Case Commentary – Maju Holdings Sdn Bhd v Spring Energy Sdn Bhd

MAJU HOLDINGS SDN BHD v SPRING ENERGY SDN BHD

High Court of Kuala Lumpur

Civil Suit Summons No.: WA-24NCC-134-03/2020

Judge: Ong Chee Kwan JC

Judgment date: 21 August 2020

Adjudication decision – Fortuna Injunction – Disputed debt – Enforcement of adjudication decision – section 28 of Construction Industry Payment and Adjudication Act 2012 (“CIPAA 2012”)

Salient Background Facts

The table below sets out the timeline of salient background facts: –

Issues

The legal issues before the High Court were as follows:

1. Whether a judgment issued by the High Court pursuant to section 28(2) of CIPAA 2012 is a “disputed debt” where there is concurrent arbitration or court proceedings (“Issue 1”).
2. If the debt under the Statutory Notice is undisputed, whether the company can raise cross claim or counterclaim of an amount equivalent to or more than the debt in answer to the demand to justify the grant of an injunction to restrain the presentation of the winding up petition (“Issue 2”)?
3. Whether the Plaintiff has established on a bona fide cross claim or counterclaim on substantial grounds (“Issue 3”).

Findings of the High Court

Issue 1

The first issue on the disputability of a debt pursuant to an adjudication decision which has been enforced as if it is a judgment or order of a High Court (section 28 of CIPAA 2012) was previously addressed by Justice Darryl Goon (as His Lordship then was) in the case of ASM Development (KL) Sdn Bhd v Econpile (M) Sdn Bhd [2020] MLJU 282.

In essence, the learned JC disagreed with Justice Darryl Goon’s findings that an adjudication decision, even after the same has been enforced under section 28(2) of CIPAA 2012, is not converted into a judgment of the Court.

In deciding that the Adjudication Decision which has been enforced under section 28 of CIPAA 2012 in the form of the Judgment is an “undisputed debt”, the learned JC held as follows:

• The distinction between the formulation “…judgment may be entered in terms of the award” or ‘”enforced by entry as a judgment in terms of the award or by action” under the Arbitration Act 1952 and Arbitration Act 2005 on the one hand and “… enforce the adjudication decision as if it is a judgment or order of the High Court” under the CIPAA 2012 in the other hand, is a distinction without a difference. Both the arbitration award under the Arbitration Acts and the adjudication decision under CIPAA 2012 will be equivalent to a judgment by a Court of law upon the Court making the judgment.
• It would be odd that a judgment or order made under section 28 of CIPAA 2012 can be executed as an ‘undisputed debt’ in accordance with the rules of execution of the orders or judgments of the High Court, and yet be considered as a ‘disputed debt’ when the same judgment is relied upon for the purposes of section 466(1) of the CA 2016.
• Although an adjudication decision is only of ‘temporary finality’, there is nothing in the CIPAA 2012 that provides that a judgment ordered by the High Court made in respect of the adjudication decision for the purposes of enforcement of the adjudication decision shall be treated as disputable for the purposes of winding up.
•  By exercising the powers under section 28(2) of CIPAA 2012, the High Court is effectively making its own order as a Court of law. It is also able to impose additional legal obligations like cost and interest.
• Further, although a winding up petition is not a form of execution, it is still a form of enforcement.
• Therefore, the learned JC concluded that the Judgment was an undisputed debt and was capable of forming the basis of a presentation of a winding up petition against the Plaintiff.

Issues 2 and 3

Although the learned JC held that the Judgment is an undisputed debt (the Judgment being the basis of the Statutory Notice), the learned JC nevertheless took the position that the Statutory Notice can still be challenged. In deciding this, the learned JC considered whether the Plaintiff had any bona fide cross claim, and whether such cross claim had been established on substantial grounds.

In particular, the learned JC referred and relied on the case of Josu Engineering Construction Sdn Bhd v TSR Bina Sdn Bhd [2014] 11 MLJ 916. Following that, the learned JC held that the test is whether the Court in assessing the cross-claim or counterclaim based on the affidavit evidence before it, there is a likelihood that the intended winding up petition may fail or that it is unlikely that a winding up order will be made.

Having perused the affidavit evidence, the learned JC held that the Plaintiff had established to the satisfaction of the Court that its cross-claim or counterclaim was based on substantive grounds and that it was in excess of the amount stated in the Statutory Notice. Hence, the Defendant was not entitled to present a winding up petition based on the Statutory Notice.

On this particular point, we note that in the case of ASM Development, Justice Darryl Goon (as His Lordship then was) had also considered Josu Engineering Construction. Nevertheless, His Lordship highlighted that the case of Pontian United Theatres Sdn Bhd v Southern Finance Bhd (formerly known as United Merchant Finance Bhd) [2006] 2 MLJ 602 which was considered by Justice Mary Lim in Josu Engineering Construction was not a case where a Fortuna Injunction was sought. It was a winding up petition. His Lordship therefore held that the applicable law stated therein was in respect of a winding up petition and not relevant to the circumstances where Fortuna Injunctions were sought. In concluding this issue, His Lordship stated 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 is notwithstanding the existence of a genuine and serious cross-claim or counterclaim in excess of the judgment debt, unless the cross-claim or counterclaim has been determined and a judgment entered.

Comments

There are thus 2 conflicting High Court decisions on the issue of disputability of a debt ordered under an adjudication decision which has been enforced as if it is a judgment or order of the High Court pursuant to section 28 of CIPAA 2012.

The case of ASM Development is currently on appeal to the Court of Appeal. It will be interesting to see whether the Court of Appeal will agree with the distinction drew in respect of entering the terms of an arbitration award as a Court judgment and enforcing an adjudication as if it is a judgment or order of the High Court, or if it is indeed a distinction without a difference.

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