Sulu Arbitration

Sultan of Sulu and two businessmen signed a contract for the perpetual lease to exploit natural resources in certain territories in the north of Borneo and adjacent islands. These territories, which then formed part of the Spanish Empire, today make up Sabah, part of Malaysia. The price of the lease was fixed at $5,000.

The contract is published in the Philippine Official Gazette and translated into Spanish by the Spanish
Crown’s translators at the time

The parties signed an addendum to the contract whereby the scope of the 1878 Contract was clarified and the price increased to 5,300 Philippine Pesos.

The Sultan’s heirs ruling family applied in the High Court of North Borneo for the Judge, Macaskie, to rule upon the rightful heirs to the contract, which he did. The Macaskie judgement has been used ever since to define the heirs and their descendants. Payments from North Borneo Trading Company to heirs continue.

North Borneo Trading Company declares bankruptcy. British Crown takes on Sabah, and also honors and pays for the lease.

Sabah joins the Federation of Malaysia, and the Federation takes on responsibility for the lease and the due amounts.

Following the discovery and exploitation of new natural resources, such as oil and gas, in the 80s and 90s, the Heirs requested renegotiations to the contract. However, Malaysia never agreed.

After a violent incursion into Sabah by pretenders with no legal claim, (the so-called Lahad Datu incursion”) Malaysia stopped paying the annual lease to the genuine Heirs.

Heirs hire international legal advice, from Paul Cohen and Elisabeth Mason at 4/5 Grays Inn Square, London. On the back of several years research, this establishes that a) Malaysia broke the contract and b) should have been in line to compensate the heirs for the economic revenue growth from Sabah.

Heirs’ counsel writes four times to Malaysian PM Najib. Seeks negotiations prior to the filing of a case. Although the messages are received, there is no response from Najib or his then Minister for Law, Azalina Othman bint Said

Heirs’ Spanish counsel contacts Malaysia embassy in Madrid. Informs Malaysia of upcoming application to appoint an arbitrator in a commercial arbitration.

Heirs’ Spanish counsel again writes to Malaysia embassy in Madrid, reminding Ambassador of undertaking to respond.

Heirs’ Spanish counsel formally petitions Spanish court to appoint an arbitrator pursuant to the arbitration clause in the 1878 Agreement.

TSJM (Madrid High Court) takes cognizance of petition. Asks Spanish Foreign Ministry, per standard procedure, to serve Malaysia and to opine on Malaysia’s sovereign immunity. Grants Malaysia the statutory 10 days, plus an additional two months, as a sovereign, to oppose Heirs’ petition.

Spanish Foreign Ministry communicates to court that, due to existence of arbitration clause in the 1878 Agreement, sovereign immunity does not apply.

Spanish court receives confirmation that Malaysia embassy in Madrid has received service of court papers by Foreign Ministry.

Heirs’ counsel writes to PM Mahathir, copying in Malaysia High Commission in London. Again, advises of possibility of and desire for negotiations.

TSJM declares Malaysia in default. Rules that a prima facie arbitration clause exists in 1878 Agreement. Opts to select an arbitrator, who will then determine whether s/he has jurisdiction to proceed.

Spanish Foreign Ministry serves court decision on Malaysia Embassy in Madrid. This starts a 20-day clock in which to petition for any substantive objection. Malaysia files such an objection in March 2021.

Stampa issues Procedural Order 1 in the arbitration. Emails Malaysia office of AG, PM, Foreign Ministry, and Madrid Embassy. In this and all subsequent emails, Stampa includes “read receipt” requests. Stampa details all Malaysia read receipts in his Procedural Orders. It’s clear that at least one Malaysia official opens every Stampa communication, frequently the AG himself.

AG Tommy Thomas writes to Heirs’ counsel, copying Stampa. AG concedes that Heirs are legitimate beneficiaries of payments; also concedes that payments wrongly ceased in 2013. Offers to restart payments with 10% uplift on missed payments, provided Heirs discontinue arbitration.

AG Tommy Thomas writes follow-up letter to Heirs’ counsel and Stampa. Disputes jurisdiction of Spanish courts and of arbitrator.

Stampa convenes first procedural hearing in Madrid. Heirs’ counsel proposes bifurcated proceeding in which Stampa first considers whether he has jurisdiction, and if so, continues to the merits. Stampa agrees. Sets preliminary procedural schedule to conclude in June 2020.

Herbert Smith Freehills (HSF) writes to Heirs’ Spanish counsel, stating they have just been retained by Malaysia. Seek a delay in the procedural schedule.

Deadline for HSF to provide power of attorney or other proof of representation.

HSF asks to be removed from all further correspondence pertaining to the case.

At some point the AG’s office retains Uria Menendez instead of HSF. Uria writes opinion for anti-arbitration injunction in Kota Kinabalu, Malaysia about, inter alia, the “improper” service on Malaysia via the embassy in Madrid. This issue is thus known to Malaysia from at least this date.

AG’s office writes to Stampa and counsel apprising them of anti-arbitration Malaysia has brought in High Court of Sabah and Sarawak. Notifies them of hearing on suit in Kota Kinabalu on December 11, 2019.

The Sabah High court gives anti-arbitration judgment in support of Malaysia, but It carries no validity outside Malaysia, and potentially sets Malaysia against the New York Convention of which the country has been a signatory for many years.

Stampa issues Preliminary Award on jurisdiction and applicable law. Rules that the lease contract exists, that it had an arbitration clause, that he has jurisdiction to arbitrate the claim, and that Unidroit (international contract law) Principles will apply.

Heirs submit their Statement of Claim, pursuant to procedural schedule.

Malaysia launches challenge in Spanish court to Stampa’s Preliminary Award on jurisdiction. (They later withdraw from this direct confrontation on the merits of the case).

Stampa officially closes arbitral proceedings. Advises he will issue an award by September 2.

Malaysia petitions Spanish court to reconsider appointment proceeding, 677 days after the deadline for reconsideration has lapsed, claiming that the diplomatic etiquette by which the Spanish Government had delivered court papers in 2019 was wrong, and that (no explanation how) this left Malaysia legally crippled.

Spanish Foreign Ministry issues opinion to court (17 hours after an emergency request) stating that correct method of service on sovereigns is via Spanish Embassy in sovereign country – the reverse of what Foreign Ministry had said and done with Malaysia and other sovereigns in this and other cases. There is no such thing as an advisory opinion on service – the FM is only asked for advisory opinions on sovereign immunity (which it had already provided in 2018). There is likewise no such thing as an emergency opinion. And the only “emergency” was the imminent issuance of the Final Award (by September 2, 2021).

Spanish court, by 2-1 majority, declares that Malaysia was severely prejudiced by Foreign Ministry service on Malaysia embassy in Madrid rather than via Spanish embassy in Malaysia; directs Foreign Ministry to re-serve via the latter route, and will consider appointment issue anew thereafter.

The TSJM court clerk, on his own signature without the directing authority of the judges, writes twice to Stampa to tell him to cease acting as the Arbitrator. (In March 2022, in response to questions from Spanish prosecutors, the clerk admits that he acted at the request of the Malaysian side and confirms that the TSJM itself did not treat Stampa as being disobedient to the judges’ ruling. Nonetheless, Prosecutors later criminally convict Stampa of disobedience. These contradictory actions of the Clerk form the basis of the current criminal investigation in his actions).

Stampa suspends proceedings, pending clarity on clerk communications and ramifications of Spanish court decision.

French court grants recognition (exequatur) of Stampa’s Preliminary Award on jurisdiction.

Heirs’ counsel writes to Stampa informing him of French court recognition, requests that the transfer of seat of arbitration from Madrid to Paris. Stampa gives Malaysia till October 15 to respond to Heirs’ counsel’s request.

Malaysia abandons direct challenge to the Preliminary Award.

Deadline for Malaysia to respond to proposal to move seat. No response.

Stampa moves the seat to Paris.

Heirs launch appeal to Constitutional Court of Spanish court decision reversing appointment of arbitrator. In December 2022 the Constitutional Court assesses that the issues under appeal are not strictly ‘constitutional’ in Spanish law, so declines to examine the case.

Malaysia’s French counsel procures ex parte stay of enforcement of Preliminary Award on jurisdiction in France.

Malaysia’s French counsel writes to Stampa advising of stay of enforcement; states he must discontinue arbitration.

Stampa invites Heirs’ counsel to comment on stay of enforcement and French counsel letter by December 22.

Arbitrator issues Final Award of c $ 15billion to the claimants. This award is subject to 10% interest per annum.

Malaysia challenges the Final Award in the Paris Court of Appeal, and requests from the court a stay that would suspend enforcement of the Final Ward in France, until Malaysia’s Challenge has been ruled upon. The court scheduled a decision for the 12th July.

The French Court of Appeal opted to suspend enforcement of the Final Award in France, until the court had ruled on the merits of Malaysia’s challenge.

This is applicable to France only.

Malaysia asks the Spanish court to declare the Final Award invalid because of its June 2021 decision (see December 1, 2022 decision)

The Claimants initiate asset freezing orders in Luxembourg, and Netherlands as an enforcement strategy. This is partially successful, with the case ongoing in Luxembourg, but rejected in Netherlands.

TSJM unanimously rules that it cannot declare Stampa award invalid, as requested By Malaysia. The only means to do so is via action to annul, which Malaysia had chosen not to attempt. This means that Stampa’s Preliminary Award is valid and final in Spain. Concurring judge Santos Vijande (who had dissented in June 2021) refers to Malaysia’s actions as “procedural fraud”. Malaysian Government and media, as well as Spanish prosecutor of Stampa avoid discussion of this ruling. The Preliminary Award has only one substantive role: To confirm that Stampa is the correct and qualified Arbitrator for the Final Award.

Additional statement from Malaysia is filed in criminal complaint. The Malaysian statement fails to inform the criminal court of the December 1, 2022 decision.

Luxembourg court unfreezes Malaysian and Petronas assets on a technicality (claimants used their Philippine law firm address rather than their home address in their filings).

Claimants reseize Luxembourg assets, now with correct address in filings.

Paris Court of Appeal disagrees with Malaysia’s claim that the 1878 agreement was a sale, and rules it a lease. It disagrees with Malaysia’s claim that there is no arbitration clause, and states that the matter is arbitrable. But overturns the French exequatur of Preliminary Award, finding that – despite existence of arbitration clause – disappearance of the office of Consul General deprives the clause of validity, until a new arbitrator can be established.

Claimants register appeal of Paris Court of Appeal decision with Court of Cassation.

Dutch Court of Appeal denies enforcement of Final Award, on grounds that the Spanish court reversed the appointment of the arbitrator in June 2021.

Claimants file appeal of Dutch Court of Appeal decision with Dutch Court of Cassation.

Capital Madrid publishes article citing source alleging that June 2021 ruling was the result of pressure from Spanish Foreign Ministry, in connection with then-pending Airbus bid for Malaysian military.

Claimants file a criminal complaint against the court clerk for overstepping his authority in ordering Stampa to cease and desist.

Claimants file motion for nullity of the June 2021 TSJM decision – effectively a motion to vacate the vacatur – based on the revelations in the Capital Madrid article.

Claimants write to Spanish authorities to give formal notice of a dispute under the Philippines-Spain Bilateral Investment Treaty. The claim is for denial of justice, on the basis of: i) the improper interference in the court proceedings, culminating in the June 2021 vacatur decision; ii) the court clerk’s arrogation of judicial responsibilities in supposedly ordering Stampa to cease and desist; iii) the Spanish prosecutor’s decision to persist with prosecution despite evidence that there was no basis for criminal charges. Spain has six months to respond and/or negotiate; failure to settle by June 7, 2024, would entitle the Claimants to launch an arbitration against Spain with the International Center for the Settlement of Investment Disputes, part of the World Bank. No considerations of sovereign immunity apply.

Criminal trial of Stampa occurs in Madrid. Stampa is found guilty of disobedience of the TSJM court in June 2021, through continuing to act as Arbitrator. Note the absurd contradiction that a) the TSJM had brought no action against Stampa, and in December 2022 that same court – same judges – had ruled that his appointment was valid and irreversible.

Spanish investigative judge commences an investigation into the court clerk who issued Stampa with his instruction to cease work.

Stampa appeals his conviction and is rejected.