NFC LABUAN SHIPLEASING I LTD V SEMUA CHEMICAL SHIPPING SDN BHD
Companies (Winding-Up) Petition No.: WA-28NCC-503-06/2016
Judge: YA Mohd Nazlan Mohd Ghazali
Winding-up – stay of winding-up – Section 10 of the Arbitration Act 2005 – stay pending arbitration – whether a step in proceedings – is winding-up a matter subject to arbitration agreement
Brief Facts:
The Petitioner is the registered owner of two vessels, which had been chartered by the Respondent. However, the Petitioner claimed that the Respondent had failed to pay the outstanding hire amounts for the two vessels and thus, filed this Winding-Up Petition in Court.
Following the presentation of the Winding-Up Petition, the Respondent filed an application to, among others, stay the winding-up proceedings pending arbitration pursuant to Section 10 of the Arbitration Act 2005 (“AA 2005”).
Held:
The Court dismissed the stay application on the ground that the Respondent had taken steps in the winding-up proceedings. But more importantly, the Court confirms that a winding-up petition is not a matter subject to arbitration agreement falling under Section 10 of AA 2005.
Summary of the principles held by the High Court:
1. Has the Respondent taken a step in the proceedings?
(i) Before the Court discussed the issue of stay, the Court found that the Respondent had taken a step in the proceedings within the meaning as stated in Section 10 of AA 2005 by filing its affidavit in opposition to the Winding-Up Petition.
(ii) The Court referred to the Federal Court case of Kilo Asset Sdn Bhd v Hew Tai Hong [2016] 1 AMCR 613 and took the view that the Respondent was wrong to contend that it was compelled to defend itself by filing the affidavit in opposition. Notwithstanding the mandatory terms of Rule 30 of the Companies (Winding-Up) Rules 1972 (“Rules”), the Court is empowered to extend time or cure non-compliances under Rules 193 and 194 of the Rules, as well as Sections 221(2) and 355 of the Companies Act 1965 (“CA 1965”).
(iii) On the facts, the Court also found that the Respondent had swiftly filed its affidavit in opposition but had filed the stay application some 4 months after the Winding-Up Petition was served on it. Taking all the circumstances, the Court found that the Respondent had indeed taken steps in the proceedings of the Winding-Up Petition that would prevent the proceedings from being stayed under Section 10 of AA 2005.
2. Whether winding-up is a matter subject to arbitration
(i) For completeness, the Court went on to discuss whether a winding-up petition is a matter subject to arbitration agreement falling under Section 10 of AA 2005. The Court confirms that where the requirements of Section 10(1) of AA 2005 are fulfilled, the Court must stay court proceedings and refer the parties to arbitration, unless the exceptions apply where the Court finds the arbitration agreement to be either null and void, inoperative or incapable of being performed.
(ii) However, the Court held that a winding-up petition is sui generis (of its own kind) as winding-up proceedings feature a distinct characteristic of a wider legal process. Even though winding-up may be initiated by a single petitioning creditor, upon the granting of the order for winding-up, the process enables the collective enforcement of proven debts which would be for the benefit of not just the petitioner but instead the general body of unsecured creditors, all on pari passu basis. Further, a winding-up petition is not a claim for payment. The reliefs and end results of a civil dispute subject to arbitration and a winding-up petition, if granted, could not be more different.
(iii) The Court went on to state that a winding-up petition is premised on the inability of the debtor to pay the debt to the creditor. As such, the Court is not to determine whether the respondent is legally indebted to the petitioner. The disputes between the parties in the winding-up petition would only serve to support the essence and substance of the winding-up petition that the respondent was unable to pay its debt which had fallen due.
(iv) As such, a winding-up petition is not a ‘proceeding’ that is susceptible to a stay pending arbitration under Section 10 of AA 2005. A winding-up petition is also not a ‘matter’ that is subject to an arbitration agreement.
(v) In any case, the laws do not favour a stay of winding-up petitions. Section 243 of the CA 1965 concerns a stay after the winding-up is granted, whereas Section 222 of the CA 1965 excludes the winding-up proceedings. Whilst a stay may be granted pursuant to Section 221(1) of the CA 1965, the stay is interim in nature and only granted in exceptional circumstances.
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