It was a stunning clash in a $15 billion legal battle centered on a Malaysian state some 11,000 kilometers away and involving descendants of a former sultan, a land deal with British colonialists, a London-based dispute fund and a dispute 144 years in the making. . That same afternoon, the bailiff appointed by the claimants in the Philippines visited the headquarters of nine banks located in Luxembourg, making the same request to financiers across the European tax haven to freeze the accounts of the two Luxembourg-based subsidiaries — Petronas Azerbaijan (Shah Deniz) and Petronas South Caucasus. Unless Malaysia recognizes the legitimacy of its claims, the plaintiff’s lawyers say, there will be more seizures of state assets like Petronas in the coming weeks. Other units from the company’s vast global business network or even the insolvent sovereign wealth fund 1MDB could be a target. When word of what was happening in Europe reached Petronas’ headquarters in Malaysia – the twin 452m glass towers that dominate the Kuala Lumpur skyline – a modest statement from the company confirmed the saisie-arret tradition and promised to fight for his assets. Sultan Jamalul Kiram II, who ascended the throne at the age of 10 in 1894, was the last officially recognized Sultan of Sulu © KITLV/Creative Commons The case, which has so far attracted little international attention, centers on competing claims to the oil-rich Malaysian state of Sabah. The eight claimants say they are the heirs of Jamalul Kiram II, the last officially recognized sultan of Sulu, a small archipelago in the neighboring Philippines. For several years they have been demanding compensation for the land their ancestor leased to a British trading company before the discovery of vast natural resources in Sabah. The heirs, backed by a London law firm, have been funded by a British investment fund, Therium, in a legal process that has now cost more than $10 million. Petronas, whose business generates 11 percent of Malaysia’s government revenue, was only dragged into the seizure case on Monday. The proceedings have been described by legal experts as one of the most unusual international arbitration disputes in history. It does not appear to have precedent, says Colin Ong QC, a prominent arbitration lawyer not involved in the case. “No one could have predicted 144 years ago that an agreement signed in Borneo during British colonial rule would lead to such a controversy today.” In March, an arbitrator in France, Gonzalo Stampa, ruled in favor of the sultan’s heirs and found that Malaysia, which inherited the obligations of the 1878 lease agreement upon gaining independence from the United Kingdom in 1963, must pay them $14.9 billion in compensation. An earlier hearing in Spain was stalled after Malaysia protested that communications were not handled properly. Malaysia is appealing Stampa’s decision and has condemned the case as an attack on its sovereignty. Some Malaysians have even questioned whether the claimants are the true heirs of the Sulu Sultanate. A day after the seizures, a Paris judge stayed enforcement of the $14.9 billion award pending an appeal. This prompted Kuala Lumpur to declare that the award could no longer be applied anywhere in the world. However, independent legal experts and a Spanish PR firm, Estudio de Comunicación, which represents Malaysia in Europe, confirmed that the suspension only applies in France. Although the arbitrator handed down his decision in February, the Malaysian government was caught off guard by the asset seizures in Luxembourg and the prospect that they could now continue elsewhere. The move sparked panic in Kuala Lumpur, with two Malaysian MPs calling for an emergency debate in parliament and the government announcing plans to set up a Sulu “task force”. Representatives of the Sulu heirs claim they were forced to take these measures after Malaysia refused to commit. Paul Cohen, lead counsel for the claimants and a solicitor at London-based 4-5 Gray’s Inn Square, says litigation was the “last resort”. “More than one Malaysian government has refused to respond to direct approaches from our clients over the past few years,” says Cohen. “Given that the Malaysian government knew who they were and knew every aspect of a 140-year-old contract, this was clearly a tactic to stall confrontation and resolution.”

Financial funding of the Sultan’s heirs

The award could also provide a windfall for London-based investor Therium, which according to multiple people close to the case is financially backing the Sulu heirs. The cost of continuing arbitration cases over a number of years represents a significant financial stake in the outcome of each case and will typically run into the tens of millions of dollars. The eight offspring, who live in the Philippines, are not wealthy and include several retirees according to their representatives. The litigation fund, which says it has raised $1.1 billion to fund various cases since it was founded in 2009, declined to comment. In the past, he has publicly supported less geopolitically sensitive cases, such as last year’s high-profile appeal against the wrongful conviction of UK Post Office workers. Petronas, whose twin-tower headquarters dominate the Kuala Lumpur skyline, generates 11 percent of Malaysia’s government revenue © Samsul Said/Bloomberg The case came at a critical time for Malaysia, which has had three prime ministers for many years. The Southeast Asian country has been embroiled in political crisis since 2015 amid revelations that billions of dollars were embezzled from 1MDB. Petronas, a senior Malaysian minister said recently, will be central to the government’s efforts to rebuild the economy after the pandemic. The state-owned company has this year cashed in on a surge in oil prices caused by the war in Ukraine. In the first quarter, its pre-tax profit rose 114 percent to $7.1 billion compared with the same period in 2021. Zafrul Aziz, Malaysia’s finance minister, told the Financial Times in April that the boom in prices of commodities could help Malaysia reduce its debt. However, additional confiscations by the Sulu heirs could hamper Malaysia’s recovery. The present value of the Luxembourg holding companies seized by the Sulu heirs is unclear. In February, they liquidated a 15.5 percent stake in Azerbaijan’s Shah Deniz offshore gas field, previously valued at nearly $2.3 billion. Petronas said proceeds from that sale were “repatriated” but declined to comment on how much the subsidiaries are now worth. As long as Malaysia refuses to accept the award, its debt to the claimants is likely to increase. For each year it is not paid, the money owed will increase by 10 percent, it was decided in Paris. Caught in the middle of legal disputes are the people of Sabah, Malaysia’s poorest state © Lano Lan/Alamy Zafrul dismissed the significance of the French decision in April. “The size of Malaysia’s economy is 1.5 tn. $15 billion is about RM40 billion. . . our country, [will] we crash afterwards [losing] this 3 percent?’ he asked sarcastically. He dismissed the allegation as “a frivolous assumption without basis”.

The case has struck a nerve in Malaysia, which has fended off claims to Sabah, an area of ​​about 74,000 square kilometers with a population of nearly 4 million, for decades. The Philippines, located in the northeast, has a historic claim to statehood that some politicians have continued to revive. Jamalul Kiram II died in 1936 without leaving a direct heir, but since then a procession of Filipino citizens have claimed the throne that for centuries ruled an area spanning modern Malaysia and the Philippines. One man, Muedzul Lail Tan Kiram, reportedly still claims to be the living Sultan of Sulu. In 2013, followers of a self-proclaimed heir arrived in Sabah to lead an invasion that plunged the normally peaceful corner of Malaysia into violent chaos. During the ensuing battle with security forces, at least 60 people were killed before the attackers—who numbered no more than 180—came out. Until then, the claimants said Malaysia had paid them an annual compensation of $5,300, in recognition of being relatives of the late sultan and heirs to the 1878 agreement. After the attack, Kuala Lumpur stopped the payments, despite the fact that a Malaysia’s former attorney general later acknowledged that there appeared to be no evidence linking the gunmen to the heirs who received the annual fees. In 2017, the descendants announced their intention to take legal action, a move that reignited concern about Sabah in Malaysia and exposed Britain’s messy colonial legacy in the country. “This case is colonial history, with a twist,” says Elisabeth Mason, a solicitor at 4-5 Gray’s Inn Square. Protesters south of Manila in 2013. That same year, followers of a self-proclaimed heir to the last sultan arrived in Sabah to lead an invasion that descended into violent chaos © Romeo Ranoco /Reuters “Imagine that, instead of buying Manhattan for 60 guilders, Peter Minuit signed a perpetual lease,” says Mason, referring to the Dutch colonist who acquired Manhattan Island from the Lenape natives. “Surely by now, the Lenape tribe would have looked from Wall Street to Broadway to Lincoln Center and Central Park and concluded: ’60 guilders is not close enough. It is time to renegotiate this agreement.’ “That’s exactly what happened here,” he adds. Malaysia has tried on many occasions to bring down the…