KUALA LUMPUR (Aug 18): The High Court has ruled in favour of Prudential Corp Holdings Ltd and The Prudential Assurance Company Ltd in their suit against Detik Ria Sdn Bhd and one of its shareholders, Tan Sri Abdul Rahim Din, over a dispute involving a 49% stake in Sri Han Suria Sdn Bhd (SHS).
In October last year, The Edge reported that Prudential is suing Detik Ria and Abdul Rahim for allegedly refusing to part with their 49% stake in SHS.
SHS is the owner of Prudential’s licensee in Malaysia, Prudential Assurance Malaysia Bhd (PAMB), in which Prudential Corp owns 50.99%, Detik Ria 49%, while the remaining 0.01% is held by PCA IP Services Ltd.
Today, High Court Judge Datuk Ahmad Fairuz Zainol Abidin found 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 Bank Negara Malaysia.
Therefore, the judge found 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.
Ahmad Fairuz then ordered Detik Ria and Abdul Rahim to pay RM25,000 in total costs to Prudential, which is half of the RM50,000 sought by the company.
The court, however, did not allow Prudential's claim of indemnity.
Prudential was represented by former Federal Court judge Datuk Seri Gopal Sri Ram while Detik Ria and Abdul Rahim were represented by Datuk Zamani Ibrahim.
The background of the case
According to Sept 17 and 18, 2019 court documents sighted by The Edge, on Feb 27, 2002, The Prudential Assurance Company and Detik Ria entered into a call/put option agreement whereby both parties agreed to grant various call and put options to each other in respect of the shares in SHS.
On Dec 15, 2008, Detik Ria issued a notice of exercise of option to sell its 49% stake in SHS to The Prudential Assurance Company for RM114.12 million.
However, on Sept 9, 2009, The Prudential Assurance Company and Detik Ria entered into a supplementary call/put option agreement where it was agreed that the completion date of the put option was deferred because the former was not able to complete the purchase of all the option shares at the time due to the prevailing regulatory policies in Malaysia relating to foreign shareholding.
Recall that in 2009, Bank Negara Malaysia set the threshold for foreign ownership of Malaysian insurers at 70%. At the time, the central bank said a foreign equity limit of more than 70% for insurers would be considered on a case-by-case basis for players who could facilitate the consolidation of the insurance industry.
The parties then entered into a supplementary memorandum of deposit where it was agreed that Detik Ria’s shares in SHS would be charged in favour of The Prudential Assurance Company and that Detik Ria was merely holding the 49% stake in SHS for and on behalf of Prudential Corp and The Prudential Assurance Company.
By virtue of the supplementary call/put option agreement, Detik Ria received an upfront payment of RM69.3 million. From May 6, 2009 up to July 26, 2019, the cumulative sum of the benefit it has received is RM109.2 million.
However, say the court documents, after 10 years of receiving part-payment of the purchase price in the exercise of the put option, Detik Ria, in an April 30, 2018 letter, stated that it wished to rescind the exercise and maintain its 49% stake in SHS. It added that it will refund the total payment received plus interest at a reasonable rate.
In response, Prudential informed Detik Ria that the voluntary exercise of the put option in 2008 was valid and irrevocable and that no grounds existed for its rescission. It also stated that the Prudential group intends to complete the acquisition of the put option shares once the requisite regulatory approvals have been obtained.
In a letter dated June 10, 2019 to Prudential Corp Asia (which is Prudential plc’s group regional head office in Asia) and Detik Ria, Bank Negara said it had no objection to Prudential Corp’s application to complete the acquisition of Detik Ria’s 49% effective interest in PAMB with immediate effect.
In the same letter, the central bank said that in June 2018, it was notified of Detik Ria’s intention to maintain its shareholding in SHS and had requested that the parties resolve the issue expediently.
On July 24, 2019, Prudential Corp Asia received a letter from Detik Ria that said the methodology for the computation of the put option price for the 49% stake as set out in the call/put option agreement and the amended supplementary call/put option agreement was misleading and unreasonable.
Detik Ria also said the valuation of its 49% equity interest should have been significantly higher and that it would retain the stake in SHS and repay Prudential the monies received following the exercise of the put option at a reasonable interest rate.
Detik Ria said it was prepared to pay Prudential RM1.766 billion, which it claimed was a fair price for the 49% stake in SHS.
Prudential responded to Detik Ria’s letter by stating that the latter had not provided any grounds to substantiate its allegation that the valuation of the shares was misleading and unreasonable.
Prudential also said that since Bank Negara had stated that it had no objection to the acquisition, the share transfer form and the director’s resignation letter had to be executed as soon as practical for the completion of the acquisition of the shares, and in compliance with the agreements drawn up by the parties.