Gonzalo Stampa, the “rogue” Spanish arbitrator, was sentenced to six months in jail for contempt of court and “unqualified professional practice.”

Source: FMT. (2024, January 8). Arbitrator in Sulu Case Jailed 6 months for Contempt of Court. Free Malaysia Today. https://www.freemalaysiatoday.com/category/nation/2024/01/08/arbitrator-in-sulu-case-found-guilty-of-contempt-of-court/

Jurisdictional Challenges and Forum Shopping

In the case of the Sulu heirs' claim against Malaysia, the arbitration process has been fraught with legal irregularities and jurisdictional disputes. The Sulu heirs argue that a clause in an 1878 agreement between their ancestors and the British North Borneo Company entitles them to ongoing compensation from Malaysia. However, Malaysia has consistently rejected this claim, asserting that it never consented to arbitration, making the process illegitimate. Furthermore, Malaysia contends that the dispute involves sovereign matters, which fall outside the scope of commercial arbitration.

Spain was controversially selected as the arbitration seat, allegedly because of its legal framework. However, Malaysia challenged this decision, arguing that Spanish courts lacked jurisdiction over the matter. In a critical ruling, Spain’s judiciary ultimately agreed, determining that the case had no legal standing within its jurisdiction and effectively nullifying the arbitration proceedings. Despite this setback, the Sulu claimants refused to accept the ruling and instead moved the arbitration to France. This legal maneuver—widely criticized as forum shopping, where claimants seek more favorable legal venues—has fueled accusations that the Sulu heirs and their legal backers deliberately manipulated the process to bypass unfavorable rulings. Malaysia has since fought to block the enforcement of any arbitration award issued outside its legal framework.

The court agreed that the case had no legal standing within its jurisdiction and effectively nullified the arbitration proceedings.

Malaysia’s Legal Counteroffensive

Despite multiple legal setbacks for the Sulu claimants, they attempted to enforce the ruling in various jurisdictions, including France and Luxembourg, seeking to seize Malaysian assets to satisfy the award. However, Malaysia launched an aggressive legal counteroffensive, challenging the validity of the arbitration award in European courts.

A significant victory for Malaysia came when a Paris appeals court overturned the $14.9 billion award, effectively blocking the Sulu heirs from seizing Malaysian assets in France. This ruling was further upheld by France’s highest court, the Cour de Cassation, in November 2024, which dismissed the heirs' appeal and confirmed that the arbitrator had no standing in France to order Malaysia to pay. These legal proceedings in France have reinforced Malaysia’s firm stance in defending its sovereignty against what it describes as an illegitimate legal claim.

The ruling has also cast serious doubt on the claimants’ ability to collect damages, as courts have consistently ruled against them. Moreover, Malaysia’s legal success highlights the growing influence of litigation funding in international arbitration, with critics arguing that third-party financiers stand to benefit from such legal maneuvers at the expense of sovereign nations.

The Role of Gonzalo Stampa: A “Rogue Arbitrator”?

While Malaysia’s legal counteroffensive has largely succeeded, some of the controversy has centered on Spanish arbitrator Gonzalo Stampa, who was appointed by the Sulu heirs to oversee the arbitration. His involvement has been highly contentious, with Malaysia accusing him of exceeding his legal authority and violating Spanish judicial orders.

Initially, a Madrid court granted Stampa permission to oversee the case, but this ruling was later overturned when Spain’s judiciary determined that Malaysia had not consented to arbitration and that Spain had no jurisdiction over the dispute. Rather than respecting this ruling, Stampa relocated the proceedings to France, where he unilaterally awarded the Sulu heirs $14.9 billion in damages against Malaysia. His decision to proceed despite clear judicial prohibitions led Malaysia to denounce him as a “rogue arbitrator” who had disregarded legal norms in favor of the claimants.

Further complicating matters, Stampa was later banned from arbitration practice for one year and sentenced to six months in jail by a Spanish court for contempt. Critics argue that his actions set a dangerous precedent, allowing arbitrators to override national judicial rulings and proceed with cases even when jurisdiction is explicitly denied. While his defenders claim he upheld investor-state arbitration principles, Malaysia and legal experts warn that his approach undermines the legitimacy of arbitration as a dispute resolution mechanism. The case has sparked broader debates about the limits of arbitrators’ authority, the ethics of forum shopping, and the influence of litigation funders in sovereign disputes.

Conclusion: An Uphill Battle for the Sulu Heirs

The arbitration case brought by the Sulu heirs has exposed deep flaws in the use of arbitration for sovereign disputes. While the claimants have sought financial compensation through legal maneuvers, the Spanish courts’ rejection of jurisdiction and Malaysia’s successful legal pushback have severely weakened their position.

The case raises serious questions about the role of arbitrators, the ethics of forum shopping, and the increasing role of litigation funding in disputes against sovereign states. As legal battles continue, the enforcement of the $14.9 billion arbitration award seems increasingly improbable. With recent rulings overwhelmingly favoring Malaysia, the Sulu heirs now face a diminishing legal path, reinforcing Malaysia's sovereignty against what it views as an illegitimate and opportunistic claim.

REFERENCES

Azhar, D., & Hummel, T. (2024, November 7). Late Sultan’s Heirs Fail in Bid to Challenge French Court Ruling on Malaysia. Reuters. https://www.reuters.com/world/sultans-heirs-fail-with-bid-challenge-french-ruling-dispute-with-malaysia-2024-11-06/

Castro, B. (2024, January 19). Arbitrator in $14.9bn Case Jailed following Intervention by Malaysia. https://www.lawgazette.co.uk/news/arbitrator-in-149bn-case-jailed-following-intervention-by-malaysia/5118364.article

De Miguel, Rafa. (2023, June 22). The Fascinating Tale of a Multimillion-Dollar Lawsuit Featuring Sultans, Oil and a Renegade Lawyer. EL PAÍS English. https://english.elpais.com/international/2023-06-22/the-fascinating-tale-of-a-multimillion-dollar-lawsuit-featuring-sultans-oil-and-a-renegade-lawyer.html

FMT. (2024, Jan 8). Arbitrator in Sulu Case Jailed 6 months for Contempt of Court. Free Malaysia Today. https://www.freemalaysiatoday.com/category/nation/2024/01/08/arbitrator-in-sulu-case-found-guilty-of-contempt-of-court/

Jones, T. (2024, Jan 1). Spanish Arbitrator Convicted over Mega-Award. Global Arbitration Review. https://globalarbitrationreview.com/article/spanish-arbitrator-convicted-over-malaysia-mega-award