In 1761, The East India Company concluded a treaty with the Sultan of Sulu. The following year, an English Fleet, under Admiral Drake and Sir William Daper captured Manila, the Capital of Spanish colony of the Philippines. They found in confinement there a Sultan of Sulu who, in gratitude for his release, ceded to the company, on the 12th September 1762, the island of Balambangan, and in January of the following year, Mr.Dalrymple was deputed to take possession of it and hoist the British flag.

Towards the close of 1763, the Sultan of Sulu added to his cession the northern portion of Borneo and the Southern half of Palawan, together with all the intermediate islands.

Against all these cession, the Spanish entered their protest. Spanish claimed the suzerainty over the Sulu Archipelago and the Sulu Dependencies in Borneo and the islands. This claim the Spaniards always persisted in, until on the 7th March 1885, a Protocol was entered into by England, Germany and Spain whereby Spanish supremacy over the Sulu Archipelago was recognised on condition of their abandoning all claims to the portions of the Northern Borneo which are now included in the British North Borneo Company's  Concessions.

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