Several Philippine nationals have initiated ad hoc arbitration proceedings concerning the interpretation and performance of an agreement concluded in 1878 between the Sultan of Sulu and two European explorers. This agreement, described by the claimants as a “lease agreement” and by Malaysia as a “cession of territory and sovereignty“, covered the territories on the north coast of the island of Borneo, now located in Malaysia. The agreement provided for the payment of an annual sum of 5,000 ringgit to the Sultan of Sulu and his heirs. Malaysia, having obtained the rights of the explorers when it gained independence from the British Empire in 1963, paid the heirs of the Sultan of Sulu the financial consideration, which was increased to 53,000 ringgit until 2013.
The Sultan’s successors denounced the suspension of payments and claimed that a change had upset the economic balance of the contract. They went before the Madrid High Court of Justice, as the juge d’appui, for the appointment of a sole arbitrator.
The Tribunal appointed a Spanish lawyer as sole arbitrator on 22 May 2019. In October 2019, Malaysia notified the sole arbitrator that it was challenging the arbitral proceedings in their entirety, including his appointment as sole arbitrator and the seat of arbitration.
In a partial award rendered in Madrid on 25 May 2020, the sole arbitrator fixed the seat of arbitration in Madrid. Malaysia filed an application to set aside the partial award before the Madrid Superior Court of Justice, which granted this application on 29 June 2021.
The successors of the Sultan of Sulu went before the President of the Paris Tribunal, who declared the partial award of 25 May 2020 enforceable in France. Malaysia appealed against this order before the Paris Court of Appeal. By a procedural order dated 29 October 2021, the sole arbitrator ordered the pursue of the arbitral proceedings and, by a final award dated 28 February 2022, ordered Malaysia to pay the sum of US$14.92 billion to the successors of the Sultan of Sulu.
In support of its appeal before the Paris Court of Appeal, Malaysia argued that the sole arbitrator lacked jurisdiction. The Court of Appeal recalled the principles of good faith and effectiveness of the arbitration agreement. In accordance with the clause in the agreement, the dispute was to be submitted to Her Majesty’s Consul General in Brunei. The Court of Appeal considered that the disappearance of the office of Her Majesty’s Consul General in Brunei rendered the disputed clause inapplicable. As a result, the Paris Court of Appeal overturned the contested order and refused to enforce the partial award.
This ruling by the Paris Court of Appeal raises questions about the sake of the final award dated 28 February 2022. This award is currently subject to annulment proceedings, pending before the Paris Court of Appeal.
Source: Paris Court of Appeal, 6 June 2023, No. 21/21386
