MISC Integrated Annual Report 2020

43. SIGNIFICANT EVENTS (CONT’D.) (a) Material litigation (cont’d.) (ii) Malaysia Marine and Heavy Engineering Sdn Bhd (“MMHE”) and EA Technique (M) Berhad (“EAT”) MMHE, a subsidiary of the Group, had on 27 September 2019 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 2019, 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. MMHE received the Final Award dated 10 November 2020 on 11 November 2020 on the arbitration proceedings. The Arbitral Tribunal ordered EAT to pay MMHE a total of USD29.5 million and costs in the sum of RM4.7 million (together with interest at 5% per annum from date of Award to the date of full payment). Under the Final Award, MMHE is not liable to pay any sum to EAT. On 4 December 2020, EAT applied to the Tribunal to make a determination on certain defences in respect of specific AWOs which the Tribunal had allegedly omitted to address in the Final Award and to make corrections to the Final Award pursuant to Section 35 of the Arbitration Act 2005 (“Correction Application”). The Arbitral Tribunal invited submissions from the parties in respect of the Correction Application and on 12 January 2021, the Tribunal dismissed EAT’s Correction Application. On 14 December 2020, EAT applied to Court to refer questions of law arising from the Final Award pursuant to Section 42 of the Arbitration Act 2005 (“Reference Application”). On 8 February 2021, MMHE applied to Court to summarily dispose the Reference Application pursuant to Order 14A of the Rules of Court 2012 (“Summary Disposal Application”). In that circumstances, the Court directed for the Summary Disposal Application to be disposed first before the Reference Application. On 26 January 2021, EAT applied to Court to set aside the Final Award pursuant to Section 37 of the Arbitration Act 2005 (“Setting Aside Application”). MMHE informed the Court that it would be filing an application for EAT to pay the sum awarded to MMHE into Court pending the disposal of the Setting Aside Application. In that circumstances, the Court directed for the Payment into Court and Transfer Applications to be disposed first before the Setting Aside Application. As of the date of this report, the Reference Application and Setting Aside Application and the interlocutory proceedings filed thereunder are still ongoing. In parallel to the Arbitration, MMHE also referred part of its claim in the Arbitration to Adjudication proceedings pursuant to the Construction Industry Payment and Adjudication Act 2012 (“CIPAA”). In the 1 st Adjudication Decision dated 27 May 2019, the Adjudicator awarded MMHE the sum of USD21.5 million. In the 2 nd Adjudication Decision dated 2 December 2019, the Adjudicator awarded MMHE the sum of USD6.1 million. EAT has applied to set aside and/or stay the 1 st and 2 nd Adjudication Decision and MMHE has applied to register and enforce the Adjudication decisions in High Court. The High Court, on 1 June 2020, dismissed EAT’s Setting Aside Application and allowed MMHE’s Enforcement Application for the 1 st Adjudication Decision. The Court on 27 October 2020 dismissed EAT’s application to stay the 1 st Adjudication Decision CIPAA Award. On 2 July 2020, EAT served to MMHE sealed Notices of Appeal to the Court of Appeal dated 26 June 2020, seeking to appeal against the High Court’s decision in dismissing the 1 st Setting Aside Application and allowing MMHE’s 1 st Enforcement Application. EAT’s appeal is fixed for Hearing on 6 July 2021. 43. SIGNIFICANT EVENTS (CONT’D.) (a) Material litigation (cont’d.) (ii) Malaysia Marine and Heavy Engineering Sdn Bhd (“MMHE”) and EA Technique (M) Berhad (“EAT”) (cont’d.) In view that MMHE was successful in respect of 1 st Setting Aside and/or Stay and the 1 st Enforcement Application, MMHE, on 2 November 2020, presented a Winding Up Petition against EAT. In turn, EAT filed an Affidavit to oppose the Winding Up Petition and also filed an application to strike out the Winding Up Petition. Both the Winding Up Petition as well as EAT’s striking out application will be heard on 3 March 2021. In respect of the setting aside, stay and enforcement applications for the 2 nd Adjudication Decision, the hearing was initially fixed on 24 February 2021 but has been subsequently vacated by the Court in view of the extended Movement Control Order. Parties are in the midst of fixing a replacement hearing date. As legal proceedings are still ongoing, MMHE is of the opinion that the amount granted in the Final Award is not yet certain and have not recognised any additional income from the Final Award in the current financial year. (iii) Kebabangan Petroleum Operating Company Sdn Bhd (“KPOC”) v MMHE MMHE, a subsidiary of the Group, had on 14 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 RM93.2 million were made in relation to as loss and damage in respect of the valves procured by MMHE. The arbitration has commenced with evidentiary hearing concluded on 19 January 2021. The Tribunal directed KPOC and MMHE to file and exchange written submission on or before 2 March 2021 and then to file and exchange reply submission on or before 2 April 2021. Both are to file and exchange their rebuttal submission purely responsive on cost on or before 9 April 2021.The Tribunal will then hear the oral submissions on 14 April 2021. Apart from the Arbitration, MMHE reserves its right to pursue any other legal actions as may be permitted under Malaysian law, including, if appropriate, to seek indemnity from the ultimate supplier of the said valves. MMHE is of the view that it has a fair chance to defend against KPOC’s claims and therefore has not made any provisions in respect of this claim. (b) Impact of the COVID-19 pandemic The COVID-19 pandemic has not materially affected the financial performance, financial position, cash flows and liquidity of LNG Asset Solutions and Offshore Business segments in the current financial year. However, the Petroleum & Product Shipping segment’s financial performance in the second half of the financial year was affected by the lower freight rates due to the impact of the pandemic on global oil demand. Additionally, the Marine & Heavy Engineering business was also impacted by the COVID-19 pandemic. The brief shutdown of yard operations, prolonged border control measures and the introduction of Standard Operating Procedures (“SOPs”) under the new normal have resulted in extended duration to the segment’s on-going heavy engineering projects and lower repair jobs in the marine segment. As a result, the segment recorded an impairment loss on the property, plant and equipment and right-of-use assets of RM300.0 million and suffered direct and indirect costs associated to COVID-19 in the current financial year. The assumptions used in the impairment assessment is disclosed in Note 14 to the financial statements. In terms of receipts from customers, the Group has not experienced significant increase in receivables turnover days in the current financial year as a result of the pandemic. As at 31 December 2020, the Group recorded net current asset position of RM6,808.2 million and cash, deposits and bank balances of RM6,855.0 million. Accordingly, the Group has the ability to continue as a going concern as of the date of this report. 31 December 2020 NOTES TO THE FINANCIAL STATEMENTS 31 December 2020 NOTES TO THE FINANCIAL STATEMENTS 10 464 10 465 /// Leadership / Governance / Financial Statements / Additional Information / Annual General Meeting ////// /// Leadership / Governance / Financial Statements / Additional Information / Annual General Meeting ////// Section Section MISC Berhad / Integrated Annual Report 2020 MISC Berhad / Integrated Annual Report 2020