According to Acting British Consul General Treacher’s letter to the Foreign Office in January 1878, the Sultan’s main preoccupation was how much money he would lose from leasing out Sabah and gain by entering into the lease agreement.  The agreed sum of $5,000 represented all his annual earnings in 1878 from what today is called Sabah.  That amount has only increased once, in 1903, to $5,300. (Depending on the price of oil and gas, Malaysia earns between three and nine million times more than that per year from its hydrocarbon revenues in Sabah alone.  That kind of imbalance in contractual arrangements unambiguously calls for redress under international law. And that’s what we asked for and received.)

In fact, large as it seems, the Award represents only a fraction of Malaysia’s revenues from Sabah.  We recognized that Petronas, as the custodian of the hydrocarbon resources in Sabah, was entitled to the lion’s share of any oil and gas revenues.  We proposed that the Arbitrator give us no more than 20% of those revenues; he awarded 15%.

We also had the option of seeking compensation from the outset of Petronas’s exploitation of Sabah’s hydrocarbon resources.  We chose, however, to ask for compensation only from 2013 – when Malaysia stopped making lease payments.

We asked for three heads of damages:

  1. i) payments for the period 2013-2020;
  2. ii) prospective payments from 2021-2044 (the latest year in which the oil price curve predicted oil prices for the purpose of estimating damages);

iii) a “terminal” value for the oil and gas, representing an estimate of its worth until it ran out.

The Arbitrator awarded (i) and (ii), but declined to award (iii) because he felt that damages that far out were too uncertain.

Read FAQ “Wasn’t that just a token rent?” below for a further study about inflation and valuations.