MISC Annual Report 2017

NOTES TO THE FINANCIAL STATEMENTS MISC BERHAD | Annual Report 2017 312 42. SIGNIFICANT EVENTS Material litigation (i) Gumusut-Kakap Semi-Floating Production System (L) Limited (“GKL”) and Sabah Shell Petroleum Limited (“SSPC”) On 9 November 2012, MISC’s wholly-owned subsidiary, GKL entered into a Semi FPS Lease Agreement with SSPC, a wholly- owned subsidiary of Shell, for the construction and lease of Gumusut-Kakap Semi-Floating Production System (“Semi-FPS”) for the purposes of the production of crude oil (“the Contract”). On 2 September 2016, GKL filed a Notice of Arbitration dated 2 September 2016 with the Kuala Lumpur Regional Centre for Arbitration to commence arbitration proceedings against SSPC and on 23 September 2016, GKL filed a Notice of Adjudication against SSPC under Construction Industry Payment and Adjudication Act (“CIPAA”) 2012 (“Legal Proceedings”). The Legal Proceedings were commenced to seek resolution on contractual disputes covering claims for outstanding additional lease rates, payment for completed variation works and other associated costs under the Contract. Among others, GKL claimed the following from SSPC: i. The total sum of approximately USD245.0 million and applicable interest at any rate deemed fit by the tribunal/adjudicator; ii. Declaratory relief; iii. The costs of the arbitration/adjudication; and iv. Any further or other awards as the tribunal/adjudicator deems fit. Adjudication Proceedings: Following the Adjudication Proceedings, an Adjudication Decision has been issued in GKL’s favour on 10 February 2017 and GKL was awarded, amongst others, the total sum of USD254,447,464.00 being the amount due for variation works undertaken by GKL (“First Adjudication Decision”). SSPC has paid a lump sum of USD69.3 million on 27 February 2017, being the outstanding amount of increased Day Rates due since April 2014 until end February 2017 (together with interest). The balance amounts are payable by SSPC as increased Day Rates for the relevant lease period. Subsequently, GKL issued a second Notice of Adjudication against SSPC on 25 April 2017 for USD12.4 million (later revised to USD10.9 million) for further completed variation works. On 29 August 2017, the Adjudicator awarded GKL for payment of further completed variation works amounting to approximately USD10.9 million, whereby a total of approximately USD3.8 million of outstanding increased Day Rates have been paid by SSPC as lump sum payments (“Second Adjudication Decision”). The balance amounts are payable by SSPC as increased Day Rates for the relevant lease period. The Adjudication Proceedings have now closed. Nevertheless in the Arbitration Proceedings, SSPC has claimed for repayment of the full amount paid to GKL under the First Adjudication Decision and the Second Adjudication Decision. GKL continues to preserve/defend the Adjudication decisions rendered, throughout the Arbitration Proceedings.