KOTA KINABALU: Sabah’s decades-long fight for its constitutional rights culminated in a landmark judgment that exposed the Federal Government’s failure to honor the 40% Special Grant Entitlement promised under the Malaysia Agreement 1963.

On Oct 17, the High Court granted the application for Judicial Review filed by Sabah Law Society (SLS) under Order 53 of the Rules of Court 2012 against Federal Government and Sabah government as first and second respondent, respectively.

The judgment reaffirmed Sabah’s fiscal rights and directed the Federal Government to conduct a new review within 90 days and to reach an agreement with the State Government within 180 days to fulfil the entitlement.

The court allowed the application and granted the reliefs as prayed for in paragraph 112 of enclosure 101 with amendments to prayer 3(a):

“An order of mandamus directed to the 1st Respondent to hold another review with the 2nd Respondent under the provisions of Article 112D of the Federal Constitution to give effect to the Federation making the 40% Entitlement to the State of Sabah under Article 112C read with subsection (1) of section 2 of Part IV of the Tenth Schedule of the Federal Constitution for each consecutive financial year for the period from 1974 to 2021 within 90 days and to reach an agreement within 180 days from the date of this order.”

Following the delivery of the judgment, counsel for SLS informed the court that after the July 2025 hearing, a Federal Government Gazette publication P.U. (A) 271/2025 dated August 24, 2025, had been issued. The order, titled “Federal Constitution [Review of Special Grant Under Article 112D] [State of Sabah] Order 2025,” stated:

“Special grant”

(1) For the period of eight years with effect from 1 January 2022, the Government of the Federation shall make to the State of Sabah, in respect of the financial years 2022, 2023, 2024, 2025, 2026, 2027, 2028 and 2029 grants in the amount of RM125.6 million, RM300 million, RM306 million, RM600 million, RM600 million, RM600 million, RM600 million and RM600 million respectively.

(2) In respect of the financial year 2022, the grant of RM125.6 million was paid by the Government of the Federation to the State of Sabah on 16 June 2022

(3) In respect of the financial year 2023, the grant of RM300 million was paid by the Government of the Federation to the State of Sabah on 16 June 2023 (RM129.7 million) and 28 November 2023 (RM170.3 million).

(4) In respect of the financial year 2024, the grant of RM306 million was paid by the Government of the Federation to the State of Sabah on 11 June 2024 (RM300 million) and 19 August 2024 (RM6 million).

the complete written judgment of the High Court

Revocation

The Federal Constitution (Review of Special Grant under Article 112D) (State of Sabah) Order 2023 [P.U. (A) 364/2023] is revoked.

SLS applied for this Review Order be also included in prayer (1), namely for the grant of certiorari to also include the Gazette Publication P.U. (A) 271/2025 dated August 27, 2025. While the Sabah Attorney-General, representing the Sabah Government, did not object, the Senior Federal Counsel, representing the Federal Government, opposed the inclusion, stating that it was not part of the court’s original consideration.

The court, however, held that excluding the Review Order would be inconsistent with its judgment. Prayer (1) was therefore granted as amended to read:

“An order of certiorari to move into the High Court for the purpose of quashing such part of the decision contained in Gazette publication P.U.(A)119/2022 dated 20.04.2022, Gazette Publication P.U.(A) 364/2023 dated 24.12.2023 and Gazette publication P.U.(A) 271/2025 dated 27.08.2025 as is or implied to decide and publish that the duty respondent is otherwise then is as declared under p 2(a) and 2(b) herein.”

“Although learned SFC was correct to state so, I took the view that it would be untenable to exclude this Review Order as it would be inconsistent with the whole of this Court’s Judgment and the prayers granted herein,” said Celestina adding that given the significance and importance of this application to all parties herein, she made no order as to costs.

The 109-page judgment contains the court’s reasoning in coming to its decision and is divided into the following sub-topics: (i) The proceedings at the leave stage; (ii) Salient background facts; (iii) What is the 40% Entitlement?; (iv) The remedies and orders prayed for by SLS; (v) The respective parties’ cases in a nutshell; (vi) Preliminary issues; (vii) This Court’s decision on the merits (of the application); and (viii) Conclusion and orders.

UNDERSTANDING THE 40% ENTITLEMENT

In her written judgment, Celestina clarified that the 40% Entitlement stems from Article 112C and Section 2(1), Part IV of the Tenth Schedule of the Federal Constitution (FC), guaranteeing Sabah a special annual grant by the Federation of Malaysia to the State of Sabah in respect of each financial year.

This 40% Entitlement is to be contrasted from the other grants provided in Part VII of the Federal Constitution which sets out the financial provisions and the financial management of the Federation applicable to all States.

This includes the following:

(i) Development Grant – the Federation is required to pay into a fund known as the State Reserve Fund (“SRF”) in respect of every financial year as may be determined to be necessary and may make grants out of the SRF for the purpose of development or generally to supplement its revenues.

(ii) State Taxes, fees and other revenue the FC allocates certain taxes and revenues to be collected by the States. Article 110(1) of the FC provides that the States shall receive all proceeds from taxes, fees and other sources of revenue specified in Part III of the Tenth Schedule as far as collected, levied or raised within the State.

The judgment also stated that based on exhibits, over and above the grants provided in Part VII of the Federal Constitution, the State of Sabah received the 40% Entitlement from 1964 to 1968.then described as “Share of growth of Federal Revenue Derived from Sabah” in the following sums:

(i) 1964-RM4,965, 167.00
(ii) 1965-RM8, 199,340.00
(iii) 1966-RM13,271,238.00
(iv) 1967-RM22,178,172.00
(v) 1968-RM21,097,923.00