Sabah 40% Revenue Appeal: Court Sets Nov 12 to Fix Decision Date

A 48-Year Revenue Dispute Awaits Judgment

The Court of Appeal in Kota Kinabalu has reserved judgment on the Federal Government's challenge to a ruling requiring a review of Sabah's constitutional special grant for 1974 to 2021, a period when the state received RM26.7 million annually. Case management is scheduled for November 12, 2026, to fix the date of the decision.

The three judges heard more than three hours of submissions on October 29, 2026. The appeal concerns findings that constitutional duties went unfulfilled for 48 years, the validity of review arrangements and the courts' power to require the federal and Sabah governments to reach an agreement within a deadline.

Senior federal counsel Ahmad Hanir Hambaly @ Arwi said Putrajaya accepts Sabah's constitutional right to the 40 per cent formula under Article 112C and to a review under Article 112D. The Federal Government is challenging the High Court's findings of constitutional breach and the orders made to address them.

Justice Datuk Azhahari Kamal Ramli chaired the panel alongside Justices Datuk Ahmad Kamal Md Shahid and Datuk Amarjeet Singh. Explaining why the panel would reserve its decision, Justice Azhahari said:

We are not in a position to decide this afternoon. We need time to consider the submission. We will set a case management to fix a decision date.

The November 12 session will take place through the court's e-Review system. A stay granted on April 6, 2026, continues to suspend implementation of the High Court ruling, including its deadlines, while the appeal is pending.

What the High Court Ordered

The Kota Kinabalu High Court ruled for the Sabah Law Society (SLS) on October 17, 2025. It declared that the Federal Government's failure to conduct the required reviews of Sabah's special grant since 1974 was unconstitutional.

The court ordered both governments to conduct a review within 90 days and reach an agreement within 180 days on the entitlement for 1974 to 2021. Its mandamus order, a court instruction requiring a public authority to perform a legal duty, sought to turn the constitutional entitlement into an enforceable process.

The High Court also ordered relief involving payment or constitutional damages and a statement of accounts to SLS. A statement of accounts would provide financial information needed to establish the amount involved. Constitutional damages are money awarded as a remedy for a breach of constitutional rights.

The Federal Government subsequently appealed. Its challenge, registered as case S-01(A)-549-11/2025, covers the findings concerning those years, the review process, the resulting remedies and the High Court's jurisdiction.

Why the 1970 Order Matters

Ahmad Hanir argued that the 1970 First Review Order remained legally effective until the 2022 Review Order replaced it. He relied on Article 112D(3) to defend the annual RM26.7 million payments made between 1974 and 2021 as lawful.

Putrajaya's argument separates the continued legal force of an existing payment order from the question of whether another review should have occurred. Federal counsel maintained that correspondence and meetings kept the review process going, even though no new review order was gazetted between 1974 and 2022. Gazetting means formally publishing an order so that it takes legal effect.

SLS counsel David Fung Yin Kee argued that letters and meetings could not amount to the review required by the Constitution. He described 1974 to 2021 as a constitutional gap lasting 48 years.

The competing positions place a concrete question before the judges: whether payments under an older order fulfilled the Federal Government's obligations during decades when no replacement order was issued.

Can a Court Set a Deadline for Agreement?

The 180-day deadline is another central point of dispute. Ahmad Hanir argued that the Constitution gives the two governments room to negotiate and sets no deadline for reaching agreement. In his submission, imposing one effectively rewrote the Constitution.

Federal counsel also said the review must consider the Federal Government's financial position and Sabah's needs alongside the 40 per cent formula. Putrajaya's position is that accepting the constitutional entitlement still leaves a process of negotiation over the special grant.

Fung defended the deadline as a necessary response to almost five decades without a completed review for the disputed period. SLS wants an effective remedy for the breaches found by the High Court, rather than a declaration followed by negotiations without a firm endpoint.

The appeal therefore concerns both the duty to review and the extent of judicial power to make that duty happen. For Sabah, the practical difference is whether a court can require a timetable for agreement after finding that constitutional obligations were left unfulfilled.

Why an Independent Assessor Was Never Appointed

Article 112D(6) provides a mechanism for appointing an independent assessor when the governments reach a deadlock. Federal counsel argued that the High Court had improperly bypassed that constitutional route.

Sabah Attorney-General Datuk Brenndon Keith Soh answered that the mechanism requires an ongoing, formally convened review. He argued that the failure to hold the required review in 1974 meant the condition needed to appoint an assessor never arose.

Explaining why Sabah had not activated the mechanism during the disputed years, Soh said:

Because the Federal Government failed to hold the mandatory 1974 review in the first place, the constitutional prerequisite to appoint an assessor was never met, leaving the state without a legal avenue to trigger the deadlock mechanism.

The argument turns on when an assessor becomes available. Putrajaya pointed to the assessor as the constitutional way to resolve disagreement; Sabah said that route depended on a formal review beginning first.

Who Can Bring the Case?

The Federal Government also questioned SLS's legal standing, meaning its right to bring the proceedings. Ahmad Hanir argued that the dispute had effectively become one between the federal and Sabah governments, and challenged the High Court's jurisdiction to hear it.

Justice Amarjeet questioned whether SLS, rather than Sabah's elected government, was the proper party to seek constitutional remedies for the state. He also raised concern about the scope for similar challenges to decisions or failures to act by previous state administrations.

Fung defended the society's role in public interest litigation. He argued that Sabah's government had reserved its rights for decades without bringing legal action, leaving SLS to seek judicial intervention for the people of Sabah. He described the court as the guardian of the Constitution.

SLS President Datuk Mohamed Nazim bin Maduarin said the society respected the court's role in deciding the appeal while maintaining that Sabah's constitutional rights must receive practical effect. SLS's appeal team comprises Fung, Jeyan T.M. Marimuttu, Janice Junie Lim, Grace Liew Yung Enn and Vanessa Maria Marimuttu.

Sabah Defends Its Rights and Interim Arrangements

Sabah's government broadly supported the finding that the required review had not taken place when it should have. Soh explained that the state entered the judicial review as a directly affected party rather than initiating the proceedings.

The state also opposed quashing the interim review arrangements for 2022, 2023 and 2024. It wanted those arrangements to remain operative while the constitutional dispute was resolved.

Soh argued that Articles 112C and 112D should be read together. He also questioned whether the five-year review interval was mandatory in the way the High Court had treated it, while maintaining Sabah's position that the required review had not occurred at the proper time.

Soh cited an agreement on the second review reached in 2021 and announced jointly by then prime minister Datuk Seri Ismail Sabri Yaakob and Sabah Chief Minister Datuk Seri Hajiji Noor. Sabah's position combines a claim concerning the earlier decades with a desire to preserve the more recent arrangements.

How the Payments Have Changed

Sabah received a special grant of RM26.7 million annually from 1974 through 2021. Across those 48 years, that amounts to RM1.2816 billion in nominal payments, calculated by multiplying the annual payment by 48.

Following the 2021 review, allocations rose to RM125.6 million for 2022, RM129.7 million for 2023, RM133.8 million for 2024 and RM138.1 million for 2025. The 2025 figure was about 5.2 times the annual payment maintained during the disputed period.

Prime Minister Datuk Seri Anwar Ibrahim agreed to an interim special grant of RM1.5 billion for 2026. That is approximately 10.9 times the RM138.1 million allocated for 2025, showing the scale of the change in the interim arrangement.

Anwar, who is also finance minister, announced that Sabah would receive RM18.7 billion in the 2027 budget. That figure was presented as a budget allocation for Sabah; the special grant figures concern the particular constitutional payment at the centre of this case.

The amount ultimately payable for 1974 to 2021 has yet to be settled. SLS argued that the failure to review the grant and provide sufficient funding had affected Sabah's development. A financial accounting and the constitutional review process are central to establishing the claim.

The Dates Behind the Appeal

The proceedings connect an order dating from 1970 with a High Court judgment in 2025 and an appeal heard in 2026. The main stages are:

• 1970: The First Review Order established the arrangement that Putrajaya says remained legally effective until 2022.
• 1974 to 2021: Sabah received RM26.7 million annually during the 48 years now under dispute.
• 2021: The two governments reached an agreement on the second review, according to Sabah's attorney-general.
• 2022: A new Review Order replaced the earlier order, according to the Federal Government's argument.
• October 17, 2025: The High Court ruled for SLS and ordered a review and agreement within specified deadlines.
• April 6, 2026: The Court of Appeal stayed implementation pending the appeal.
• October 29, 2026: The appeal panel heard submissions and reserved judgment.
• November 12, 2026: Case management is scheduled to fix the judgment date.

The next scheduled step is procedural: setting a date for the decision. The judgment will address the challenged findings and remedies, including how the review obligations for the disputed decades can be enforced.

Key Points

• The Court of Appeal has reserved judgment and set November 12, 2026, to fix a decision date.
• Putrajaya accepts Sabah's constitutional 40 per cent formula but challenges findings of breach and the High Court's remedies.
• The disputed period covers 1974 to 2021, when Sabah received RM26.7 million annually.
• The appeal includes arguments over review deadlines, SLS's standing, court jurisdiction and an independent assessor.
• Sabah wants its constitutional claim addressed while preserving interim review arrangements.
• The High Court ruling remains stayed pending the appeal, and the amount payable for the disputed years is unsettled.