UPDATE – Paris Court of Appeal denied exequatur to award on jurisdiction in multi-billion case brought against Malaysia
Jacques Bouyssou, Marie-Hélène Bartoli Vallet and Juan Diego Niño-Vargas
In a recent ruling rendered on 6 June 2023, the Paris Court of Appeal denied enforcement (exequatur) in France to an arbitration award upholding jurisdiction over a multi-billion dollar claim brought against Malaysia by heirs of the last Sultan of Sulu of the Island of Borneo.
This award on jurisdiction was issued by sole arbitrator Dr. Gonzalo Stampa in 2020 and was followed on the merits by a noteworthy award in 2022 by which Malaysia was ordered to pay USD 14.92 billion to the heirs of the Sultan of Sulu.
However, the Court of Appeal found that Dr. Stampa lacked jurisdiction to hear the case since his designation was based on an agreement which dated back to the 19th century and referred the dispute to the holder of a position (dating back to the British Empire, Consul-General in Brunei) that no longer existed when the dispute arose. The Paris Court of Appeal deemed the arbitration agreement inapplicable and denied enforcement to the award on jurisdiction.
Background of the Dispute
The case revolves around the performance of an 1878 agreement signed by the Sultan of Sulu regarding the exploitation of natural resources of the North coast of the island of Borneo, and the subsequent payment of annual interest to the Sultan and his heirs or successors.
European explorers were granted exploitation rights in exchange for annual payments. When Malaysia gained independence from the British Empire in 1963, these rights were transferred to the Malaysian state, which continued to make annual payments to the heirs of the Sulan of Sulu until 2013.
Following failed negotiations over the contract price, in 2017 the heirs initiated arbitration proceedings under the confirmatory deed of the agreement signed in 1903 which provided that “[s]hould there be any dispute, or reviving of all grievances of any kind (…), then the matter will be brought for consideration or judgment of Their Majesties’ Consul-General in Brunei.”[1] It should be noted that the translation of this clause originally written in Jawi, a writing system used for Malay, and its interpretation, were subject to much debate between the parties.
Spanish and French Courts’ proceedings
The position of Consul-General in Brunei referred to by the confirmatory deed did not exist anymore in 2017 and the British Foreign Secretary refused to assume the role of arbitrator in the dispute. Malaysia also refused to proceed to the joint appointment of an arbitrator. The heirs thus filed an application before the Superior Court of Justice of Madrid for the appointment of an arbitrator, citing the 1878 agreement’s connections to Spain which had sovereignty over the territory when it was signed.
In 2019, the Civil and Criminal Chamber of the Superior Court of Justice of Madrid appointed Dr. Stampa as sole arbitrator. Dr. Stampa upheld his jurisdiction in an award dated 25 May 2020 (the “Award on Jurisdiction”).
Malaysia challenged the appointment of Dr. Stampa before the Superior Court of Justice of Madrid which, on 29 June 2021, annulled Dr. Stampa’s appointment.
The Sultan’s heirs obtained from the President of the Judiciary Tribunal of Paris an ex parte enforcement order of the Award on Jurisdiction and Dr. Stampa then relocated the seat of arbitration from Madrid to Paris on 29 October 2021.
On 28 February 2022, after four years of proceedings, the sole arbitrator delivered a final award in favor of the heirs of the Sultan, allocating them USD 14.92 billion in damages for Malaysia’s breach of the agreement (the “Final Award”).
Malaysia (i) lodged an appeal against the order granting enforcement to the Award on Jurisdiction, and (ii) initiated setting aside proceedings against the Final Award before the Paris Court of Appeal.
On 6 June 2023, the Court of Appeal denied enforcement to the Award on Jurisdiction, considering Dr. Stampa lacked jurisdiction under the relevant agreement.
In parallel, Malaysia initiated criminal proceedings against Dr. Stampa before the Criminal Court of Madrid.
The Paris Court of Appeal ruling on the Award on Jurisdiction
Malaysia contended inter alia that the sole arbitrator lacked jurisdiction over the dispute and that therefore, the award had to be set aside under article 1520-1° of the French Code of Civil Procedure. This decision has also been commented regarding its take on the challenge against the admissibility of the request for enforcement of the award, but we will focus on Malaysia’s challenges of the arbitrator’s jurisdiction.
The Court was tasked with determining the nature of the dispute resolution clause at stake, specifically whether it constituted a valid arbitration agreement, and if so, whether it had been correctly applied.
The Court commenced its analysis by examining the substantive content of the clause since the arbitration agreement was based on a clause written in Jawi. Multiple translations of the clause and expert reports were submitted by the parties, each differing in their respective wording. Applying the principles of “good faith” and “effectiveness” (effet utile), the Court scrutinized the various translations. On this basis, the Court qualified the clause as an arbitration agreement.
However, regarding the applicability of the clause, the Court emphasized the active role played by the former British Consul-General, Sir William Treacher, during the negotiations and his personal encouragement to the Sultan of Sulu to submit disputes to the British Consul-General. Consequently, the Court deemed the designation of the British Consul-General as the arbitrator inseparable from the parties’ consent to arbitration. Given that the position of British Consul-General of Brunei no longer existed when the dispute arose, the Court declared the arbitration agreement inapplicable.
Future Steps
The Paris Court of Appeal refusal to grant enforcement to the Award on Jurisdiction jeopardizes the validity and the enforceability of the Final Award, against which setting aside proceedings are pending before the same court. This ruling may also have consequences on the heirs’ ongoing attempts to enforce the Final Award in the Netherlands and Luxembourg, where they have already successfully seized assets belonging to the Malaysian state oil company Petronas.
According to reports, the heirs of the Sultan of Sulu are contemplating challenging the decision of the Paris Court of Appeal before the French Supreme Civil Court (Cour de cassation).
Comments
This historical and multijurisdictional case highlights the advantages of arbitration as a means of resolving disputes, such as flexibility and efficiency. However, it also illustrates the need for parties to carefully consider and review their arbitration clauses to address potential uncertainties that may arise. Unforeseen complications can emerge and render the arbitration agreement arguably not applicable anymore. In particular, while one of the advantages of arbitration is to choose the arbitrator, imposing excessively specific requirements in the clause for the designation of the arbitrator(s) can be interpreted as consenting to arbitrate on an intuitu personae basis, which may later hinder the applicability of the clause. Parties should strive for clarity, precision but also for adaptability in their arbitration agreements. By doing so, they can maximize the benefits of arbitration while minimizing the risks and uncertainties that may arise throughout the process.
For more information on this case please refer to Alerion’s newsletter on the multi-billion Final Award and its enforcement in France and Luxembourg.
Jacques Bouyssou, Partner, Marie-Hélène Bartoli Vallet, Counsel and Juan Diego Niño-Vargas, Associate
[1] Translation retained in the Award on Jurisdiction of 25 May 2020