The Sultanate Of Sulu Case Shows The Litigation Funding Industry Is Abusing The Global Legal System

The Sulu case, also known as “The Sulu Fraud,” demonstrates how the pursuit of profit through litigation funding can lead to baseless and extortionate claims against sovereign nations. As I told EU officials during my recent visit to Brussels, Malaysia’s first-hand experience reinforces the need for robust regulation of third-party funding to uphold the integrity of the legal system and prevent similar abuses in the future.

Read my article with Euronews:

THE Government of Malaysia is engaged in a $14.92 billion (€13.85bn) legal dispute that challenges the sovereignty of the country.

The matter involves a group of individuals self-proclaiming to be heirs to the defunct Sultanate of Sulu, Jamalul Kiram II, who received an arbitration award in February 2022 following their claim that Malaysia is in breach of a colonial-era land treaty involving North Borneo or Sabah, which today is an indisputable part of Malaysia.

Since then, Malaysia has faced an arduous and ongoing battle, incurring significant costs and the deployment of government resources to thwart the claimants’ frivolous claims and protect over 16% of our national budget.

Malaysia’s position is unwavering — the case represents sophisticated abuse of the arbitration process that has no basis in law, and is nothing more than an attempt to extort a sovereign nation. I call this “The Sulu Fraud”.

Profit ahead of justice

One may question what relevance this case has to third-party litigation funding and the EU’s proposed regulation of the funding industry.

The reality is that the Sulu case would not exist today without the involvement of a litigation funder, Therium, in bankrolling the claimants and their lawyers. Until today, we do not know how much the funder has spent. We do not know how the funder came to be involved.

And we do not know how the funder came to an arrangement with a group of individuals who largely reside in the Philippines. However, we do know that they are putting profit ahead of justice.

When an industry becomes worth several billion dollars, one begins to question whether access to justice remains a central tenet or if it is simply a convenient soundbite.

The litigation funding industry has boomed in recent years across the world. According to some research, Europe’s share of the global litigation funding market is projected to reach nearly 16% of a total of $18bn (€16.7bn) by 2025.

It has been suggested that the global market could surpass $57.2bn (€53bn) by 2035, as the number of individuals and corporations seeking financial investment in order to pursue legal claims grows exponentially.

I understand that litigation funding plays a pivotal role in providing access to justice. In legal disputes around the world, litigation costs can easily add up due to legal fees, the costs of going to court, and often other unforeseen costs when a party intends to litigate.

However, when an industry becomes worth several billion dollars, one begins to question whether access to justice remains a central tenet or if it is simply a convenient soundbite.

It is evident that litigation funders are betting significant amounts with the hope of collecting a handsome share of the winnings.

As funding agreements are commonly made in secret, counterparties involved in a dispute, including a judge, may be unaware of what funding is in place, where the money originates, and any potential conflicts of interest that may subsequently arise, unless in rare circumstances where the funded party voluntarily make the necessary disclosure.

Funding as a tool to wage legal warfare

The opaque nature of the litigation funding sector is a crucial factor in explaining why policymakers around the world should be concerned.

Funding can serve as a tool through which claims receive funding, where the pursuit of justice is tainted by ulterior motives.

This is even more true when a sovereign state is involved — whether on the receiving end of vexation claims or ultimately acting as a funder themselves to wage legal warfare.

Malaysia’s experience of the Sulu case allowed us to see up close the violation and damage that resulted from the funding of vexatious claims.
Therium has turned a blind eye to a series of irregularities that have always been at the core of the Sulu case.

These include the sentencing to jail of the arbitrator responsible earlier this year, Mr Gonzalo Stampa, who received over $2.7 million (€2.5m) from Therium for issuing the $14.92bn final award.

Recent decisions from the Paris Court of Appeal and the Hague Court of Appeal revealed that the tide has turned in Malaysia’s favour and the attempts to seize the country’s sovereign assets have also been fought off.

That being said, it remains to be seen as to whether transparency and ultimately justice will prevail.

It’s time to put a stop to the misuse of third-party funding

As the European Parliament’s proposed regulation of third-party funding demonstrates, we cannot continue with the status quo. I have emphasized this during the series of bilateral meetings in my recent official visit to Brussels.

I have expressed our interest in understanding in greater detail the European Parliament’s proposed regulation on third-party funding — a regulatory framework that we champion wholeheartedly as a result of the Sulu case.

The bilateral meetings, among others, acknowledged the proliferation of abuses in arbitration, especially in light of the regulatory vacuum in the third-party litigation funding industry.

The time is ripe for transnational cooperation to combat the misuse of third-party funding solely for profit-orientated purposes, which subverts the pursuit of justice.

In this respect, robust safeguards are urgently required to prevent abusive practices, curb excessive profit-seeking at the expense of justice, and introduce comprehensive oversight mechanisms as the sector matures.

I encourage our EU counterparts to move forward with their efforts to regulate the litigation funding industry, as it is only through concerted global actions and coordinated efforts of global leaders that abuses of the global legal system could be prevented. – euronews

AZALINA OTHMAN SAID serves as Minister of Law and Institutional Reform in the Government of Malaysia.