Western Courts Must Not Become Marketplaces To Sell Global South Resources To The Highest Bidder

Imagine the scenario: Powerful Western investors grab hold of the oil resources of a developing nation in Asia without firing a single bullet. Their weapon? European courts.

How? By enforcing the terms of a two centuries-old colonial-era treaty drafted long before that nation even existed.

This is not dystopian fiction, but a real-life geopolitical drama whose latest episode is playing out in a court in lower Manhattan, where lawyers await the fate of new litigation contesting a $15 billion award – the second largest in the history of international arbitration.

What at first glance might look like an obscure Malaysia-Philippines land-feud is far more consequential. The case not only challenges the sovereignty of an entire nation on the basis of a dubious colonial transaction, it threatens to enrich unidentified Western hedge-funds by confiscating Malaysia's energy assets and resources – and to inflame simmering tensions in the South China Sea between the US, China and regional Asian powers, all at once.

The ostensible plaintiffs are eight individuals who claim to be heirs of the long-collapsed Sultanate of the Sulu, a remote island region of the Philippines. Back in 1878, the Sultan signed a deal with two British colonial adventurers in search of land and treasure, ceding the uncharted jungles of Sabah (an area the Sultan himself had no meaningful sovereign control over) to them, in return for an annual fee of a little over $1,000.

Decades later, both the Sultanate and the colonial venture had collapsed. The British Crown, taking over from its intrepid explorers, continued to honour the fee, which it paid to a group of purported heirs.

Then in 1963, the sovereign nation of Malaysia – encompassing the North Borneo region now known as Sabah – broke free of the competing colonial exploits of the British and Spanish. The new Malaysian government nevertheless honoured the fee, until a band of armed Philippine extremists hellbent on re-establishing the defunct Sultanate invaded Sabah resulting in 72 deaths.

Horrified, Malaysia saw little choice but to stop the payments due to the potential links between the purported heirs and the invaders. Little did Malaysia realise this would prompt the next violation of its territory - which came not by boat, but by law-firm. The Sulu plaintiffs launched international arbitration proceedings against Malaysia demanding compensation based on the value of Malaysia's oil and gas revenues coming out of Sabah. In a decision which practically purported to redraw the borders of Malaysia, the Spanish arbitrator controversially awarded the so-called heirs a whopping $15 billion in compensation. The so-called heirs subsequently sought to enforce the award against both Malaysia, and against Petronas (the global energy firm operating in Malaysia).

Ultimately, the real beneficiaries of the case are not the Philippine alleged heirs, but one of the world's largest litigation-funding firms, Therium, headquartered in Great Britain. Without Therium, who have invested at least $20 million into the claim, so far, in the hope of reaping riches via the lion's share of the award, the case would not exist.

Yet as the litigation unfolding in Manhattan makes clear, this colonial house of cards is rapidly collapsing. As of May this year, Petronas is demanding to see subpoenaed financial documents and communications between Therium and the Spanish arbitrator, Dr Gonzalo Stampa, who issued the controversial award in February 2022, but in December last year was criminally convicted for contempt of court. In January his appeal was denied. International arbitration experts have criticised Therium for overlooking Dr Stampa's "unusually high" $2 million fee.

Petronas' case is that Therium acted with "willful negligence" in inducing Stampa to override a Madrid court's ruling (which annulled his appointment as arbitrator) by relocating the arbitration to Paris. They now want to see any documents on "money transfers" and "communications" with Stampa which, they believe, encouraged his "criminal" misconduct.

Former Spanish judge and practising barrister in England, Josep Galvez, recently observed in Law360, that Stampa's conviction demonstrated not only that the entire premise of the arbitration was flawed because Malaysia had not properly consented to it, but that "once the nullification of the appointment was confirmed, all subsequent arbitral proceedings stemming from that appointment were rendered invalid, as if they had never occurred."

In other words, Stampa's $15 billion arbitration order has no real validity, as Stampa himself never had the authority to deliver it. The award was therefore not the outcome of a meaningful and fair arbitration process at all, but of a self-serving criminal endeavour. This means that the plaintiffs' extraordinary efforts to enforce a multi-billion dollar payout by targeting assets of both the Malaysian government and Petronas – spanning Paris, Luxembourg and The Hague – are likely to fall flat on their face.

Yet what is happening to Malaysia is already coming back to haunt Europe and America.

In the absence of gunboats and cannons, the new Western colonialism weaponizes capital and lawsuits to break across national borders and confiscate the resources of developing nations. But it's also being abused by sanctioned Russian oligarchs to bankroll sophisticated legal counterattacks designed to neuter sanctions – thereby empowering Putin to escalate his war in Ukraine. It has also strained relations between Malaysia and the Philippines, both powerful members of the Association of South East Asian Nations (ASEAN), whose unity is essential in the face of China's efforts to control the entire South China Sea.

Third party litigation funding is a relatively new industry, which has experienced a sudden boom over the last decade. But devoid of transparency or regulation, it's already proving capable of secretly driving geopolitical shifts, undermining borders, unilaterally allocating ownership of billions in natural resources, and of course, the fate of entire countries.

If Western courts can become marketplaces for investors, where secretive and deep-pocketed funds focus on the most lucrative cases while cherry-picking jurisdictions from the shadows to secure the verdict they have bet on, then this emerging legal wild west is just the beginning.

The Sulu case is a multilayered microcosm of all the hypocrisies of Western-backed interventions in the East rolled into one. It's a story where everyone loses except the billionaires who make the bets. Which is why the fight back unfolding in Manhattan will be pivotal not just for Malaysia and other Asian powers, but for the entire Global South.

About the author: Saman Rizwan is a leading and widely-published Asian affairs analyst. She is a senior researcher at the Centre for Strategic and Contemporary Research, Islamabad, and holds a Masters in International Relations from S. Rajaratnam School of International Studies at Nanyang Technological University in Singapore.