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MALAYSIA may have a reasonable chance of recovering money already paid under its cancelled Naval Strike Missile (NSM) programme, but securing compensation for wider strategic losses is likely to involve a lengthy and complex arbitration process, according to legal and defence experts.
The assessment comes as the government intensifies efforts to hold Norway and the companies involved accountable following the cancellation of an export licence that effectively derailed a key missile acquisition programme for the Royal Malaysian Navy.
Defence Minister Datuk Seri Mohamed Khaled Nordin has insisted Malaysia will seek compensation, arguing that the failed deal has cost the country not only substantial public funds but also valuable time in strengthening its maritime defence capabilities.
The dispute centres on losses reportedly exceeding RM1 billion after the NSM system, intended for the navy's Littoral Combat Ships and Lekiu-class frigates, could no longer be supplied following the revocation of the export licence.
Legal experts say the next phase of the dispute is likely to be determined by the contractual framework governing the acquisition.
Lawyer Matthew Thomas Philip told New Straits Times that arbitration would almost certainly become the principal avenue for resolving the matter and recovering payments already made.
"This will depend on the contract the government entered into, as parties typically agree to refer disputes to arbitration.
"The contract will usually stipulate which arbitration rules and governing laws apply, and these provisions will shape both the forum and the substantive basis for any recovery.
"Provided there is no fault on the part of the government, there will almost certainly be avenues for the recovery of monies already paid."
Philip said Malaysia could, in theory, pursue claims extending beyond direct financial losses, including disruption to defence planning, delays and lost opportunities. However, he cautioned that such claims often face significant legal and evidential hurdles.
"These are recognised heads of claim, though each will be subject to evidential proof before the forum.
"Whether they are ultimately recoverable will hinge on the terms of the contract and the governing law, since indirect or consequential losses are frequently restricted or excluded by express contractual provisions.
"As with all heads of loss, recognition in principle does not guarantee recovery in practice. The claimant must still establish causation and quantum to the forum's satisfaction."
The comments underscore the challenges facing Malaysia as it seeks accountability for a procurement failure that defence officials argue has affected more than just the government's balance sheet.
Mohamed Khaled has previously stressed that the consequences extend beyond financial losses, warning that replacing an advanced missile system involves years of procurement planning, technical integration and contract negotiations.
Defence analyst Ridzwan Rahmat said Malaysia's prospects of recovering sums already paid appeared relatively strong, but he expressed caution about expectations of broader compensation.
"Malaysia's chances of recovering the amount paid are reasonable, but Malaysia is seeking compensation beyond that. It will likely be subject to lengthy arbitration, where Malaysia will need to prove the damages incurred."
Ridzwan noted that international defence procurement disputes rarely result in compensation for opportunity costs or strategic planning disruptions.
"There is no known precedent for costs related to operational planning. I think Malaysia is entitled to what it has paid for, but compensation for opportunity costs is not very realistic.
"In comparable cases, states have typically recovered only amounts already paid."
He pointed to France's cancellation of a contract to deliver two Mistral-class amphibious assault ships to Russia in 2015 as one of the closest international comparisons.
The €1.2 billion agreement was terminated following Russia's annexation of Crimea, with France refunding payments and covering certain associated costs. However, compensation did not extend to broader strategic or opportunity losses.
That precedent may offer an indication of what Malaysia could realistically expect should arbitration proceed.
While the government appears determined to pursue compensation beyond direct financial reimbursement, legal experts suggest the central challenge will be proving that wider operational and strategic setbacks can be quantified and recovered under the terms of the original contract.
For Malaysia, the dispute has evolved into more than a procurement disagreement. It has become a test of whether countries can hold defence suppliers and exporting governments accountable when major military commitments are abandoned after contracts have been signed and substantial public funds committed. - June 2, 2026
