Barisan Performa Sdn Bhd v Hype Park City Sdn Bhd (WA-28NCC-315-05/2017)

The petitioner’s winding-up petition was premised on an adjudication decision. The respondent resisted the petition, and had also filed a motion to strike out the petition.

I had allowed the petition and dismissed the respondent’s application to strike out. I will address both the petition and the striking out application in this judgment, as the respondent had relied on the same grounds to resist the petition and to strike out the petition. 2 Brief facts

The contractual relationship between the petitioner and respondent started back in the first quarter of 2014. The respondent had appointed the petitioner as the contractor to carry out common and local infrastructure works in a housing project in Rawang. The project was called the Lake Club Parkhome (‘the project’). The petitioner claimed that it had done its part of the contract, but did not receive any payment due to it from the respondent. That was the petitioner’s grievance.

The petitioner then took up its case with the Kuala Lumpur Regional Centre (‘KLRCA’). An adjudicator was subsequently appointed and heard the dispute. The petitioner succeeded, and was awarded the sum of RM2,182,948.43 with interests and costs on the 21 November 2016 (‘the adjudication award’).

The amount remained unsettled. The petitioner proceeded to make an application under s. 28 of the Construction Industry Payment and Adjudication Act 2012 (‘CIPAA 2012’) to enforce the adjudication award at the Kuala Lumpur High Court in Originating Summons No. WA-24C-15-01/2017 (‘the OS suit’). An order to enforce the adjudication decision was granted on the 22 March 2017.

The respondent still failed to pay up. Instead, it filed an application to stay the judgment, and set aside the 3 adjudication award in the OS suit. This application was heard by Justice Lee Swee Seng, who on the 8 June 2017 dismissed it.

The petitioner then proceeded to issue a statutory notice of demand under s. 466 Companies Act 2016 (‘CA 2016’). As the respondent did not respond and still failed to pay, the petitioner commenced this winding-up petition under s. CA 2016.

The grounds relied by the respondent in opposing the petition and to strike it out were as follows:-

That the respondent has a cross-claim and/or set-off against the petitioner; and

That it is solvent. The cross-claim and/or set-off [9] The respondent claimed that it was entitled to liquidated ascertained damages from the petitioner for:-

a minimum sum of RM2,570,000 and RM10,000 daily until full settlement, for liquidated ascertained damages for the delay in performing its work; and 4

RM2,518,592.85 being the liquidated ascertained damages that it had paid to the house buyers due to the petitioner’s delay and shoddy workmanship. [10] The respondent had in the adjudication proceedings set out its cross-claim and/or set off in its response. However, the adjudicator decided that she did not have the jurisdiction to address the respondent’s claim, as she opined that her jurisdiction was only limited to the issues raised in the petitioner’s payment claim and the respondent’s response. It seemed that the respondent’s cross-claim and/or set off were not canvassed in the response. [11] The respondent then proceeded to issue a notice for arbitration dated 4 April 2016 against the petitioner, and referred its claim for arbitration to the KLRCA on the same date. [12] The respondent in essence took the position that the adjudicator had acted unfairly, as its claim should not be heard and decided in isolation. The respondent maintained that its claim is legitimate, and that this constitutes a bona fide dispute of the debt claimed by the petitioner. [13] The respondent lamented that it could not appeal against the adjudicator’s decision, as the adjudicator’s decision is binding unless the provisions under s. 13 CIPAA 2012 applies. The respondent took the view that it could not avail 5 itself to any of the provisions under s. 13 and s. 15 CIPAA 2012, and is left with no choice but to pursue its claim under arbitration. [14] The respondent alleged that it should be allowed to pursue its claim through the arbitration process first, and highlighted that its claim is far more that the amount claimed by the petitioner. The respondent also urged this court to allow the arbitration proceedings to be completed first, as it would be nugatory if the petitioner is allowed to proceed with the winding-up proceedings. As a parting shot, the respondent also alleged that the petitioner’s petition was tainted with malice, and that this amounts to an abuse of the court’s process. Solvency [15] As for its claim of being solvent, the respondent stated the following:-

that it had the sum of RM2,001,784.00 in its Hong Leong bank account as at 8 June 2017; and

That is was due to receive the sum of RM2,171,255.00 in October 2017, from the solicitors acting as stakeholders pursuant to the sale and purchase of phase 1 of the project; 6

It has built two show houses for phase 2 and 3 of the project, and that the market value of these two houses were estimated to be at RM3,194,800.00; and

It has also built a club house for the project, and that the clubhouse is valued at RM7,155,310.00. [16] In essence, the respondent claimed that it was solvent and able to pay the amount claimed by the petitioner. Findings The respondent’s cross-claim and/or set-off [17] The respondent’s argument is essentially this: that it has a bigger claim than the petitioner’s, and that it should be allowed to pursue its claim in the arbitration proceedings first. I am not persuaded by the respondent’s argument, as it would mean that the judgment obtained by the petitioner in the OS suit would have no effect. [18] The CIPAA 2012 was meant to provide a swift solution for claimants in the construction industry. In the words of Zulkefli Ahmad Makinudin PCA, who delivered judgment for the Federal Court in View Esteem Sdn Bhd v Bina Puri Holdings Berhad [2017] 8 AMR 167:- It is noted that the CIPAA was enacted to introduce statutory adjudication to address lengthy payment times that affected 7 the contractors in the construction industry. It is intended as an interim measure to ease the contractors’ cash flow. [p 175] [19] Once a successful claimant obtains a High Court order to enforce the adjudication decision under s. 28 CIPAA 2012, the adjudication decision is treated as a judgment or order of the High Court. The order or judgment is valid and enforceable until it is stayed or set aside. To rule otherwise would defeat the very purpose that s. 28 CIPAA 2012 was formulated for. [20] This is clearly provided for under s. 13 CIPAA 2012 where it states:-

Effect of adjudication decision The adjudication decision is binding unless-

it is set aside by the High Court on any of the grounds referred to in section 15;

the subject matter of the decision is settled by a written agreement between the parties; or

the dispute is finally decided by arbitration or the court. 8 [21] The only recourse that an aggrieved party has if it is aggrieved against the adjudication decision, is to make an application to set aside the adjudication decision pursuant to s. 15 CIPAA 2012. It would of course need to satisfy one of the following four grounds under that section:-

the adjudication decision was improperly procured through fraud or bribery;

there has been a denial of natural justice;

the adjudicator has not acted independently or impartially; or

the adjudicator has acted in excess of his jurisdiction. [22] It is no excuse for the respondent to state that it could not bring itself within any of the four grounds under s. 15 CIPAA 2012, and at the same time expect this court not to give due recognition to the OS order. I would further add that the respondent had attempted to stay the execution of the OS order and failed. The respondent had clearly had its opportunity, and could not expect this court to allow it to have a second attempt here, and hope to be successful. [23] In Pacific & Orient Insurance Co Bhd v Muniammah Muniandy [2011] 1 CLJ 947, the Court of Appeal held that a claimant is entitled to initiate winding-up proceedings based on a judgment debt. 9 Solvency [24] The respondent is essentially stating that it has more than enough assets or funds to settle the petitioner’s claim, and that is therefore solvent. The respondent is obviously attempting to negate the presumption under s. 466(1) CA 2016, where it states that a company is deemed unable to pay its debt, if it failed to pay the amount claimed in the notice of demand within twenty-one days of being served. [25] Solvency in the context of winding-up proceedings should be approached in a dynamic context. The issue is whether the respondent company had at present, sufficient cash flow to satisfy the amount claimed when it fell due. [26] The judgment of Mohd Nazlan JC (now High Court Judge) in WWTAI Finance Ltd v IES Energy Holdings Sdn Bhd [2016] MLJU 1591 (HC) is pertinent:- In respect of the first, it is, in any event, now settled law that the issue on the inability to pay debt is to be considered in commercial context, which is the neglect to pay current demands regardless of whether the debtor is in possession of assets which, if realized would permit it to discharge its liabilities. The test of commercial insolvency simply means that the respondent company is not able to meet current debts when they fall due (see System Communication Engineering Sdn Bhd v Zabidin Sdn Bhd [1999] 1 AMR 10 1187). It is cash flow solvency that matters. Not balance sheet solvency. (Emphasis added) [27] It is of no consequence for a respondent company faced with a winding-up petition to state that it has more than sufficient assets to pay the petitioner’s claim. All that matters to any petitioner is whether they could be paid now, and not whether they could get paid in the future. I might add that a promise of ability to pay in the future has little value in winding-up proceedings. [28] I therefore find that the respondent has failed to rebut the presumption of insolvency and that it is able to pay its debt. Striking out [29] I now come to the respondent’s application to strike out. As I had mentioned earlier in this judgment, the respondent has sought to rely on the same grounds that it had ventilated in opposing the petition. It would have saved the court much valuable time had the respondent elected to ventilate its grounds only in the contesting the winding-up petition. There was no necessity for it to file an application to strike out the petition. [30] Abdul Hamid Mohamad JCA (later CJ) in Maril-Rionebel (M) Sdn Bhd & Anor v Perdana Merchant Bankers Bhd & Other Appeal [2001] 3 CLJ 248 (CA), had stern words to say 11 regarding unnecessary striking out applications filed by respondents:- One of the most abused procedure adopted in winding up proceedings is the application to strike out the petition under O. 18. R. 19 of the RHC 1980 and/or the inherent jurisdiction of the court. In Buildon-Cimaco Concrete Sdn Bhd v. Filotek Sdn Bhd [1999] 4 CLJ 135 I pointed out the undesirability of applying such procedure to a winding up petition: Besides, the Companies (Winding-up) Rules 1972 provides its own scheme of procedure for a s. 218 winding-up petition which is more simplified and geared for speedy disposal. RHC 1980, for example, provides for appearance (conditional and unconditional), discoveries, interrogatories, judgment in default of pleading, summary judgment (O. 14), striking out of pleadings (O. 18 r. 19), summons for directions and setting down for trial. Hearing date is only given after the directions made in the summons for directions are complied with and the case has been set down for trial. Perhaps because of these requirements which take some time to be complied since the filing of a writ, that procedures for judgment in default of pleading, summary judgment and the striking out of the writs and pleadings are provided, for quick disposal in clear-cut cases. 12 The scheme under the Companies (Winding-up) Rules 1972 is different. When the petition is issued out of court, a hearing date is given straight away. Whatever has to be done, eg, service, advertisement, compliance with r. 32, will have to be done before the hearing date. The court is supposed to hear the petition straight away on the date fixed for hearing, the very first time it comes up before it. If everything is done as scheduled, the petition is heard on the date first fixed for hearing. That is what the rules envisage. In the circumstances, there is no necessity for provisions for judgment in default, summary judgment or striking out the pleading or trial on issues. I am of the view that that is the reason why the Companies (Winding-up) Rules 1972 do not provide for such procedures. They are not necessary. Furthermore, more often than not, resort to O. 18 r. 19 of RHC 1980 in a winding-up proceedings results in the delay in the hearing of the petition. The application is usually filed one or two weeks before the date fixed for the hearing of the petition. Application is made for it to be heard first, supposedly, to save the court's time. In reality, it delays the hearing of the petition. Whenever there is such an application, inevitably, the hearing of the petition is delayed. Not only will the petition be adjourned for the application to be heard first, but if dismissed, there will be an appeal to the higher court(s). [p 267] 13 [31] I had for this reason directed that the striking out application be heard simultaneously with the petition. Be that as it may, I have addressed the grounds raised by the respondent in its striking out application in the preceding paragraphs of this judgment, the conclusion of which is not in the respondent’s favour. [32] I would further add that it is immaterial whether the petitioner had ulterior motives to present this winding-up petition. As a creditor, it had every right to present the petition irrespective of its motives; see Morgan Guaranty Trust Co New York v Lian Seng Properties Sdn Bhd [1991] 1 CLJ 260. Conclusion [33] I therefore find that the respondent has failed to raise any bona fide dispute, nor has it succeeded in rebutting the presumption of insolvency. I also find no merits to the respondent’s application to strike out. I therefore dismiss the respondent’s application to strike out with costs of RM4,000, and gave an order in terms of the petition with costs of RM5,000, with both costs subject to allocatur. Dated: 8 January 2018 -sgd- (Mohamed Zaini Mazlan) Judge Kuala Lumpur High Court (Commercial Division) 14 Counsel for the petitioner Su Wan Ying and S.C Ho [Messrs Wilson Wong & Tan] Counsel for the respondent Ken St. James, Zulfarsyah bin Mohamad Idrakisyah and Jonathan Gerard [Messrs Michael Chai Ken]