The Sulu Claim to Sabah: Historical Basis, the 2013 Lahad Datu Incursion and Current Status

A single Malay word written into a colonial-era contract in 1878 still shapes a live diplomatic dispute, a deadly 2013 armed incursion, and a multi-billion-dollar arbitration that reached courtrooms in Madrid, Luxembourg, The Hague and Paris. That word is padjak, and how it is translated sits at the heart of whether Sabah was leased or given away.

What did the 1878 agreement actually say?

In 1878 the Sultan of Sulu, Jamalul Alam, entered into an agreement with two European merchants, Gustavus Baron von Overbeck and Alfred Dent, conveying rights over territory in North Borneo — the area that is now the Malaysian state of Sabah. The English translation of the instrument is dated 22 January 1878; the arbitration record notes that a Spanish translation carries a different date, a point that has itself been contested. In return, the merchants and their successors agreed to an annual payment to the Sultan and his heirs. The original instrument specified a payment of five thousand dollars a year; the Malaysian government records this today as an annual cession payment of RM5,000.

The rights later passed to the British North Borneo Company, then to British colonial administration, and the annual payment continued to be made. According to the Malaysian government, the payment ran from 1878, was interrupted in 1936 following the death of Sultan Jamalul Kiram II — when the rightful heirs could not be determined — and later resumed once heirs were identified. Malaysia continued the payment until it was terminated following the 2013 armed incursion.

The dispute turns on the word padjak in the original text. Depending on the translation, era and translator, it has been rendered as lease, pawn, mortgage or cession — and each reading points to a different conclusion about who holds sovereignty.

Why do Malaysia and the Philippines read it differently?

The two governments draw opposite conclusions from the same document.

Question	Philippine position	Malaysian position
Nature of the 1878 agreement	A lease; sovereignty was retained by the Sultanate	A cession; sovereignty was permanently transferred
Significance of annual payments	Evidence of continuing rent under a lease	Cession money paid to the heirs, not rent
Status of Sabah today	Subject to an unresolved Philippine claim	An integral state of the Federation of Malaysia

The Philippines has characterised the agreement as a lease under which sovereignty was retained, and points to the continued annual payments as supporting that reading. Malaysia holds that the transaction was a cession that permanently transferred the territory. This article does not adjudicate between these positions; it sets out both.

How does the 1963 formation of Malaysia fit in?

Sabah became part of Malaysia when the Federation was formed in 1963, following a process that included the Cobbold Commission and a United Nations assessment mission examining the wishes of the population. Malaysia and much of the international community treat that process, and Sabah’s subsequent status as a Malaysian state, as settling the matter.

The Philippines took a different view of that process. By accounts of Manila’s position, the Philippines did not treat the 1963 exercise as extinguishing its claim, which it regarded as unresolved. The claim has since remained largely dormant but has never been formally withdrawn.

What happened at Lahad Datu in 2013?

The dispute turned violent in early 2013. On 11 February 2013, an armed group landed by sea at Kampung Tanduo in the Lahad Datu district of eastern Sabah. The group described itself as the “Royal Security Forces of the Sultanate of Sulu and North Borneo” and was linked to Jamalul Kiram III, one of the claimants to the Sulu throne. Its stated purpose was to assert the Sulu claim over eastern Sabah. The group has been described variously in reporting as insurgents, militants, gunmen or intruders.

After more than two weeks of standoff and negotiation, Malaysian security forces moved against the group. Malaysia reported that in the fighting that followed:

• At least 68 members of the armed group were killed.
• 10 members of the Malaysian security forces lost their lives.

The incursion had lasting consequences inside Malaysia. It prompted the establishment of the Eastern Sabah Security Command (ESSCOM) on 1 April 2013, which Malaysia’s Ministry of Home Affairs describes as a direct response to the Kampung Tanduo incident, and it sharpened public and political sensitivities in Sabah around security and undocumented migration. Malaysia’s termination of the annual payment to the Sulu heirs followed this episode.

What was the USD 14.92 billion arbitration?

Separately from the state-to-state sovereignty question, a group of eight individuals claiming to be heirs of the Sultan of Sulu pursued a private commercial arbitration against Malaysia, arguing that the suspension of payments breached the 1878 agreement.

• The High Court of Justice of Madrid appointed the arbitrator, Dr Gonzalo Stampa, in May 2019.
• Dr Stampa issued a preliminary award on jurisdiction and applicable law on 25 May 2020.
• A final award of approximately USD 14.92 billion was issued on 28 February 2022.

The claimants then sought to enforce the award abroad. In July 2022, court bailiffs in Luxembourg seized two Luxembourg-based subsidiaries of Malaysia’s national oil company, Petronas, on the claimants’ behalf; that seizure was later set aside by a Luxembourg court in January 2023. Malaysia characterised the award as invalid and a violation of its sovereign immunity, and challenged both the arbitration and its enforcement in multiple jurisdictions.

Where does the dispute stand now?

Malaysia’s court challenges have largely succeeded. Key milestones recorded by the Malaysian government and arbitration reporting include:

• The Hague / Netherlands (June 2023, upheld September 2024): The Hague Court of Appeal declined to enforce the final award, and the Supreme Court of the Netherlands ruled in Malaysia’s favour on 6 September 2024.
• Paris (June 2023): Malaysia won in the Paris Court of Appeal in relation to the earlier award.
• Madrid (December 2023): the Madrid Criminal Court found the arbitrator, Dr Stampa, guilty of contempt of court, in connection with his continuation of the proceedings after moving the seat of arbitration from Madrid to Paris against orders of the Spanish courts.
• Paris Court of Appeal (9 December 2025): the final award was annulled in full, with the court finding the 1878 arbitration clause inapplicable because its reference to a colonial-era British consular official — treated as indivisible from the parties’ consent to arbitrate — no longer existed. The court also ordered the claimants to pay costs.

Prime Minister Anwar Ibrahim described the outcome as bringing a challenge to Malaysia’s sovereignty to an end.

It is worth separating two distinct threads. The arbitration concerned a contractual money claim by private individuals, and its annulment removes that financial exposure. The broader sovereignty question — the formal Philippine claim to eastern Sabah — is a separate state-to-state matter that the arbitration outcome does not resolve. Sabah remains administered as a Malaysian state; the Philippine claim remains on record but inactive.

What’s next

The financial dimension has narrowed sharply following the December 2025 annulment, though enforcement and cost-recovery steps may continue in various jurisdictions. The underlying sovereignty question is unlikely to be formally settled in the near term, as neither government has moved to renounce or concede its position. Readers tracking developments should watch official statements from the Malaysian and Philippine foreign ministries, further court rulings on any residual enforcement attempts, and security arrangements in eastern Sabah. This article is a neutral overview and not legal advice; it presents the recorded facts and the differing positions without endorsing either.