The breach of contract suit filed by the Terengganu state government against Petroleum Nasional Berhad (Petronas) and the federal government must be resolved by a full trial to address the critical issue of oil royalty payment.

Counsel for Terengganu, Tommy Thomas said the dominant issue is why did Petronas and the federal government changed their minds after making a total of 45 oil royalty payments over a 22-year period.

"This is the critical issue that needs to be addressed by the court and not the ones identified by the appellants (Petronas and government) who claimed that the dominant issue involved the state's right over petroleum," he said.

He was submitting before Court of Appeal judges Mohd Nor Ahmad, Hashim Mohd Yusof and Richard Malanjum who are hearing Petronas' and the federal government's appeal against the Kuala Lumpur High Court's decision on Aug 29 last year dismissing their application for a summary judgment seeking the court to decide the case solely on documentary evidence.

Justice Ariffin Zakaria had ruled then that the matter be resolved by a full trial stating that if he was to accept the application to decide the case by just determining certain preliminary legal issues, the state would be prejudiced.

Cross-examination

Thomas argued that as the plaintiff in the action, the state should have the liberty to cross examine witnesses from Petronas and the government to establish the reason why the two had suddenly refused to make payments in 2001.

"We want to know what had happened from 1974 (when agreements between Petronas, the federal government and Terengganu were signed) to 2000 that led them to make the payments. And, why did they suddenly changed their stand in 2001."

"Such evidence can only be found in oral evidence. If the case is restricted to documentary evidence this issue will not be addressed properly and we (Terengganu) would be greatly prejudiced," he said.

Thomas also argued that the ambiguity of the agreements arose only after the appellants chose not to continue the payment - a decision made 25 years after the principal agreement was executed.

"Having caused the ambiguity in the first place , the appellants cannot now preclude us from adducing evidence as we see fit to resolve the ambiguity," he said.

Urging the court not to disturb the earlier decision, Thomas argued that the case is not a simple case which can be confined to the interpretation of laws and contracts.

Expert evidence

He said that expert evidence on the historical background of Terengganu and oil exploration was required in order to help the court determine issues on the state's sovereignty, territory and territorial waters.

"The laws on sovereignty and right to petroleum on land and on sea, do not exist in vacuum. The evidence to establish the fact of sovereignty and independence must be led. The historic position of Terengganu must be visited," he said.

Meanwhile, Justice Mohd Nor clarified that the question he posed yesterday on oil royalty payment was not to question the conduct of the executive.

"We are not here to question the executive's conduct. We posed the question because the issue is whether we need to look at the surrounding circumstances in order to interpret the documents," he said.

The appeal continues on July 19.

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. The discontinuation of the payment came at the heels of the 1999 general election in which opposition PAS took control of the state.

Lawyer Cecil Abraham is representing Petronas and senior prosecutor Mary Lim the federal government.

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