International legal experts noticed something was off in the decision early this year of the Madrid High Court of Justice that effectively stopped an arbitral court’s award of $14.9 billion to the heirs of the Sultan of Sulu.
The Spanish court convicted arbitrator Gonzalo Stampa — who had ruled in favor of the Sultanate in an ancient dispute on the Sabah claim — for contempt after he failed to comply with the High Court’s directive to drop the complex legal battle.
Stampa’s arbitral court directed Malaysia to pay the Sulu royal heirs to compensate them after Kuala Lumpur stopped paying the yearly rent of about P63,000 for Sabah.
In 2013, the Sulu Sultanate sent poorly armed followers to enforce an eviction notice to Malaysia in the Lahad Datu incident. Thereafter, Malaysia stopped paying the rent that was based on an 1878 agreement between the British North Borneo Co. and the Sultan fo Sulu that included a perpetual rent.
Thus, the international tribunal ruled that Malaysia had violated the contract and computed the property owner’s lost income, including the exploitation of the resources in the oil-rich territory.
The Madrid court sentenced Stampa to six months in jail and banned him from acting as an arbitrator for one year, according to a ruling dated 5 January.
Malaysia launched an international effort to prevent the award that targeted its properties abroad from being enforced.
International law experts described the Madrid tribunal decision as “highly unusual.”
The Madrid court also issued an order that annulled Stampa’s appointment as an arbitrator and all his procedural actions, saying Malaysia had been “improperly summoned.“
International arbitration expert Tsegaye Laurendeau, a partner at Signature Litigation, said, “Given its historical, legal and even political ramifications, this is a complex matter warning against any definitive conclusions. That said, the optics are not good for Madrid’s continuing perception as a safe seat for international arbitrations.”
He added the Spanish court is seen intervening in an ongoing arbitration and issuing direct instructions to a sitting arbitrator. “If nothing else, this is highly unusual,” he said.
Leigh Crestohl, a partner at international legal outfit Zaiwalla and Co., raised the need for “arbitrators to be alive to possible risks.”
He said: ‘It is a complex case with a long history but, speaking of the issues generally, a couple of competing issues arise. One is, at one level, what do you do when you’re an arbitrator and feel there may be undue attempts to intimidate or interfere in the arbitration process by a state or court locally in the place of the arbitration?”
“Rather than rely on state power or the power of the seats, arbitrators have to be alive to possible risks, they must look for red flags and, where necessary, be enquiring and investigating something that is a concern,” he said.
What was entirely clear is that the Madrid court halted a huge financial drain on Malaysia that was already being enforced with the attachment of properties of state oil firm Petronas in several parts of the world.
Malaysia refused to participate in the arbitration, consistent with its position of ignoring anything that involved the Philippines’ claim to Sabah.
The fact that Malaysia had been religiously paying rent to the Sultanate until 2013 raised the unavoidable question of who owns the property.
Kuala Lumpur must consider sitting down at the negotiating table with the Philippines and the Sultanate’s representative to settle the score amid the recurring problem of lawsuits and sporadic conflicts.
Also for the Philippines, negotiation is vital to address the status of 770,000 Filipinos in Sabah whom Malaysia refuses to admit as residents and thus are mostly stateless, particularly those who were born there.
These Filipinos are usually subjected to abuse, including frequent deportation, due to the non-recognition of their existence by the state.