How does the discovery of oil and gas reserves affect the value of a 150-year-old land leasing agreement? Not a simple question, but that was the primary issue raised by heirs to a Bornean sultanate against the government of Malaysia in a recent international arbitration brought before Madrid’s Superior Court of Justice. Brattle’s experts developed a methodology to value the economic benefits Malaysia receives from oil and gas reserves and the development of palm oil plantations in this disputed territory, leading to one of the largest arbitration settlement amounts in history.
In 2019, a Brattle team, led by Principals Carlos Lapuerta and Richard Caldwell, was retained by 4-5 Gray’s Inn Square and B. Cremades y Asociados on behalf of eight Philippine nationals who – as legal heirs to the last Sultan of Sulu – sought to renegotiate an 1878 agreement originally made between their ancestors and European explorers, which Malaysia inherited the rights to in 1963.
The agreement allowed access to the natural resources in a geographical region that is now part of Sabah, Malaysia, in exchange for annual lease payments. Malaysia continued to make annual payments until the area experienced political unrest in 2013. That year, Malaysia terminated the lease, prompting the heirs to seek as much as $32 billion in damages for the broken agreement.
Brattle’s experts constructed a comprehensive model to estimate the economic benefits obtained by Malaysia from the exploitation of the natural resources of the leased area, principally oil and gas, and palm oil. Based on its assessment of the economic benefits obtained by Malaysia, Brattle developed a damages estimate consistent with the relevant legal claims, which were associated with Malaysia’s unilateral termination of the 1878 Lease Agreement.
Brattle’s analysis was the exclusive basis on which the Tribunal calculated the final monetary award in February 2022, in which Malaysia was ordered to pay the claimants $14.92 billion, plus interest and costs.