Ganda Setia Cemerlang Sdn Bhd v Maika Holdings Berhad (W-02(NCC)(A)-1320-07/2016)

GANDA SETIA CEMERLANG SDN BHD

ULUNG NIAGA SDN BHD (CO. NO.: 931269-A) … APPELLANTS AND MAIKA HOLDINGS BERHAD (CO. NO.: 89912-H) (IN LIQUIDATION) … RESPONDENT [In the Matter of the High Court of Malaya at Kuala Lumpur In the Federal Territory, Malaysia (Commercial Division) (Originating Summons No: WA-24NCC-69-02/2016) In the Matter of section 254 of the Companies Act 1965; And In the Matter of section 263(2) of the Companies Act 1965; 2 And In the Matter of Order 88 Rule 2 of the Rules of Court 2012; And In the Matter of Order 28 and Order 92 Rule 4 of the Rules of Court 2012. Between

Ganda Setia Cemerlang Sdn Bhd (Co. No.: 160480-T)

Ulung Niaga Sdn Bhd (Co. No.: 931269-A) … Plaintiffs And Maika Holdings Berhad (Co. No.: 89912-H) (In Liquidation) … Defendant] CORAM: DAVID WONG DAK WAH, JCA HAMID SULTAN BIN ABU BACKER, JCA MARY LIM THIAM SUAN, JCA 3 JUDGMENT OF THE COURT [1] The appellants sought leave under section 263(2) of the Companies Act 1965 to commence proceedings against the respondent as the respondent was voluntarily wound up under section 254 of the Companies Act 1965 on 20.5.2015. The application was opposed by the liquidators of the respondent. Leave was refused. [2] At the appeal, we unanimously allowed the appeal and set aside the decision of the High Court. Our reasons in full are set out below. Brief facts [3] Prior to being wound up, the respondent entered into an agreement dated 21.3.2011 wherein subject to various terms and conditions, the respondent agreed to sell to the 1st appellant two plots of lands for a total purchase consideration of RM3,312,000.00. In respect of the first piece, the respondent together with various individual owners were the registered proprietors of an undivided portion of land held under Geran 94160, Lot 5732, Mukim Batu, Daerah Kuala Langat, Negeri Selangor. Effectively, the respondent sold its shares representing 22.4163 acres to the appellants. This was known as the “bigger plot” and it was sold for RM218,550.60. The other plot, known as the “smaller plot” comprised 1.5837 acres of land held under Geran 50209, Lot 1870, Mukim Batu, Daerah Langat, Negeri Selangor. The 4 respondent was the sole registered proprietor of this plot which it sold to the 1st appellant for RM3,093,449.40. [4] Under the terms and conditions of the sale and purchase agreement, the respondent agreed to: i. submit an application to sub-divide the bigger plot and ultimately see to the issuance of individual titles with the names of the appellants endorsed therein; and ii. evict or remove all and any squatters or unlawful occupiers from the lands sold. [5] There was also a temple sited on the bigger plot which the appellants alleged that the respondent agreed to relocate. These conditions were not fulfilled. The bigger plot remained un-sub-divided and some squatters remain on the affected plot. The appellants take the position that since a portion of the purchase monies paid were retained by solicitors then engaged by the respondent, the respondent had acknowledged its obligation to attend to the removal of squatters and the relocation of the temple. [6] On 9.11.2012, the two plots were registered in the names of the appellants after full payment was affected. The bigger plot was registered in the name of the two appellants while the smaller plot was registered in the 1st appellant’s name. The respondent remained the registered proprietor of 94837/470100 share of the bigger plot. Despite repeated requests from the appellants, the two conditions mentioned above and the matter of the temple remained unresolved. The 5 appellants decided to sue the respondent for breach of contract seeking primarily an order of specific performance of these two obligations under the sale and purchase agreement. Because the respondent was wound up, though voluntarily, the appellants were required to obtain leave of the winding up Court before commencing its claim. The three liquidators of the respondent opposed the application for leave. Two of the three liquidators are former directors of the respondent. [7] On the matter of the squatters, the respondent denied owing any obligation as alleged and further contended that in any event, all squatters had already been removed. As for the relocation of the temple, the respondent also denied owing any obligation since this only arose after the appellants had taken possession of the lands. According to the respondent, it had since sold a further 7 acres of the bigger plot to a company known as “TS Land Management Sdn Bhd”. The balance share of the bigger plot was said to be held by the respondent on trust for a Tamil school located on the plot. Given that the respondent was therefore no longer the registered proprietor of the two plots of land, the respondent argued that it was in no position to take any action against the squatters, or even to subdivide the bigger plot. Any effort in these respects will not only be futile or “doomed to fail” but will also result in unnecessary litigation and costs. The respondent also contended that the appellants’ interest was really monetary in value as the appellants could initiate action themselves in the two respects, and then recover any related expenses from the respondent by filing a proof of debt with the liquidators. 6 Decision of the High Court [8] The learned Judge refused to exercise discretion under section 263(2) of the Companies Act 1965 in the appellants’ favour and the application for leave was dismissed for the following reasons. [9] First, having established that leave under section 263(2) was required even where the winding up was voluntary, the learned Judge found that the appellants had nevertheless failed to establish a prima facie case which is required when securing leave of the Court. The learned Judge agreed with the respondent that the appellants’ claim was misconceived because the appellants were the newly registered proprietors of the two plots. With that registration, the respondent was divested of all interest in the two plots and was not in the position to attend to the complaints of the appellants. The learned Judge added that the appellants were aware of this position as reflected in the alternative relief sought by the appellants, that the appellants be given leave to evict the squatters themselves. The learned Judge further agreed with the respondent that it was for the appellants to apply for the subdivision of land and to evict the unlawful occupants or squatters, and then recover the related expenses from the liquidators through the filing of a proof of debt. [10] It was also the view of the learned Judge that leave ought not to be given because the order of specific performance sought would render financial hardship on the respondent. This was said to be contrary to the purpose of winding up, which is that the assets of the company are to be preserved for fair distribution and not exhausted unnecessarily. 7 Decision of the Court of Appeal [11] This appeal calls for the consideration of section 263(2) of the Companies Act 1965. Section 263(2) requires leave of Court to be obtained before any action or proceeding may be commenced or proceeded with where the company has been wound up, though voluntarily. In this case, the respondent was wound up voluntarily by its members on 20.5.2015. Three of its members, namely T. Tamil Selvan a/l Tangavellu, Ramesh a/l Alagu and Arasu a/l M Thangaveloo were appointed as its liquidators. On behalf of the respondent, T. Tamil Selvan together with Arasu a/l M Thangaveloo signed the SPA dated 21.3.2011 that is the subject of the intended action. T. Tamil Selvan a/l Tangavellu has since passed away. [12] We observe from the authorities cited by both parties that some of those cases in fact concerned not section 263(2) but, section 226(3) of the Companies Act 1965. Having examined the provisions and the case law, we feel compelled to make some observations on the two provisions. These provisions read as follows: Copy of order to be lodged, etc.

(1) Within seven days after the making of a winding up order the petitioner shall lodge with the registrar notice of-

(a) the order and its date; and

(b) the name and address of the liquidator.

(a) by leave of the Court; and

(b) in accordance with such terms as the Court imposes. Property and proceedings.

(1) Any attachment, sequestration, distress or execution put in force against the estate or effects of the company after the commencement of a creditor’s voluntary winding up shall be void.

Section 471B is slightly different in wording from our section 226(3). Citing Re Gordon Grant & Grant Pty Ltd [1983] 2 Qd R 314; Re Stuart Bros Pty Ltd [1995] 16 ACSR 451; and Speiser v Locums Financial Management Pty Ltd [1997] 22 ACSR 478 in support, Abdul Malik Ishak J said that the Court considers whether leave to proceed should be granted by “looking at the nature of the plaintiff’s claim, the balance of convenience and the justice of the case.” Again citing Re Gordon Grant & Grant Pty Ltd [supra] and Ex p Walker [1982] 6 ACLR 423, his Lordship opined that leave will be granted “as a matter of course” where “it is unlikely that the plaintiff will obtain any advantage over the creditors and that no prejudice will be caused either to the creditors or to the orderly winding up of the company. His Lordship further agreed with the view expressed in Re Coastal Constructions Pty Ltd (In Liquidation) [1994] 13 ACSR 329, that in determining whether leave to proceed should be granted: “…there was a necessity to examine the amount and seriousness of the claim, the degree of complexity of the legal and factual issues involved and lastly, the stage which the proceedings have reached. It must not be forgotten that the applicant too must establish that he or she has a prima facie case meaning that the applicant must show that there is a real dispute between the parties. (Zempilas v JN Taylor Holdings Ltd (In Prov Liq) [1991] 3 ACRS 755 (SC SA); Vagrand Pty Ltd (In Liq) v Fielding [1993] 41 FCR 550 [113 ALR 128]).” 16 [28] We have no issue with the test propounded and followed in the Australian jurisdiction, but, we must point out that the discussion of the High Court on this test is obiter since the primary question before the Court was whether section 226(3) applied in the case of a derivative action. The applicant plaintiff was a minority shareholder in the defendant company that was wound up. The plaintiff contended that a derivative action is an action for the benefit of, and not an action against, the company. The applicant plaintiff was seeking a declaration to that effect. The High Court agreed with the plaintiff. In the course of deliberations, the High Court saw it fit to consider the Australian approach on section 226(3) before concluding that the plaintiff was not required to apply for leave under section 226(3) since a derivative action is not an action against the wound up company. The declaratory order was accordingly, given. The approach of the Australian Courts or for that matter, our Courts, though enlightening, is irrelevant to the central issue of application of section 226(3) to a derivative action. [29] Returning to Mesuntung Properties and the proper test or approach in a case where the primary issue is whether leave ought to be allowed under section 226(3), the Court of Appeal went on to consider the decision of Shencourt Sdn Bhd v Perumahan NCK Sdn Bhd [supra], discussed earlier, noting that the Court of Appeal in that case had followed the approach laid down by the Supreme Court in Mosbert Berhad – see paragraph 21 at page 210. [30] The Court of Appeal however, did not stop there and simply apply the test in Mosbert Berhad. Like Abdul Malik Ishak J in Bruno Phillipe, the Court of Appeal similarly turned to examine the approach in Australia 17 on the threshold question of leave. This time, the Court of Appeal considered two decisions, one of which was cited in Bruno Phillipe, that is Vagrand Pty Ltd (In Liq) v Fielding [supra]; and Capita Financial Group Ltd v Rothwells Ltd (No.2) [1989] 7 ACLC 634. [31] In Vagrand Pty Ltd, the Federal Court of Australia also discussed the rationale for imposing a requirement for leave, that as explained by Manning J in Thomson v Mulgoa Irrigation Co Ltd [1893] 4 BC (NSW) 33, it was to safeguard a company in liquidation from being harassed and its assets wasted by unnecessary litigation. In order to do that, the Federal Court is obliged to investigate the intended litigation. The Federal Court accepted that this did not mean that all the elements of an intended claim must be proved. That would be burdensome and shut out many meritorious claims. The Federal Court recognized that it is commonplace for actions against companies to depend upon documentary evidence and such evidence may be not be available until discovery has taken place or witnesses interrogated or subpoenaed. [32] In Capita Financial Group Ltd, the Court also adopted the same approach, going further to state that provisional liquidators and liquidators are “entitled to be protected from involvement in Court proceedings which may be perhaps only of a nuisance nature, or which may be thought to be totally devoid of any substance. The resources of the company in liquidation should not be frittered away in defending baseless claims.” The consistent and uniform approach of the Court “over the years is to demand that there be evidence showing a prima facie case.” 18 [33] Having examined these authorities, both local and from Australia, the Court of Appeal then concluded: [24] From the above authorities, the appellant has the burden of satisfying the Court of two criteria:

(a) the appellant’s claim cannot be adequately dealt with by the winding up Court;

(b) the appellant has a prima facie case against the respondent. [34] The Court of Appeal first found the appellant’s claim for the remedy of specific performance and not for monetary returns could not be dealt with by the winding up Court. On the issue of what amounts to a prima facie case in the context of section 226(3), the Court said that the Court has to be satisfied that “there is a serious dispute between litigants which warrant a trial to determine the truth of the combating allegations.” The Court of Appeal likened the approach to that applied when “dealing with an application to strike out under O 18 r 19 Rules of Court 2012 despite the consideration that the liquidator ought not to be burdened with wasteful financial resources in defending frivolous legal actions.” According to the Court of Appeal, “that consideration in our view is also a consideration for other suits not involving wound up companies as all defendants should also not be burdened with financial resources to defend frivolous legal actions.” [35] The Court of Appeal in Mesuntung Property then set about examining the putative claim. The Court of Appeal found that the appellant, itself a wound up company, was seeking leave to initiate a suit for specific performance of a sale and purchase agreement [SPA] 19 entered into between the parties. In that SPA, the respondent had agreed to sell 121 lots of land in its abandoned housing project to the appellant. The appellant paid 10% of the purchase consideration of RM3.5 million as deposit together with other expenses. The time for payment of the balance purchase price was extended on condition that the appellant pay a further RM100,000,00. The appellant did not pay the RM100,000.00. Neither did the appellant pay the balance purchase price by the extended date; and so, the respondent terminated the SPA. The respondent then sold 90 of the 121 lots to a third party. The appellant’s main complaint in the intended claim is the respondent’s unilateral imposition of RM100,000.00 for the extension of time. The Court of Appeal noted that by this time, the appellant had already paid almost RM1 million. [36] The Court of Appeal was of the view that this complaint or question “is a serious dispute between the appellant and the respondent. That question prima facie raises a reasonable cause of action and not to give the appellant the chance to argue that the unilateral imposition of the RM100,000 is unlawful would be contrary to the basic right of the appellant of having his day in Court. Not granting leave amounts to shutting the appellant and it is a drastic action which Courts should be slow to use.” [37] We are aware that although Shencourt Sdn Bhd and Mosbert Berhad were referred to by the Court of Appeal in Mesuntung Properties, the Court of Appeal went further to consider and compare the approach to the equivalent section 226(3) under the Australian jurisdiction. After all, the Companies Act 1965 is structured after the Australian corporations law and its then section 371(2) of the Australian 20 Companies Act 1981 was in pari materia with our section 226(3). Having taken that route, the Court of Appeal concluded with the two tests that we pointed out above and which the parties before us, just as they did in the Court below, have both submitted. The parties have proceeded on the basis that there are now two tests that must be satisfied. The appellants argued that the tests had been met while the respondent argued otherwise; contending that not meeting the first test was enough to knock out the application and hence, this appeal. [38] We pause to emphasize that the decision in Mesuntung Properties does not set down any new test; what the decision has done, in effect, is to put into clearer terms the test laid down in Mosbert Berhad. That test now better clarified and which applies regardless whether the application is made under section 226(3) or 263(2), has been consistently applied in our jurisdiction. [39] Returning to Mesuntung Properties, we agree with the approach enunciated therein. The requirement of leave is necessary to ensure that companies in liquidation and the liquidators of wound up companies are not embroiled in time consuming and expensive litigation which, indirectly will impact on returns to creditors of the wound up company. Since there is already in place a statutory mechanism for resolving disputes and debts by way of lodgment of proofs of debts, there must be some good, cogent or just reason why there should be a departure from that established procedure. The availability of the remedy sought before the winding up Court is only one of the reasonable reasons that may be articulated for such departure. We can see complexities of legal and factual issues or even the status of proceedings already underway, being other relevant considerations in the weighing in of exercise of 21 discretion. This is the balancing exercise discussed by Abdul Malik Ishak J in Bruno Phillipe that the winding up Court will have to weigh when considering whether to exercise judicial discretion to grant or refuse leave to proceed against a company in liquidation. The onus is on the appellants to demonstrate why it is more appropriate in the particular facts and circumstances to proceed by separate civil action instead of by lodgment of a proof of debt. [40] In the present appeal, the appellants seek the principal remedy of specific performance of the SPA in relation to the two obligations of sub-division and eviction of squatters. Although the learned Judge found that the relief sought could not be “adequately” dealt with by the liquidators, the learned Judge was nevertheless persuaded by the presence of the alternative relief of eviction by the appellants themselves in the event the respondent failed to evict the squatters. Where that happens, the appellants seek recovery of the related costs from the respondent. It was, in this sense, that the learned Judge concluded that the appellants’ claim could be reduced to monetary value and therefore provable in liquidation. [41] With respect, we cannot agree with the learned Judge. Contrary to the view of the learned Judge, the remedy of specific performance remains one which the winding up Court cannot make; and certainly, it is not a remedy that can be resolved through the lodgment of a proof of debt with the liquidators of the respondent. That order is properly in the jurisdiction of the Court in exercise of its civil jurisdiction, and granted, if at all, after trial. The presence of the alternative prayer (b) in the terms set out at page 81 of the Record of Appeal does not alter that view. There may be a difference, perhaps, if the relief was couched as an 22 additional relief. The order of specific performance is a discretionary remedy and the law on pleadings allows for this alternative remedy in the event this specific performance is not granted. That however, does not diminish the significance of the remedy as a primary or main remedy. In the weighing of discretion, the Court will always question the issue of adequateness of damages as an alternative remedy. It is precisely because damages is not an adequate remedy that specific performance is sought; but in the event the Court is not with the appellants, then the appellants want to be allowed this avenue. We do not see how by this alternative plea, leave to commence action against the respondent should be denied. [42] Moving next to the second test, the learned Judge found that the appellants had failed to establish a prima facie case because the appellants have become the registered proprietors of the plots. That, supposedly, leaves the respondent in no position to evict the squatters or even apply for sub-division of the bigger plot. [43] Again, here, we are reminded of what is required in establishing a prima facie case. In Mesuntung Properties, it was clearly explained that in the context of section 226(3), what needs to be shown is that there is a serious dispute between the parties that warrants a trial to determine the truth. The Court does not delve into the merits of the dispute but examine the complaints, to see if these complaints are genuine or are they baseless and devoid of any substance. If the answer is in the affirmative, resources of the respondent ought not to be wasted defending a baseless or frivolous claim. 23 [44] The existence of the SPA is not in dispute. In their affidavit in reply to the appellants’ application, the respondent has however, denied the existence of the two obligations – see paragraphs 6 and 23 at pages 18 and 23 of the Record of Appeal [2/1]. [45] We have had a look at the SPA, and contrary to the contentions of the respondent, the SPA dated 21.3.2011 does contain terms concerning the sub-division of the bigger plot and the eviction of squatters; for instance recital B and clauses 13(a)(iv) and (b): Recital B: The other owners stated in recital A and their respective share in the bigger plot are as follows:

Low Far Ke (NRIC No. 600607-10-5941) 2000/47010 2. Low Huat Cheng… …

Low Huat Lee …

Low Huat Meng …

Low Huat Hui …

Low Wei Hui … (hereinafter collectively referred to as “the other owners”)

Maika Holdings Berhad 3190/4701 (hereinafter referred to as the Vendor’s plot as demarcated in red in the layout plan annexed hereto as Annexure 1). For avoidance of doubt, the other owners have expressly agreed or otherwise have no objections for the Vendor to sub-divide the bigger plot and that the portion shaded in yellow in Annexure 1 (“other owners’ plot”) shall be ultimately be issued with an individual title with their names endorsed therein as the registered proprietors. (the smaller plot and the Vendor’s plot are hereafter collectively referred to as “the Vendor’s properties”) Clause 13. Parties’ Representations and Warranties

(a) The Vendor hereby covenants, declares, represents, warrants and undertakes with the Purchaser as follows:

(i) the Vendor is the registered owner of the said Property;

(b) The Vendor hereby expressly agree and acknowledge that the Purchaser is entering this Agreement and agreeing to purchase the said Property in reliance upon the covenants, declarations, warranties set forth hereinabove including the recitals to the Agreement. [46] The appellants have also complained that there are still squatters on the land. This is denied by the respondent – see paragraphs 16 and 19 of the respondent’s affidavit in reply at pages 24 and 25 of the Record of Appeal [2/1]. In addition to the SPA, the appellants have alluded to correspondence exchanged between the parties, post payment and registration, on these matters. In at least one letter dated 5.12.2012 from the respondent’s solicitors, the respondent had informed the appellants that “most of the squatters occupying the land then, and that there is now only 2 families still occupying a small part of the said land” – see page 150 of the Record of Appeal [2/1]. Photos of the presence of the squatters or occupiers and the temple have also been exhibited – see pages 212 to 222 of the Record of Appeal [2/1]. [47] It is not for this Court to evaluate to see the truth of these warring contentions and to determine the real position of the squatters or even the matter of location or relocation of a temple on the subject land; that is for the civil Court to hear and determine. The same goes for the responsibility to apply for sub-division of the bigger plot; whether the respondent, who retains a portion of the bigger plot, though held on trust, can still make such an application. For the purposes of section 263(2), the appellants need to show that their dispute is real, genuine and serious and that they have a prima facie case. We have no doubt that in 25 that regard; the appellants have amply satisfied those considerations. The allegation of breaches of agreement by the respondent are not baseless or without substance. They cannot be said to be frivolous and an attempt to waste the respondent’s funds or even to score an advantage over the creditors of the respondent. [48] Finally, we note that the learned Judge had expressed the view that the order of specific performance cannot be granted against the respondent because it will cause financial hardship; or be counter-productive to the object of winding up the respondent, which is to preserve the assets of the respondent for fair distribution. Here, once again, we must remind that it is not for the winding up Court to decide whether an order of specific performance ought to be granted on the particular facts; that is the function and role of the civil Court in the event leave to commence litigation is allowed. The winding up Court should not be second guessing what that Court, may or may not eventually decide on the merits. That is entirely within the purview of the civil Court. [49] In this regard, we cannot ignore that the signatories to the SPA who signed on behalf of the respondent are two of the liquidators, although one of them has since passed away. Such persons would be best placed to explain the conflicting versions of obligations. [50] In this regard too, and, on the concern of hardship, the appellants have shown that there was a retention of some monies amounting to RM993,000.00, 30% of the purchase consideration by the solicitors of the respondent. This sum is said to have been retained for issues related to private caveat and existing squatters on the subject land. The 26 retention of the sum post SPA is said to confirm the existence of the obligations as alleged by the appellants and address the concerns of the respondent. Conclusion [51] For all the reasons stated above, we are of the unanimous view that appellate intervention is appropriate in this appeal. The appeal is allowed with costs of RM5,000.00 here and below subject to the payment of allocator fee. The decision of the High Court is hereby set aside and leave pursuant to section 263(2) of the Companies Act 1965 is granted to the appellants to commence action against the respondent. Dated: 16 October 2017 Signed by (MARY LIM THIAM SUAN) Judge Court of Appeal, Putrajaya Malaysia 27 Counsel/Solicitors For the appellant: Sugandra Rao a/l Naidu Messrs Rao & Co. No. 11 & 11-1, Jalan KL 3/13 Taman Kota Laksamana Seksyen 3 75200 Melaka For the respondent: Anantha Krishnan a/l Gopala Krishnan (Orpheus M. Modili with him) Messrs Anantha Krishnan G8, Tingkat 3 Taman Tunku Bukit Tunku 50480 Kuala Lumpur