What High Court S 40pct Revenue Ruling Means For Sabah

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KINIGUIDE | The High Court’s decision in Kota Kinabalu has been called historic - but what did it really say about Sabah’s 40 percent revenue?
Here’s what you need to know.
Who filed the suit and why?
The judicial review was initiated by the Sabah Law Society in 2022. The Sabah government then applied to join as an additional respondent.
They argued that Putrajaya had breached its constitutional duty to pay Sabah 40 percent of federal revenue collected from the state.
What's the basis for this argument?
For decades, those two articles have been at the centre of the fight over Sabah’s rights under the Malaysia Agreement 1963 (MA63).
Article 112C of the Federal Constitution says Sabah is entitled to 40 percent of the federal revenue collected from the state. Article 112D requires the federal and state governments to review the grant every five years.
But what these clauses truly meant, and how they should be applied - has long been debated between MA63 activists, constitutional lawyers, and successive attorneys-general in both Sabah and Putrajaya. Until now, there had been no definitive legal interpretation.
What did the High Court decide?
Judge Celestina Stuel Galid ruled that the federal government’s failure to conduct a review since 1974 was unconstitutional.
She said the word “shall” in Article 112D makes it a mandatory duty - not a matter of choice. The federal and state governments were required to meet every five years to review the grant and recalculate Sabah’s share. That never happened.
The court held that Sabah’s 40 percent entitlement is a binding constitutional right, not something to be negotiated politically or delayed indefinitely.
What are the ‘lost years’?
The “lost years” refer to the 48-year period between 1974 and 2021 when no review took place. During that time, Sabah continued to receive a fixed sum of RM26.7 million a year while the federal revenue collected from the state kept growing.
This was the sum decided in 1969 and gazetted under the “1970 review order”.
The order was only revoked in 2022 when a new order for progressively increasing payments was gazetted.
Celestina found this deeply problematic, saying the federal government had failed to produce any evidence of reviews or meetings during the lost years.
How did the court interpret the Constitution?
The federal government had argued that the 1970 review order remained valid until revoked, meaning there was no breach. The court disagreed.
Celestina called that argument “unreasonable and absurd” because the constitution clearly says each review must reflect the financial position “at the time of the review”.
She said it would be wrong to read the clause in a way that allows the government to delay reviews forever.
The judge also ruled that the founding documents of Malaysia, the Cobbold Commission, the Inter-Governmental Committee (IGC) Report, and MA63, must guide how these articles are read, since they explain why the 40 percent clause exists: to help Sabah fund its own development and reduce inequality.
What orders did the court make?
The court quashed three federal review orders, from 2022, 2023, and 2025, declaring them unlawful and ultra vires the Constitution because they were made without a proper review process.
It also issued a mandamus order, directing the federal government to hold a genuine review with the Sabah government within 90 days, and reach an agreement within 180 days of the judgment.
Why does this ruling matter so much?
This is the first time a Malaysian court has ruled on what Articles 112C and 112D really mean.
It confirmed that the 40 percent share is a constitutional obligation, not a political favour or financial discretion.
It also recognised that the federal government’s decades-long failure to conduct reviews amounted to a breach of constitutional duty.
By anchoring its interpretation in MA63, the court also reaffirmed that the financial safeguards promised to Sabah in 1963 still carry legal force today.
What happens next?
Putrajaya’s lawyers said they would appeal the decision. But unless the ruling is stayed, the federal government must begin a new review process with Sabah within the 90-day timeline.
That process will likely determine how much the state is owed for those “lost years”, a figure that could reach into the billions.
Whatever happens next, the judgment has already changed the national conversation: the 40 percent entitlement is no longer an argument between lawyers and politicians, it’s now a matter of constitutional fact. - Mkini

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