By Raman Letchumanan

KUALA LUMPUR, Malaysia-On Jan 26, Malaysians breathed a sigh of relief when the government announced that a court in Luxembourg has set aside an attachment order to seize two PETRONAS assets registered in Luxembourg. 

The attachment order was obtained by the purported heirs to the Sulu Sultanate following a disputed final arbitration award of US$14.92 billion (about RM63 billion) against the Malaysian government.

When the disputed award was delivered in Feb 2022, Malaysians reacted with fury. Not only was this amount higher than the RM40 billion 1MDB grand theft, the sovereignty of Sabah too came into question, a region frequently invaded by foreigners.

What was even more shocking was how our authorities reacted to this news. Instead of speaking with one confident voice to assure the people, in typical Malaysian style the matter was politicized and the blame game began. 
This was the usual national comedy of one regime attacking another – we had three governments after GE14, but this matter originated from the earlier Najib regime – lending credence to the arbitration award.

Of course, a special task force has to be established to investigate the matter. The speaker shut down any debate in Parliament, citing national secrets and government strategy, but giving the impression there is a cover-up. 
All fingers pointed at then Attorney General Tommy Thomas, who had to come up with a lengthy explanation. Just a few days ago, MCA called upon the government to “correct the mistake incurred by Tommy Thomas who acknowledged the Sulu Claims in a letter in 2019”.

Lawyers muddled the matter further arguing on both sides, adding to the “regime-bashing” national imbroglio.

It is not my intention here to defend anyone. As a layperson, I am learned enough to make my own judgement using common sense and logical thinking. As I have commented before, and not in hindsight, I will show this is a simple issue, and the action to be taken is even simpler.

More importantly, I will explain how the Sulu Claim national imbroglio portends an even greater danger in terms of the investor-state dispute settlement (ISDS) mechanism in the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) that Malaysia recently ratified.

The ABCs of the Sulu Claim

a) The dispute was self-inflicted when then Prime Minister Najib Razak unilaterally, and without any reason, stopped the annual payment of RM5,300 to the Sulu Sultanate heirs in 2013, breaching the 1878 agreement which was subsequently assumed by Malaysia in 1963.

b) There is no arbitration dispute settlement agreement/clause in the original or subsequent agreements, which by definition, needs to have prior contractual agreement of both contending parties. The parties have the right to appoint their own arbitrators, and usually in major disputes, each party appoints their own arbitrator who would then mutually agree on a presiding arbitrator. For detailed discussion on arbitration jurisprudence, please refer to my recent article “Let’s embrace affordable arbitration to ensure social justice”.

c) Therefore, any arbitration tribunal constituted for the Sulu Claim is illegal, fraudulent and of no effect. Malaysia refusing to participate is the right course of action, and if brought to its attention, Malaysia has to notify the relevant party as such. The intention to defraud is clear, when the ‘tribunal’ proceeded to hear the dispute with a single arbitrator and counsels, who are acting only for the Sulu Sultanate heirs.

d) However, many have accused Tommy Thomas of writing a letter offering to settle the arrears with interest, which was the dispute in question. He further emphasized that his letter in no way consents to or legitimizes the ‘arbitral’ proceedings. Of course, lawyers had a field day nitpicking on legal technicalities in this letter.

In any case, Malaysia should continue to settle the annual payment and arrears, if any, as long as the agreement is in force. A record of annual payment to the authorized parties should be held as proof, doesn’t matter if the said party refuses to accept the payment, or is in dispute now.

e) Unfortunately, there is no way that rogue arbitral proceedings can be stopped. If one participates and expresses their objection, that will mean recognizing the legitimacy of the tribunal. Malaysia has taken the right action to serve notice and take up the matter with competent authorities to invalidate and seek redress.

f) Equally unfortunate is that these rogue arbitrators and counsels can now make their own fancy awards without contest, and try to execute it in 170 jurisdictions worldwide. Arbitral awards mainly seek to restore the damages in terms of monetary relief or property, and there are no punitive damages, especially unjust enrichment. But this award has gone beyond the remit of the agreement to seek relief based on capitalized returns from current market value/use of the property.

g) If any arbitrator or legal counsel is involved in illegal and fraudulent actions, the aggrieved person must lodge a complaint and seek redress from the relevant law enforcement authorities and their professional bodies. Apart from striking out attachment orders and the fraudulent final arbitration award itself, Malaysia should also seek punitive damages from those fraudsters involved.

So why are government authorities bending over backwards finding scapegoats, undertaking special investigations, hiding truths under cover of national secrets, rather than showing  a united front to  fight international fraudsters. Aren’t we emboldening the fraudsters by our own imbroglio?

As the 1MDB scandal unravels, the conspiracy between our political leaders, senior civil servants and corporate leaders, and international/local financial institutions and auditors is becoming clear. Clearly these international fraudsters, bankrolled by opportunist vulture funds, saw a golden opportunity to scam billions from the Malaysian government.

Looming threat from CPTPP and ISDS

The Comprehensive and Progressive Trans-Pacific Partnership (CPTPP) was signed in March 2018. Despite strong reasoned objections from civil society (masyarakat madani) Malaysia ratified the agreement on Sep 30, 2022. 
Developed countries, sensing the opportunity to invade developing markets, are clamoring to accede to this agreement, which may become the largest multilateral trade agreement in the world.

Apart from liberation of trade in goods and services, the agreement covers investment, labor mobility, government procurement, with the ultimate aim to promote free trade and fair competition.

One significant new feature of the CPTPP is the provision of investor-state dispute settlement (ISDS) mechanism. Previously trade agreements relied on state-state dispute settlements or court litigation in respective countries. 
Through ISDS, an investor or company can directly bring a dispute for international arbitration if its investment or profits are harmed through national policy. Here, investor pecuniary interest takes priority over national interest.

Let me illustrate using our raging chicken-and-egg national debate. Let’s say a foreign investor, either wholly owned or with equity in a local company, undertakes production of chicken and eggs for the local market. 
The government with all its good intentions decides to provide subsidies to a state enterprise, or to a crony company, which lowers the cost of production, and thus affecting the business of the foreign company. Under the CPTPP, the foreign company can sue the government for loss of profits through arbitration.

With our affirmative/discriminatory policies and state enterprises monopolising the private market, our domestic trade and market is anything but free. Yet, we sign on to a multinational trade agreement to promote free trade, fair competition, and deregulation of markets. 
It is like saying we want to benefit from international free trade, but want to keep our market closed and highly regulated. Well, the ISDS will make sure you cannot do that, with prohibitive costs.

With the national imbroglio in handling the simple Sulu Claim with a non-existent arbitration clause, are we ready to handle any dispute brought about by multi-billion dollar international investors.

In a way, I welcome the CPTPP as it will force us to deregulate the preferential, affirmative and crony-corruption infested national policies that only make the rich richer and the poor poorer.

One thing for sure, Malaysia will attract and become a free market for legitimate and rogue arbitrators/counsels peddling their services.

*Raman Letchumanan is a former senior fellow at the Nanyang Technological University of Singapore, a former director at the Minister of Science, Technology and Environment, and a former head of environment/disaster management at the Asean Secretariat in Jakarta.*