of the Sulu Sultanate if the country wants to retain its commercial prestige.

Merely ignoring the award may trigger the seizing of Malaysian assets based on the provisions of a convention. The other option for Malaysia is to go to the French judiciary to have the ruling set aside.

For now, the arbitral tribunal decision that Malaysia was in breach of a land lease agreement in 1878 stands. Kuala Lumpur (KL) officials earlier indicated that they are not recognizing the decision of the international tribunal.

Sabah Law Society president Roger Chin, nonetheless, said KL’s responsibility to honor the ruling is based on Malaysia being a member of the New York Convention. In June 1958, the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, commonly known as the New York Convention, was adopted by a United Nations diplomatic conference.

It entered into force on 7 June 1959 and it requires courts of contracting states to give effect to private agreements to arbitrate and to recognize and enforce arbitration awards made in other contracting states.

As of December 2021, the convention has 169 state parties, which include Malaysia and the Philippines. The edict is widely considered as the foundation for international arbitration.

An option for Malaysia is to apply to set aside the decision within the legal system of France where the arbitration court is based. Since Malaysia is a member of the New York Convention, it is obliged to honor the award.

“If Malaysia refuses to make payment, the claimants will have the right under the New York Convention to enforce the award against Malaysian state assets in any of the 167 signatory state parties around the world,” Chin warned.

Another point of debate is about the conflicting decisions of the arbitral court and the Malaysian Supreme Court or the High Court of Kota Kinabalu which handed down a 2020 decision on the Malaysian government vs Nurhima Kiram Fornan & Ors case in favor of KL.

Malaysia was the proper forum to resolve the dispute over territorial rights arising from the deed of cession, according to the high tribunal.

While Malaysia did not appear at the Paris arbitration proceedings, a default award is not possible in international arbitration that gives more weight to the arbitration process.

“Foreign courts are generally thought to likely give more weight and priority to tested conclusions contained in international arbitration awards rather than to untested conclusions contained in default court judgments,” Chin noted.

“This will be an interesting situation and it remains to be seen if foreign courts will give more priority to the New York Convention than to bilateral treaties in respect of reciprocal enforcement of court judgments,” he added.

The award was simple enough, in that it stated Malaysia violated the contract signed in 1878 among Sulu Sultan Jamal Al Alam, Baron de Overbeck and the British North Borneo Company’s Alfred Dent after it stopped paying the heirs of the Sultan of Sulu their annual 5,300 Malaysian ringgit compensation, a small amount, since the 2013 Lahad Datu armed incursion.

Spanish arbitrator Gonzalo Stampa issued the award in the Paris court, saying that the 1878 treaty was an “international private lease agreement” of a commercial nature. The ruling gives Malaysia three months to pay up, failing which, interest would be charged.

That’s all in the nature of a business deal that Malaysia, being a prestigious financial center, should be well aware of.

“If Malaysia refuses to make payment, the claimants will have the right under the New York Convention to enforce the award against Malaysian state assets in any of the 167 signatory state parties around the world.

“The ruling gives Malaysia three months to pay up, failing which, interest would be charged.