The Court of Appeal today reserved judgment in the appeals brought by Petroleum Nasional Berhad (Petronas) and the federal government against a High Court's dismissal of their application for the determination of preliminary legal issues in the oil royalty suit.

According to a Bernama report, the three-member panel led by Justice Mohamed Noor Ahmad (now promoted to Federal Court judge), Justices Richard Malanjum and Hashim Yusoff made the decision after hearing submissions from Petronas counsel Cecil Abraham and Senior Federal Counsel Azahar Mohamed.

Petronas and the federal government are appealing against a High Court's decision on Aug 29 last year which held that the suit brought against them by the Terengganu government, was not a fit and proper case to be proceeded under Order 14A or Order 33 of the Rules of the High Court (to deal on preliminary issues alone).

High Court judge Arifin Zakaria (now a Court of Appeal judge) in his judgment, had agreed with the Terengganu government's submissions that it (the Terengganu government) should be given the opportunity to proceed with the suit and call its witnesses to give evidence before a trial judge.

RM850m in question

The Terengganu government is suing Petronas for wrongfully failing or refusing to make the cash payment totalling more than RM850 million in Sept 2001 for petroleum obtained off the coast of the state for the first half of 2000.

Petronas and the federal government sought a consequential order to strike out the suit filed against them on March 8 2001 in the event the court decides in their favour.

Petronas, in its defence, claimed that it need not make any payment to Terengganu because the oil was obtained outside the state's territorial waters. In a separate defence, the federal government claimed that all payments to Terengganu since 1978 must be deemed as "wang ehsan" (special payment).

Azahar, in asking the court to allow their appeal, submitted that the questions posed related to legal issues of sovereignity, jurisdiction and territorial limits of the boundary of Terengganu and were pure questions of law.

He said calling witnesses would not assist the court in deliberating on the matter because these issues were matters to be determined on the construction of historical documents and legislation including the Federal Constitution.

Core issue

He urged the court to make full use of the provisions of Order 33 and 14A of the High Court Rules 1980 to resolve the suit as such recourse would avoid the court's resources and time being spent on a lengthy and prolonged trial.

Azahar said the core issue was whether Terengganu had any rights over petroleum in the continental shelf prior to its vesting of those rights on Petronas and that the court's decision on these issues would definitely solve the whole case.

Earlier, Abraham submitted that the fact that payments had been made for about 22 years to Terengganu did not mean that as a matter of law, Petronas must continue to make such yearly payments into the unforeseeable future, when the underlying constitutional and legal basis on which the yearly payments were made, was challenged.

"The facts of this case are not complicated. The simple facts that cannot be disputed are as follows: Petronas has made payments in the past to the state of Terengganu. It has stopped making such payments as from March 2000. Terengganu states that this is in breach of contract.

Petronas says it is not by reason of, inter alia, the fact that the payments, past and future, are ultra vires the Petroleum Development Act 1974.

"These are all the facts relevant to determine the dispute. No trial in order to ascertain any further facts is useful or necessary. If Petronas' defence fails, then it will be in breach. If it succeeds, the Terengganu government cannot succeed on any of its causes of action," Abraham said.