On May 12, 1888, while the Sulu Sultanate was in the midst of civil war, the British government entered an agreement with the British North Borneo Company to make North Borneo a "protected independent state." The said agreement also provided that "no cession or other alienation of any part of the territory of the State of North Borneo shall be made by its Government to any foreign state."
Earlier in 1885, the Madrid Protocol was signed by representatives of Spain, Great Britain, and Germany, deciding on the issue of the Sultanate of Sulu. As a result of their negotiations, the Spanish government renounced "all claims of sovereignty" over Borneo, particularly Sabah, including the islands of Balambangan, Banguey, and Malawili. Freedom of commerce and navigation was also established in the area. In exchange, the British and the Germans recognized Spanish sovereignty over Sulu.
While the 1851 treaty between the Spanish and the Sultanate of Sulu established the sovereignty of Spain over Sulu, mandated that Sulu raise the Spanish flag, and provided for the integration of the sultanate in the Philippines (the Spanish governor of Sulu assumed office thereafter), the 1878 treaty signed after years of warfare between Spain and Sulu Sultan Jamal ul-Azam went further by detailing which lands would be effectively occupied by the Spanish and which would be retained by the Sultan. Annual compensation was also provided for the Sultan and his officials "for the losses they incurred" during the conflict. These two treaties posed an issue on the international status of Sulu, and were taken into consideration in the protocol.
For one, Britain did not recognize Spanish sovereignty over Sulu, as did any other European nation at the time. They earlier made an agreement of "permanent lease" (pajak) with the sultan in 1878, and if Sulu loses its sovereignty over Borneo, so would the agreement be put into serious question. However, when the British established their North Borneo Company by 1881, and the British realized the military victory of Spain over the Sultan of Sulu, they soon expressed interest to discuss with Spain provided they will "renounce" all claims over Sulu's Borneo territories. Germany, which ships also went to Sulu, followed suit. British and German recognition of their sovereignty over Sulu was decided regardless of actual Spanish occupation status within the sultanate.
Notably, neither the Sultan nor any of his datus were party to the negotiations. In the long term, Spain honored this protocol. When the 1898 Treaty of Paris was concluded, the territory of the Philippines ceded to the United States stopped at Sibutu Island, with no inch of North Borneo territory included. This was reinforced by the subsequent Treaty of Washington. The issue over sovereignty, however, did not cease.
In 2022, an arbitration ruled by Dr. Gonzalo Stampa in Paris, France stated that Malaysia should pay the heirs of the Sulu sultan some USD 14.9 billion by virtue of the 1878 agreement with the British. It was lower than the initial claim of over USD 32.2 billion, which included estimates from oil income in the region, but it was nonetheless viewed as a legal victory within the sultanate. Malaysia reportedly stopped its "annual payment" of RM 5,300 after the 2013 Lahad Datu standoff, a payment supposedly seen as "cession money."
The Malaysian government, however, have publicly stated that they reject the decision. They added that Malaysia was not part of the proceedings. The decision supposedly violates their sovereign immunity, arguing that the 1878 agreement did not contain any provision regarding arbitration, and should therefore be decided in a Malaysian court, following a 2020 ruling by the High Court of Sabah and Sarawak.
Malaysia's bid in the Spanish High Court of Justice at Madrid to recognize the local decision which argued against the arbitration court's jurisdiction is pending to this day. Learn more about the history of Sulu and Mindanao:
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