There is not a day that goes by without breaking news on escalating tensions in the South China Sea, as regional powers like Vietnam, the Philippines, and Malaysia increasingly contest China’s efforts to exert dominance of the strategic waterway through which moves a fifth of global trade. Yet, beneath these rising tensions, the spectre of European colonialism lurks undetected.

The unexpected link between present-day tensions and past misdemeanors comes through a seemingly obscure international legal dispute which last February resulted in an award of nearly $15 billion against the government of Malaysia, on behalf of nine heirs to a colonial-era Sultanate in the Sulu region of the Philippines.

The award is not only the second largest of its kind in the history of international legal arbitrations but it may also be linked to current geopolitical tensions in the region in surprising ways. According to former NATO analyst Maurizio Geri, the lawyers for the Sulu heirs are closely tied to U.S. tech giants competing with China to dominate subsea cabling routes through which pass the world’s Internet data.

Geri claims that apart from traditional trade routes, control of the global Internet is the real prize at stake in the South China Sea. Indeed, in early May, U.S. and EU officials wrote urgently to Malaysia citing risks to national security and foreign investment due to a Malaysian review which could gift China’s Huawei a major role in building Malaysia’s 5G network.

He argues that with the Sulu heirs’ case being financed by unidentified Western investors through the third-party litigation funding firm Therium Capital, might exacerbate Malaysian perceptions of Western hostility to Malaysia’s national interests.

Flawed history

But the case itself is based on flawed readings of the history of Spanish and British colonialism in the region. The Sulu heirs rest their case on an 1878 colonial-era land deal in which the sultan supposedly leased his territory in the Sabah region of present-day Malaysia to two British colonists, Alfred Dent, and Baron de Overbeck, for the sum of around 5,000 Malayan dollars a year. Malaysia paid the fee until an armed invasion of Sabah by followers of the Sulu heirs in 2013, which resulted in 71 people being killed.

The decision of the arbitrator in the Sulu heirs’ case is premised on the assumption that the 1878 treaty is the real legal foundation of modern Malaysia’s sovereignty over the North Borneo region containing what is today known as Sabah.

But it isn’t. The lawyers treated the 1878 treaty, which is the entire basis of the case, as a commercial private lease agreement. But in reality, the historical record proves it was an artifact of British colonial strategy because the Sulu Sultanate never exerted sovereign control over North Borneo in the first place and therefore did not really hold the legal authority to cede or lease the land.

Colonial games

According to the late American historian Leigh R. Wright, an expert in the history of Borneo and other areas around the South China Sea at the University of Hong Kong, the previous year Dent and Overbeck had already signed a treaty with the Sultan of Brunei, ceding them sovereignty over North Borneo involving “sale of land, rights, and people of the area” in return for paying Brunei $15,000 (Malaya) a year. Both the Americans and the British at the time believed that North Borneo was controlled by the Sultan of Brunei.

As Wright observes, it was only “as an afterthought that Baron von Overbeck went to Sulu for a grant of the area” after being told by the acting British Consul-General in Brunei that they claimed the northeast coast. Diplomatic correspondence between the U.S. government, the British Foreign Office, and the Sultan of Brunei confirms that in the 1880s the U.S. believed it was the Sultan of Brunei, not the Sultan of Sulu, who had legitimately ceded sovereignty to the British North Borneo Company.

The British colonists knew that neither the Sulu nor Brunei exerted full sovereignty over the region – “chaotic conditions along the coasts and the weakness of Brunei and Sulu prevented either state from maintaining control over the area.”

Other historians agree with this verdict. In his University of Michigan study, Edwin Barber concludes that in 1878, the Sultan of Sulu “was in a shaky legal position and an even shakier political position.” The area he laid claim to “was a wild and sparsely-inhabited stretch of coastline which acknowledged a spiritual submission to him, but not much more. His claim even to this rather uninviting area was challenged by Brunei, and he cannot have derived much revenue from it because of his lack of control over it. Therefore, Overbeck’s offer of annual payments in return for a British-guaranteed presence must have seemed a golden opportunity.”

Cession or lease? A modern dichotomy

The Sulu heirs’ case also makes much of the idea that the 1878 case was a “lease” agreement, not a “cession” of sovereignty – relying on a particular translation of the old Malay term, ‘padjak.’ The problem is that these are modern terms. As Barber also observes, distinctions at the time between how this term was used “may not have been so precise as in the present day.” He argues that the treaty itself seems to imply a transfer of sovereignty because it specifies that Overbeck and Dent will hold the lands granted to them “forever and until the end of time.”

He also cites R. H. Leary writing in a 1963 edition of Far Eastern Economic Review, who pointed out that the annual payment was not a rent, but “a pension to compensate for the loss of – in theory – income-producing lands. There is nothing strange about this; it was standard practice, and surely it was a good bargain for a sultan to receive a regular and secure income simply for signing away a hunk of useless jungle.”

Both the 1877 and 1878 treaties, then, illustrate not a legitimate transfer of sovereignty, but a British colonial strategy to negotiate with competing local rulers, neither of whom really controlled North Borneo. The idea was simply to neutralise any indigenous opposition to the British North Borneo Company fully exploiting the land and its resources for its own benefit.

So, when the British signed the treaty with the Sultan of Sulu, they had done so purely as an afterthought just to make sure they had done whatever was necessary to appease the natives.

Colonial fictions rocking the legal and geopolitical landscape

This means that the entire basis of the Sulu heirs’ claim is little more than colonial-era fiction. Malaysia’s sovereignty as a nation does not derive from defunct colonial-era agreements with the British – but rather from anti-colonial struggles against British rule culminating in the merger of previously separate political entities.

This of course raises questions about the entire legal case. Why does a Spanish arbitrator in a French court believe they have jurisdiction to decide complex and hotly disputed matters of colonial history in a region which today has nothing to do with them – and about an issue that remains the subject of historical debate?

This sets a dangerous precedent for international law because if entire modern-day legal cases can be built by superimposing modern-day fantasies and concepts onto historical colonial transactions, this opens the door to all sorts of abuse. The Sulu heirs can use their award to seize Malaysian government assets in up to 167 states who are signatories to the New York Convention. They have already seized assets of Malaysia’s state-owned energy firm, Petronas, in Luxembourg, and have attempted to seize Malaysian diplomatic buildings in Paris.

If Malaysia’s sovereignty can be undermined on the basis of colonial treaties that preceded it, what is preventing similar considerations from undermining modern-day sovereign states in former colonial territories? What is stopping the Philippines from claiming the rest of the old Sulu grant in Indonesian Kalimantan? Or Brunei from demanding it be granted control of Sabah and Sarawak? Or various African countries demanding that boundaries be withdrawn to reclaim ancient tribal lands? Where does it stop?

With the 1878 treaty also underlying the Philippines’ historical territorial claims over Sabah, the new $15 billion award against Malaysia could reignite these claims, sparking new tension between the two countries at a time of increasing instability in the South China Sea. Although the Philippines at first distanced itself from the Sulu case and its implications for the Philippines’ historic claim on Sabah, later official statements left it entirely open as to whether the latter might be revived.

This could have seismic consequences. The Sulu case could drive a wedge between Malaysia and the Philippines exactly when the U.S. needs potential allies in the region to provide a force of unity against Chinese encroachment.