Ex-AG Thomas' letter the backbone of decision threatening seizure of Malaysia's wealth abroad

Former attorney-general Tommy Thomas' written response to lawyers appointed by a group claiming to be the heirs of the Sulu sultanate appears to be the backbone of an arbitration decision that now threatens the forfeiture of billions in Malaysian assets abroad.

A study of the 297-point arbitration decision shows at least a dozen mentions or citations from Thomas' letter, as Spanish arbitrator Gonzalo Stampa sought to justify the unusual award to the claimants.

The arbitration process ended with Malaysia being told to pay the group US$14.9 billion (RM60 billion) – the world's second biggest award of the kind that eclipses the massive losses suffered by Malaysia in the 1MDB scandal. 

Thomas, who served as the top government lawyer during Pakatan Harapan's rule, had in a letter dated Sept 19, 2019 expressed regret that the Malaysian government had stopped an annual payment made to the descendants of the Sulu sultanate, which once ruled parts of the Malay archipelago including present-day Sabah.

The token payment was terminated shortly after the failed invasion of Sabah by hundreds of armed Sulu loyalists in 2013.

After expressing regret, Thomas in his letter listed the outstanding payments including 10% interest, before arriving at the grand total of RM48,230, a sum he offered to wire "immediately" to the claimants in exchange for an end to any arbitration. 

"Malaysia is now ready and willing to pay your clients all arrears from 2013 to 2019," he wrote, adding that the offer should be reciprocated with the claimants ceasing the arbitration move.

At the heart of the arbitration is a claim by eight individuals, who cite a 1878 agreement between then Sulu ruler Sultan Mohamet Jamal Al-Alam and the British North Borneo Company, a colonial outfit formed by Britain to exploit natural resources in the region. In the agreement, the sultan surrendered sovereignty over some territories located in North Borneo, or what is now Sabah.

Following several legal hiccups in Spain, the arbitration decision was announced in a French court in February this year, where the claimants were awarded US$14.92 billion (RM60 billion) plus interest and costs.

The decision was condemned by Putrajaya, which also said that Stampa, the Spanish arbitrator, had no authority to issue the award.

That did not stop lawyers for the claimants from seeking to implement the award earlier this month, serving an asset seizure notice on two subsidiaries of Petronas in Luxembourg.

In an immediate reaction a day later, Malaysia secured a stay order from a Paris court to stop the execution of the arbitration award, only for the lawyers to warn that they could target Malaysia's other assets in the rest of the world.

How Thomas' letter helped Sulu claims

In putting forward their case in the arbitration proceedings, the Sulu claimants several times seized upon the concession offered by Thomas, on which Stampa had relied in justifying the multi-billion dollar award.

Stampa said Malaysia had breached the 1878 agreement when it ceased the RM5,300 annual payments in 2013. 

“Mr Thomas took the same position in his correspondence of Sept 19, 2019... when he offered to settle the matter by resuming payments, provided that claimants discontinued the arbitration. 

"Clearly (and correctly), Malaysia's attorney-general never perceived this arbitration as in any respect an assault on Malaysia's sovereign prerogatives.” 
 
Later, Stampa repeated Thomas' words again.
 
“Respondent [Malaysia] also admitted that those payments were stopped in 2013 and have not been paid to claimants since. On Sept 19, 2019, Malaysia stated that it '... is now ready and willing to pay your clients all arrears from 2013 to 2019 and agrees to fully comply with the 1878 Grant and the 1903 Confirmation of Cession from henceforth with regards to future payments. As to the arrears, Malaysia is also agreeable to paying simple interest of 10% p.a. on the annual payments for each of the years concerned'..."
 
Stampa then crucially relied on another statement by Thomas in concluding that the Sulu sultan had never divested himself of sovereignty over the territories of North Borneo.
 
He said Malaysia had agreed that the "assessment of the evidence available at the present arbitration sustains that the sultan was never deprived or divested of sovereignty over the territories of North Borneo, mentioned in both the 1878 Agreement and the 1903 Confirmatory Deed".

The Confirmatory Deed was signed by Sulu Sultan Jamalul Kiram II, confirming that he had ceded ownership of North Borneo to the British colonial power.
 
Stampa also relied on the fact that no reservation was made by Thomas that the arbitration proceedings would breach Malaysia’s sovereign immunity.
 
"The transcribed terms reveal the absence of any reservation made at that time (i.e., Sept 19, 2019), once the present arbitration was set in motion, that these proceedings would breach its sovereign immunity."
 
Another blow to Malaysia's case was the wording of Thomas' letter, which led to the conclusion that it was a commercial transaction and subject to arbitration. 

The stand taken by Thomas was in conflict with that of the current government.

Stampa also relied on the fact that no reservation was made by Thomas that the arbitration proceedings would breach Malaysia’s sovereign immunity.

"The subject matter of the claim is not commercial in nature and thus cannot be subject to arbitration and the 1878 Agreement contains no arbitration agreement," Malaysia's Attorney-General's Chambers said in a joint statement with the foreign ministry, in response to the February arbitration decision.

In summing up his findings, Stampa again relied on Thomas' letter to conclude that Malaysia had continued to perform the 1878 Agreement without reservation.

He cited a line from Thomas on Malaysia's annual payments to Sulu descendants "... from 1963 to 2012, that is, for an unbroken and continuous period of 49 years". 

"It is the arbitrator's view that the respondent [Malaysia] continued to perform the 1878 Agreement – freely and without reservations – until the end of 2012," Stampa added.

Stampa then declared that Malaysia had failed to perform its due under the 1878 Agreement, adding that it was "unable to demonstrate the concurrence of any lawful or contractual excuse for its non-performance of these contractual duties". 

"On the contrary, the respondent freely admitted that '... regrettably, payments... ceased in 2013'," he said, again quoting Thomas.