JUNE 14 — Minister in the Prime Minister’s Department (Law and Institutional Reform) Azalina Othman Said called the Paris Court of Appeal’s decision upholding Malaysia’s challenge against the partial award rendered on May 25, 2020, by Gonzalo Stampa in the case filed by the Sulu heirs as a decisive victory.

Let’s appreciate how decisive the victory is.

The Sulu heirs had contested Malaysia’s case before the Paris Court of Appeal on the ground, among others, that pursuant to Article 1466 of the French Code of Civil Procedure (CCP) the party who refuses or ceases to participate in an arbitration procedure is not allowed to raise an irregularity for the first time before the exequatur judge — that is, the judge hearing an application to enforce the award — when it should have been raised during the arbitration proceedings.

The heirs argued that Malaysia had chosen not to participate in the arbitration procedure.

The Court indeed ruled that under Article 1466 of the CCP, the party who, knowingly cause and without legitimate reason, refrains from invoking in due time an irregularity before the arbitration tribunal is deemed to have waived its right to rely on it.

However, in the present case before the Court, while it was common knowledge that Malaysia did not appear before the arbitration tribunal, the Malaysian Attorney General (AG) had, by letter dated October 14, 2019 addressed to the arbitrator, stated as follows:

"On behalf of the Government of Malaysia, I would like it to put on record the fact that Malaysia challenges the entire arbitration process, including the appointment of the Tribunal and the choice of forum for the resolution of the alleged dispute.”

In doing so, the AG made it clear that Malaysia challenged the very jurisdiction of the arbitrator. Stampa, in fact, acknowledged there was "objection to [his] competence” in his award.

In these circumstances, the Court ruled that Malaysia could not be said to have not invoked its grievance in good time. Malaysia’s challenge on the lack of jurisdiction of the arbitration tribunal could therefore be heard by the Court.

The Court could also rule on Malaysia’s application to annul the award since Article 1525 of the CCP allows the Court to hear an appeal against the decision on recognition or exequatur of an arbitral award rendered abroad when the ground for annulment is, among others, the competency or incompetency of the arbitration tribunal.

The Court further ruled that it was up to the Court to review the decision of the arbitration tribunal on its jurisdiction, whether it declared itself competent or incompetent, by seeking all the elements of law or fact allowing it to assess the scope of the arbitration agreement, exclusive of any substantive review of the award.

According to the Court, under a substantive rule of international arbitration law, the arbitration clause is legally independent of the main contract that contains it, directly or by reference.

Its existence and effectiveness are assessed, subject to the mandatory rules of French law and international public order, according to the common will of the parties, which alone invests the arbitrator with his jurisdictional power, without him being necessary to refer to a state law.

In the Sulu heirs’ case, the arbitration tribunal was constituted on the basis of a clause inserted in the agreement concluded in 1878.

The parties disagreed on the meaning and scope of this stipulation, written in Jawi, from which they produced different translations.

The Sulu heirs relied on a French translation, stated as follows:

"Furthermore, if a dispute subsequently arises, any dispute between us, our heirs and our successors, with Lord Gustabus Baron of Uberbek or his company, we, of the two parties, would submit this matter to the examination and to the decision of the Consul General of Her Majesty the Queen in the country of Brunei.”

Malaysia, for its part, produced an English translation which was in fact retained by Stampa as a reference in the award. The translation is as follows:

"Should there be any dispute, or reviving of all grievances of any kind, between us, and our heirs and successors, with Mr. Gustavus Baron de Overbeck or his Company, then the matter will be brought to the consideration or judgment of Their Majesties’ Consul-General in Brunei”

An English translation made in 1878 by Acting Consul General W H Treacher, who took part in the negotiations and signed the agreement as a witness, reads as follows:

"If, in the future, any dispute shall arise between us, our heirs and successors, and Gustavus Baron de Overbeck, or his Company, we both will refer it for the decision and concept of the Queen’s Consul-General in Brunei.”

The Court found it necessary to seek the common will of the parties in the light of:

• the principle of interpretation of agreements in good faith, so as not to allow one of them to withdraw from commitments freely consented to but clumsily expressed, and
• the principle of useful effect, according to which when the parties insert an arbitration clause in their agreement, it must be presumed that their intention was to establish a mechanism effective for the settlement of disputes covered by the arbitration clause.

From the various versions cited above, it could be seen that they all concur on the point that the parties wished to appoint a third party to the agreement to hear any dispute arising from the agreement between them or their successors.

The Consul General of the British crown in Brunei was clearly designated to hear disputes, if any. He was indeed a third party to the agreement.

It could not be denied that the Consul General was the designated independent third party, Great Britain not being party to the agreement on its date of conclusion.

The choice of the Consul General of the British crown stationed in Brunei to hear any dispute was a key element of the willingness of the parties to resort to the holder of the office in 1878, who maintained relationships of trust with the parties, having taken an active part in the negotiations and signed the agreement, after inciting the Sultan of Sulu to submit, in case of dispute, to the decision of the said Consul General.

The Court accordingly ruled that the clause reveals "the will of the parties to invest the Consul General of the British crown the jurisdictional power to settle any dispute arising between them or their successors, excluding recourse to national courts, to which the function of Consul General cannot be assimilated.”

However, given that the office had been dissolved, it rendered the disputed clause inapplicable and became obsolete. This was reinforced by the fact that in 1946, Sabah — then known as the State of North Borneo — was transformed into a British colony, so that a British Consul could not from that date be regarded as an independent third party.

Under these conditions, a new agreement between the parties was necessary. No agreement having been reached, despite renegotiation attempts after 1946, the clause became impossible to implement.

The arbitrator, Stampa, could not therefore validly declare himself competent to hear requests made by the Sulu heirs.

The above decision of the Paris Court of Appeal is not only decisive but massive.

Kudos to Team Malaysia for the victory!