Sulu Arbitration

The Preliminary Award

When the Madrid High Court decided to select an arbitrator in May 2019, it was careful to say it was not prejudging the question of whether that arbitrator actually had jurisdiction to hear the case.  That surely seems odd to anyone unfamiliar with arbitration.

But here’s how it works: there’s a concept in international law known as Compétence-Compétence (sometimes rendered as Kompetenz-Kompetenz: same thing, just in German).  The term addresses the question of who gets to determine how much a fact-finder gets to decide.  In some contexts, a judge decides how much another fact-finder (say, a jury) is responsible for.  But in international law, an arbitrator is charged with deciding whether s/he has jurisdiction to hear a case.  S/he has the “competence” to determine his/her competence.

Why does this matter in practical terms?  Sometimes it’s unclear exactly what it is that parties wish to resolve in a dispute.  They might write an arbitration clause that states: “in case of any serious disputes between us, we will arbitrate them with one arbitrator under the rules of etc…”

The obvious question when one party brings a claim under that clause is whether the dispute is “serious.”  Under the doctrine of Compétence-Compétence, that question will be for the arbitrator to decide.  If s/he concludes that the dispute does not qualify as serious, then s/he has no jurisdiction to arbitrate and must stop.  But the key point, again, is that the decision is the Arbitrator’s to make.

In our case, the Madrid High Court chose to select an arbitrator because it found that there appeared prima facie (on its face) to be an arbitration clause in the 1878 Agreement.  But the final determination of whether there was a binding arbitration clause would be up to the arbitrator.

That’s what Stampa’s Preliminary Award was about.  Stampa had to be persuaded that the words in the 1878 Agreement (written in the formal Malay with Arabic script known as Jawi) constituted an agreement to arbitrate.  To do so, he had to examine a series of translations of the agreement from Jawi into Spanish and English.

Stampa concluded that the most reliable translation was one made contemporaneously (i.e., in 1878) into Spanish.  The Spanish, after all, were not parties to the 1878 Agreement and could be thought of as more disinterested than contemporary or later translations on behalf of British, Malaysian, or Philippine interests.  The Spanish translation refers to the Consul-General exercising the function of juicio (judgment).

That sounds like a clear intention to have the Consul-General (or his replacement, here Stampa) decide the matter with finality, as a judge might.  On that basis, Stampa determined that there was a binding arbitration clause – and therefore that he had jurisdiction.  Hence, he issued his Preliminary Award to explain his reasoning.

Once Stampa determined that he had jurisdiction, it was his responsibility to issue a Final Award resolving the substance of the dispute.  The key points in the dispute were whether Malaysia had breached the 1878 Agreement by stopping the payments, whether the Agreement should therefore be terminated, and whether the amount of payment upon breach should be increased to reflect the commercial realities of the 2020s rather than the 1870s.  Stampa ruled in the affirmative on all these points.

The Final Award

As you know if you’ve read elsewhere on this website, Stampa’s Final Award was issued in France rather than Spain, where the arbitration began.  Why that happened is discussed elsewhere.  How it happened is a result of one of the legal moves that the Claimants made – the exequatur of the Preliminary Award in France.

Exequatur

Exequatur essentially refers to the recognition of an arbitral award in a jurisdiction other than the one in which it was made.  Do you have an arbitration award in China that you want recognized in Singapore?  Bring an exequatur action in a Singapore court, to import it into Singapore, where the Singapore courts will recognize and then act upon it.

If Malaysia continues to resist the arbitration Award, or refuses to pay or negotiate and indeed continues to shout about how this is all “unfair” or “terrorism” or “economic sabotage” (well, if you have been following the Malaysian Minister’s public statements, you get the point) enforcement is the process whereby we will get courts around the world to freeze and then confiscate Malaysian assets.

Malaysia has occasionally complained that the exequatur action the Claimants brought in France in September 2021 was ex parte (done without telling the other side).  But that’s the way exequatur actions work in France.  After recognition was granted, we disclosed the action to Malaysia when our lawyers wrote to Stampa (copying Malaysia) to ask him to move consideration of the final award of the arbitration there.  By the way, although the Malaysian Government appeared to be shocked in February 2022 when the Final Award was announced, it really wasn’t caught by surprise.  Dr. Stampa had been copying the Attorney-General of Malaysia in on every stage and communication of the arbitration process, and logging the ‘read-receipts’.

Importantly, it is this first exequatur action – i.e., the recognition of the Spanish Preliminary Award into France – that the Paris Court of Appeal reversed in June 2023.  The Final Award of February 2022, issued in France, has not been successfully challenged.  Furthermore, the Paris Court of Appeal has ruled that the Final Award challenge cannot go ahead until the Claimants’ appeal of the June 2023 decision on the Preliminary Award has been decided by the French Supreme Court.