KUALA LUMPUR (Jan 8): Contraves Advanced Devices Sdn Bhd (CAD) and Contraves Electrodynamics Sdn Bhd (CED) — subcontractors of the RM9.13 billion littoral combat ship (LCS) project awarded to Boustead Naval Shipyard Sdn Bhd (BNS) — have dropped their lawsuit against BNS over the termination of their contracts.
Boustead Heavy Industries Corp Bhd (BHIC), the parent company of BNS, announced in a bourse filing on Monday that CAD and CED filed a notice of discontinuance with the High Court last Thursday to drop the suit. As such, BNS had, on the same day, withdrawn its application to strike out the lawsuit.
No reason was provided for the discontinuance of the lawsuit.
The Edge Malaysia weekly reported in April 2023 that BNS had reached a settlement agreement with both CAD and CED, citing a term sheet it saw. According to the report, BNS was to pay CAD roughly RM464.33 million as settlement to resolve commercial issues between them regarding the LCS project.
CAD and CED initiated the lawsuit against BNS in October 2022 to claim for outstanding payments, and a declaration that the contracts awarded to them were not void, two months after BNS terminated the letters of award (LOAs) issued to them in August 2022. CED is a wholly-owned unit of CAD, a 51:49 joint venture between BHIC and Germany’s Rheinmetall Group.
The two subcontractors were the recipients of 12 LOAs from BNS for the procurement, engineering, integration and supply of equipment and weaponry to build six LCS.
It is understood that BNS terminated CAD and CED as intermediaries of the project to allow BNS to negotiate directly with the relevant original equipment manufacturers. This came amid allegations of misconduct, illegality and fraudulent dealings in relation to the LOAs issued to the subcontractors, in the wake of the Public Accounts Committee report on LCS project delays and cost overruns.
In response, CAD and CED initiated the legal action, demanding that BNS settle the alleged outstanding amount of over RM444 million.
Apart from BNS and BHIC, other defendants named in the suit were BHIC’s wholly owned BHIC Defence Technologies Sdn Bhd and its two directors, Dr Salihin Abang and Vice Admiral (Retired) Datuk Syed Zahiruddin Putra Syed Osman.
BHIC, in the meantime, is in the midst of selling its 20.77% stake in BNS to Minister of Finance Inc for RM1, as the government wants to assume full control of the LCS project, which BNS had failed to deliver on time.
But the planned disposal has yet to be completed. BHIC announced last week that the conditional period for the sale had been extended for a fourth time to Jan 31, 2024, as the parties involved require more time to fulfil some conditions precedent.
Among the conditions precedent is the execution of a conditional inter-company trade receivables reorganisation agreement between BHIC and BNS to settle the repayment of RM383.94 million or any other amount owed by BNS to BHIC. Other prerequisites involve obtaining the necessary written consent from BNS' lenders and BHIC's financiers or creditors.
BHIC shares closed unchanged at 51.5 sen on Monday, giving the group a market capitalisation of RM287.81 million.