updated version The Kuala Lumpur High Court today ruled that the breach of contract suit filed by the Terengganu state government against Petroleum Nasional Berhad (Petronas) and the federal government should be resolved by a full trial.

Justice Ariffin Zakaria, now a Court of Appeal judge, made the ruling after dismissing with costs the application by the federal government and Petronas for a summary judgment seeking the court to decide on the case based solely on documentary evidence without having to go for a full trial.

He said that the Terengganu state government's case would be prejudiced if he was to accept the defendants' (Petronas and the federal government) suggestion to decide the case by just determining certain preliminary legal issues arising from the Terengganu government's statement of claim.

After hearing all arguments by both parties, he said it was not fit and proper to proceed with the case under Order 14 and Order 33 of the Rules of the High Court for a summary judgment.

He also directed that the dispute involving the oil royalty payment agreement between the state and federal governments and Petronas, to proceed with its pre-trial case management. However, no date has been fixed.

The Terengganu government is suing Petronas for failing or refusing to pay RM850 million in cash for petroleum obtained in the first half of 2000.

Tommy Thomas acted for Terengganu, Cecil Abraham for Petronas and senior prosecutor Mary Lim for the federal government. Lim told the press that they will be filing for an appeal.

Former lord president Salleh Abas and Terengganu Deputy Menteri Besar Mustafa Ali were also present in court today.

Eight issues

In his decision, Ariffin said he agreed with the plaintiff that the eight preliminary issues presented by the defendants are very much orientated to the defence's case and if the court were to decide based on the issues alone, it would naturally be prejudicial to the plaintiff's case.

"In the light of the above I am of the consideration that it would be premature for me at this stage of the proceeding to come to the conclusion that such evidence is irrelevant to the issues before the court.

"To do so would be tantamount to shutting the plaintiff out from presenting its case in the best possible way it chooses. That would be a serious inroad into the judicial process," he said.

He also agreed with the plaintiff's argument that the evidence relating to the factual background leading to the execution of the two agreements between the state government and Petronas is highly pertinent to the interpretation and construction of the two agreements.

Therefore, he added, the Terengganu state government should be allowed to call its witnesses to testify before a trial judge.

Among the eight issues the defendants wanted the court to determine include the state's right, under any law, to petroleum obtained adjacent to its coast, as spelled out by the Petroleum Development Act 1974 and the execution of the agreement dated March 22, 1975 between the state government and Petronas.

Another issue the court was asked to consider was whether the state vests any rights to petroleum obtained off its coast via the vesting instrument and the March 22, 1975 agreement.

(The vesting instrument signed by the then Terengganu menteri besar on March 22, 1975, declares that the ownership and exclusive rights, power, liberties and privileges vested shall be irrevocable and shall inure for the benefit of the state government and its successors).

Estoppel

They also questioned whether the state was entitled to payment in respect of petroleum obtained off its coast.

In addition, the defendants also wanted the court to decide whether Petronas can apply the estoppel doctrine to the Terengganu government so that it will not continue to expect to receive payment from Petronas for the oil obtained off its coast.

Petronas claimed that it need not make any payment to Terengganu because the oil was obtained outside the state's territorial waters. It also claimed that there was no agreement to confer the state of its right to receive payment for petroleum recovered outside the state's territory.

In a separate defence, the federal government claimed that all payments to Terengganu since 1978 must be deemed as wang ehsan (goodwill payment).