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Lawyers seize Petronas subsidiaries as they file a $15 billion claim against Malaysia.

The descendants of a late sultan have seized two Luxembourg subsidiaries of the Malaysian state oil company Petronas, according to attorneys, in a dramatic escalation of a $15 billion legal dispute connected to a 144-year-old agreement.

The holding companies were seized on Monday by bailiffs in Luxembourg acting on behalf of the heirs of the last Muslim sultan of Sulu, who claimed to own land in what is now the oil-rich Malaysian state of Sabah.

The state-owned energy company's gas interests in Azerbaijan were managed by the subsidiaries Petronas Azerbaijan (Shah Deniz) and Petronas South Caucasus, which are registered in Luxembourg and may be worth more than $2 billion.

The action, which is just now coming to light, is a part of legal actions taken in 2017 by the Sulu heirs to obtain compensation for Sabah land they claim their ancestor leased to a British trading company in 1878 before the region's abundant natural resources were discovered.

An arbitrator in France ruled in March that Malaysia, which took on the lease agreement's obligations after gaining independence from Britain, must pay the descendants $14.9 billion.

Experts have called the case, which has thus far received little attention outside of Malaysia, one of the most peculiar arbitration proceedings in history. It has sparked resentment in Malaysia, which continues to reject the award, and exposed Britain's troubled colonial legacy in the nation.

Just as it was about to take advantage of high oil prices and aid in the recovery of Malaysia's economy following the coronavirus pandemic, Petronas has now been drawn into the conflict.

The 1958 New York Convention on International Arbitration, to which Malaysia is a contracting state, lacks any precedents, according to renowned arbitration attorney Colin Ong, who is not involved in the case. "It is very unusual . . . [It involves] an agreement predating the formation of a country,"  according to Ong.

Elisabeth Mason, lead counsel for the eight claimants, who are based in the Philippines and are represented by the London law firm 4-5 Gray's Inn Square, said that "this case is the history of colonialism." "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 occur at a crucial time for Malaysia, which has had four prime ministers since the country was rocked by revelations of significant theft from its 1MDB state fund in 2015.

According to reports, Petronas is at the center of government initiatives to control the nation's mounting debt. Malaysia's finance minister told the Financial Times that the boom could help the nation improve its balance sheet after the war in Ukraine raised oil prices.

But the amount owed to the Sulu heirs is expected to rise as long as Kuala Lumpur disobeys the ruling. The arbitrator in France determined that Malaysia's outstanding liability to the heirs will increase by 10% for each year it is not paid.

Previously valued at $2.3 billion, a 15.5 percent stake in the Shah Deniz offshore gasfield in Azerbaijan was sold off by Petronas' Luxembourg-based holding companies in February. It is unclear if Petronas in Malaysia or the subsidiaries are currently in possession of this money.

If a settlement could not be reached, the claimants' attorneys threatened to go after additional state assets.

According to Paul Cohen, the other lead counsel to the claimants at 4-5 Gray’s Inn Square, "international law doesn’t let you pick and choose. Either Malaysia honours its international obligations or it goes ‘full Russia’. We hope Malaysia will see the cost of being a legal pariah state and come to terms."

An inquiry for comment was not immediately answered by Malaysia's foreign ministry.



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