Two Luxembourg subsidiaries of Malaysian state oil company Petronas have been seized by the descendants of a late sultan, lawyers said, in a dramatic escalation of a $15bn legal dispute linked to an agreement signed 144 years ago.
Representatives of the heirs of the last Muslim sultan of Sulu, who claimed to hold land in what is now the oil-rich Malaysian state of Sabah, said bailiffs in Luxembourg seized the holding companies on behalf of their clients on Monday.
The Luxembourg-registered subsidiaries, Petronas Azerbaijan (Shah Deniz) and Petronas South Caucasus, managed the state-owned energy company’s gas interests in Azerbaijan and could be worth more than $2bn.
The move, which is being reported for the first time, is part of legal efforts launched in 2017 by the Sulu heirs to win compensation over land in Sabah that they said their ancestor leased to a British trading company in 1878, before the discovery of vast natural resources in the area.
In March, an arbitrator in France ruled that Malaysia, which inherited the obligations of the lease agreement upon securing independence from Britain, must pay the descendants $14.9bn.
The case, which until now has attracted little attention outside Malaysia, has been described by experts as one of the most unusual arbitration proceedings in history. It has ignited anger in Malaysia, which still refuses to accept the award, while also exposing Britain’s messy colonial legacy in the country.
Now Petronas has been dragged into the dispute just as it was set to capitalise on high oil prices and help rebuild Malaysia’s economy after the coronavirus pandemic.
Colin Ong QC, a barrister and prominent arbitration lawyer not involved in the case, said it did not appear to have any precedent in the history of the 1958 New York Convention on international arbitration, to which Malaysia is a contracting state. “It is very unusual . . . [It involves] an agreement predating the formation of a country,” said Ong.
“This case is the history of colonialism,” said Elisabeth Mason, a lawyer at London-based 4-5 Gray’s Inn Square and lead counsel for the eight claimants, who are based in the Philippines. “Unlike so many dispossessed, our clients have an ongoing contract since 1878 and, as such, have a path to justice where many others did not.”
The seizures come at a critical time for Malaysia, which has had four prime ministers since 2015 when it was rocked by revelations of huge embezzlement from its 1MDB state fund.
Petronas has reportedly been placed at the centre of government efforts to rein in rising debt. After the war in Ukraine drove up oil prices, Malaysia’s finance minister told the Financial Times the boom could help the country improve its balance sheet.
But for as long as Kuala Lumpur continues to ignore the ruling, the money owed to the Sulu heirs is set to increase. The arbitrator in France decided that for every year it goes unpaid, Malaysia’s outstanding liability to the heirs will rise by 10 per cent.
In February, Petronas’s Luxembourg holding companies liquidated a 15.5 per cent stake in Azerbaijan’s Shah Deniz offshore gasfield, previously valued at $2.3bn. It is unclear whether this money is now held by the subsidiaries or by Petronas in Malaysia.
The claimants’ lawyers indicated they would pursue more state assets if a resolution was not reached.
“International law doesn’t let you pick and choose. Either Malaysia honours its international obligations or it goes ‘full Russia’,” said Paul Cohen, the other lead counsel to the claimants at 4-5 Gray’s Inn Square. “We hope Malaysia will see the cost of being a legal pariah state and come to terms.”
Malaysia’s foreign ministry did not immediately respond to a request for comment.
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