Case Commentary – Asm Development (Kl) Sdn Bhd v Econpile (M) Sdn Bhd

ASM DEVELOPMENT (KL) SDN BHD v ECONPILE (M) SDN BHD

High Court of Kuala Lumpur

Civil Suit Summons No. WA-24NCC-363-27/2019

Judge: Justice Darryl Goon Siew Chye

[Judgment Date: 12 February 2020]

Brief facts

This is an application filed by the Plaintiff for an injunction (commonly known as Fortuna injunction) to restrain the Defendant from filing and/or proceeding with a winding-up petition on the basis of non-payment of a statutory demand, which was issued pursuant to an Adjudication Decision. The table below shows the timeline of events leading up to this application:

The main issue before the High Court was whether an adjudication decision is disputable.

Findings of the Court

Enforceability of Adjudication Decisions

The learned High Court Judge referred to sections 13 and 28 of CIPAA and agreed that the Adjudication Decision was and is clearly enforceable and enforceable in accordance with the rules on execution of an order or judgment of the High Court (pursuant to Order 45 of the Rules of Courts 2012).

Statutory Demand

In line with established principles and reading section 466(1)(a) of the Companies Act 2016, the learned High Court Judge agreed that there is no requirement for a statutory demand to be premised upon a judgment debt. Similarly, there is no requirement that an adjudication decision must first be ordered to be enforced as a judgment of the High Court before it can be demanded as a debt (Likas Bay Precinct Sdn Bhd v Bina Puri Sdn Bhd [2019] 3 MLJ 244).

However, intervention to restrain a winding up petition would be needed if there is an abuse of process of the courts. Having analysed McGarvie J’s judgment in Fortuna Holdings Pty Ltd v The Deputy Commissioner of Taxation of the Commonwealth of Australia [1978] V.R. 83, the learned High Court Judge summarised the 2 situations where injunction may be granted:

1. Where the intended petition has no chance of success; or
2. Where it involves a claimant, who proposes to assert a disputed claim by a procedure (such as a winding up petition) that would cause irreparable damage to the company, rather than by a suitable alternative.

Within the second branch of the Fortuna principle, McGarvie J also identified 2 possible situations:

1. Where the petition is to be based on a debt that is genuinely disputed on substantial grounds; or
2. Where the existence of the creditor’s debt may not be disputed, but the company genuinely claims on substantial grounds to have a cross-claim equal to or exceeding the petitioner’s debt.

Having considered the above, the learned High Court Judge went on to state that for sections 465(1)(e) and 466(1)(a) of the Companies Act 2016 to come into play, there must exist a debt. And if a debt is genuinely disputed on substantial grounds, it cannot be established as a debt. As such, the issue was whether a debt claimed based on an adjudication decision that has been enforced is still disputable.

Is an adjudication decision disputable?

Having considered cases such as Pacific & Orient Insurance Co Bhd v Muniammah Muniandy [2011] 1 CLJ 947, People Realty Sdn Bhd v Red Rock Construction Sdn Bhd [2008] 1 CLJ 632, and Pontian United Theatre Sdn Bhd v Southern Finance Berhad [2006] 1 CLJ 1067, the learned High Court Judge concluded that a would-be petitioner would not be restrained by an injunction against the filing of a winding up petition if it is to be based on a valid judgment of the Court, and if filed, the petition would not be stayed. This was notwithstanding the existence of a cross-claim / set-off as described in the English case of re Bayoil S.A. [1999] 1 WLR 147.

However as the intended petition in this case was premised upon an adjudication and not a Court judgment, the learned High Court Judge went on to determine whether an adjudication decision is equal to a judgment of a Court of law and hence, indisputable.

Having considered section 28 of CIPAA and section 38 of the Arbitration Act 2005, the learned High Court Judge made the following comparisons:

1. Under section 38(1) of the Arbitration Act 2005, the arbitration awards are to be entered “as a judgment in terms of the award”. Upon being entered “as a judgment”, the arbitration award is in effect transformed into a judgment of the Court.
2. By contrast, section 28 of CIPAA provides that an adjudication decision may be enforced by applying to the High Court for an order “to enforce the adjudication decision as if it is a judgment or order of the High Court”.

The learned High Court Judge then concluded that section 28(1) of CIPAA therefore doesn’t provide for an adjudication decision to be entered by the High Court “as a judgment”. It only provides for the enforceability or enforcement of an adjudication decision “as if it is a judgment”. It does not go so far as to deem or to allow for an adjudication decision to be converted into a judgment of the Court. As an adjudication decision is not converted into a judgment of the Court, it remains an adjudication decision even if an order is obtained under section 28 of CIPAA.

The learned High Court Judge then went on to discuss the finality of an adjudication decision. His Lordship recognised the commonly used notion of “temporary finality”, whereby an adjudication decision is final unless it is, among others, set aside or the dispute is finally decided by arbitration or the court. Having regard to the provisions of CIPAA and the rationale for this statutory adjudication mechanism, the learned High Court Judge held that the very nature of an adjudication decision is therefore such that while it may be enforceable as if it were a judgment debt when ordered to be so, but it is nevertheless disputable.

In the Grounds of Judgment, the learned High Court Judge also considered the other cases raised by the Defendant’s counsel, and considered the positions taken in other Commonwealth jurisdictions, such as Singapore, New Zealand and Australia. His Lordship then concluded that while the basic regime and rationale governing adjudication of construction contracts are very similar in those other jurisdictions, there are differences when it comes to enforcement. Section 28 of CIPAA, however, merely affords an order of the Court, “to enforce the adjudication decisions as if it is a judgment or order of the High Court.”

Since an adjudication decision is not entered as a judgment or deemed equal to a judgment of the High Court, it is not indisputable like a judgment of the Court.

Is there a genuine dispute and counterclaim / set-off upon substantial grounds?

Lastly, the learned High Court Judge determined whether there was a genuine dispute and counterclaim upon substantial grounds. In light of the notices of arbitrations issued and that the arbitration proceeding is afoot, and further having considered the affidavit evidence before the Court, the learned High Court Judge concluded that the Plaintiff’s disputes of the Defendant’s claims allowed by the Adjudication Decision and its counterclaims and/or set-offs are bona fide and upon substantial grounds.

Conclusion

The learned High Court Judge allowed the Plaintiff’s application and granted the injunction sought.

What is important to note from this case is that:

1. A party may issue a statutory demand premised upon an adjudication, whether it has been enforced in the High Court.
2. However, the ‘losing party’ may still dispute a debt claimed pursuant to an enforced adjudication decision if the party can show that the disputes are bona fide, and upon substantial ground.
3. This is because an adjudication decision which is enforced remains as an adjudication decision, and is not deemed equal to a judgment of the Court.
4. But a ‘winning party’ with an enforced adjudication decision may still choose to execute on the ‘debt’ by one of the methods set out in Order 45 of the Rules of Court 2012.

It is widely accepted that winding up proceedings can bring upon adverse effect on a party. It can also be seen to be extremely prejudicial or financially paralysing if a party is forced to pay a debt which is in fact genuinely disputed upon substantial grounds. On the flip side, allowing a ‘losing party’ to dispute a debt premised upon an enforced adjudication decision may render the adjudication decision ‘toothless’. While the ‘winning party’ may choose to execute on the debt by one of the means under Order 45 of the Rules of Court 2012, it is not uncommon that those execution proceedings usually return unfruitful. This case hence raises questions of fundamental importance to both insolvency law and arbitration / adjudication. This matter is now on appeal to the Court of Appeal.

*Note: Do note the latest High Court decision in Maju Holdings Sdn. Bhd. v Spring Energy Sdn. Bhd. (Originating Summons No. WA-24NCC-134-03/2020) whereby Judicial Commissioner Ong Chee Kwan did not agree with the position taken by Justice Darryl Goon (as His Lordship then was) on the disputability of a debt pursuant to an enforced adjudication decision.

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LAM WAI LOON (lam@hlplawyers.com)

AMY HIEW (amy@hlplawyers.com)