The latest chapter in the long-running dispute between the heirs of the Sultan of Sulu and the governments that inherited Britain’s 19th-century arrangements has produced a result that feels almost anticlimactic: an ICSID tribunal has ruled that the heirs’ claim against Spain cannot proceed because there was, quite simply, no “investment” in Spain to protect. Yet behind this technical conclusion lies a larger lesson about the limits of legal imagination in a world that likes to believe everything is globally enforceable, monetisable and territorially portable.
The background is dramatic enough for a political thriller. In 1878, the Sultan of Sulu granted what is now northern Borneo to a British-administered entity. When Malaysia succeeded that entity, it continued to pay the annual cession payments to the Sultan’s heirs - until 2013, when it abruptly stopped. The heirs responded by launching arbitration under the old agreement. When the British authority that historically appointed arbitrators no longer existed, they turned to the UK courts. When those refused to step in, they pivoted to Spain, arguing that Spanish courts must appoint an arbitrator to avoid a denial of justice.
The heirs argued that Spain could step in because the original British company had Spanish roots. The old British North Borneo Company had historical ties to Spanish-administered Sulu territory in the 19th century. The heirs used this history to claim that Spanish courts had jurisdiction to appoint an arbitrator in order to prevent a denial of justice. Spain’s High Court (Audiencia Nacional) accepted the heirs’ theory and appointed an arbitrator to kick-start the process.
After Malaysia challenged the process, arguing it had not been properly notified, Spanish courts reversed themselves. The arbitrator then moved the seat to France and ultimately issued an award worth US$18 billion. What followed was a cascade of litigation across Europe, Asia and international tribunals, including criminal proceedings against the arbitrator himself.
The heirs’ new theory was bold: by annulling the original appointment and taking subsequent actions, Spain had violated their rights as investors under the Spain–Malaysia Bilateral Investment Treaty. The “investments” they claimed? More than one million euros spent on Spanish legal counsel and the arbitral award itself - which, they argued, was a valuable asset linked to Spain’s judicial system.
The tribunal did not need many pages to reject this. The ICSID award makes the threshold issue painfully clear: investment treaties protect economic contributions made in the host state, not every activity tangentially linked to that state. Legal fees may buy legal services, but the dispute before ICSID did not concern those services. And an arbitral award may under certain circumstances qualify as an investment - but only when the award is tied to a project rooted in the host state’s territory. Here, the underlying project lay in northern Borneo, not in Spain. Whatever the historical footprint of the Spanish empire, the BIT applies only to modern Spain, not to its ghosts.
The heirs’ theory failed because it attempted to stretch the concept of “investment” beyond recognition. International arbitration may be expansive, but it is not limitless and tribunals are increasingly unwilling to be used as universal court systems for every grievance dressed in treaty language.
Yet the deeper significance of this case reaches beyond the narrow legal point. It highlights how easily the modern world confuses global reach with global entitlement. The heirs genuinely believed that the combination of international law, historical ties and creative jurisdictional engineering would provide a pathway to enforceability. Investors often operate under similar assumptions: that treaties neutralise political risk, that arbitration guarantees protection everywhere, that legal architecture can overcome geography.
But the decision reminds us that borders still matter. Jurisdiction still matters. And not everything that carries economic value automatically transforms into an “investment” deserving treaty shelter.
For investors, the lesson is uncomfortable but useful: rights do not travel as freely as capital does. If an asset, contract or award is not anchored to the host state in a way recognised by treaty law, the most sophisticated arbitration strategy will collapse under the weight of its own legal fiction.
For policymakers, it is another reminder that investment treaties are not catch-all safety nets. They were built to protect real, territorially grounded economic activity - not to serve as a backdoor for historical claims or procedural frustrations.
And for the broader moment we live in, the case stands as a small philosophical referendum on globalisation’s fading illusions. It signals a shift toward a more territorial, more cautious, more sovereignty-conscious world - one in which international adjudication is narrowing, not expanding. The dream of a frictionless legal universe where every wrong finds a forum is receding. What remains is a harsher landscape: sharper borders, stricter treaties and a growing insistence that claims must be rooted somewhere real.
The Sulu heirs did not lose because their story lacks moral weight. They lost because the modern legal order, even in its most internationalist forms, still insists on drawing lines. And in today’s geopolitical climate, those lines are getting brighter, not softer.
