PUTRAJAYA (Sept 22): The Court of Appeal on Monday set aside an interim injunction obtained by Shell MDS (Malaysia) Sdn Bhd from the Kuala Lumpur High Court in January that had allowed Shell MDS to halt monthly payments for gas supplied by national oil gas company Petronas, following competing invoice claims from Petroleum Sarawak Bhd (Petros).
The court also lifted a separate injunction imposed by the High Court that had required Petronas to continue supplying gas to Shell MDS throughout the period, and had allowed a bank guarantee to be withheld.
The appellate bench, led by Datuk Azimah Omar, ordered Shell MDS to pay Petronas the outstanding amounts owed from August 2024 up to Oct 5, with the payment due by Oct 6.
Petronas had claimed that Shell MDS owed it between RM70 million and RM80 million per month since August 2024. The amount owed, including interest, may reach close to RM1 billion.
The second judge on the appellate bench, Datuk Wong Kian Kheong, who read out the unanimous decision, said Judicial Commissioner Arziah Apandi was wrong to grant the injunctions because there was no breach of agreement by Petronas, as the national oil company had continued to supply gas to Shell MDS.
Wong said Petronas had always acted according to the gas supply agreement signed with Shell MDS, and that there was no reason to grant the interlocutory relief, pending the resolution of the dispute between Petronas and Petros.
There is also "less risk of injustice" if Petronas is not compelled to continue to supply gas without being paid, Wong said.
“Accordingly, we set aside the June 6 decision and all payments are due to the appellant (Petronas). The court also ordered an early disposal of the interpleader summons (dispute between Petronas and Petros),” he said.
By ordering the early disposal of the interpleader summons, a proceeding that forces two or more parties to settle a dispute over a single claim, the court wants the legal conflict between Petronas and Petros to be resolved quickly.
Wong added that Shell MDS would be shielded from double claims if a suit is filed against it, as Petronas would be obligated to repay it if it was in the wrong.
Shell MDS and Petros ordered to pay costs
The three-member appellate bench, which also includes Datuk Ismail Brahim, also ordered Shell MDS to pay RM50,000 in costs to Petronas, while Petros was ordered to pay RM30,000 to the national oil company.
Shell MDS had sought the injunction to stop monthly payments for the gas supply until the dispute between Petronas and Petros was resolved. The injunction also directed Petronas to continue to supply the gas to Shell MDS. Shell MDS also obtained an injunction barring Petronas from utilising its bank guarantee for the gas payments.
The High Court injunction was granted after Shell MDS received competing invoices of RM80 million each from Petronas and Petros. Petros has been the sole gas aggregator for Sarawak since last year.
In making her decision, Arziah said that Shell MDS was facing "immediate risks and threats of disruption" to its gas supply, with monthly payments in the region of RM70 million to RM100 million, due to its involvement in two separate gas supply agreements, one with Petronas (signed on July 17, 2020), and the other with Petros (signed on Aug 16, 2024).
Shell MDS, she also noted, had attempted to mitigate the situation by offering to set aside payments in an interest-bearing account pending the dispute resolution. However, Petronas had proceeded to call on the bank guarantee, the judgement read.
Petronas' argument
During proceedings on Monday, Petronas' lead counsel Datuk Dr Cyrus Das argued that the High Court's decision had prejudiced the national oil company, as it had always operated the facility to supply gas to Shell MDS, a capability that Petros does not have.
He said Petronas had been supplying gas to Shell MDS throughout the years due to its gas supply agreement and had not stopped even after Petros "came into the picture".
“Before the filing of the interpleader summons (between Petros and Petronas), Petronas had not cut supply. Was there a breach of the existing contract or legal rights (on Shell) for it to refuse to make the payments?
Das argued that Shell MDS did not meet the threshold under the Rules of Court 2012 to show a breach of obligation, as Petronas had continued to supply gas and was now at a loss of more than RM80 million monthly by not receiving payments since the injunction.
He added that Petronas suffered the hardship of continuing to supply gas to the Bintulu facility for Shell MDS. Das claimed the High Court was "completely wrong" because it failed to consider the "balance of hardship" in the case.
Co-counsel Khoo Guan Huat further pointed out that Shell MDS had brought the liability upon itself when it signed the agreement with Petros. He cited case law stating that an entity cannot create its own liability. He also pointed out that the gas was supplied from a single pipeline managed by Petronas and that Petros had admitted to not having the capacity to manage it.
Shell MDS counsel Christopher Leong, who appeared with Janet Chai Pei Ying, countered that the High Court injunction was correct because his client was issued two invoices, so they had to seek a payment halt to reduce the threat of a double claim. He argued that the dispute should be resolved between Petronas and Petros before any payments are made.
“Shell MDS do not want to be caught in a war, in the exercise of discretion," he said, adding that one of the facts being disputed was between Petronas and Petros.
Petros counsel Logan Sabapathy and Foo Joon Liang, who opposed the lifting of the injunction, cited the ongoing dispute between Petronas and Petros that is pending at the Kuching High Court.