More Details on BNS/BHIC Legal Woes

The LCS major equipment detailed by RMN in 2016. RMN graphic

SHAH ALAM: More details on BNS/BHIC legal woes. As part of its annual report, Boustead Heavy Industries Corporation Bhd, the publicly listed engineering subsidiary of Boustead Holdings Bhd, published the legal actions taken against the company for its shipbuilding activities. The shipbuilding activities is undertaken by its associate company, Boustead Naval Shipyard. For the record, BHIC posted a loss for the 2022 financial year.

Anyhow, BNS is facing two legal action: the first one is by MTU Services Sdn Bhd and Contraves Advanced Devices Sdn Bhd (“CAD”) and Contraves Electrodynamics Sdn Bhd (“CED”). For the second legal action, BHIC ,BHIC Defence Technologies Sdn Bhd (“BHICDT”) and two directors are also named as defendants.

The MTU case:

BNS was served with winding up petition on 3 July 2020 by Plaintiff. By the Petition, MTU Services (Malaysia) Sdn Bhd (“MSM”) alleges that BNS is indebted to them for the total sum of RM56.0 million for the equipment supplied and services provided to BNS.
On 11 August 2020, BNS has then filed an interlocutory application to Stay/Strike Out the Winding Up Petition filed by MSM on a few grounds.
On 29 March 2021, the Judge has allowed for BNS’s Application to Strike Out the Petition. MSM filed an appeal on 21 April 2021. However, the Case Management for this Appeal has been rescheduled a few times in conjunction with BNS’s Application for the Restraining Order.
During the Case Management on 27 May 2022, MSM’s solicitors have informed the Court of Appeal that MSM is currently not withdrawing the appeal. The Court of Appeal had fixed the next Case Management on 31
October 2022 and the hearing on 14 November 2022.

BNS has since July 2022 paid half of the amount owed. MSM had written to Court requesting for adjournment of the hearing scheduled on 14 November 2022 pending settlement negotiation with BNS.
The Court has allowed MSM’s adjournment request. The date initially fixed for hearing on 14 November 2022 was converted to a Case Management during which the Court has allowed for the case management and hearing to be rescheduled to 12 June 2023 and 26 June 2023 respectively.

The Contraves case:

On 27 September 2022, Plaintiffs filed a Writ of Summons and Statement of Claim (Kuala Lumpur High Court Suit No. WA-22NCC-485-09/2022) against the 3 Companies and 2 BHICDT Nominee Directors in CAD.
• Reliefs Sought by CAD and CED:
1. A declaration that the 12 letters of award (“LOAs”) to the
Plaintiffs, from BNS are still valid and subsisting;
2. BNS pays CAD :
a. RM 880,068.21;
b. Euro 39,871,994.66;
c. Great Britain Pound 3,784,937.02; and
d. Swedish Krona 55,938,157.90;
3. BNS pays CED the alleged outstanding amount of
RM216,652,305.94;
4. An order by way of specific performance of the 12 LOAs;
5. Damages in lieu of and/or in addition to the specific performance to be assessed by the Court, alternatively, damages to be assessed and/or sums to be determined for
quantum merit;
6. A declaration that the Nominee Directors have allegedly breached their fiduciary duties and/or common law duties and/or statutory duties under the provisions of Companies Act
2016;
7. A declaration that BHIC and/or BHICDT and/or BNS had allegedly dishonestly assisted and/or aided and abetted and/or was an accessory to the Nominee Directors alleged breach of their respective fiduciary duties and/or common law duties and/or statutory duties owed to the Plaintiffs under the provision of Companies Act 2016;
8. A declaration that BHIC and/or BHICDT and/or BNS and/or the Nominee Directors had allegedly wrongfully conspired and/or combined with each other and/or acted in concert to injure and/or defraud the Plaintiffs;
Reliefs Sought by CAD (contd.):
9. A declaration that BHIC and/or BHICDT and/or BNS and/or the Nominee Directors had allegedly wrongfully procured and/or induced any or all CAD’s and/or CED’s OEMs under the LCS Project to breach the OEM’s respective LOAs with CAD and/or CED and/or unlawfully interfered with the actions of any or all CAD’s and/or CED’s OEMs and/or the OEM’s respective LOAs with CAD and/or CED;
10. An injunction to restrain BHIC and/or BHICDT and/or BNS and/or the Nominee Directors whether by itself/himself, its directors, agents, servants, nominees or otherwise howsoever from continuing with the alleged breach and/or assistance of the alleged breach of the Nominee Directors respective fiduciary duties and/or common law duties and/or statutory duties under the provisions of CA 2016 including but not limited to sections 213, 217 and 218 owed to CAD and/or CED;
11. An injunction to restrain BHIC and/or BHICDT and/or BNS whether by itself, its directors, agents, servants, nominees or otherwise howsoever from directly communicating and/or contracting with CAD’s and/or CED’s OEMs under the LCS Project in connection with and for purposes of any of the scope of work under the 12 LOAs for the LCS Project;
12. An injunction to restrain (Dr.) Salihin and/or Dato’ Syed Zahiruddin whether by himself, his agents, servants, nominees or otherwise howsoever from utilising, disclosing, distributing, propagating or otherwise howsoever from any internal documents and/or information of the Plaintiffs to any unauthorised persons and/or general public;
13. Damages;
14. Interest;
15. Cost; and
16. Such further and/or other relief as the Court may deem fit and
just to grant.
• The Board has appointed Messrs Lim Chee Wee Partnership
to represent the Company, BHICDT and BNS in the suit.

I am not lawyer but my understanding of the suit indicated that any statements regarding the completion of the LCS project by third quarter of 2024 is irresponsibly optimistic. The legal materials also vindicated by my opinion that it will be easier to shut down the LCS project altogether.

— Malaysian Defence

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20 Comments

  1. Not a lawyer but it seem the oversimplification of the legal term is likely similar to what tok mat told parliament

    1) Contraves want money due to them & compensation for cancelling their LOA which the previous & current gov seem to agreed

    2) they wanted immunity from presecution which MINDEF say they could not provide as it is the job scope of MACC.

    The biggest problem to complete LCS is likely money. BNS don’t have money, her parents don’t have money in fact her parents are lost making & going to go private.

    It is likely MOF would take the previous bailouts approach they did with Tabung haji & take away the non performing asset from Boustead leaving LTAT only with profitable companies to protect LTAT investors.

  2. What a cockup.

    The question is who’s going to be accountable [those behind the NGOPV fiasco were never held accountable]? Are those who’ve been charged really responsible or are there hidden hands? When are we going to be honest with ourselves and acknowledge that this whole cockup occurred because the system enabled it and not because of changed in design; BNS or other reasons people come up with. Unless or until the system is revamped it will be a case of history repeating itself.

    Yesterday in Parliament an opposition MP called for the setting up of non partisan body to oversee procurement. I would like to see something like FMV or ARMSCOR; a non partisan procurement entity comprising MAF, MOF people; as well as those from other agencies/ministries. Not to select anything as Zaft suggested but to oversee and scrutinise procurement; to ensure we’re getting the best value for money and to ensure those awarded contracts adhere to contractual obligations.

    The opposition MP also asked that local companies with the expertise be considered rather than foreign companies. Fine in principle but when the wrong companies are awarded contracts; when the government has little continuity and can’t commit; when we don’t have economics of scale; etc; what looks great in principle can be a disaster in reality.

  3. 2 subsidiaries making losses, Boustead Holdings better be cash rich or else LTAT will be in big trouble.

    “any statements … is irresponsibly optimistic”
    As are all our politicians from both sides. The public doesn’t care to hold them accountable nor can we lawsuit ministers for not making good their words.

  4. I think there’s a fair chance that the dispute with MTU can be settled. BNS has already paid half of the outstanding amount and settlement negotiations are still ongoing. There’s plenty of time since the next hearing is more than 3 months away. Even if they can’t conclude the negotiations on time, during the case management on 12 June they can request for the hearing to be rescheduled. Courts normally grant such requests.

  5. The legal problem is not the money. It has to be paid for services rendered (buying and delivering the equipment). The problem is the declarations requested by Contraves essentially says, BHIC/BNS are the ones that are at fault. Any dishonest acts is the action of BHIC/BNS. The demand is really impossible to agree to. The Contraves claims really need to be settled between the parties not in court. Without settlement the project cannot proceed because Contraves has claims on the equipment. Going to court only means project cannot proceed. If no settlement, just cancel the project and fight Contraves in court as long as needed.

  6. One doesn’t just go create committees for the sake of creating committees because PAC and the Special Select Commitee on Security are committees already exists that can look at defence matters. The reason why MPs don’t like committee assignments is because it requires the MP to do work – hold hearings, conduct interviews, do research, review documents, write reports. Not just make statements in the Dewan Rakyat or issuing press release. All the hot air on creating new committees is just hot air for soundbites. There are already parliamentary committees with the power to do what they request. This is no different than the ridiculous calls by MPs to setup Royal Commission of Inquiry (RCI) for every event they don’t like. A RCI is a big thing reserved for the major events. Not understanding parliamentary powers and unwilling to do the leg work is why parliament isn’t doing an effective role checking the executive branch. Until PN names all of its MPs that will sit in the PAC and Select Committees, and issue the directive they will use the committees power to its fullest, everything about should do this and do that is just hot air. Instead of “someone should do something”, it should be “we will do it”.

  7. kel – ” PAC and the Special Select Commitee on Security are committees already exists that can look at defence matters.”

    Both only are formed after the shite has hit the fan [as was mentioned to you previously]. What I was referring to was [to quote myself] a ”non partisan procurement entity comprising MAF, MOF people; as well as those from other agencies/ministries”; to ”oversee and scrutinise procurement”; to ensure we’re getting the best value for money and to ensure those awarded contracts adhere to contractual obligations”.

    This is a different to a ‘PAC and the Special Select Commitee ” as nasi lemak is as different to sauerkraut or as gin is different to martini…

    kel – ” Instead of “someone should do something”, it should be “we will do it”.

    Indeed. Like in a motivational talk where everything’s possible if only one had the will and determination. Like saying we should end world hunger; scrap nukes; love the planet; love ourselves and not consume harmful substances; etc., Easier said than done and appreciate the motivational talk again but if we put aside the rhetoric and be realistic;
    changing things requires deep fundamental institutionalised revamps which have to flow from top to bottom and require genuine political will …. It’s harder when the problem is deeply entrenched as a reflection of various other things in this country.

  8. @Kel
    “Instead of “someone should do something”, it should be “we will do it”.”
    There are tools for that, the Govt itself could call for Inquiries to issues but it can be sided with friendly committee members (unlike a PAC or an RCI) and often such results could side with the Govt that sets it up, so again there are other ways to “do something” but what that “something” to be achieved is depends on the intentions of setting it up. The trend of setting up “investigation committees” came about lately when then Opposition were clamouring for PACs & RCIs into various different matters; from 1MDB, to subs that cannot dive, to Pulau Batu Puteh, to Covid management, just about every topic that could be used to stir the rakyat will be called upon to setup a committee of sorts. So its not something just recently new but had been a trend since years ago. Until such when the Govt calls for another PAC investigation, PN MPs can’t officially do anything much until then.

  9. Just pay the contractor what is due and be done with it. It’s a shame. By my calculations cancelling the projecr is the only way out. We gonna lose money either way. Calculated risk, time, cost & worth. RMN would be better of finding another manufacturer directly. Let it go & return all unpaid equipments but sell the already paid one in an auction. I am sure many navy around the world want it lol

  10. What you describe already exists. MAF does the evaluation, submits recommendation to MOF, MOF decides. Attorney General’s office scrutinises the legal documentation. Auditor General’s office checks for compliance with government policies and report to parliament on any breaches. Its already there. I thought people already understood where the key fault in the existing process is. Hint: Who actually makes the final decision. Something the PAC report alluded to. Creating another committee of people will not fix the issue if the key fault isn’t fixed. I can already point out the issues with the recommendation. 1) By recommending a “dirtier” process by allowing more stakeholders (e.g. ministers) to insert themselves into the decision making process, even more national interest nonsense end up being attached to the purchase. 2) Anyone that has done tenders always hope for a simpler approval process. The less stakeholders, the better. The more stakeholders, the longer the sign-off page which means the slower the decision making process. As-is, decisions take a long time despite only needing two real sign-offs (Minister of Defence and Minister of Finance). Imagine recommending a whole long list of other ministers to also sign-off the deal where everyone will only be interested in CYA. 3) Even assuming the process is smooth, the final decision still lies with the MOF, and someone up the chain still can overrule MAF’s recommendations – which is the root cause of the problem. 4) It is not MOF’s responsibility to find “value”. Their job is to find the money or make sure appropriation request is within budget. The direct negotiation with the SPH is an example why MOF’s role should be to make sure things stay within budget. It is the role of Mindef (and MAF) to recommend what they want based on the budget they have been given. It is Mindef (and MAF’s) job to make the case for a bigger defence budget, not the MOF. For MOF and other ministers / stakeholders to understand value requires them to have opinion on what the MOF should be buying. What happens when 10 different ministers each articulating a different vision of the military gets to decide on what is “value” vs. 1 minister, 1 voice articulating the vision?

  11. Lastly you’ve said it yourself “It’s harder when the problem is deeply entrenched as a reflection of various other things in this country”. So how is relying on “someone should do something” given the entrenched problems preferable to “we will do it”? Isn’t is just asking the people that broke the system to be the one fix it? Since the tools already exist for the opposition to make a difference (e.g. parliamentary committees), why aren’t they using it (i.e. “we will do it”)? A simple question, are the Bumiputra’s prepared to give up affirmative action policies and play on equal footing with everyone else (local and foreign)? That creates more competition, eliminates middleman costs, and potentially drive down program costs. But since affirmative action will not be replaced or removed what’s the point of railing endlessly against a broken system?

  12. Kel – “Since the tools already exist for the opposition to make a difference (e.g. parliamentary committees), why aren’t they using it (i.e. “we will do it”)”

    A rhetorical question or you really want to know? The opposition is just as clueless and indifferent as those in power and aren’t really interested in making deep rooted changes because many of them were once part of system and still subscribe to the system.

    That’s why… Another issue is that the vast majority of the voters they rely on don’t give a toss…

  13. Zaft – “But since affirmative action will not be replaced or removed what’s the point of railing endlessly against a broken system”

    What’s the point about “railing endlessly” about how we must change and how we must do something as if this is a motivational talk or the ramblings of a preacher? Does “railing endlessly” like conducting a motivational uplifting speech or as if it’s a PowerPoint slide where all looks neat and logically enables solutions? Or do you have all the answers? If so; please rectify things.

    Kel – “It is Mindef (and MAF’s) job to make the case for a bigger defence budget, not the MOF”

    Yes. Just like it’s the role of a preacher to preach but so? Nobody claimed otherwise. MINDEF can make the case but the MOF also has a say and more importantly the PM’s EPU. What they do in return is dependent on overall policy.

    Zaft – ” It is the role of Mindef (and MAF) to recommend what they want based on the budget they have been given.”

    Let’s start from the beginning. First the armed services have to get their requirements registered at MIMDEF; a long and cumbersome process; they have to justify everything and it most cases to those who are trying to poke holes in the argument . After it has been approved it is forwarded to the Ministry of Finance for approval and subsequent funding and it’s the the Prime Minister’s Department’s Economic Planning Unit which has the final say with the the Secretary General of the Ministry of Defence acting as the Controlling Officer. The whole process is a bureaucratic minefield requiring many layers and is subject to interference as recently seen with the LCSs { if you desire more examples ask]. Ultimately it’s the government’s duty of care to adequately fund the armed services and if it can’t it’s incumbent on the government to notify the armed services or give them a realistic estimate in order for them to plan accordingly. Also incumbent of the government to have some level of continuity rather than constantly shifting priorities.

    Instead of clumping things in a large lump; breaking things down into paragraphs makes it easier to read.

  14. Azlan “I would like to see something like FMV or ARMSCOR; a non partisan procurement entity comprising MAF, MOF people; as well as those from other agencies/ministries”

    Tokmat said In the future they are going to have the decision on procurement to be decided by a multi agency committee & once the decision is made it won’t be changed.

    He declined opposition proposal that all security procurement be passed through parliament but instead he propose a creation of parliament select committee to scrutinize the security procurement.

    Kel “What you describe already exists. MAF does the evaluation, submits recommendation to MOF, MOF decides.”

    The problems with current arrangement is that it leads to a struggle of power & eventually zero sum games between the agencies and thus politicians ultimately get the final says.

    In OZ or SG decision for any procurement is done by multi agency committee which then put a weighted average on the all competing requirements from all the agencies involved & the winners of the contract is one that’s ‘balanced’ in it offering.

    Kel “It is not MOF’s responsibility to find “value”. Their job is to find the money or make sure appropriation request is within budget”

    You can’t tasks MOF with both not finding value but at the same time finding money.

    Afterall If defense contract goes to companies that MOF have shares in like deftech & BNS, Then the MOF get money. If the defense contract goes through G2G agreement and the seller countries compensate the purchase with FDI or FTA then MOF get money.

  15. Kel “The demand is really impossible to agree to. The Contraves claims really need to be settled between the parties not in court.”

    Again not a lawyer & only have basic understanding of commercial law but CBT cases cannot be settled between parties because it’s a criminal offense.

    They wanted exclusions because the German MNC which itself a big global defense contractor which makes up 49% of Contraves would like to escape reputation damage despite being an accessory to a crime.

    The gov can make it a Public sceptical like 1mdb with Goldman sach,EY, mubala all losing reputation & compensate the gov publicly or they can just make the entire thing hush hush.

    A good way to make it hush hush is to make BHIC private as then it would not have any legal obligation to disclose anything publicly.

    Kel ” Without settlement the project cannot proceed because Contraves has claims on the equipment”

    MTU Is the one that serve the wind up petition & thus claim equipment not Contraves. In general the 2 party can negotiate privately & if MTU is satisfied they would withdraw their petition.

    Contraves meanwhile ask the court to decide whether the LOA is still valid. If not mistaken normally the courts would state that the termination is valid but depending on how the agreement is structured may also rules that the termination is a breach of agreement & thus Contraves would get compensation for being terminated. The value can either be determined by court or the 2 parties can settle out of court for a value themselves. Then they ask for the service already provided but yet unpaid. But they never serve a windup petition. At least not yet.

    Also Azlan you confusing Kel for me.

  16. Azlan- what are you suggesting is very similiar to what the SG did with DSTA. They don’t give 100% freedom to the armed forces but rather evaluate the requirement from different perspectives such as transparency, fairness, VALUE FOR MONEY etc.
    Quote:
    The Defence Science and Technology Agency (DSTA) is responsible for all aspects of the defence procurement process such as contract preparations, pricings and risks, identification of contractors, as well as the evaluation of tenders received, and the subsequent contract award.
    Unquote:

    We have similiar department in Malaysia but it is often bypassed by the ministers. In Singapore even the ministers don’t have 100% authority in procurement.
    That would be the defense procurement director’s job.

  17. zaft – ”Tokmat said In the future they are going to have the decision on procurement to be decided by a multi agency committee ”

    Well let’s see. Who will be in this ”multi agency committee” and how much say will it actually have? Will it be a case of more cosmetic window washing?

    A former Deputy Defence Minister was spot on when he said changes are needed in th vendor system. I’ll go further and say changes are needed in everything; from our mindset; to how we allocate funding; to how we go about deciding what to buy and the role the local industry plays.

    Qamarul – ”what are you suggesting is very similiar to what the SG did with DSTA.”

    Yes. Similar to the DSTA, AMSCOR and FMV. Nothing is perfect or foolproof but it sure beats what we’re currently doing and have been doing in such a flawed manner for so long.
    Will it happen? No. Because we are fixed on doing things the same way and can’t learn from out expensive mistakes. Defence will continue to be something we don’t take seriously and procurement will continue to be part of the patronage system.

    Qamarul – ”We have similiar department in Malaysia”

    We don’t have a non partisan agency tasked with overseeing procurement. What we have are various things we launch with much funfair and hubris but becomes bogged down because of bureaucracy, indecision and lack of political commitment. look at the MDIC.

    Qamarul – ”In Singapore even the ministers don’t have 100% authority in procurement.”

    Nobody anywhere should have ”100% authority in procurement”. It should be done by consensus; after weighing in all the factors including affordability, suitability and cost effectiveness [including factoring in how much something will cost to sustain as it progresses through say a projected 25 years service life]. What we also need is more questioning ad scrutinising of authority.

  18. The only real change we need is blind procurement thru open tender. That way no one will have 100% power, 100% demand, 100% say, over the final decision. All will be done above the board and there will be no disputes.

  19. Disputes by those who have vested interest. Unless they can prove to be impartial in their dispute. I doubt it.

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