This article first appeared in Forum, The Edge Malaysia Weekly on November 13, 2023 - November 19, 2023

As the year comes to a close, many of us are tying up loose ends and seeing the fruition of many plans. However, the Malaysia-Sulu case, or what I call the Sulu Fraud, is still an ongoing battle. As we pursue this legal battle, there are glimpses of hope and light at the end of the tunnel. The case was initiated by seven individuals claiming to be the legitimate descendants of the Sulu Sultanate, based on an archaic Jawi document formalised in 1878. In pursuing their claims against the government of Malaysia, the Sulu claimants are financially supported by a UK-based global litigation funder, Therium. This case has exposed the vulnerability of an independent sovereign state to manipulation and exploitation, even by individuals.

The fact that this case is still ongoing could be confusing for most Malaysians, especially after our win in the Paris and Hague courts in June this year. Many might not comprehend why the case is still ongoing when we have won in these jurisdictions. I would like to set the record straight that this is no ordinary case. It is a fraud for a reason. The claimants and their funder were awarded a US$14.9 billion “final award” by a rogue arbitrator, Dr Gonzalo Stampa, who currently faces criminal charges of “unqualified professional practices” in the Spanish court. Despite this, the claimants and their funder continue in their attempts to enforce the US$14.9 billion sham award in courts across Europe.

As such, Malaysia continues to defend its dignity and sovereignty in the courts where there are attempts to enforce this sham arbitral award. At the same time, the government of Malaysia has also taken offensive countermeasures and is now considering legal action against the funder. Most importantly, the government is working on the implementation of legal safeguards to prevent future frivolous cases such as this from affecting or jeopardising the safety and security of our nation.

One such way is through the enactment of a State Immunity Act (SIA). In this article, the first of two, I outline the overarching concept of a state immunity — what it is, and why it is the answer for our way forward as a nation. Part 2, which will be published in the coming week, will delve into the policy considerations and overview of this upcoming SIA.

The doctrine of state immunity is an established international principle that upholds the independence, equality and dignity of a state. At the same time, it preserves the cordial relationship between states. In essence, the idea of “state immunity” is aimed at protecting an independent state from being made amenable to the jurisdiction of a foreign court. With the protection of state immunity, a state can shield itself against any legal proceedings in another state based on its status and capacity as a sovereign.

To date, the doctrine of state immunity remains a rule of customary international law generally observed and adhered to by all states. Given its innate binding nature, states are obliged under international law to respect the immunity of a foreign state in its jurisdiction. However, the extent of such immunity protection would depend on the municipal law and procedural rules, which often differ from one state to another.

By concept, the doctrine of state immunity is categorised into two: absolute state immunity and restrictive state immunity. Traditionally, the doctrine of absolute state immunity applies across all aspects of a state’s activities, including its engagement in commercial transactions. This means that no legal action could be taken against a state in respect of its activities, be it of commercial or sovereign nature unless the state expressly waives its immunity.

In today’s world where states have become increasingly engaged in commercial activities, courts have begun to adopt a more restrictive form of immunity. In a situation where a state is engaged in commercial activities, the state concerned will be held accountable for its actions in the commercial sphere, just as a private entity would. On that basis, many jurisdictions have drifted towards a more restrictive approach to state immunity. Based on the doctrine of this restrictive immunity, the immunity protection afforded to foreign states is limited to matters relating to governmental acts or acts that are diplomatic in nature and not commercial acts. Currently, the practice of many countries appears to favour the doctrine of restrictive state immunity as part of their efforts to level the playing field in the commercial industry. Countries such as the US, the UK, Singapore and Canada have undertaken early initiatives to codify customary international law on state immunity through the implementation of such legislation in their local context.

Malaysia has yet to introduce any domestic law that governs the scope and application of state immunity. The Malaysian courts are generally guided by the fluid development of the common law and customary international law in determining the scope of such immunity. It is also well-established that once a state has entered into a valid arbitration agreement with a private entity, it cannot rely on its immunity to resist the jurisdiction of the arbitral tribunal. In other words, a sovereign state is said to have waived its immunity by agreeing to submit itself to the jurisdiction of the arbitral tribunal.

As far as the Sulu Fraud is concerned, there is an absence of an arbitration agreement or any provision expressing the parties’ intention that arbitration shall be the exclusive mechanism through which disputes are to be resolved. The government of Malaysia has neither waived its sovereign immunity nor agreed to submit to the jurisdiction of any arbitral tribunal. Therefore, Malaysia’s legal pursuit and rejection of the purported final award amounting to US$14.9 billion is reasonably justified as the legitimacy of the arbitral processes is not only contentious but also highly questionable.

The Sulu debacle and the legal battle as a result exemplifies a blatant abuse of arbitral processes and gravely jeopardises the sovereignty of a state. Being unnecessarily dragged into this legal fiasco, the government finds it indispensable to codify the customary international law on state immunity to keep us on a par with the legislative developments in other countries.

The unity government envisions the introduction of state immunity law in Malaysia as a positive move towards strengthening our longstanding practice of restrictive state immunity, providing greater certainty to the application of state immunity, and building a strong foundation for stable diplomacy and international relations.

As the unity government is in the final stage of drafting the SIA, I assure all Malaysians that this is for the long-term protection of Malaysia. The goal is not only to defend Malaysia’s sovereignty in the Sulu Fraud but also to take every measure necessary to ensure the interests of all Malaysians are protected for the generations to come.

Datuk Seri Azalina Othman Said is minister in the Prime Minister’s Department for law and institutional reform

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