Bergamo Development (M) Sdn Bhd v Eck Development Sdn Bhd & 1 Lagi (PA-22C-7-12/2016)

FOO YEE CONSTRUCTION SDN BHD DEFENDANTS

This is an application for stay of execution of my trial judgment reported in [2018] MLJU 555. 2

The applicants are private limited companies jointly involved in the development of the Taman Desa Ku Phase 1 project in Kulim, Kedah Darul Aman (“Project”) and Defendants in the Suit initiated by the Plaintiff which is also a private limited company.

On 27 April 2018, I entered judgment in favour of the Plaintiff in the Suit (“Judgment”) in the following terms: (i.) a declaration that the 22 May 2015 agreement and the Supplementary Agreement dated 6 July 2015 are set aside; (ii.) payment of RM 5,108,148.40 with interest thereon at 5% per annum from the date of the writ till full realization; and (iii.) costs of RM125,000.00.

The Defendants were dissatisfied with my decision and have on 4 May 2018 filed their notice of appeal to the Court of Appeal.

As the result, the Defendants also filed a notice of application dated 4 May 2018 (enclosure 52) (“Application”) to stay the 3 execution of the Judgment pending the disposal of the appeal in the Court of Appeal.

The affidavits that were filed for purposes of the Application are as follows: (i.) First Defendant’s affidavit in support affirmed by Syed Syafiq bin Syed Rozlan dated 4 May 2018; (ii.) Second Defendant’s affidavit in support affirmed by Khoo Eng Swee dated 4 May 2018; (iii.) Defendants’ further affidavit in support affirmed by Tan Sri Dato’ Dr Khor Eng Chuen dated 7 May 2018; (iv.) Plaintiff’s affidavit in reply affirmed by Balasubramaniam a/l Alagusundaram dated 18 May 2018; (v.) Defendants’ affidavit in reply affirmed by Tan Sri Dato’ Dr Khor Eng Chuen dated 25 May 2018; and 4 (vi.) Plaintiff’s affidavit in reply affirmed by Balasubramaniam a/l Alagusundaram dated 28 May 2018.

After having read the cause papers and written submission of the Defendants, I heard counsel of both parties on 1 June 2018. I thereafter allowed the Application in the following terms: (i.) The judgment sum of RM1,202,175.03 shall be forthwith paid by the Defendants to the Plaintiff by 8 June 2018; (ii.) The balance of the judgment sum of RM4,030,973.37 (comprising of the principal judgment sum and costs) shall be deposited by the Defendants with the Plaintiff’s solicitors by 1 September 2018; and (iii.) The costs of the Application shall be costs in the cause of the appeal.

I now furnish below the grounds of my decision. 5

The Plaintiff was appointed by the Defendants as the rescue contractor to complete the Project pursuant to a Construction Agreement.

The Plaintiff completed the works under the Construction Agreement (save for the STP which deferred as agreed to by the parties) within reasonable time and the certificate of fitness for occupation of the Project was issued by the Majlis Daerah Kulim.

The Defendants however failed to pay the Plaintiff pursuant to the Construction Agreement but coerced the Plaintiff by way of economic duress to enter into several supplementary agreements that significantly reduced the Plaintiff’s entitlements under the Construction Agreement.

As the result, the Plaintiff suffered cash flow suffocation as was unable to pay many of its sub contractors and suppliers as well as others who contributed to the completion of the Project. 6

The Defendants contended that their appeal would be rendered nugatory and academic if the stay of execution of the Judgment is not ordered. They referred to Mohamed Mustaffa v Kandasami (No. 2) [1979] 2 MLJ 126 FC where Abdul Hamid J (later LP) held as follows: “On the question of stay of execution it is I think settled law that the granting of such a stay is a matter of the court's discretion, and it is true that the exercise of such discretion must be founded upon established judicial principles. One of the determining factors that calls for consideration is whether by not making an order to stay of the execution it would make the appeal if successful, nugatory in that it would deprive an appellant of the results of the appeal. How pertinent that factor would be may vary according to the circumstances of each particular case.” In this respect, they questioned the financial ability of the Plaintiff to repay the Defendants in the event that their appeal is allowed. It 7 was shown that the Plaintiff is now a dormant company that ought to be struck off by the Companies Commission of Malaysia because of failure to file its annual audited accounts. Furthermore, the Defendants claimed to be financially healthy, solvent and active in undertaking the other phases of the same Taman Desa Ku project. They also referred to Jerry Ngiam Swee Beng v Abdul Rahman bin Mohd Rashid dan satu lagi (No. 2) [2001] 6 MLJ 9 where Ramly Ali JC (now FCJ) held as follows: “Bagi sebuah syarikat yang masih beroperasi dan mempunyai senarai klien-klien yang banyak, sekiranya perintah penggantungan tidak dibenarkan, maka implikasinya adalah buruk kerana ianya menjejaskan maruah perdagangan (commercial morality) serta imej dan reputasi syarikat tersebut. Kepentingan awam (public interest) juga perlu dipertimbangkan sama. Adalah tidak selaras dengan kepentingan awam sekiranya sebuah syarikat yang telah beroperasi selama 26 tahun dan mempunyai 'track record' yang baik serta masih beroperasi dan solven terpaksa digulungkan atas alasan teknikal, tanpa memberi peluang 8 kepada mereka untuk menunggu keputusan Mahkamah

On the other side, the Plaintiff contended that it should not be denied the fruits of the judgment which is basically its dues under the Construction Agreement for completing the Project for the Defendants. The Plaintiff has been put into financial hardship and cash strapped because of the Defendants’ actions that were done in bad faith towards the Plaintiff. At this juncture, the Plaintiff incurred RM6,705,650.09 to complete the Project and the Plaintiff had only received RM3,300,000.00 from the Defendants. The balance of RM3,405,650.09 has been financed and owing to the Plaintiff’s directors amounting to RM1,029,735.00, companies related to the Plaintiff’s directors amounting to RM1,173,740.00 and external sub contractors and suppliers amounting to

The principles involved in respect of stay of execution of judgment have been stated as follows by Augustine Paul JCA (later FCJ) in Kosma Palm Oil Mills Sdn Bhd & Ors v Koperasi Serbausaha Makmur Bhd [2004] 1 MLJ 257 FC: 9 “17. Finally, in Re Kong Thai Sawmill (Miri) Sdn Bhd, Ling Beng Sung v Kong Thai Sawmill (Miri) Sdn Bhd & Ors (No 2), Lee Hun Hoe CJ (Borneo) in writing for the Federal Court said in clear and lucid terms at p 132: An appeal which would be nugatory if stay was refused by reason of the poverty of the respondent would be an example of special circumstances. See Wilson v Church (No 2)(1879) 12 Ch D 454. Another example is that payment of a judgment debt would destroy the substratum of the appeal: Metropolitan Real and General Property Trust Ltd v Slaters and Bodega Ltd [1941] 1 All ER 310. However, an allegation on an appeal that there has been misdirection at the trial would not be sufficient to bring it within the special circumstances: Monk v Bartram (1891) 1 QB 346. 18 Halsbury's Laws of England (4 th Ed) Vol 17 at para 455 cites the following authorities as examples of special circumstances: that an appeal would be nugatory if stay was refused, by reason of the respondent's poverty (Wilson v Church (No 2) (1879) 12 Ch D 454 (CA)); or if payment of a 10 judgment debt destroys the substratum of the appeal (Metropolitan Real and General Property Trust Ltd v Slaters and Bodega Ltd [1941] 1 All ER 310 (CA)); absence from England without address of a party to whom money in Court was ordered to be paid out (Broadford v Young, Re Falconer's Trusts (1884) 28 Ch D 18 (CA)); that an administration order has been made against the estate or a debtor dead since judgment and before execution issued (Ranken v Harwood, Ranken v Boulton (1846) 5 Hare 215); judgment in favour of an alien enemy (Robinson & Co v Continental Insurance Co of Mannheim(1915) 1 KB 155; and judgment against an alien enemy company whose assets are subject to Treasury control (Leader v Direction de Disconto Gesellschaft(1915) 3 KB 154, (CA)).It is therefore clear beyond doubt that there are many factors that may constitute special circumstances and the fact that an appeal would be rendered nugatory if stay was refused is the most common one. It is an example of special circumstances. In other words, special circumstances is the genus of which nugatoriness is a species. If it has been shown that an appeal would be rendered nugatory if stay was refused what it means is that a special circumstance has been 11 established. Thus, they cannot be treated as separate heads and one cannot be an alternative to the other. Neither can one be accepted or rejected in favour of the other as they are inter-related. See Teow Guan & Ors v Kian Joo Holdings Sdn Bhd & Ors could have withstood scrutiny if it had merely referred to nugatoriness without rejecting special circumstances. As nugatoriness is a species of special circumstances, a mere reference to it is sufficient to convey the correct legal impression. Any attempt to restrict the grant of a stay to nugatoriness, quite apart from its impropriety, will severely restrict the grounds on which an applicant may rely. Learned counsel for the applicants is therefore wrong in submitting that the nugatory approach is not a matter for consideration in this case as what is relevant is only the special circumstances. He would have been correct if he had said that he was not relying on nugatoriness but on some other species of special circumstances.”

It is therefore plain that nugatoriness as submitted by the Defendants is a relevant special circumstance. Nonetheless it is still dependent on the facts in issue. In Walter a/l Pathrose 12 Gomez & Ors v. Sentul Raya Sdn Bhd [2005] 6 MLJ 555, Abdul Malik Ishak J (later JCA) held as follows: “The filing of an appeal did not in itself constitute special circumstances so as to warrant a stay. In the instant case, to grant the stay would cause manifest injustice to the plaintiffs as there would be further delay while waiting for the hearing of the appeal at the Court of Appeal. Thus, the effect of the stay would not only prolong the disposal of the case but it would also cause anguish to the plaintiffs. The plaintiffs were entitled to the judgment sum and any delay in payment would cause prejudice to the plaintiffs who have waited for years for the completion of their condominium units and the liquidated ascertained damages pursuant to the SPAs.”

In construction related claims, I am of the view that the nugatoriness as advanced by the employer must be balanced against other opposing circumstances as well, particularly the contractor’s need to pay external sub contractors and suppliers. Otherwise chokage of payment will cascade and cripple others that 13 may result in progressive financial collapse of the construction industry which operates in a pyramidal multi-partite manner.

It is trite that stay applications may be granted on terms; see Walter a/l Pathrose Gomez & Ors v. Sentul Raya Sdn Bhd (supra) and more recently in China Harbour Engineering Company Ltd v Lunar Shipping Agencies Sdn Bhd [2016]

In the circumstances herein, I therefore hold that the amount of RM1,202,175.00 owed by the Plaintiff to its sub contractors and suppliers who completed the Project ought to be paid by the Defendants forthwith. I am however also cognisant of the weak and precarious financial standing of the Plaintiff and therefore hold that the rest of the judgment sum which represented unpaid loans advanced by the Plaintiff’s directors as well as their related companies and the Plaintiff’s profit should be stayed but secured by the Defendants paying to the Plaintiff’s solicitors within reasonable time to be held in trust until the disposal of the appeal. Based on the financial strength of the Defendants as revealed from their financial records produced in the affidavits, they should be able to pay the same within 3 months. 14

It is for the foregoing reasons that I allowed the Application as so ordered. Dated this 4 June 2018 t.t LIM CHONG FONG JUDGE HIGH COURT GEORGETOWN PENANG 15 COUNSEL FOR THE PLAINTIFF: G. ARUMUGAM SOLICITORS FOR THE PLAINTIFF: GHAZI & LIM COUNSEL FOR THE DEFENDANTS: SARAVANESH A/L SUPRAMANIAM (CHUAH CHONG YEN WITH HIM)