Euro Facade Tech Manufacturing Sdn Bhd v Sri Ribuan Industries Sdn Bhd (BA-24NCC-117-12/2022)

High Court of Malaysia13 Feb 2023

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1 IN THE HIGH COURT OF MALAYA AT SHAH ALAM IN THE STATE OF SELANGOR DARUL EHSAN ORIGINATING SUMMONS NO. BA – 24NCC – 117 – 12/2022 BETWEEN PLAINTIFF/APPLICANT EURO FACADE TECH MANUFACTURING SDN BHD AND DEFENDANT/RESPONDENT SRI RIBUAN INDUSTRIES SDN BHD S/N fwv6NilX9ky9cKqaQm9AnQ JUDGMENT [1] As background, parties as they were in the original civil suit which has culminated into the present application for Fortuna Injunction are, Euro Façade Tech Manufacturing Sdn Bhd, the plaintiff/applicant to the present application is the defendant and Sri Ribuan Industries Sdn Bhd, the defendant/respondent to this application, is the plaintiff. [2] Status of the civil suit is the following: • Summary judgment was ordered against the defendant company Euro Façade Tech Manufacturing Sdn Bhd for an amount of RM341,084.65. • There was a counter claim by the defendant against plaintiff company Sri Ribuan Industries Sdn Bhd for an amount of RM11,960.034.70 which was struck out. • The summary judgment obtained is enforceable as there has been no stay of execution or enforcement of the judgment obtained by defendant. • Thus, there is a valid and enforceable judgment against the defendant. • However, appeals were lodged against the order of summary judgment made as well as order to strike out the counterclaim S/N fwv6NilX9ky9cKqaQm9AnQ by defendant, to the Court of Appeal (COA). As at date of hearing of this application for Fortuna Injunction, the said appeals were pending hearing and determination by the COA. • In the absence of a stay of enforcement of the summary judgment by defendant, plaintiff is entitled under the law to initiate a winding-up petition against the defendant company, in order to enforce the said judgment sum. Thus, a notice under section 465 (1) (e) of the Companies Act 2016 was served on the defendant company. • Ensuing from that, the defendant has applied for a Fortuna Injunction to injunct and restrain the plaintiff from doing so. Hence, the present Originating Summons (OS). [3] Contention by the defendant, who is the plaintiff and applicant to the present OS to support its application for a Fortuna Injunction (FI) is premised on the following material factors: • There is a bona fide dispute on the judgment debt enforceable. • Value of its counterclaim far exceeds claim by respondent against it, and if allowed to be sustained on appeal, would have the effect of extinguishing the entire claim in the civil suit by plaintiff against the defendant which was only determined S/N fwv6NilX9ky9cKqaQm9AnQ vide summary judgment pursuant to Order 14 of the Rules of Court 2012 (ROC). • As both the appeals by defendant are pending hearing and determination by the COA, it would only be prudent and proper for the plaintiff to wait and not petition to wind-up the defendant company. It is also contended; both the appeals are on the merits. • The applicant would suffer irreparable damage and harm if an injunction is not allowed to restrain the respondent from pursuing with the winding-up petition. [4] When resisting the application, the respondent contends - • The grounds advanced by applicant fails to satisfy the principles applicable when granting FI; which are, the intended winding-up petition has no chance of success as a matter of law and fact and presentation of such petition does not produce irreparable damage to the company. • Filing of an appeal to the COA does not make a valid and enforceable judgment a disputed debt. • Merits of the said appeals is not a factor to be considered by this court. S/N fwv6NilX9ky9cKqaQm9AnQ • Further, as the applicant had failed in their application for a stay of execution, it shows their case lacks merit. • Judgment obtained by the respondent is valid and enforceable and is not a disputed debt. [5] To support its contention, the respondent has referred to various case authorities, which are essentially the following: • Pursuant to the case of BJ Homes Development Sdn Bhd v Trade-Link Exhibition Services Sdn Bhd (2020) MLJU 1082, a default judgment is held to be a valid and enforceable judgment. But in the present case, the respondent had obtained a summary judgment against the applicant. • By virtue of the decision in CME Group Bhd v Belljade Sdn Bhd (2022) MLJU 928, it is the respondent’s statutory right under the Companies Act 2016 to present a winding-up petition anchored on the applicant’s inability to pay its debts. Thus, it cannot be restrained by an application for FI. • Following the case of Comintel Sdn Bhd v U Television Sdn Bhd (previously known as U Telecom Media Holdings Sdn Bhd and MITV Corp Sdn Bhd) & Anor (2019) 12 MLJ 667, S/N fwv6NilX9ky9cKqaQm9AnQ the applicant to the present OS has not offered any explanation as to why the judgment sum has not been paid. • Averment that the applicant is commercially solvent is disputed. The fact remains it had refused to settle the judgment debt. So, to avoid suffering any alleged irreparable damage and harm, it is best for the applicant to settle the judgment debt with the respondent. It has refused to comply with the summary judgment order by the court, which was obtained validly. The FI is intended to prevent the respondent from pursuing its statutory right to present a winding-up petition. • Applicant in the present case failed to disclose that it was unsuccessful in obtaining an order to stay execution of the judgment obtained against it. Nor it has appealed against the court’s refusal to grant a stay, or applied for a stay of execution at the COA. Reference is made to the case of Klass Corp (M) Sdn Bhd v MRKS Management Sdn Bhd

2018

9 MLJ 305, where an application for FI is characterised as a backdoor attempt to obtain a stay. • As decided in the case of RHB Bank Bhd v Malaysia Pacific Corp Bhd and another appeal (2018) MLJU 103, the judgment obtained by appellant in that case was a S/N fwv6NilX9ky9cKqaQm9AnQ summary judgment, and the COA had decided, although the learned judge has discretion to prevent abuse of process and grant orders in the interest of justice, such exercise must be made according to judicial and guiding principles as propounded either in statute or case law. It was further decided in that case, the applicable principles are twofold as enunciated in Mobikom Sdn Bhd v Inmiss Communications Sdn Bhd, followed in Pacific & Orient Insurance Co Bhd v Muniammah Muniandy, which decides that the right of the appellant to initiate winding-up proceeding is a substantive right and enforcing such a right by issuing a section 218 Notice, as was done, is not an abuse of court process and neither procedural nor inherent jurisdiction of the court can deprive of such a right. [6] Conversely, the applicant has rebutted the arguments advanced by the following submission: • Sometime around 1.7.2019, the applicant and respondent had entered into an agreement for sale and delivery of construction materials such as window handles and sealants for construction embarked on by the applicant. • In all dealings between them, the applicant would normally issue a purchase order (POs) to request and purchase the S/N fwv6NilX9ky9cKqaQm9AnQ materials. Pursuant to the agreed terms and conditions in the POs, the respondent is obligated to deliver the materials to the applicant according to the delivery dates stipulated. • There have been numerous occasions of severe delays of delivery of materials, which had caused substantial losses and/or expenses to the applicant. • By way of telephone conversations, WhatsApp messages and emails, the applicant had informed and/or complained to the respondent pertaining late delivery of materials. • As such, the applicant has lawfully counterclaimed from the respondent a total sum of RM11,960,034.70 for the losses, damages suffered and/or additional costs incurred. • This court pursuant to section 50 and 51 of the Specific Relief Act 1950 (Act 137) and O 29 rule 1 ROC, has jurisdiction and power to grant an injunction restraining the respondent from pursuing with the petition to wind-up the applicant company. • Pursuant to the case of Fortuna Holdings Pvt Ltd v The Deputy Commissioner of Taxation (1976) 2 ACLR 349, a FI is intended to prevent an abuse of court’s process. Abuse of process occurs when a winding-up petition is S/N fwv6NilX9ky9cKqaQm9AnQ wrongfully presented against a company, which can cause irreparable damage to its commercial reputation. In that case it was also decided if there is a real risk of damage occurring by mere presentation or advertisement of the petition and the court presented with the petition would not, or would not until after clarification of a disputed claim, make a winding up order, thus the risk of damage may be avoided by restraining presentation or advertisement of the petition. • Further, in the case of Mobikom Sdn Bhd v Inmiss Communications Sdn Bhd (2007) 3 MLJ 316, decided by the COA, it was held presentation of a winding-up petition may result in irreparable damage to the plaintiff and proposed petition has no chance of success or the petitioner proposing to present a winding-up petition has chosen to assert a disputed claim, by a procedure which might result in irreparable damage to the company rather than by a suitable alternative procedure or cause of action. (emphasis is mine) • There is a genuine dispute amongst parties on the judgment sum claimed as the summary judgment obtained is interlocutory in nature, likewise the order made to strike S/N fwv6NilX9ky9cKqaQm9AnQ out the counterclaim against the respondent and finally the issues raised by respondent on the merits of its claim are subject matter of the appeals, pending at the COA. • Reliance is also on the case of Multimedia Development Corp Sdn Bhd v Pembinaan Purcon Sdn Bhd (2006) 2 MLJ 653, where it was decided the proposed winding-up petition would be an abuse of process as there was an appeal against the summary judgment obtained by the plaintiff. • The case of Aeon Big (M) Sdn Bhd v SSM Management Sdn Bhd (2017) MLJU 1824, had decided that a counterclaim filed against the debt amounts to a bona fide dispute. Further in the case of Matta Timber Products Sdn Bhd v N & P Construcitons Sdn Bhd (2004) 1 MLJ 119 it was held, a cross-claim of some substance would be a good ground to warrant a dismissal of the petition and it is no difference at all to a situation where the respondent is disputing the debt. • It was also decided by the COA in the case of Pontian United Theatre Sdn Bhd v Southern Finance Bhd (formerly known as United Merchant Finance Bhd) (2004) 2 MLJ 602, that a winding-up petition ought to be stayed if there is a genuine pending counterclaim against the petitioning S/N fwv6NilX9ky9cKqaQm9AnQ creditor which it had not reasonably been able to litigate, the petition should usually be dismissed or stayed. • It was similarly decided in the case of Kumpulan Lizz Sdn Bhd (in liquidation) v Pembinaan Azam Jaya Sdn Bhd

2022

1 MLJ 570 in the following terms: So long as the set off, crossclaim or counterclaim is not completely fanciful and for so long as it has the colour and cover of credible claim in the context of the alleged debt being disputed and on substantial grounds, the court would not be comfortable to grant a winding up order but would instead dismiss the petition. (emphasis is mine) • It is contended, the counterclaim by the applicant is based on substantial grounds and presentation of a winding-up petition would prevent it from prosecuting their counterclaim. • It is further submitted; the applicant and its EFT group of companies are waiting for its main contractors and employers to settle their outstanding payments owed to them for work done on its numerous projects. • With reference to the case of Metalform Asia v Holland Leedon (2007) SGCA 6, also referred by the High Court in S/N fwv6NilX9ky9cKqaQm9AnQ Maju Holdings Sdn Bhd v Spring Energy Sdn Bhd (2020) MLJU 1196, it is contended, businesses that have a chance of recovery should not be pushed into a state that makes it difficult for them to recover. Commercial viability of a company should not be put in jeopardy by the premature presentation of a winding-up petition against it where it has a serious cross-claim based on substantial grounds. • In RHB Bank Berhad v Gunasingam Ramasingam (2002) 5 CLJ 544, the High Court allowed the plaintiff’s application for a FI as it was satisfied that the plaintiff had proven that it was capable of paying off all its debtors. • It was also decided in that case, a company that has proven itself to be commercially solvent, has the right to protect itself from being disturbed by a creditors’ petition to wind up, and it can be determined that the petition is bound to fail, an injunction will lie. • Shankar J (as he then was) in the case of Ng Ah Kway v Tai Kit Enterprise Sdn Bhd (1986) 1 MLJ 56 had decided – Great damage may obviously be done to a solvent company by a winding up petition presented by an unreasonable creditor, whose debt the company are able and willing to pay if established, but to whom they S/N fwv6NilX9ky9cKqaQm9AnQ bona fide believe they are not indebted. In such a case, on a writ issued by the company, an injunction will be granted to restrain the creditor presenting the petition. (emphasis is mine) • It is finally submitted, the applicant here is a viable business capable of generating revenue to meet its obligations and is therefore, commercially solvent. [7]

Preamble

Pursuant to the plethora of case authorities cited to this court for and against the application for FI by the applicant, it is apparent that in order to decide whether to allow or dismiss the application by the applicant to have a Fortuna Injunction restraining the respondent from winding up its company, both the interest of the applicant and respondent ought to be considered. On one hand, the respondent cannot be denied of its fruits of litigation, which is the enforceable summary judgment obtained against the applicant and on the other, applicant cannot be denied of their legitimate expectation of likelihood of success in the appeals lodged by them to the COA against the order of summary judgment and order striking out their counterclaim. Both of the competing interest of parties has to be weighed and balanced equitably. [8] After having considered the evidence essayed in the affidavits filed and submissions, both written and oral advanced to this court, this S/N fwv6NilX9ky9cKqaQm9AnQ court finds the interest of the applicant prevails over that of the respondent. It is so, as it is entitled in law have the appeals lodged to the COA to be heard and determined first before the respondent pursues with its petition to wind-up the applicant company. [9] It is also in evidence there are various outstanding payments due to the applicant company from other paying entities for work done and services rendered. In that respect, it cannot be true that it has become insolvent justifying a petition for winding it up. The outstanding payments due, which is unrebutted by the respondent, only proves it is commercially solvent, thus obviating any need for the respondent to cripple its business operations with a winding-up petition. On that score, contention by the applicant that it has a viable business and it is commercially solvent capable of generating revenue to meet its obligations under the law, is a perfect justification to deny pursuit of a winding-up petition by the respondent. Echoing the dictum of Shankar J in the case referred to above, great damage may obviously be done to the solvent applicant company by a winding up petition presented by the respondent, whose judgment debt it is able and willing to pay once finally adjudged pursuant to the law, and not via an interlocutory mode. S/N fwv6NilX9ky9cKqaQm9AnQ [10] Additionally, albeit merit of the appeals lodged by the applicant to the COA is not a pivotal consideration to decide on its application for a Fortuna Injunction, but prosecution of those appeals to its fruition at the COA and likelihood of its success are inevitably a material consideration. Fortifying the appeals lodged by the applicant to the COA, is the counterclaim pursued against the respondent, which if allowed to be reinstated and rendered sustainable for trial, it has the greatest effect of extinguishing the principal claim by the respondent against the applicant, as the amount counterclaimed far exceeds the amount signed as judgment debt by the respondent. There is no iota of rebuttal evidence by the respondent that the counterclaim by applicant against it is fanciful, not genuine and not anchored on substantial grounds. In the absence of such refutation vide affidavit evidence, the counterclaim by the applicant against the respondent is deemed to be a credible claim in the context of the judgment debt which is being disputed. See: Overseas Investment Pte Ltd v Anthony William O’Brien & Anor (1988) 3 MLJ 332, wherein it was decided, also by Shankar J, where a case is to be decided on a contest of affidavits, the rule is that material allegations which are not contradicted are deemed to be admitted. In the present case, genuineness of the counterclaim S/N fwv6NilX9ky9cKqaQm9AnQ by applicant and its sustainability is unchallenged by the respondent. [11] It is also commercially sensible for the applicant to carry out its business operations unimpeded as it has in fact a myriad of outstanding payments due and payable to it by other business entities. It also goes to show, business of the defendant is solvent, thus it must not be hard-pressed with a petition to wind it up. If allowed to do so, it would also be cumbersome for the applicant to pursue and recover monies owed to it. Furthermore, the outstanding sums available would also operate in favour of the respondent, as it can pursue (if it is viable to do so) to garnish such monies to be paid to it instead and not to have the applicant company wound up. Not to pursue this mode of enforcement of judgment, favours submission advanced by the applicant, that the petition to wind it up is an abuse of process. With that alternative avenue available to the respondent, rights of the applicant are also intact. (See: Mobikom Sdn Bhd v Inmiss Communications Sdn Bhd, referred to above). [12] Logically, the respondent ought to have refrained from pursuing a winding-up petition of the applicant company, in view of the appeals which are pending hearing and determination by the COA. Albeit there being no stay of execution of the summary judgment obtained, an appeal to the COA is by way of a rehearing pursuant to section S/N fwv6NilX9ky9cKqaQm9AnQ 69 (1) of the Courts of Judicature Act 1964 (Act 91) which prima facie entitles the defendant to a legitimate expectation for the orders made against it to be reversed. [13] In the upshot, balance of justice tilts in favour of the applicant, thus application for a Fortuna Injunction is granted to the applicant, so that it is allowed to remain status quo. [14] An order of costs is at discretion of the court. Primary consideration being facts and circumstance of the case before it. Costs shall follow the event of success to the applicant. However, this court is mindful, the respondent has been deprived of its fruits of litigation, albeit interlocutory, and although decision of this court did not favour the respondent, it is still entitled to costs of this application. Counsel for respondent had prayed for an amount of RM15,000 as costs, on the basis, extensive research was undertaken as getting up for the application pursued, with a study and analysis of about seventeen case authorities. Conversely, counsel for applicant, agreed to pay an amount of RM5000 as costs. On the preparation of case, it is contended by the applicant to be only minimal, thus an amount of RM15,000 is unjustified. After having considered the submissions made as well as facts and circumstance of the case, an amount of RM12,000 as costs is appropriate, thus allowed. It is also ordered to be paid to the respondent within 14 days. S/N fwv6NilX9ky9cKqaQm9AnQ Fortuna Injunction allowed. Dated 21 October 2023 SGD Muniandy Kannyappan Judge, High Court Andrea Kong of Messrs. Thomas Philip, counsel for plaintiff/applicant. Sukunthan Pasupathy of Messrs. Saleha Tahir & Partners, counsel for defendant/respondent. S/N fwv6NilX9ky9cKqaQm9AnQ

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Malaysian judgment

Case metadata

Court: High Court of Malaysia
Decision date: 13 Feb 2023
Case number: BA-24NCC-117-12/2022
Coram: YA Tuan Muniandy a/l Kannyappan
Practice area: Application for a Fortuna Injunction - balance of justice tilts in favour of applicant - company is solvent and viable for business operation - applicant has a genuine and sustainable counterclaim against respondent - injunction allowed with costs to be paid to respondent
Version: Alasan Penghakiman 1
Published: 22 Oct 2023
Source ID: 36fa0b7f-5729-4cf6-bd70-aa9a426f409d

Catchwords

Application for a Fortuna Injunction - balance of justice tilts in favour of applicant - company is solvent and viable for business operation - applicant has a genuine and sustainable counterclaim against respondent - injunction allowed with costs to be paid to respondent

Parties

Euro Facade Tech Manufacturing Sdn Bhd - applicant - ejudgment_parties
Sri Ribuan Industries Sdn Bhd - respondent - ejudgment_parties

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Euro Facade Tech Manufacturing Sdn Bhd v Sri Ribuan Industries Sdn Bhd (BA-24NCC-117-12/2022)

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Euro Facade Tech Manufacturing Sdn Bhd v Sri Ribuan Industries Sdn Bhd (BA-24NCC-117-12/2022)

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