MISC Annual Report 2019

42. SIGNIFICANT EVENTS (CONT’D.) Material litigation (cont’d.) (i) Gumusut-Kakap Semi-Floating Production System (L) Limited (“GKL”) and Sabah Shell Petroleum Limited (“SSPC”) (cont’d.) SSPC refuted GKL’s claims and filed a counterclaim against GKL in the Arbitration for alleged defective work, alleged limited functionality of the Semi-FPS, liquidated damages and a refund of the full amount paid to GKL under the Adjudication Decisions. SSPC’s claims cover, among others, the following: i The sum of approximately USD588 million together with any applicable interest; ii Repayment to SSPC for the full amount paid to GKL under the First and Second Adjudication Decisions; and iii The costs and expenses of the Adjudication and Arbitration Proceedings. The hearing for the Arbitration from 25 February 2019 to 16 March 2019 has been concluded and parties have filed their respective closing submissions. The decision is expected to be delivered in 2020. GKL is of the view that GKL has a good legal position to succeed in its claims against SSPC and has a good legal position to defend SSPC’s counterclaims. The Arbitration and Adjudication initiated to resolve the contractual disputes will not have any impact on the operation of the Semi-FPS or the performance of the Contract, including the lease payments which continue to be paid by SSPC since October 2014. The lease period pursuant to the Contract remains intact and GKL continues to receive payment from SSPC for the relevant lease period. (ii) Malaysia Marine and Heavy Engineering Sdn Bhd (“MMHE”) and EA Technique (M) Berhad (“EAT”) MMHE, a subsidiary of the Corporation, had on 27 September 2018 received a Notice of Arbitration from EAT for a number of claims in relation to the contract entered into by MMHE in June 2015 for the Provision of Demolition, Refurbishment and Conversion of Donor Vessel into a Floating, Storage and Offloading Facility for Full Development Project, North Malay Basin, hereinafter referred to as the “Conversion Contract”. During the period of the contract, MMHE issued Additional Work Orders (“AWOs”) to EAT, claiming for payments for work done. Disputes and differences have arisen between the parties over the valuation of the invoices and AWOs issued. On 22 June 2018, EAT and MMHE entered into an agreement via a Letter of Undertaking (“LOU”) to settle the sums due under the invoices and AWOs. Under the LOU, the parties agreed to perform a joint review of the claims made by MMHE over a specified period. However, both parties were unable to reach an amicable settlement and as a result thereof, EAT initiated arbitration proceedings against MMHE to resolve the disputes. EAT’s claims totaling approximately USD21.7 million are in relation to over-payment of original contract value, sums paid under the LOU and costs incurred pursuant to the Conversion Contract. MMHE rejected EAT’s claims and issued counterclaims totaling approximately USD49.1 million representing payment for unpaid invoices, prolongation costs and additional variations to the original scope of work. Statement of Claim has been served by EAT and MMHE has responded with a Statement of Reply to EAT on 15 March 2019. The arbitration hearing had ended on 6 November 2019, and an oral submission will be provided by the legal counsels of MMHE and EAT on 24 February 2020. The outcome of the arbitration is scheduled to be awarded in the financial year 2020. MMHE is of the view that it has a good legal position to defend against EAT’s claims and has a good legal position to succeed in its counterclaims against EAT. 42. SIGNIFICANT EVENTS (CONT’D.) Material litigation (cont’d.) (iii) Kebabangan Petroleum Operating Company Sdn Bhd (“KPOC”) v MMHE MMHE had on 13 March 2019 received a notice of arbitration from KPOC in relation to claims arising from the Kebabangan (“KBB”) field project. KPOC claims that MMHE was and is in breach of the contract in respect of the appointed supplier of the valves per the contract. The actual valves procured were claimed to be defective and thus KPOC has suffered substantial loss and damage. Pursuant to the Statement of Claims by KPOC dated 13 October 2019, total claims of approximately RM93.1 million were made in relation to the replacement of the defective valves as follows: i Cost for assessment on the replaced valves, amounting to approximately RM17.2 million; ii Cost for assessment of valves to be replaced, amounting to approximately RM13.7 million; and iii Loss of revenue for planned facilities shutdown to replace valves, amounting to approximately RM62.2 million. The Group will vigorously defend the claims made by KPOC. As at the date of this report, MMHE has responded with a Statement of Reply to KPOC on 6 December 2019. As at the date of this report, the arbitration proceedings are at the discovery phase and hearing is scheduled for quarter four of the financial year 2020. MMHE is of the view that it has good legal position to defend against KPOC’s claims. NOTES TO THE FINANCIAL STATEMENTS 31 December 2019 NOTES TO THE FINANCIAL STATEMENTS 31 December 2019 FINANCIAL STATEMENTS MISC BERHAD PEOPLE. PASSION. POSSIBILITIES ANNUAL REPORT 2019 372 373