21^st February 2019

Issues

The Malaysian Courts had in the past allowed Fortuna Injunctions to restrain prosecution of winding up petition where the alleged debt is premised upon an unregistered arbitral award (see : Mobikom Sdn Bhd v Inmiss Communications Sdn Bhd [2007] 3 CLJ 295).

Both the Arbitration Act 2005 (“AA 2005”) and the Construction Industry Payment and Adjudication Act 2012 (“CIPAA 2012”) provide mechanism for the arbitration awards / adjudication decision to be recognized / enforced as a judgment of Court.

That being the case, is a successful Claimant in adjudication required to make an application to enforce the adjudication decision as a Court Order / Judgment prior to initiating any winding up proceedings?

This issue arose in the recently reported Court of Appeal case of Likas Bay Precinct Sdn Bhd v Bina Puri Sdn Bhd [2019] MLJU 49.

Brief Facts

The brief facts of the case, as reported, are as follows:-

(a) Bina Puri (“Respondent Petitioner”) obtained an adjudication decision dated 31.12.2016 (“Adjudication Decision”) against Likas Bay Precinct (“Appellant”) pursuant to CIPAA 2012 for the certified sums amounting to RM16, 439, 628.24.

(b) The Respondent Petitioner then served a Statutory Notice of Demand dated 31 January 2017 (“Statutory Notice”) pursuant to Section 465 of Companies Act 2016 (“CA 2016”) on the Appellant at its registered office in Kota Kinabalu.

(c) The Respondent Petitioner’s case is that as at the date of the Petition the Appellant has neglected and/or failed to pay or satisfy the Adjudicated Sum or any part thereof or to secure or compound for it to the reasonable satisfaction of the Respondent Petitioner.

(d) Consequently, the Respondent Petitioner presented this Petition dated 17 March 2017 to wind-up the Appellant on the ground that the Appellant was:-

(i) Unable to pay its debt; and

(ii) It was just and equitable that the Appellant be wound up.

(e) The Petition was resisted on the following grounds:-

(i) The Statutory Notice was defective, as the Appellant was not ordered to make payment to the Respondent Petitioner under the Adjudication Decision. Instead, the Appellant was ordered to make payment to the KLRCA;

(ii) It is not just and equitable for the Respondent to be wound up when the company was expecting progress payment amounting to RM18,606,483.03 from MBSB, which was the financier for Yayasan Universiti Malaysia Sabah (“YUMS”) and that the company had gross development value amounting to RM237,817,686.00 in connection with the construction of a proposed 25-storey student hostel for YUMS.

(f) In response, the Respondent Petitioner submitted that the Appellant’s current bank balance was not sufficient to pay the debts owed to the Respondent Petitioner. As at 05.04.2017, the amounts available in the Appellant’s bank accounts only totaled up to RM6,162.38

Decision of the High Court

After hearing submissions from both parties, the High Court granted the winding up order. Dissatisfied with the decision, the Appellant appealed to the Court of Appeal.

Issues before the Court of Appeal

The Appellant raised 3 principle points of submissions in the Court of Appeal:-

“[10] Essentially, the three points were raised before us by learned counsel for the Appellant could be summed up to be these:

(i) That the winding-up notice by the Respondent Petitioner had been premature in that the adjudication decision had not been registered with the High Court which would convert it to a High Court order pursuant to section 28 of CIPAA.


(ii) That the adjudication order did not name the Respondent Petitioner as the recipient of the monies due from the Appellant, and such it was wrong for the Respondent Petitioner to pursue this petition in the circumstances, in the sense that there was nothing owing to it under the adjudicator’s order.

(iii)It was also the complaint of the Appellant that it was not just and equitable for the High Court to have granted the petition.”

Having considered the submissions of parties, the Court of Appeal dismissed the Appeal and affirmed the High Court’s Order.

Premature Notice : Non-Registration of CIPAA Decision

In relation to the Non-Registration of the CIPAA Decision, the Appellant submitted as follows:-

“[11] …According to the learned counsel for the Appellant, registering the adjudication order with the High Court was a prerequisite that must be complied with by the Respondent Petitioner before a petition pursuing the Appellant’s winding up could be undertaken by the Respondent Petitioner in the name of realising its fruit of successful adjudication. In support of this contention, the learned counsel for the Appellant had placed reliance on the decision of this Court in the case of Mobikom Sdn Bhd V. lnmiss Communications Sdn Bhd [2007] 3 CLJ 295 (“the Mobikom case”). A High Court decision, in the case of Hing Nyit Enterprise Sdn Bhd v. Bina Puri Construction Sdn Bhd [Case no. BKI-28NCC-6/2-2015] (“the Hing Nyit Enterprise case”) which had followed the Mobikom case [supra] was also cited before in support of the Appellant’s contention. It was not indicated to us what happened to the High Court decision, in terms of whether there was any appeal made against it and if there was, what the outcome of such appeal was.”

The Court of Appeal distinguished the case of Mobikom (which relates to the Arbitration Act 1952) and held that:-

“[15] As we had alluded to earlier, we were not advised by parties as to what had subsequently happened to the Hing Nyit Enterprise decision [supra] of the High Court. Be that as it may, even noting from the observation of the learned High Court himself, he was aware that the existing Arbitration Act 2005 does not carry with it anymore provisions similar to the section 27 of its repealed predecessor, where the latter had been interpreted by the Mobikom case [supra] the way it did. As is to be recalled, the learned Judge chose to follow the ratio in the Mobikom case [supra] and the Malayan Flour Mill Bhd v Raja Lope & Tan Co [2000] 7 CLJ 288 as well.

[16] Now, in our view, the language employed under section 28 of CIPAA, does not convey such an interpretation, in the sense that the decision of the adjudicator must be registered with the High Court before a statutory notice under section 465(1)(e) and (h) of the Companies Act 2016 could be issued. Rather, it was our view that for the purpose of issuing a notice to wind-up a company pursuant to section 465(1)(e) and (h) of the Companies Act 2016, it is not a mandatory requirement that there must be a judgement entered in favour of the Respondent Petitioner for the amount that was being claimed and pursued against the Appellant debtor for payment of the same…”

Having found the above, the Court of Appeal found that:-

“[20] Now, compared to the situation obtaining in the instant appeal before us, it was worthy of note that the debt which was the central factum of the petition had been subjected to a mutually agreed specialised litigation between the parties, albeit by way of an adjudication proceeding which had resulted in a decision by the adjudicator dated 31st December 2016. That adjudication decision in favour of the Respondent petitioner had thereby evinced the fact that an amount as stated in the said adjudication decision was due and owing to the Respondent from the Appellant. There was no application by the Appellant to set aside the said adjudication decision. In the premises, we were of the view that such an adjudication decision was good and proper as a basis upon which a winding up petition notice against the Appellant may be filed for a debt in the amount, as stated in the said adjudication decision against the Appellant… As such, we were inclined to agree with the proposition that, for the purpose of filing a notice to wind up under section 465 of the Companies Act 2016, a successful litigant in an adjudication proceeding need not have to register the said adjudication decision under section 28 of CIPAA…

[21] Also, we were of the view that section 31 of CIPAA can be invoked by a successful party. There is nothing in the language employed in both sections 28 and 31 of CIPAA which would liberally suggest that section 31 is subject to section 28 therein. One thing is conspicuous. There is no specific reference made by either of the sections to each other. In fact section 31(2) expressly provides that “remedies provided by CIPAA are without prejudice to other remedies available in the construction contract or any written law … ” So, it is in addition to section 28, not in derogation thereto.

[22] As such, we were of the view that the winding up petition was not premature, contrary to what was contended by the learned counsel for the Appellant before us.”

Respondent Petitioner Not Name as recipient of the monies under the Decision

In relation to this point, the Appellant submitted that the Adjudication Decision did not direct payments to be made to the Respondent Petitioner. Instead, it had specifically directed for payments to be made to KLRCA. In this regard, the Appellant submitted that “there was nothing owing to the Respondent Petitioner from the Appellant on the strength of the said decision of the adjudicator”.

In relation thereto, the Court of Appeal finds that:-

“[25] With respect, we were in agreement with the finding of the JC when he ruled that for all intents and purposes, the payments due from the Appellant referred to in the said order were for the benefit of the Respondent Petitioner. It was undisputed that the adjudication order was issued pursuant to an adjudication proceedings which had involved only the Respondent Petitioner and the Appellant as litigating parties. The Respondent Petitioner was the party that had claimed from the Appellant for work it had performed for the Appellant under an agreement between them that was not in dispute. In light of the Appellant’s clear passivity when the action was taken against it by the Respondent Petitioner, we were in agreement with the submission of the learned counsel for the Respondent Petitioner that the belated demur by the Appellant was but an afterthought devoid of any merit, aimed at staving off the winding-up notice. As such, we found nothing to fault the learned JC for having arrived at such a decision, a decision which, in the circumstances of this case, is a reasonable one and which a reasonable tribunal similarly circumstanced would have found acceptable.”

Not Just and Equitable to Wind Up the Appellant

The Appellant’s submissions on this issue is captured in the following passage of the reported decision:-

“The Respondent second ground to resist the Petition is that it is not just and equitable that the company be wound up. The Respondent claimed that the company is expecting progress payment amounting to RM18,606,483.03 from Malaysia Building Society Berhad which is the financier for Yayasan Universiti Malaysia Sabah based on exhibit “LYH-3” amounting to RM16,794,764.00; and exhibit “LYH-4” amounting to RM1,811,719.03 and that the company has gross development value amounting to RM237,817,686.00 in connection with the construction a proposed 25-storey student hostel for Yayasan Universiti Malaysia Sabah based on exhibits “LYH-5”, “LYH-6” and “LYH-7”.”

In relation thereto, the Court of Appeal affirmed the High Court decision and finds that:-

“[27] The learned JC then adverted to the submission by the Respondent Petitioner who opined that the test for insolvency is whether it is able to meet its current debts based on assets presently available. As such, with the debt of approximately RM20 million claimed under this Petition, it is clear that the Appellant’s current bank balance is not sufficient to pay the debts owed to the Respondent Petitioner…

[28] Indeed, a company may be at the same time insolvent and wealthy. It may have wealth locked up in investments not presently realisable; but although this be so, yet if it has not assets available to meet its current liabilities it is commercially insolvent and may be wound up. [See Buckley on the Companies Acts, 13th Edition, at page 460]

[29] The learned JC was therefore correct in granting the petition as it was just and equitable for him to grant the petition in the circumstances of this case. We therefore, saw no merits in the complaint by the Appellant in that regard on the part of the learned JC.”

Effect of Decision

In the end, the Court of Appeal concluded that:-

“[31] In the context of the factual matrix of this appeal before us, there was an adjudication decision given in favour of the Respondent Petitioner pursuant to the adjudication proceedings between them, albeit to be paid to KLRCA, as in para (h) of the decision of the adjudicator. In substance, the award was for the benefit of the Respondent Petitioner as the successful litigant in the adjudication proceedings between the parties. This fact was never disputed by the Appellant. It could not have, because that was a fact, pure and simple. To even dispute it would be wholly disingenuous to say the least. Armed with that decision the Respondent Petitioner was competent to file the winding up petition against the Appellant who had failed or neglected to pay the adjudicated sum. With a paltry sum standing to the credit of the Appellant in its bank account, it was just and equitable for the High Court to grant the winding-up petition against it.”

Following the decision, it appears that:-

(a) A successful Claimant in adjudication need not have the adjudication decision registered before issuing a statutory notice under section 465 of CA 2016; and

(b) This position will be fortified by the fact that there is no application for setting aside and where there is a “paltry sum standing to the credit” of the unsuccessful Respondent in the adjudication.

Corollary to the above, it remains to be seen if the outcome will be different if the respondent in the adjudication applies to set aside the adjudication decision pursuant to section 15 of CIPAA 2012 and apply for a Fortuna Injunction to restrain the presentation of any winding up petition.

Would the respondent’s position be strengthened in the event that it can demonstrate ability to pay?

One thing is for certain following this Court of Appeal decision, a successful claimant now have an additional avenue to pursue once it is armed with an adjudication decision in its favour.

Corollary to this, a respondent who has an adjudication decision made against it ought to act expeditiously to resolve the matter, either by making payment or by applying to the High Court to set aside / stay the same. Any inaction on the part of the respondent may be construed against it should a petition be presented.

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