Ct Indah Construction Sdn Bhd v Bhl Gemilang Sdn Bhd (WA-24C-7-01/2017)

2 Blok Pangsapuri Perkhidmatan dan Kemudahan-kemudahan: 3 a) Blok A sebanyak 189 Unit Pangsapuri Perkhidmatan dan Kemudahan-kemudahan (21 Tingkat) b) Blok B Sebanyak 278 Unit Pangsapuri Perkhidmatan dan

1 Blok Podium (8 Tingkat) yang Mengandungi: a) 18 Unit Ruang Retail (Di Sebahagian Aras 1-2) b) 36 Unit Ruang Pejabat (Di Sebahagian Aras 3-4) c) 1 Unit Perpustakaan MPAJ (Di Sebahagian Aras 2) d) Tempat Letak kereta dan Tempat Letak Motorsikal (Di Sebahagian Aras 1-4 dan Di Aras 5-8) e) Tempat Letak Kereta Separa Bawah Tanah (Aras Separa Bawah Tanah 1-2) f) Tempat Letak kereta Bawah Tanah (Aras Bawah Tanah 1-2) Di Atas Lot PT 12382 dan PT 6571, Taman Bukit Segar, Mukim Ampang, Daerah Hulu Langat, Selangor Darul Ehsan Untuk Tetuan BHL Gemilang Sdn Bhd (“the Project”)”. 4 [4] The Plaintiff had obtained an Adjudication Decision dated 13.10.2016 in its favour against the Respondent in an Adjudication under the CIPAA. Problem [5] As BHL Builders failed to make payment under the Adjudication Decision, the Plaintiff issued and served on 22.11.2016 a statutory demand under the then section 218 of the Companies Act 1965 to BHL Builders for payment of the adjudicated amount. [6] On 19.12.2016, the Plaintiff served on BHL Builders a Winding Up Petition vide Kuala Lumpur High Court Winding Up Petition No. WA- 28NCC-1063-12/2016 (“the Winding Up Petition”). [7] There was no application filed by BHL Builders to set aside the Adjudication Decision. BHL Builders has applied to restructure itself under section 176 of the Companies Act 1965, and has sought and obtained an interim restraining order thereunder. [8] Pursuant to section 30 of the CIPAA, the Plaintiff’s solicitors issued on 7.12.2016 a request to the Defendant for direct payment of the sums awarded to the Plaintiff. [9] The Defendant did not issue a notice under section 30(2) of the CIPAA on BHL Builders to “show proof of payment” to the Plaintiff, or to “state that 5 direct payment would be made after the expiry of ten working dates of the service of the notice”. This is a mandatory requirement under section 30(2). [10] There was also no response from the Defendant to the Plaintiff. Prayer [11] The Plaintiff then filed this application on 17.1.2017 under section 30 of the CIPAA for direct payment from the Defendant as principal to the Respondent in the Adjudication for the sums directed to be paid by the Respondent to the Claimant. The Plaintiff prayed for inter alia, a declaration that the Defendant is liable as the principal of BHL Builders Sdn Bhd to pay to the Plaintiff the outstanding amount due under the Adjudication Decision dated 13.10.2016. [12] The Adjudication Decision was for the principal sum of RM9,065,335.67 (“the Adjudicated Sum”) made in favour of the Plaintiff in addition to a further legal costs of RM20,000.00 and the adjudication costs of RM86,591.82 (“the Legal and Adjudication Cost”) together with interests at the rate of 5% per annum on the Adjudication Sum from 19.7.2016 to 13.10.2016 (“the Adjudicated Amount”). [13] This was to be paid by 21.11.2016. Principles 6 Whether the requirements of direct payment from the Principal to the Claimant under section 30 of the CIPAA have been met [14] Section 30 of the CIPAA expressly allows the Plaintiff, as the successful party in the adjudication, to claim payment of the Adjudicated Amount directly from the Defendant as the principal, where BHL Builders, the Respondent in the Adjudication, has failed to make payment. [15] It is provided under Part IV of the CIPAA under “Enforcement of Adjudication Decision”. The other section is section 28 where the party enforcing the Adjudication Decision may apply for an order from the High Court to enforce the Adjudication Decision as if it is a judgment or order of the High Court. There is also the remedy of suspension of the construction work or a reduction of the rate of progress of performance under section 29 if the Adjudicated Amount has not been paid subject to relevant notice being given. Section 30 is thus one of the remedies available to the party in whose favour an Adjudication Decision is given in the context of enforcing the Adjudication Decision. [16] Section 30 of the CIPAA is reproduced in full below for a better appreciation of the mechanics of its operation: “30. Direct Payment from Principal 7

If a party against whom an adjudication decision was made fails to make payment of the adjudicated amount, the party who obtained the adjudication decision in his favour may make a written request for payment of the adjudicated amount direct from the principal of the party against whom the adjudication decision is made.

Upon receipt of the written request under subsection (1), the principal shall serve a notice in writing on the party against whom the adjudication decision was made to show proof of payment and to state that direct payment would be made after the expiry of ten working days of the service of the notice.

In the absence of proof of payment requested under subsection (2), the principal shall pay the adjudicated amount to the party who obtained the adjudication decision in his favour. 4) The principal may recover the amount paid under subsection (3) as a debt or set off the same from any money due or payable by the principal to the party against whom the adjudication decision was made. 8

This section shall only be invoked if money is due or payable by the principal to the party against whom the adjudication decision was made at the time of the receipt of the request under subsection (1).” (emphasis added) [17] In accordance with the provision under section 30 of the CIPAA, the Plaintiff served its written request on the Defendant for direct payment of the sums awarded under the Decision. [18] Under section 30(2) of the CIPAA, the Defendant is obliged to serve a written notice on BHL Builders for the latter to show proof of payment to the Plaintiff, and to state that the Defendant would proceed to pay the Plaintiff after 10 working days. [19] According to the Plaintiff, for reasons best known to the Defendant, the Defendant chose not to issue any such notice under section 30(2) of the CIPAA to BHL Builders. No proof of payment was thus shown by BHL Builders. [20] Section 30(3) of the CIPAA then provides that in the absence of such proof, the Defendant as the principal “shall pay the adjudicated amount to the party who obtained the adjudication decision in his favour” (emphasis added), namely to the Plaintiff. 9 [21] Learned counsel for the Plaintiff said that it is pertinent to note that the word “shall” is used in both sections 30(2) and (3) of the CIPAA, denoting the mandatory nature of these subsections. Learned counsel for the Plaintiff also quoted from the learned authors Lam Wai Loon and Ivan Y F Loo of Construction Adjudication in Malaysia (First Edition) Lexis Nexis at page 417 where it is stated that: “… However, it is to be noted that the principal under this provision has no discretion as to whether to make direct payment requested by the winning party. If the winning party has satisfied all the prescribed conditions in the provision, which are set out below, the principal “shall” make direct payment. … The word “shall” imposes upon the principal a statutory obligation to make payment of the adjudicated amount. It is considered that the result of this obligation to pay creates a cause of action whereupon the winning party may sue the principal for the payment should the principal fail to comply with the obligation to pay. …” (emphasis added) [22] Learned counsel for the Plaintiff expressed his full agreement with the above passage quoted and further stated that the statutory obligation for 10 the Defendant to make direct payment to the Plaintiff is consistent with the aim of the CIPAA, which is “to provide a mechanism for speedy dispute resolution through adjudication, to provide remedies for recovery of payment in the construction industry …” (emphasis added) [23] He further argued that this speedy mechanism will be defeated if the principal is permitted to stay silent and refuse disclosure of the sums payable by the principal to the respondent or the party against whom the Adjudication Decision is made, particularly where both the principal and the delinquent non-paying party against whom the Adjudication Decision is made are related companies controlled by the same people, as in the present case. [24] Insofar as section 30(5) of the CIPAA is concerned, the Defendant has not denied that there are sums due from the Defendant (as the principal) to BHL Builders. (See also Ng Hee Thoong & Anor v Public Bank Bhd [1995] 1 MLJ 281, at p. 286). I would further agree with the Plaintiff that having remained silent, it is clearly an afterthought to then subsequently say in their affidavit filed out of time, that there is no sums owing from them to BHL Builders. [25] I would agree with the Plaintiff that this is not a case where the Defendant can seriously dispute the amount to be paid over to the Plaintiff especially in the absence of a mandatory notice to BHL Builders under 11 section 30(2) and further in the absence of a rebuttal of the allegation of the Adjudicated Amount to be paid by the Defendant to the Plaintiff when the Defendant had the first opportunity to do so. [26] However I must add a qualification to the mandatory use of the word “shall” in subsections (2) and (3) and it is that they are still subject to subsection (5) in that section 30 may only be invoked if money is due or payable by the principal to the Respondent in the Adjudication, BHL Builders at the time of the receipt of the request under subsection (1). [27] Thus if there is no money due then the law does not by section 30 create a separate independent obligation on the Defendant as the principal as Developer to BHL Builders as its Contractor, to pay the Claimant as the Subcontractor of the Project. [28] Thus the learned authors, Lam Wai Loon and Ivan Y. F. Loo, of Construction Adjudication in Malaysia (First Edition) Lexis Nexis did at page 417 caution and clarify as follows: “(e) Fifthly, and most importantly, there is money due or payable by the principal to the losing party at the time of its receipt of the written request for payment from the winning party. In this regard, the principal is only obligated to make payment to the extent of the sum 12 due or payable by the principal to the losing party, or the adjudicated amount, which ever is lower.” (emphasis added) [29] There is no merit in the Defendant’s contention that the Plaintiff’s Application is premature in that the Adjudication Decision must first be enforced as a judgment or order of the High Court under section 28(1) of the CIPAA before resort may be had to the remedy under section 30. [30] Section 28 of the CIPAA reads as follows: “28 Enforcement of adjudication decision as judgment

A party may enforce an adjudication decision by applying to the High Court for an order to enforce the adjudication decision as if it is a judgment or order of the High Court.

The High Court may make an order in respect of the adjudication decision either wholly or partly and may make an order in respect of interest on the adjudicated amount payable.

The order made under subsection (2) may be executed in accordance with the rules on execution of the orders or judgment of the High Court.” [31] I would agree with the Plaintiff that nowhere in the CIPAA does it require the Plaintiff to make an application under section 28 of the CIPAA first before bringing an action against the Defendant under section 30. As 13 long as the requirements under section 30 of the CIPAA are complied with, it is mandatory for the Defendant to make direct payment to the Plaintiff. (See Murni Environmental Engineering Sdn Bhd v Eminent Ventures Sdn Bhd & Anor & Another Cases [2016] 1 LNS 805, at p. 6. [32] Implicit in the wording of section 30(1) of the CIPAA is that for so long as the Adjudicated Amount has not been paid by its due date, the Claimant as Plaintiff is entitled to avail itself and activate the provision of section 30 of the CIPAA. The opening words of section 30(1) reads: “If a party against whom an adjudication decision was made fails to make payment of the adjudicated amount.....” [33] It does not say that “If a party against whom an adjudication decision was made fails to make payment of the adjudicated amount after the enforcement order is made under section 28(1) .....” [34] When read together with section 12(5) that requires an adjudication decision to state the adjudicated amount and the time and manner the adjudicated amount is payable as well as section 13 that states that the Adjudication Decision is binding, one is left in no doubt that unless the Adjudicated Decision is stayed or set aside, payment of the Adjudicated Sum is required to be made. 14 [35] A failure to pay would attract one of the modes of enforcement of the Adjudication Decision or remedies in the event of non-payment of the Adjudicated Amount under sections 28, 29 and 30 of the CIPAA. As if anticipating the question that would be asked as to whether the remedy under section 28 of the CIPAA must first exercised before that of sections 29 and 30, section 31 clarifies as follows: “31. Concurrent Exercise of Remedies

Unless a stay is granted under section 16, a party who obtained an adjudication decision in his favour may exercise any or all of the remedies provided in this Act concurrently to enforce the adjudication decision.

The remedies provided by this Act are without prejudice to other rights and remedies available in the construction contract or any written law, including any penalty provided under any written law.” (emphasis added) [36] Learned counsel for the Defendant had relied analogously on a similar provision in section 38 of the Arbitration Act 2005 for the recognition and enforcement of an arbitral award. As the scheme of Arbitration under the Arbitration Act 2005 is different from that of Statutory Adjudication under the CIPAA with different remedies available for non-payment of an 15 adjudicated amount, such an analogy is unhelpful and more so when it goes against the grain of section 30 of the CIPAA itself. [37] I find that the requirements of section 30 have been fulfilled for the Plaintiff to bring this application. [38] However a far more important question is whether section 30 of the CIPAA is subject to the rules in the winding up regime under the Companies Act 1965 or the Companies Act 2016. Whether the remedy under section 30 of the CIPAA is subject to the prohibition of preferential payment under the Companies Act. [39] Another High Court in Kuala Lumpur vide Originating Summons No. WA-24NCC-546-12/2016 (“546 OS”) had granted an order to BHL Builders pursuant to Sections 176 (1) and 176 (10) of the Companies Act, 1965 sometime on 12.1.2017 for inter alia, the convening of Creditors’ and Members’ Meeting of BHL Builders as well as a restraining order of all proceedings against BHL Builders for a period of 90 days from 12.1.2017. [40] Learned counsel for the Plaintiff has buttressed his argument that the direct payment remedy under section 30 of the CIPAA is exempt from the rules against preferential payment in the winding up regime because section 30 creates an independent liability – a debt – to be paid by the Defendant to the Plaintiff. 16 [41] With the greatest of respect to learned counsel for the Plaintiff I am afraid I cannot agree. For Parliament to create a separate and independent obligation to pay by the principal of the Respondent in the Adjudication in this case by the Defendant as Developer of the Main Contractor to the Plaintiff as the Subcontractor, there must be clear words expressly employed for this purpose for otherwise there is no contractual obligation to pay direct by the Developer to the Subcontractor. [42] As explained by section 30(5) of the CIPAA the precondition of there being first money due and payable by the principal to the party against whom the Adjudication Decision was made must first be met for only then shall section 30 be invoked. It cannot be overemphasized for otherwise the precondition is not met and no direct payment order may be made by the Court. [43] Learned counsel for the Plaintiff submitted that the law recognizes that such an independent liability of the Defendant can exist. In the Irish case of Glow Heating Limited v The Eastern Health Board, Patrick Rooney and Building and Engineering Limited (in liquidation) [1988] IR 110 at pp. 119-120, it was held that a contract provision which requires direct payment from the principal may create an independent liability on the part of the principal. Learned counsel for the Plaintiff summarized his submission as follows: 17 1) The High Court in Glow Heating Limited allowed the plaintiff’s (as the subcontractor) claim for direct payment from the employer where the agreement expressly provides for such mode of payment notwithstanding that the main contractor was in liquidation. 2) At page 120 of the law report, the Court held that “It is clear that clause 55 (a) of the main contract imposes a contingent liability on an asset of the main contractor, the monies in the retention fund, namely, a liability to suffer a reduction in the event of a specified default on the contractor's part. The liquidator, in my opinion, took the retention fund subject to this liability. Neither contract in my view involved an attempt to contract out of the provisions of s 275, and neither is therefore contrary to public policy.” [our emphasis] [44] It was further explained that Glow Heating Limited is not alone in this proposition for it had relied on the cases of Re Tout and Finch, Ltd [1954] 1 All ER 127 and British Eagle International Airlines Ltd v Compagnie Nationale Air France [1975] 2 All ER 390 to support its stand. [45] In the present case, learned counsel for the Plaintiff said the independent liability of the Defendant is created by statute – i.e. by section 30 of the CIPAA. Lest I might have misunderstood learned counsel for the 18 Plaintiff, he went on to explain in this regard, payment made by the Defendant to the Plaintiff is not from the assets of BHL Builders. Instead, because the Adjudicated Amount are paid by the Defendant, it will be a debt due from BHL Builders to the Defendant (once the Defendant makes direct payment to the Plaintiff) which the Defendant will have to recover from BHL Builders pursuant to section 30 (4) of the CIPAA. There may be thus cases where after making direct payment to the Claimant, the Principal realizes that in the final account there is a debt owing from the Respondent in the Adjudication to the Principal. By and large, in most cases, it would be more a case of the Principal setting-off the amount paid by the Principal from any money due or payable by the Principal to the party against whom the Adjudication Decision was made. [46] I cannot see how an independent obligation and liability may arise for the Principal to pay the Subcontractor here when both subsections (4) and

can read harmoniously and in tandem rather than in conflict and more so when subsection (5) is in the nature of a precondition or a condition precedent. Both subsections (4) and (5) are juxtaposed below for comparison and to clarify that there is no conflict at all between the 2 subsections: “(4) The principal may recover the amount paid under subsection

as a debt or set off the same from any money due or 19 payable by the principal to the party against whom the adjudication decision was made.

This section shall only be invoked if money is due or payable by the principal to the party against whom the adjudication decision was made at the time of the receipt of the request under subsection (1).” (emphasis added) [47] Whilst our bankruptcy laws allow the Defendant to set off the sums directly paid to the Plaintiff from the sums that the Defendant owes to BHL Builders, in the first place, the amount must not be paid preferentially to any unsecured creditors. [48] If Parliament had intended the provision of section 30 to prevail over the Companies Act 1965 then one would have expected the use of the device of a non obstante clause as in “Notwithstanding the provision of any law to the contrary.......” [49] The Federal Court in Perbadanan Kemajuan Kraftangan Malaysia v. DW Margaret David Wilson [2010] 5 CLJ 899 at paragraph 19, speaking through Heliliah Mohamed Yusof FCJ noted that “The term ‘notwithstanding’ means generally ‘not to stand against’ or ‘in the way’ or ‘overriding’ and went onto cite with approval a quote from the judgment of 20 the Indian Supreme Court in Union of India v I C Lala (1973) 2 SCC 72 at p.77 which reads as follows: “The words notwithstanding anything contained in the Code of Criminal Procedure found at the beginning of s.5A(1) of the Prevention of Corruption Act 1947 (now s. 17 Prevention of Corruption Act 1988) merely carved out a limited exemption from the provision of the Code of Criminal Procedure in so far as they limit the class of persons who are competent to investigate offences mentioned in the section and to arrest without warrant. It does not mean that the whole of the Code of criminal procedure....is made inapplicable.” (emphasis added) [50] An example of a non obstante clause can be found in section 65(1) of the Employees Provident Fund Act 1991 which reads: “Notwithstanding the provisions of any other written law all contributions payable under this Act may, without prejudice to any other remedy, be recoverable by the Board summarily as a civil debt.” [51] A non obstante clause within the CIPAA is found in section 27(3) which reads: “Notwithstanding a jurisdictional challenge, the adjudicator may in his discretion proceed and complete the adjudication proceedings .....” 21 [52] In the absence of a non obstante clause and in the light of the legion of authorities that do not follow Glow Heating Limited (supra), I would say that the provision of section 30 of the CIPAA is subject to the rules prohibiting preferential payment to unsecured creditors under the insolvency regime under the Companies Act 1965 or even the Companies Act 2016. [53] It is a fact that on 19.12.2016, the Plaintiff presented a winding up petition against BHL Builders in the Kuala Lumpur High Court Winding Up Petition No. WA-28NCC-1063-12/2016 (“the Winding Up Petition”). [54] The validity of the Restraining Order dated 12.01.2017 had lapsed. An order extending the validity of this Order has not been procured by BHL Builders as at the date of the submissions on 27.4.17. [55] As it transpired BHL Builders was wound up by the Winding Up Court on 17.8.17 at the instance of some other creditors. [56] Under section 219 (2) of the Companies Act 1965 (“CA 1965”) it is clearly stated that a winding up shall commence on the date of presentation of the winding up petition. [57] I agree with learned counsel for the Defendant that with the commencement of winding up proceedings against BHL Builders, the following provisions under CA 1965 which are intended to preserve the 22 assets of BHL Builders for distribution amongst its creditors in the eventuality of winding up would apply:

Section 223: “223 Avoidance of dispositions of property, etc Any disposition of the property of the company including things in action and any transfer of shares or alteration in the status of the members of the company made after the commencement of the winding up by the Court shall unless the Court otherwise orders be void”

(ii) Section 224: “224 Avoidance of certain attachments, etc Any attachment, sequestration, distress or execution put in force against the estate or effects of the company after the commencement of the winding up by the Court shall be void.”

(iii) Section 293: “293. Undue preference

Any transfer, mortgage, delivery of goods, payment, execution or other act relating to property made or done by or against a company which, had it been made or done 23 by or against an individual, would in his bankruptcy under the law of bankruptcy be void or voidable shall, in the event of the company being wound up, be void or voidable in like manner.

...

Any transfer or assignment by a company of all its property to trustees for the benefit of all its creditors shall be void.” [58] Learned counsel for the Defendant also referred to the new provisions governing undue preference in the new Companies Act 2016 in section 528 of the Companies Act 2016 (“CA 2016”) which provides:

“Undue preference

Any transfer, mortgage, delivery of goods, payment, execution or other act relating to property made or done by or against the company which is unable to pay its debts, as the debts become due, from its own money in favour of any creditor or any person in trust for any creditor shall be deemed to have given such creditor a preference over other creditors in the event of the company being wound up on a winding up petition presented within six months 24 from the date of making or doing the same and every such act shall be deemed fraudulent and void.

The date of presentation of the winding up petition shall be –

in the case of winding up by the Court –

the date of the presentation of petition; or

(ii) where prior to the presentation of the petition a resolution has been passed by the company for voluntary winding up, the date upon which the resolution to wind up the company voluntarily is passed; and

in the case of voluntarily winding up, the date upon which the winding up is deemed by this Act to have commenced.

Any transfer or assignment by a company of all its property to the trustees for the benefit of all its creditors shall be void.” [59] See also Section 52 and Section 53 of the Bankruptcy Act 1967 (“BA”). 25 [60] It is only too obvious that a Court of Law cannot make an order contrary to the express provision of the relevant legislation governing the issue before the Court. Any order of the Court contrary to the law or legislation governing the issue would be void. In Badiaddin bin Mohd Mahidin & Anor v Arab Malaysian Finance Berhad [1998] 1 MLJ 393, the Federal Court observed: “It is well settled that even courts of unlimited jurisdiction have no authority to act in contravention of written law....” [61] Learned counsel for the Defendant drew some guidance from the recent Singapore High Court’s decision in Lim Poh Yeoh (alias Lim Aster) v TS Ong Construction Pte Ltd [2016] 5 SLR 272. The facts therein are somewhat similar to the present facts in that the respondent there had obtained an adjudication determination for the sum of $138,660.16 but the respondent was unsuccessful in seeking enforcement of the payment. Edmund Low JC at page 274 had this to say: “(6) While the policy objective of facilitating cash flow in the construction industry was vital, it did not displace the usual rules of the insolvency/bankruptcy regime. While a successful claimant was fully entitled to seek leave to enforce an adjudication determination as a judgment and thereafter to pursue the recovery of the adjudicated amount in insolvency 26 proceedings, he had to abide by the rules governing the insolvency process. One of these rules was that it was always open for a debtor to apply to set aside a statutory demand on the basis that he had a cross demand against the creditor the effect of which was that, if successful, it would liquidate the statutory demand debt. In assessing whether this was the case, the role of the court was simply to determine whether the cross demand in question raised genuine triable issues: at [45], [71] and [73].” [62] His Lordship went on further to state his grounds at pages 298 – 299 as follows: “71 While the policy objective of facilitating cash flow in the construction industry is vital, I do not think that Parliament intended it to be one that was to be achieved at all costs. Notably, our SOPA does not contain the equivalent of s 79 of the NZ CCA, which clearly precludes a respondent from relying on the existence of a cross claim as a ground for resisting enforcement proceedings for the debt (see [67] above). It is particularly important to bear this in mind when one is concerned with the insolvency process, which is qualitatively different from other mechanisms of enforcement. As the Court of Appeal emphasised 27 in its recent decision in Chan Siew Lee Jannie v Australia and New Zealand Banking Group Ltd [2016] 3 SLR 239 (“Jannie Chan”) at [18]: [B]ankruptcy proceedings are not intended as a means for a single creditor to enforce his debt but is instead a method for the collective realisation of the assets of the debtor in order to maximise recovery for the general body of creditors. [emphasis added; emphasis in original omitted] As the Court of Appeal pointed out (at [17] and [19]), this requires a delicate balance between the competing interests of all the stakeholders in the bankruptcy process: the creditors (not all of whom would benefit equally from the initiation of bankruptcy proceedings), debtors and wider society. All the rules that govern the bankruptcy process, including the provisions governing the setting aside of statutory demands, are instituted in service of this. 72 The upshot of all this is that if Parliament intended that the SOPA regime would take precedence over the usual rules of the insolvency/bankruptcy regime, then it would have said so explicitly, but this was not the case. In fact, it seemed to me that the opposite was intended. During the second reading of the Building and Construction Industry Security of Payment Bill (No 28 54/2004) (“SOPA Bill”), then Minister Cedric Foo Chee Keng clarified that that the SOPA regime would not upset the existing system of creditor priorities under the insolvency regime (see Singapore Parliamentary Debates, Official Report (16 November 2004) vol 78 at cols 1118–1119 (Cedric Foo Chee Keng, Minister of State for National Development) (“Second Reading Speech”). He said as follows: Payment disputes involving insolvency are not covered under the Bill. If any one of the parties involved is insolvent, the provisions allowing direct payment and lien on unfixed materials will not be applicable. This is to avoid upsetting creditor priorities under existing insolvency laws. For example, if a respondent is unable to pay the adjudicated amount because he is insolvent or under judicial management, the principal, in this case, cannot pay the claimant directly either. Slightly later in the same session, Dr Amy Khor Lean Suan, a Member of Parliament, pointed out that if the SOPA regime “would not over-ride the current law on insolvency”, subcontractors might be left without a feasible remedy if the main contractors went insolvent and the developer elected not to make direct payment (at col 1124). To this, Mr Foo replied (at col 1133): 29 [Dr Khor] also asked why insolvency is not dealt with here, although payment woes in the construction industry are indeed a form of injustice. But in the area of insolvency, there is a higher justice that must be served. There is an established priority of payments that have to be made to different parties who have suffered as a result of a party going insolvent. So this priority should not be upset just because of the payment woes in the construction industry. So we have, therefore, left insolvent cases alone so as not to disrupt a process which is working well. [emphasis added in italics and bold italics] 73 While the cited passages did not deal with the specific question before me, I nevertheless considered them to be instructive. It seems to me to be clear that Parliament’s intent was that to the extent that there is a normative conflict between the legislative policy of facilitating cash flow in the construction industry and the wider purposes of the insolvency process (the “higher justice”, as Mr Foo put it), the former must yield to the latter. Thus, while a successful claimant is fully entitled to seek leave to enforce the determination as a judgment and thereafter to pursue the recovery of the adjudicated amount in insolvency proceedings, he must abide by the rules governing the insolvency process. It 30 is important to stress that even if the recovery of the debt through insolvency proceedings were foreclosed, a creditor still has a panoply of other enforcement mechanisms at his disposal.” (emphasis added) [63] I have no good reason to differ from the Singapore position under their Building and Construction Industry Security of Payment Act 2004 (“SOPA”). Learned counsel for the Plaintiff sought to distinguish the Direct Payment provision in the SOPA in that it does not create a separate mandatory obligation but merely gave the principal a right to make direct payment to the Claimant. [64] Section 24(2)(c) of the SOPA provides that: “(c) if the respondent fails to show proof of payment in accordance with paragraph (b), the principal shall be entitled to pay the outstanding amount of the adjudicated amount, or any part thereof, to the claimant.” [65] Whether couched and crafted as a right instead of an obligation, the key issue is that it cannot in the absence of clear and expressed language supplant and supersede the insolvency provisions under the Insolvency regime. 31 [66] The insolvency provisions prohibiting preferential payment to unsecured creditors once liquidation has set in cannot be displaced or bypassed by the provision of section 30 of the CIPAA. [67] Learned counsel for the Defendant also referred to the case of NGV Tech Sdn Bhd (Receiver and Manager Appointed) (In Liquidation) & Anor v Ramsstech Ltd & 2 Ors [2015] 1 LNS 1017 wherein Wong Kian Kheong JC had posed the question of whether the sale of ship after the winding up of the Ship Builder is invalid for being an undue preference under Section 293 (1) of CA 1965 read with section 53 (1) of BA (supra) and/or under Section 223 of CA 1965. [68] In the above case, a winding up petition was presented against the Ship Builder on 14.3.2013. The learned Judge had decided that Section 219 (2) of CA 1965 deems that the Ship Builder’s winding up to have been commenced on 14.3.2013 i.e. the date of presentation of the winding up petition. See also the Court of Appeal’s decision in Kredin Sdn Bhd v Development & Commercial Bank Bhd [1995] 3 MLJ 304 at page 307 by Siti Norma Yaakob JCA (as she then was). [69] Insofar as the issue on whether the sale of the ship is caught by undue preference, the High Court at pages 145 – 146 explained as follows: 32 “129. Applying the first consideration laid down in Wong Wee Kheong, the Ship Builder’s Disposition will only benefit the 1st and 3rd Defendants. The Ship Builder’s Disposition does not benefit the general body of the creditors of the Ship Builder. As such, this court will not validate the Ship Builder’s Disposition based on the first consideration in Wong Wee Kheong (whether the disposition of property by the wound up company is beneficial to the general body of the wound up company’s creditors).

According to the second consideration in Wong Wee Kheong, a disposition of property by a wound up company may be validated if it is just and fair to do so with particular regard to the good and honest intention of the parties in question. I am satisfied that the court should not validate the Ship Builder’s Disposition based on the second consideration in Wong Wee Kheong. This decision is premised on the following grounds:

if the Ship Builder’s Disposition is validated under s. 223 CA, it is neither just nor fair to the Bank because –

the Bank is a secured creditor of the Ship Builder and has registered 6 Debentures with SSM before the Ship Builder’s Disposition; and 33

(ii) the automatic crystallization clause in the 1st Debenture has already been triggered on 6.3.2010, before the Ship Builder’s Disposition;

for reasons expressed later in this judgment, this court finds that the 3rd Defendant is not a bona fide purchaser of the Ship for valuable consideration without “notice” of the Bank’s charge over the Ship by way of the 1st Debenture;

there were 2 Newspaper Advertisements on 25.3.2013 regarding the WU Petition, 2 days before the execution of the 2nd Bill of Sale on 27.3.2013. The Defendants should have notice of the 2 Newspaper Advertisements and the 2nd Bill of Sale should not have been executed;

on 3.4.2013, the R&M has been appointed by the Bank. As decided by the Federal Court in Balasubramaniam, at p. 220, upon the appointment of the R&M, the R&M would take custody of all the assets subject to the charges as stated in the 6 Debentures, including the Ship. Consequently, from the appointment of the R&M on 3.4.2013, the Ship Builder’s BOD had no power to deal with the Ship, let alone to dispose of it. Accordingly, Dato’ Zulkifli had no authority to sign the Agreement dated 12.7.2013 regarding the Ship on behalf of the 34 Ship Builder. Any disposal of the Ship by Dato’ Zulkifli or any person, after the appointment of the R&M and without the R&M’s consent, amounts to an exercise of dominion over the Ship which is inconsistent with the rights and powers of the R&M over the Ship and such an act constitutes a tort of conversion against the R&M - please see the English Court of Appeal’s judgment by Slesser LJ in Oakley v. Lyster [1931] 1 KB 148, at 156; and

there was a Gazette Notification of the WU Petition on 11.4.2013. Section 81 EA provides that the court “shall presume the genuineness” of a gazette notification. The effect of a gazette notification is provided in s. 18(2) of the Interpretation Acts 1948 and 1967 (IA) which reads as follows - “18(2) Publication in the official Gazette of Malaysia shall constitute sufficient notice of any matter required to be published in the Gazette by or under any federal law or required to be published in the Sabah Government Gazette or the Sarawak Government Gazette by or under any enactment of those States which has been declared to be a federal law.” (emphasis added). 35 By virtue of the operation of s. 18(2) IA, the Defendants shall be deemed to have “sufficient notice” of the Gazette Notification of the WU Petition on 11.4.2013 and should not have entered into the Agreement dated 12.7.2013.” [70] As further illustration of a void disposition in the context of liquidation of a company, learned counsel further cited the case of Lian Keow Sdn Bhd (In Liquidation) & Anor v Overseas Credit Finance (M) Sdn Bhd & Ors [1988] 2 MLJ 449 where the issue was whether the transfer of the first, second and third portions of the estate of the first defendant were void by reason of Section 53 of BA and Section 223 of CA 1965. The Supreme Court held at page 450 as follows: “(2) the bankruptcy rules as to fraudulent preference are applied to the winding up of a company by the court by virtue of section 293(1) of the Companies Act 1965. In this case, the first appellant company was ordered to be wound up by the court on a petition presented before the end of the six months after the making of the fraudulent preferential transfers to the first respondent. It followed that the transfers of the first, second and third portions of the estate to the first respondent were therefore void as against the second appellant by reason of section 53(1) of the Bankruptcy Act 1967 (as amended) read with section 293(1) of the Companies Act 1965; 36

the learned judge was right in holding that all three dispositions were void under section 223 of the Companies Act 1965. The court should in this respect adopt the practice of the courts in England that no validation order would be made if the transfer was proved to be a fraudulent preference and therefore void as against the Official Assignee under section 53(1) of the Bankruptcy Act 1967. The validation order made by the learned judge pursuant to section 223 of the Companies Act 1965 should be set aside;” [71] Our Courts have been consistent in not sanctioning preferential payments to some creditors as opposed to others as illustrated in the Federal Court case of Sime Diamond Leasing (M) Sdn Bhd v JB Precision Moulding Industries Sdn Bhd (In Liquidation) [1998] 4 MLJ 569 wherein Edgar Joseph Jr FCJ (as he then was) gave the following judgment at page 579: “To take the matter further, it is clear law that the Court has no power to make an order setting aside payments and transfers made in the run-up to bankruptcy in favour of a particular creditor which were designed to prefer him over other creditors unless the following five conditions are satisfied:

that the transaction in question took place within six months prior to the commencement of winding up; 37

that it satisfies the description of one of the types of transaction mentioned in s. 53(1) [BA];

that it took place at a time when the company was insolvent;

that the person in whose favour the transaction was effected stood in the relation of creditor to the Company; and

the effect of the transaction was to confer on that person a preference, priority or advantage over other creditors in the winding up. … The object of the rules of bankruptcy as to fraudulent preferences is to prevent a creditor from obtaining for himself an unfair advantage at the expense of other creditors by concluding a transaction with the company during what has been called the twilight period which precedes winding up.” (emphasis added) [72] Along the same consistent approach, Zakaria Yatim J (as he then was) in Kimoyama Elektrik (M) Sdn Bhd v Metrobilt Construction Sdn Bhd [1990] 3 MLJ 309 held at page 311 as follows: “From the authorities cited above (with the exception of Re Miles [1948] 1 Ch 188), it can be concluded that under s. 223 of the Companies Act, the disposition of the property of the company 38 after a winding-up petition has been presented is void unless the court makes a validating order. The purpose of the section is to protect the interests of creditors when a petition for winding up is presented. The court, however has the discretion whether or not to make a validating order. The court cannot exercise its discretion to make a validating order if the result of the order is to make one or more creditors being paid in full. In Re Gray’s Inn [1980] 1 All ER 814, Buckley LJ in his judgment at p 718 said: Since the policy of the law is to procure so far as practicable rate able payments of the unsecured creditors’ claim, it is, in my opinion, clear that the court should not validate any transaction or series of transactions which might result in one or more pre-liquidation creditors being paid in full at the expense of the other creditors…” (emphasis added) [73] An example of how a cheque payment to third parties may offend the prohibition against undue preference and so be set aside by the Court upon the paying company being wound up is that found in Muniandy a/l Nadasan & Ors v Dato’ Prem Krishna Sahgal & Ors [2016] 11 MLJ 38 wherein one of the issues raised was whether the 7th Defendant’s encashment of 3 cheques constituted an undue preference in the 7th Defendant’s favour under Section 293 of CA 1965 in view of the winding up 39 of the 9th Defendant. Wong Kian Kheong JC in delivering his extensive judgment at pages 91 observed as follows: “59. I am of the view that the seventh Defendant’s encashment of the three Cheques constitutes an undue preference in the seventh Defendant’s favour under s 293(1) and (2)(a)(i) CA read with s 53(1) of the BA. This decision is premised on the following reasons:

the second Winding Up Petition had been presented on 19 October 2007. According to ss 219(2), 293(1) and 2(a)(i) CA read with s 53(1) BA as interpreted in Sime Diamond Leasing, the six-month period for the application of the undue preference rule, would commence from 19 April 2007. As the seventh Defendant encashed the three Cheques on 12 September 2007, the seventh Defendant’s encashment of the three Cheques would be caught by the undue preference rule;

the three Cheques fall within the term “payment” in s 293(1) of the CA;

as explained above, the seventh Defendant’s encashment of the three Cheques took place at a time when the ninth Defendant was insolvent; 40

the seventh Defendant was a creditor of the ninth Defendant in view of the seventh Defendant’s Salary and EPF Contribution

the seventh Defendant’s encashment of the three Cheques would confer on the seventh Defendant a preference, priority or advantage over all other unsecured creditors of the ninth Defendant in the ninth Defendant’s winding up (including the Plaintiffs); and…” (emphasis added) [74] I cannot agree more with learned counsel for the Defendant that by allowing the Plaintiff to be paid in full, clearly it would amount to preferential payment by the Defendant through BHL Builders based on the principles of the above cited cases. [75] Learned counsel for the Plaintiff referred to a host of cases below where he said it is support for the proposition that direct payment provisions in contract (i.e. contractual provisions) can be enforced even though the main contractor is in liquidation: 1) In Golden Sand Marble Factory Ltd v Easy Success Enterprises Ltd & Anor [1999] 2 HKC 356, it was agreed that all future payments in relation to the nominated subcontractors’ works would be paid directly by the employer to the respective 41 sub-contractors. The main contractor was later wound up. The court granted a declaration that the subcontractor was entitled to the whole sum due under the final account from the employer on the basis that as at the date of liquidation, no property in the money in dispute was vested in the main contractor and therefore the money did not become part of the fund for distribution to creditors pari passu. 2) In Veitchi Co v Crowley Russell & Co [1972] SC 225, the Court held that a supervening liquidation did not render unenforceable the requirement of condition 30 as to payment of a subcontractor by a principal as a condition of receiving any further certificate. “I am not persuaded that part of general condition 30 to which I have referred should be treated as having ceased to have effect in consequence of the liquidation of the first defenders. So to hold would in my opinion, give an advantage to the defender which would not have been available to company before liquidation and for which there is no statutory warrant. Nor do I think that the enforcement of this part general condition 30 would 42 offend against the normal rules relating to satisfaction of liabilities in a liquidation.” 3) In Re Wilkinson Ex parte Fowler [1905] 2 KB 713, the Court held that the power conferred by the clause which allows the Engineers to order direct payment was not annulled or revoked by main contractor’s bankruptcy and that the Plaintiff by virtue of the two orders of the engineer were entitled to be paid directly. 4) In the case of Gericevich Contracting Pty Ltd (in liq) v Sabemo (Wa) Pty Ltd (1984) 9 ACLR 452 (“Gericevich”), the court sanctioned direct payment to subcontractors following main contractor’s liquidation on the basis that the employer’s debt to the main contractor was for the balance of any amount due after the subcontractor had been paid.

The Court in Gericevich held that: “the property of a company was the amount payable after working out of the “but for” and that is the property which s403 of the code requires to be “applied in satisfied of its liabilities equally”. 43

The “but for” referred in the judgment refers to the direct payment provision. [76] I would not however state the principle so widely but rather confine and constrict it to cases where the direct payment provision is a separate independent obligation independent of whether there is money due and payable from the principal to its contracting party the Main Contractor here or that the payment made out had not formed part of the asset of the Main Contractor. Those cases cited by learned counsel for the Plaintiff must be interpreted in that light or else they would fall foul of the pari passu principle against preferential payment. [77] Indeed in the Singapore Court of Appeal case of Hitachi Plant Engineering & Construction Co Ltd and Another v Eltraco International Pte Ltd and Another appeal [2003] 4 SGCA 38, in delivering the judgment, Yong Pung How CJ held at pages 3 – 4 of the headnotes as follows: “(2) The effect of cl 31(10)(b) of the main contract was that any direct payment made by Pine View to the sub-contractors would be deducted from the sums payable by Pine View to Eltraco. There was therefore a very close nexus between the direct payment and Eltraco’s ‘accounts receivable’. Any direct payment made would have the knock-on effect of reducing the moneys receivable by Eltraco. 44 The effect was that, when a direct payment was made, that sum was one that was actually due from Eltraco, and not from Pine View, to the sub-contractors including Uni-strong. Such payments clearly fell within the ‘accounts receivable’ of Eltraco (see paras [37]–[42], [53], below). Dicta of Lord Hoffmannn in Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 All ER 98 at 114 applied. Joo Yee Construction Pte Ltd v Diethelm Industries Pte Ltd [1990] SLR 278 considered.

The duty of the court when a scheme of arrangement came before it was to consider whether the statutory provisions had been complied with, whether the scheme was fair and reasonable to the creditors as a whole, whether the company and the majority creditors were acting bona fide and whether the minority was being coerced to promote the interest of the majority. With that duty in mind, there was nothing to prevent the court from considering sub-contractors with a contingent entitlement to direct payments as a different class and deciding whether to direct that a separate meeting be called for them, when sanctioning a scheme if that was necessary to ensure that the scheme was fair and reasonable to the creditors as a whole. Any allegation of unfairness in the scheme should have been raised when 45 the scheme was before the court to receive its sanction under s 210(3) read with s 227X of the Companies Act…” [78] In referring to the Northern Ireland’s case of B Mullan & Sons (Contractors) Ltd v Ross and Another (1996) 54 ConLR 163 which had not followed the Irish case of Glow Heating (supra), the Singapore Court of Appeal went further at pages 12 – 13 to state: “[33] In B Mullan & Sons (Contractors) Ltd v Ross (1996) 54 ConLR 163, the Northern Ireland Court of Appeal rejected the sub-contractor’s argument that the liquidator takes the contractor’s property subject to liabilities, namely, the sub-contractor’s right to direct payment from the employer. The court distinguished the Irish case of Glow Heating Ltd v Eastern Health Board (1992) 8 Const LJ 56 on the basis that in the Glow case, there was a mandatory provision in the contract that the employer ‘shall himself pay’ the direct payments to the sub-contractors as certified by the architect. Since it was a mandatory provision, Costello J held in the Glow case that the liquidator took the property of the main contractor subject to the direct payments and therefore the direct payments did not become the ‘property’ of the contractor for division amongst the creditors. 46 [34] Here, if the main contract had stated that it is mandatory for the architects to certify direct payment upon a particular event, we may have been more inclined to adopt the position in Glow Heating and hold that the NSCs had a right to the direct payments. However, on the facts, and similar to the case of B Mullan & Sons, the NSCs’ entitlement was merely contingent upon the exercise of discretion by the architects.” [79] There is no justification to read section 30 of the CIPAA to require as an independent obligation imposed by statute for the Employer to pay the Subcontractor which cannot be affected by the liquidation of the Main Contractor. To do that would do violence to the language of section 30(5) where the obligation to pay only arises when there is a debt owing by the Principal to its contracting party in the Main Contractor here. [80] With the greatest of respect, I therefore cannot agree with learned counsel for the Plaintiff when he said that upon a section 30 of the CIPAA’s obligation arising, it is an independent obligation to pay the subcontractor, which is independent of whether the main contractor is liquidated. He said that this approach would be consonant with the intent of making section 30 mandatory but I would say that section 30 is only mandatory if section 30(5) precondition has been fulfilled for otherwise section 30 cannot be invoked. 47 [81] There must first be money owing from the Principal to the Main Contractor in this case. Thereafter the obligation to pay from the Principal to the Subcontractor must be an independent obligation independent of the contract between the Principal and Main Contractor. [82] The analogy provided by learned counsel for the Plaintiff in the case of banking debt recovery – the liquidation of the principal borrower will not affect the recoverability of the outstanding sum from a guarantor - is an excellent example of an independent obligation and liability to pay. In such a case the guarantor’s liability stands independently of the liability of the borrower to pay; it arises from a separate instrument – the guarantee. [83] While the analogy is appropriate, the actual application of it to the facts of the present case is not. In the case of Cimb Bank Berhad v Norlia Binti Mohd Yusof [2013] MLJU 471 there was no difficulty for the Court to hold as follows: “[28] Even though the Borrower has been wound up it does not affect the Defendant’s liability to the Plaintiff vis-à-vis the guarantor…. [29] A guarantor remains liable for the entire outstanding due and owing despite a winding up order entered against the principal borrower. Therefore, the Defendant as the guarantor 48 remains liable even though the Borrower has been wound up.” (emphasis added) [84] The court referred to the Federal Court case of Andrew Lee Siew Ling v United Overseas Bank (Malaysia) Bhd [2013] 1 CLJ 24 which states that: “[23]... It is our considered view that in the present case, the appellant, being a person who has given a guarantee and more importantly an indemnity, is primarily liable for losses which the principal borrower could not have been made liable. His liability is not dependent or secondary to the liability of the principal borrower. He is a principal debtor himself. The liability under a contract of indemnity does not depend on whether the principal debt is enforceable. It has no reference in law to the obligation of any third person. In essence, the liability of the person who has given an indemnity can be more extensive than that of the liability of the principal borrower.” [85] It goes without saying that in cases of a contractually agreed independent obligation to pay irrespective of the borrower’s or in this case the Main Contractor’s liability to pay, parties have to employ and deploy clear words to spell out clearly that the obligation of the Principal paying is irrespective of the debt of the borrower or Main Contractor being 49 unenforceable and that the Principal is liable as principal borrower and not merely as surety and that the borrower’s or Main Contractor’s liquidation is no bar to the party claiming. If that applies to contractual agreed independent obligation clauses to pay either under a guarantee or indemnity agreement or even in the case of a performance bond, how much more in a case where Parliament seeks to impose such an independent obligation to pay from the Principal irrespective of the liability or insolvency of the party against whom the Adjudication Decision is made? [86] In the absence of clear words imposing such an independent direct obligation to pay irrespective of the insolvency of the Main Contractor who is required to pay the Adjudicated Amount, I cannot bring myself to read into the words of section 30(3) and (4) of the CIPAA such an independent obligation and more so when section 30(5) premises this obligation to pay only when there is money due and payable by the principal to the party against whom the Adjudication Decision has been made. [87] As pointed out by learned counsel for the Defendant, the Plaintiff herein is not the only creditor of BHL Builders. By allowing payment to the Plaintiff by the Defendant as the Principal of BHL Builders under Section 30 of CIPAA, that would be tantamount to undue preference in the Plaintiff’s favour in giving priority over all other unsecured creditors of BHL Builders in the Winding Up Petition. 50 [88] In the absence of an independent direct obligation to pay the Claimant from the Principal, the Court cannot ignore the prohibition against preferential payment because that cuts right through all cases of liquidation of the subject company in this case BHL Builders. The High Court of Australia in Commercial Banking Co of Sydney Ltd v George Hudsons Pty Ltd (in liquidation) [1973] 2 ALR 1, Menzies J held as follows at page 6: “It is a deeply rooted principle of company law that, when liquidation has commenced, one creditor should not be assisted by the Court to improve its position vis-à-vis other creditors.” [89] The Federal Court has recently reaffirmed this principle of a prohibition against undue preference in Silver Corridor Sdn Bhd v Gallant Acres Sdn Bhd & Anor [2016] 5 MLJ 1 at pages 18 – 20: “[32] The words ‘undue preference’ as appeared in the title of the section in the context of s 293 of the CA read together with s 52 of the BA, as far as relevant to the facts of the present case, refer to an act of preference by a company which is in the run-up to be wound up during the twilight period of two years, in disposing or transferring its properties to any person or entity (though not bona fide purchaser) and without valuable consideration, the effect of which be detrimental to the interest of the general creditors (particularly unsecured 51 creditors) in the process of liquidation in the event of it being wound up by court. … [34] The primary purpose of s 52 of the BA is that it was framed to prevent properties belonging to the person (in bankruptcy) or company (in winding up) from being put into the hands of relatives or preferred parties during the twilight period to the disadvantage of creditors, in the event the person is declared bankrupt or the company is wound up later (see: In re A Debtor, ex parte the official receiver [1965] 1 WLR 1498; and Barton v Official Receiver (1986) 161 CLR 75). However as clearly stated by Chong Siew Fai J, in Official Assignee v Ngu Ung Yong: That may well be so. But each case must be considered in its own facts and circumstances, and whether a settlement of property in a case falls foul of the statutory provisions must necessarily depend on the facts and circumstances of that particular case. … [36] Back to the present case before us, at the very outset of the hearing of the appeal it was clearly indicated that the plaintiffs’ case 52 rested on the provisions of s 293 of the CA read together with s 52 of the BA (but not s 53 of the BA) to determine the validity or otherwise of the 12 impugned SPAs. The bone of the plaintiffs’ contention is that the transfer or conveyance of the shop lots by virtue of the 12 SPAs was not made in good faith nor for valuable consideration and that in the circumstance, they were absolutely void in view of the fact that the 12 SPAs were entered into within two years prior to the commencement of the winding up petition against the first plaintiff (in this case, the 12 SPAs and the conveyance were executed about one year and three months prior to the winding up petition, and as submitted, this fell within the twilight period of two years). The plaintiffs’ case has never been based on s 53 of the BA right from the outset. [37] As borne out in the judgment of the Court of Appeal, and upon perusal of the appeal records made available before us, we are convinced that the plaintiffs relied entirely on s 293 CA read together with s 52 of the BA. Paragraphs 23, 24, 26 and 27 of the judgment support our findings: [23] The contention of counsel for the Gallant Acres and Kepong Development on the other hand was that s 293 of the CA ought to be read with s 52 of the BA to determine the 53 validity or otherwise of the impugned 12 SPAs. The bone of contention of Gallant Acres and Kepong Development was that the ‘settlement’ (which by definition in s 52(3) of the BA included conveyance or transfer of property of the shops by virtue of the 12 SPAs) was not made in good faith or for valuable considerations and in that circumstance, they were absolutely void if the disputed transaction(s) was entered into within a period of two years prior to Gallant Acres being wound-up; here there was only a gap of about one year and three months between those two material dates and this fell well within the proscribed period. [24] Upon perusal of the pleadings and records we were satisfied that the thrust of the case of the liquidator for Gallant Acres and Kepong Development, both at the High Court and before us, has always been that the sale and purchase transactions with respect to the 12 shops were not been entered into bona fide and, in any event, that Silver Corridor had not established that they had paid valuable consideration for the same. This, firstly, was could clearly borne out by what was pleaded by Gallant Acres and Kepong Development in their statement of claim, in particular paras 17, 23, 24(iv), (vii), 54

(viii), (xix) to (xxxiv) thereof. Furthermore, the case for Gallant Acres and Kepong Development had all along been pursued on that premise, namely, that the transactions were devoid of valuable consideration and the execution of the 12 SPAs were tainted by the conflicted interest of related personages behind Silver Corridor and the directors of Gallant Acres at the time it was entered into. … [26] By seeking to read s 293 of the CA with s 53 of the BA only, counsel for Silver Corridor was attempting to restrict the so termed ‘twilight period’ to six months as opposed to a period of two years prior to the presentation of the winding up petition allowed under s 53 of the BA. This, in our view, was a desperate stance to confuse the real issues that was before the court. [27] There was no room for dispute that what had been pleaded by Gallant Acres (through the liquidator) and Kepong Development in this action and which had been accordingly pursued at the trial was that the disputed transactions, namely the 12 SPAs had not been entered in good faith and nor were they supported by valuable consideration passing from Silver 55 Corridor to Gallant Acres. This obviously meant that s 52 of the BA was the material provision to be invoked to be read with s 293 of the CA. It followed then that the transactions that could be called into question were those entered within two years prior to 18 December 2007. [38] There are ample evidence, as adduced during trial, to support the findings that the 12 impugned SPAs in respect of the 12 shop lots had not been entered into bona fide and the defendant had failed to establish that they had paid valuable consideration for the same; and that s 52 of the BA (not s 53 BA) was the material provision to be invoked by the plaintiff to be read with s 293 of the CA. We agree with the Court of Appeal that the plaintiffs had discharged the burden of proof to establish a case under s 293 of the CA read together with s 52 of the BA, and the 12 impugned SPAs were therefore void.” (emphasis added) [90] Learned counsel for the Plaintiff referred to the helpful case of the New Zealand Court of Appeal of Ebert Construction Limited v Sanson & Anor [2017] NZCA 239 deals with the issue of whether a direct payment would be considered preferential when the intermediary (i.e. the person through whom that payment were to have been made) is in liquidation. 56 [91] Briefly, Ebert Construction (supra) concerned a contract for direct payment. The material facts as summarized by learned counsel are as follows:

Takapuna Procurement Ltd (“TPL”) was the developer; Ebert Construction Ltd (“Ebert”) the contractor.

Apart from the construction contract, TPL, Ebert and the financier BOS International (Australia) Ltd (“BOSI”) entered into a direct agreement, under which essentially BOSI would pay Ebert directly certified progress payment amounts payable by TPL to Ebert under the construction contract.

TPL went into liquidation. [92] The issue before the Court of Appeal of New Zealand was whether certain payments made by BOSI directly to Ebert were preferential and therefore ought to have been struck down under s.292(1) of the New Zealand companies legislation. [93] At first instance, the High Court had found these to be preferential. It considered that the funds BOSI paid through the direct payment agreement to Ebert “had the character of funds belonging to TPL because they were used to pay debts owing by TPL to Ebert”. 57 [94] The Court of Appeal allowed the appeal and reversed the High Court’s decision. It considered that the payment by BOSI to Ebert was a payment of the direct liability of BOSI under the direct payment agreement. It further found that BOSI was directly liable to Ebert “as principal in its own right”. Learned counsel set out the following propositions: 1) Under Section 292 of the Companies Act 1993, a transaction by a company is voidable by the liquidator if it is an insolvent transaction. 2) The Court of Appeal set out four analogous examples of payments by a third party in respect of a company's debts that would not be set aside as voidable transactions in the liquidation of the company:

A payment by a guarantor to a creditor of the company.

A payment by a parent company or shareholder who has agreed to indemnify a creditor against a failure by the company to perform an obligation.

A payment by a third party who is jointly liable with the company to a creditor.

A payment by a bank under a letter of credit facility. 58 3) The characteristic of these transactions is that a third party makes payment to discharge a direct liability of its own and went on to hold that the employer was directly liable to the subcontractor under the direct payment agreement. 4) Further, in any event, the subcontractor was always entitled to seek to recover against the employer whether before or after liquidation and its position would have been just the same if the payments had not been made pre-liquidation. It would not affect with the general pool. [95] As can be seen the decision of the Court of Appeal in New Zealand was premised on the finding of fact that based on the tripartite agreement entered into by the parties. It is therefore poles apart with this present case where there is no direct payment arrangement and all we have is a direct payment remedy premised on section 30(5) in that there must be money owing from the Principal to the Main Contractor before there could be payment direct from the Principal to the Subcontractor. Learned counsel for the Plaintiff submitted that there is no difference that the direct payment obligation is created by statute (as in the present case) and not contract. [96] With respect I must disagree as in the absence of a contract which is freely entered into by the parties, there must be clear words with which statute sought to impose and impute liability onto the Principal in the form 59 of an independent direct obligation to pay irrespective of the insolvency of the Main Contractor here as the party against whom an Adjudication Decision had been made. [97] I therefore cannot see, existing in parallel with the Main Contractor’s obligation to pay the Plaintiff under the Adjudication Decision, this independent direct payment obligation on the part of the Principal that statute had imposed. [98] The learned author Ir Harbans Singh K.S in his article “Construction of Contingent Payment Clauses: Is there Light at the End of the Tunnel?” [2006] 3 MLJ 1 at page 3 had referred to “100 Contractual Problems and Their Solution” by R. Knowles at pages 101 and 102 which states that: “There is now conflicting case law on this matter. A decision in Hong Kong in the Right Time Construction Co case held that direct payment contravened the insolvency rules, as did the Northern Ireland case of B Mullan & Sons (Contractors) Ltd v Ross & Another [1995] and the Singapore case of Attorney General of Singapore v Joo Yee Construction [1992]. In Glow Heating, an Irish case, the court took a different view. In England, we have the British Eagle case but this decision has nothing to do with construction contracts or nominated sub-contractors. 60 It would seem likely that the English courts in the light of the British Eagle and the Mullan cases would hold that direct payment is contrary to the insolvency rules. JCT 90 deals with the matter stating that the right to pay direct ceases when a petition to wind up the contractor has been presented to the court…” (emphasis added) [99] I agree with learned counsel for the Defendant that the Northern Ireland’s case of B Mullan & Sons (Contractors) Ltd v Ross and another 54 ConLR 163 had refused to follow the Irish Glow Heating case (supra) wherein the High Court of Northern Ireland at page 164 had decided that: “The employers were not entitled to make payment direct to the sub-contractor, but must pay the money over to the liquidators to form part of the company’s assets for distribution amongst its creditors because the payments due for work carried out by the sub-contractor constituted ‘property’ of the contractor at the time of winding up and was subject to the pari passu rule…” [100] In distinguishing the principles followed in Glow Heating Ltd v Eastern Health Board (supra) His Lordship Kerr went further at page 176 to decide that: 61 “…While it may be true, as submitted by the applicant, that after the appointment of receivers and before the winding up, the employers could have elected to make a direct payment to the sub-contractors and would have had a complete defence to any claims for payment by the contractors or the receiver, it does not follow that, between the receivership and the winding up, the contractors’ proprietary interest in the moneys due for the work of the sub-contractors was extinguished. Clause 27.4.3.2 enabled the employers to make a direct payment to the sub-contractor; they were not thereby obliged to make such payment. One can readily envisage circumstances where it would be in the interests of an employer to choose not to make a direct payment to a sub-contractor under this clause but to make payment to receivers instead. So long as this remained an option, it appears to me to be clear that the contractors retained a proprietary interest in these sums. I therefore accept the respondent’s argument that the prospect of payment of the sums constituted a chose in action in favour of the contractors and the fact that the money was not due at the time of the winding up does not remove it from the category of ‘property’ as defined in the 1989 Order. It is interesting to note that no provision equivalent to art 2 of the 1989 Order is to be found in the Companies Act 1963 which was the legislation under consideration by Costello J in Glow Heating Ltd v Eastern 62 Health Board. This may well account for his conclusion that the operation of the direct payment clause did not conflict with the pari passu principle.” (emphasis added) [101] The Defendant drew the attention of this Court to the fact that the sub-contractors in the above case appealed but the appeal was subsequently dismissed by the Court of Appeal. [102] The Court of Appeal held in B Mullan & Sons Contrators Ltd v Ross and Another [1996] NI 618 further at page 627 that: “…As Kerr J pointed out in his judgment, however, the provision in the contract permitting this was an enabling provision; the employers were entitled, but not obliged, to make such direct payment, which is a direct point of distinction between this case and Glow Heating Ltd v Eastern Health Board. In our opinion the matter is determined by the effect upon the operation of the pari passu principle of such exercise of the employers’ right after the commencement of the liquidation. Until the winding-up resolution was passed, the contractors’ interest may have been defeasible by the exercise of the employers’ right to make direct payment. Once the company went into liquidation, however, the exercise of the right would remove the sum so paid from the property which should come to the hands of the liquidator, so reducing the 63 amount divisible among the general creditors, and such a result would offend against the pari passu principle. It therefore is in our opinion void and the employers have not been entitled to exercise the right of direct payment to the sub-contractor since the contractor went into liquidation.” (emphasis added) [103] The House of Lords in British Eagle International Airlines Ltd v Compagnie Nationale Air France [1975] 2 All ER 390 at page 391 had also laid down this well-trodden area of the law as follows: “It was open to the courts to refuse to give effect to provisions of a contract which achieved a distribution of an insolvent’s property which ran counter to the insolvency legislation. Accordingly, insofar as the parties to the clearing house arrangements had, by agreeing that simple contract debts were to be settled in a particular way, contracted out of the provisions of s 302 of the Companies Act 1948 for the payment of unsecured debts pari passu, those arrangements were contrary to public policy and the general rules of the liquidation prevailed over them. It was immaterial that the arrangements had been entered into for good business reasons and not with a view to circumventing the insolvency legislation. It followed that, on liquidation, the plaintiff company became entitled to recover payment of the 64 sums payable to it by other airlines for services rendered by it during the relevant period and that airlines which had rendered services to it during that period became entitled to prove in the liquidation for the sums payable to them. The plaintiff company was therefore entitled to judgment for the £5,934…” (emphasis added) [104] I agree with the Defendant that if I were to allow Enclosure 1 herein, such a direct payment that is to be made by the Defendant to the Plaintiff would be void. [105] The factual matrix in the present case had been traversed in the Hong Kong case of Chevalier (HK) Ltd & Anor v Joint Liquidators of Right Time Construction Co Ltd (In Liquidation) [1990] 1 HKC 35. In the case of Chevalier (HK) Ltd (supra), the appellants were nominated as sub-contractors under the main contract. Right Time was the main contractor employed by Reality to carry out certain construction work. By a letter of confirmation, Right Time expressed no objection to Reality paying direct nominated sub-contractors in an architect’s certificate. Cheques were subsequently drawn in favour of the appellants in respect of the amounts due as certified by the architect. The cheques were cleared and Reality’s bank account was debited after the commencement of the winding up of Right Time. 65 [106] On an application by the liquidators of Right Time, Jones J granted a declaration that the payments made to the appellants therein were void under s 182 of the Companies Ordinance (Cap 32) and ordered the appellants to make repayments to the liquidators. The appellants subsequently appealed and raised two main grounds namely: a) That as the payments were made out of Reality’s bank account, they were a disposition of the property of Reality and not of Right Time; and b) If the relevant payments were a disposition in that they effected a partial discharge of Reality’s debt to Right Time, that disposition was rendered void by s 182. It followed that Reality remained indebted to Right Time, but not that the payments made by Reality direct to the appellants were also void. [107] In dismissing the appeal, Clough JA held at pages 35 – 36 that: “(1) The relevant payments to the appellants were made with the consent of Right Time.

It was wholly immaterial, so long as one was dealing with the company’s property, whether the purported disposition was made by the company or by a third party or whether it 66 was made directly or indirectly. Leslie (J) Engineers Co, Re [1976] 1 WLR 292 applied.

When Reality (with the authority of Right Time) paid its own money to each appellant, Reality was entitled to and no doubt did, in its books, debit the Right Time account to the extent of the payments made to each of the appellants. This reduction in the debt owed by Reality to Right Time was a reduction made with the authority of Right Time and amounted to a disposition of Right Time’s property within the meaning of s 182 of the Companies Ordinance. Bank of East Asia Ltd v Sou Fang Lam Rogerio & Anor t/a R Lam & Co (a firm) [1988] 1 HKLR 181 applied.

There was also a disposition of Right Time’s property effected when Reality made the payments to each of the appellants because, as between Right Time and Reality on the one hand and each appellant on the other, Reality had acted, in effect, as the agent of Right Time and paid the sums of money to which Right Time was entitled (under the main contract) to the appellants in partial discharge of Right Time’s debt to each of them. 67

Section 182 retrospectively rendered both these dispositions void and produced the result that the liquidators of Right Time became entitled to recover the amount of the relevant payments from Reality, on the basis that the reduction of Reality’s debt to Right Time was made without lawful authority, or from the appellants as money paid to them by Reality to the use of Right Time.” (emphasis added) [108] Learned counsel for the Defendant also referred to the Singapore case of Attorney-General v Joo Yee Construction Pte Ltd (in liquidation) [1992] 2 SLR(R) 165. The respondent was the main contractor and had entered into a building contract with MOH to construct a hospital building. The respondent then went into liquidation. Consequently, MOH made direct payments to the four nominated sub-contractors pursuant to the terms of the building contract. A question arose therein as to whether such direct payments made by MOH to the sub-contractors contravened the combined operation of ss 280(1) and 327(2) of the Companies Act (Cap 50, 1988 Rev Ed). The High Court below answered in the affirmative and held that such payments would be void as against the respondent’s liquidators. The appeal was subsequently dismissed by the Court of Appeal. 68 [109] In fact I would go so far as saying that once a winding up petition is presented against BHL Builders by the Plaintiff on 19.12.2016, in the Kuala Lumpur High Court Winding Up Petition No. WA-28NCC-1063-12/2016, the Plaintiff would have lost their right to the remedy of section 30 of the CIPAA. In this case the Winding Up Petition was subsequently withdrawn but that other creditors had proceeded with their separate winding up petitions with the result that BHL Builders was wound up on 17.8.2017 before the decision in Enclosure 1 herein. [110] As was held in B Mullan & Sons Contractors Ltd v Ross and another [1996] NI 618 at page 619 the principle of pari passu prevails as follows: “Until the winding-up resolution was passed, the contractor’s interest in the amount due to the sub-contractor might have been defeasible by the exercise of the employers’ right to make direct payment to the sub-contractor. Once the company went into liquidation, however, the exercise of that right would remove the sum so paid from the property which should come into the hands of the liquidators, so reducing the amount divisible among the general creditors, and such a result would offend against the pari passu principle. There was no escape from the inevitable consequence of the operation of the pari passu principle that the sub-contractor would only receive a 69 dividend in respect of the amount due to it for the work done as sub-contractor, for the law regarded it as necessary that the principle should take priority when companies were being wound up. The employers were therefore not entitled to exercise the right of direct payment to the sub-contractor after the contractor went into liquidation. Accordingly, the appeal would be dismissed...” (emphasis added) [111] The above case referred to Ex parte Mackay, Ex parte Brown, In re Jeavons (1873) LR 8 Ch App 643 wherein Sir G. Mellish, L.J. observed with clarity the position of the law that cannot be ordinarily circumvented at page 648: “… That is to say, as I understand it, a person cannot make it a part of his contract that, in the event of bankruptcy, he is then to get some additional advantage which prevents the property being distributed under the bankruptcy laws. It is certainly remarkable that there is apparently no reported case in which this has been decided with reference to a creditor in an ordinary mercantile transaction; but that seems to me an à fortiori case. In the simple case of a man lending a sum of money on mere personal security, and making a bargain that, in the event of his debtor becoming bankrupt, he should then have a security upon 70 a certain portion of his property, it would really be an absurd contention that he should be allowed to have the benefit of the security under the bankruptcy law.” (emphasis added) [112] The Malaysian Courts have followed the Northern Ireland’s Court of Appeal’s case of B Mullan & Sons Contractors Ltd (supra). In Joo Yee Construction Pte Ltd (In Liquidation) v Diethelm Industries Pte Ltd & Ors [1990] 2 MLJ 66 where the main issue raised was whether any direct payment to be made by the government to the nominated sub-contractors pursuant to cl 20(e) of the main contract contravenes the combined operation of ss 280(1) and 327(2) of the Companies Act. In interpreting the clause, the High Court held at page 66 that: “(1) Upon liquidation of an insolvent company (whether voluntary or compulsory), subject to the rights of preferential creditors and also secured creditors, if any, its property must be applied in settlement of its liabilities pari pasu, and any contract made by the company which provides for a distribution of any of its property for the benefit of one or more of its unsecured creditors which runs counter to or seeks to vary this rule is contrary to public policy, and the law as regards distribution of the insolvent’s property under the insolvency legislation must prevail. 71

If the government elects to make direct payment to the three defendants under cl 20(e) and in consequence deduct these amounts from moneys due or payable to the plaintiff, it is in effect distributing to the three unsecured creditors of the plaintiff sums of money which would otherwise be paid to the plaintiff and form part of the general assets of the plaintiff available for distribution among all its creditors pari pasu. Clearly, the operation of such a contractual provision in the liquidation of the plaintiff would infringe the insolvency law providing for distribution of the insolvent’s property pari pasu among its creditors.

If cl 20(e) of the main contract is invoked, it would in the circumstances contravene the combined operation of ss 280(1) and 327(2) of the Companies Act (Cap 50, 1985 Ed); the liquidator is not bound by that clause, and consequently any payment made thereunder to the sub-contractors is void as against him.” (emphasis added) [113] Likewise in the case of Carreras Rothmans Ltd v Freeman Mathews Treasure Ltd and Another [1985] 1 Ch 207 Peter Gibson J held at page 208 – 209 that: 72 “(2) That, although an agreement entered into for bona fide commercial reasons would be avoided as a matter of public policy if its effect would be to cause assets owned by a company at the commencement of its liquidation to be dealt with otherwise than in accordance with section 302 of the Companies Act 1948,…

That the book debt owed by the plaintiff to the defendant for debts incurred by the defendant to third parties in July that had not been discharged before the liquidation was an asset of the defendant available for distribution in the winding up and, since in respect of that debt the July agreement was ineffectual, the defendant was entitled to judgment on the counterclaim…” Learned counsel for the Defendant also alerted the Court to a more recent case by the UK Supreme Court in Belmont Park Investments Pty Ltd and others v BNY Corporate Trustee Services Ltd and another [2011] UKSC 38 which discussed the principle of pari passu. Lord Collins SCJ at pages 511 – 512 was of the view that: “The pari passu principle [6] In the case of personal bankruptcy, by s 328 of the 1986 Act, subject to preferential payments, and with the exception of certain deferred debts, all other debts are to be paid equally. For companies, 73 s 107 provides that, subject to the provisions relating to preferential payments, ‘the company’s property in a voluntary winding up [should] on the winding up be applied in satisfaction of the company’s liabilities pari passu’. By r 4.181 of the Insolvency Rules 1986, SI 1986/1925 similar provision is made for a winding up by the court. In such a winding up, the liquidator must ‘secure that the assets of the company are got in, realised and distributed to the company’s creditors’ and, subject to that, he must ‘take into his custody or under his control all the property and things in action to which the company is … entitled’ (see ss 143 and 144 of the 1986 Act). … [8] The ratio of the decision was accurately stated by Peter Gibson J in Carreras Rothmans Ltd v Freeman Mathews Treasure Ltd (in liq) [1985] 1 All ER 155 at 168, [1985] Ch 207 at 226, as being that ‘where the effect of a contract is that an asset which is actually owned by a company at the commencement of its liquidation would be dealt with in a way other than in accordance with [the statutory pari passu rule], then to that extent the contract as a matter of public policy is avoided’. (emphasis added) 74 [114] For completeness this is not a case where the Plaintiff had mounted the argument that the money owing by the Defendant to BHL Builders is trust money and so carved out and immune from the application of the pari passu principle and not subject to the insolvency regime. At any rate it has not been argued that the monies were retention sum and I doubt it would succeed even if the argument were run. See Qimonda Malaysia Sdn Bhd (In Liquidation) v Sediabena Sdn Bhd & Anor [2012] 3 MLJ 422, a decision of the Court of Appeal that held that retention sum could be trust money and the contrary Court of Appeal case of Pembinaan Lagenda Unggul Sdn Bhd (dalam penggulungan voluntari pemiutang-pemiutang) v Geohan Sdn Bhd and Another Appeal [2018] MLJU 196 which held on the facts that it is not trust money. Pronouncement [115] In the light of the wealth of authorities from the commonwealth on the issue of direct payment from a principal which would not be allowed to circumvent the pari passu principle in the prohibition against preferential payment under the insolvency regime, I was constrained and indeed impelled to dismiss the Plaintiff’s application in Enclosure 1. [116] The Plaintiff’s prayer for a declaration of a direct payment of the adjudicated amount under section 30 of the CIPAA, to be made by the Defendant to the Plaintiff when BHL Builders, the party against whom the 75 Adjudication Decision had been made, was already in liquidation, would thus stand dismissed. [117] I had also ordered the Plaintiff to pay the Defendant costs of RM10,000.00. Dated: 30 March 2018. - Signed - YA LEE SWEE SENG Judge Construction Court High Court, Kuala Lumpur For the Plaintiff : JL Foo and TW Teoh : (Gan Partnership) For the Defendant : Wong Rhen Yen and Siti Mardhiyyah : (Messrs Dennis Nik & Wong) Date of Decision: 27 September 2017