PUTRAJAYA (July 30): The Federal Court on Tuesday ruled against Prudential Corp Holdings Ltd and The Prudential Assurance Company Ltd in their bid to take full control of the company that owns Prudential Assurance Malaysia Bhd (PAMB).

In setting aside earlier decisions by the High Court and Court of Appeal, the apex court ruled that Detik Ria Sdn Bhd need not part with its 49% stake in Sri Han Suria Sdn Bhd, the owner of PAMB.  

Sri Han Suria is 50.99% owned by Prudential Corp and 49% by Detik Ria, while the remaining 0.01% is held by PCA IP Services Ltd.

The High Court in its decision in 2020, upheld by the Court of Appeal in 2022, ruled that there was nothing wrong in the enforcement of two put and call options agreements entered into by Prudential Assurance Company and Detik Ria, that would have allowed the disputed 49% stake to be passed to Prudential Corp and Prudential Assurance.  

In its decision, the Federal Court, led by Tan Sri Nallini Pathmanathan, ruled the two put and call agreements entered into by the companies between 2002 and 2009 to be invalid, as they did not have the approval of the finance minister as required under the now-repealed Insurance Act 1989.

“The court below erred in its decision that recognised the agreements without the minister's approval. It erred in relying on the approval from Bank Negara Malaysia (BNM),” she said.

Nalini, who sat with Datuk Seri Hasnah Mohamed Hashim and Datuk Harmindar Singh Dhaliwal, directed Detik Ria to return a sum in excess of RM109.205 million, being the agreed purchase price of Detik Ria’s shares by Prudential Corp Holdings and Prudential Assurance paid since 2018 with 5% interest.

In addition, Nalini said Prudential Corp and Prudential Assurance would be required to return 49% of the dividends that it had obtained from Sri Han Suria between 2013 and 2018.

Detik Ria’s lead counsel Tan Sri Tommy Thomas had submitted in court that the dividends paid between 2013 and 2018 amounted to RM2.72 billion, and hence Detia Ria should be given 49% of that sum.

Nalini in addition directed the two Prudential companies to pay costs of RM200,000.

Detik Ria had initially been ordered to pay RM55,000 costs by the High Court and RM50,000 costs at the Court of Appeal.

Tommy had submitted that Section 67 of the Insurance Act required acquisitions or disposals of shares in a licensee company above 5% to obtain the approval of the finance minister or BNM.

Nalini said the court recognised that approval was gained from the minister for the conditional put and call options agreement in 2002, but there no approvals were obtained from the minister thereafter.

Tommy, who appeared with Mervyn Lai and Pierre Chuar Kia Lin, told the apex court that it was agreed that the approval of the minister was not obtained in 2018, in the disposal of the 49% stake in Detik Ria shares that led to Detik Ria rescinding the put and call options agreement.

“Approval from the minister has to be gained before the disposal of the stake. Here, it is agreed that only BNM gave approval to complete the acquisition of the options shares in May 2018 and not the minister,” he said.

This, Tommy said, resulted in the agreement to be void, and hence Detik Ria was right to rescind it. The company had subsequently filed a counterclaim when the two Prudential companies filed the suit.

The two Prudential companies, represented by senior lawyers Datuk Dr Cyrus Das and Datuk Bastian Vendargon, had argued that the High Court and Court of Appeal decisions were correct.

They said that their clients had made the application to BNM to complete the acquisition of Detik Ria’s 49% stake in Sri Han Suria in 2018, and obtained the approval from the central bank in June 2019.

“It was only in 2018 that BNM with the approval of the Ministry of Finance had agreed to put forward the two options to fulfil the divestment requirements, namely either a disposal of shares in excess of 70% to domestic investors directly or via an initial public offering, or by cash contribution to a special insurance development trust fund,” they said.

“BNM’s 2018 approval is further evidence that the applicable law to complete the transaction as envisaged under the agreements in the Financial Services Act 2013 and not the Insurance Act 1996 which had by then been repealed,” they argued.

Tommy replied that it could not be that the Prudential company had a 70% stake mentioned previously as the agreement is deemed invalid, as Detik Ria still held the 49% stake and Prudential had still owed 0.5 % or RM541,371 of the purchase of its stake.

In the High Court decision, judge Datuk Ahmad Fairuz Zainol Abidin found that the two put and call option agreements entered between the parties in 2008 and 2009 to be conditional contracts that were conditional upon approval from BNM.

The judge ruled that there were no elements of illegality arising from the contracts, and that the conduct of the parties did not suggest that they were labouring under any mutual mistake, and hence the agreements were not void. 

https://www.theedgemarkets.com/node/720998