Kemacahaya Development Sdn Bhd v Syarikat Bekalan Air Selangor Sdn Bhd & 2 Lagi (B-02(A)-45-01/2018)

1 IN THE COURT OF APPEAL OF MALAYSIA (APPELLATE JURISDICTION) CIVIL APPEAL NO.:B-02(A)-45-01/2018 KEMACAHAYA DEVELOPMENT SDN BHD … APPELLANT (COMPANY NO: 296751-P) AND

1. SYARIKAT BEKALAN AIR SELANGOR SDN BHD (COMPANY NO: 393257-T)

2. PYWATEC (M) SDN BHD (COMPANY NO: 218895-X)

3. KONAMI SDN BHD (COMPANY NO: 110571-K) … RESPONDENTS Heard together with IN THE COURT OF APPEAL OF MALAYSIA (APPELLATE JURISDICTION) CIVIL APPEAL NO. :B-02(A)-46-01/2018 SYARIKAT BEKALAN AIR SELANGOR SDN BHD (COMPANY NO: 393257-T) … APPELLANT AND 2

1. KEMACAHAYA DEVELOPMENT SDN BHD (COMPANY NO: 296751-P)

2. PYWATEC (M) SDN BHD (COMPANY NO: 28895-X)

3. KONAMI SDN BHD (COMPANY NO: 110571-K) … RESPONDENTS [In the Matter of the High Court of Malaya at Shah Alam Selangor Civil Suit No. 22C-41-07/2016 Pywatec (M) Sdn Bhd (Company No: 218895-X) … Petitioner And Kemacahaya Development Sdn Bhd (Company No: 296751-P) …Respondent Konami Sdn Bhd (Company No: 110571-K) … Intervener And Syarikat Bekalan Air Selangor Sdn Bhd (Company No: 393257-T) …Second Intervener) 3 [An appeal against the decision of YA Haji Mohd Yazid Bin Haji Mustafa, Judge, High Court of Malaya at Shah Alam dated 24.11.2017] CORAM: HAMID SULTAN BIN ABU BACKER, JCA MARY LIM THIAM SUAN, JCA HASNAH DATO’ MOHAMMED HASHIM, JCA JUDGMENT OF THE COURT [1] There are two (2) appeals emanating from one judgment arising from the decision of the High Court delivered on 21.11.2017 giving directions pursuant to section 237(3) of the Companies Act 1965 (“CA1965”) and/or Section 487(3) of the Companies Act 2016 (“CA 2016”). As the facts are similar it was agreed by all the parties that the appeals be heard together. After considering the submissions of counsels in respect of the preliminary issue, we delivered our decision. It was our unanimous decision to strike out the appeals pursuant to this Court’s powers under section 69 of the Court of Judicature Act 1964 (“CJA”). [2] The background facts of the appeals are important to understand the context in which the appeals were brought. Factual background [3] Kemacahaya Development Sdn Bhd (“Kemacahaya”) (the Appellant in appeal B-02(A)-45-01/2018) through its Liquidator filed a Form of Summons dated 17.5.2017 seeking directions from the High Court 4

pursuant to section 237(3) of the CA 1965 and/or section 487(3) of the CA

2016. Kemacahaya sought for the High Court‘s directions as to the rightful owner of the sum of RM800,000.00 paid by Masterskill (M) Sdn Bhd (“Masterskill”) on behalf of Pywatec (M) Sdn Bhd (“Pywatec”) to Syarikat Bekalan Air Selangor Sdn Bhd (“SYABAS”) as stakeholders (the Appellant in B-02(A)-45-01/2018). [4] Sometime in 1999, Masterskill approached Kemacahaya to develop a piece of land held under PT 5707, HS (M) No. 04900, Mukim Ulu Langat, Negeri Selangor to house its new campus. Upon the execution of a Sale and Purchase Agreement dated 11.11.1999, Masterskill discovered that there was an outstanding bill of RM672,313.50 owed by Kemacahaya to SYABAS. Masterskill then proposed to pay the sum of RM800,000.00 to SYABAS to be held in an interest bearing account and subject to certain terms. [5] The sum of RM800,000.00 was paid by Masterskill to SYABAS pursuant to an agreement dated 31.3.2010 between Masterskill and SYABAS. The parties agreed that SYABAS will install separate individual water meters in order for Masterskill to receive direct supply of treated water. SYABAS will then release a letter of no objection to facilitate Masterskill in the extraction of the Certificate of Fitness for Occupation for its auditorium. [6] SYABAS initiated a civil action against Kemacahaya for the outstanding water bill. Summary judgment was entered against Kemacahaya on 19.8.2016 for the sum of RM615,894.52. Based on the summary judgment SYABAS filed a Proof of Debt (“POD”) dated 18.1.2017 with the liquidator for the balance of the outstanding sum. 5 [7] In the intervening period, Kemacahaya was wound-up pursuant to a Winding up Order dated 10.12.2012 vide Winding-Up Petition No.28-365-09/2012. A liquidator was appointed to administer the affairs of Kemacahaya. Through the Liquidator, Kemacahaya filed the application pursuant to section 237(3) CA 1965 and/or section 487(3) CA

2016. Section 237 CA 1965 and section 487 CA 2016 are similar provisions which defined the exercise and control of the liquidator's powers. Section 237 CA 1965 reads: “(1) Subject to this Part the liquidator shall in the administration of the assets of the company and in the distribution thereof among its creditors have regard to any directions given by resolution of the creditors or contributories at any general meeting or by the committee of inspection, and any directions so given by the creditors or contributories shall in case of conflict override any directions given by the committee of inspection.

(2) The liquidator may summon general meetings of the creditors or contributories for the purpose of ascertaining their wishes, and he shall summon meetings at such times as the creditors or contributories by resolution direct or whenever requested in writing to do so by not less than one-tenth in value of the creditors or contributories.

(3) The liquidator may apply to the Court for directions in relation to any particular matter arising under the winding up.

(4) Subject to this Part the liquidator shall use his own discretion in the management of the affairs and property of the company and the distribution of its assets.” [8] Section 437(3) CA 2017 is similar with section 237(3) CA 1965: “(3) The liquidator may apply to the Court for directions in relation to any particular matter arising under the winding up.” 6 The High Court’s decision [9] The learned High Court Judge’s findings can be summarised as follows:

(ii) Masterskill confirmed that they are not disputing the payment to SYABAS.

(iii) The liquidator cannot claim from SYABAS as the sum was paid by Masterskill.

(iv) SYABAS is not a stakeholder. If at all, SYABAS is a constructive trustee who had received a sum of RM800,00 00 for which the judgment sum is RM739,205.76. Preliminary Issues [10] Learned counsel for SYABAS raised the following preliminary issue for this Court’s consideration: i. the decision appealed against is not appealable in law; and ii. the doctrine of election and estoppel operates against Kemacahaya. [11] Parties were then directed by this Court to further submit on the jurisdictional point, that is, whether the decision by the High Court Judge made pursuant to section 237 (3) CA 1965 is appealable. Section 67 (1) of the Courts of Judicature Act 1964 (“CJA”) provides that the Court of Appeal shall have jurisdiction to hear and determine appeal from any judgment or order of any High Court in any civil cause or matter. Learned 7 counsel for SYABAS highlighted the Federal Court’s case of Ooi Woon Chee & Anor v. Dato' See Teow Chuan & Ors [2012] 2 CLJ 501; [2012] 2 MLJ 713 where the Federal Court held that a direction given under section 237(3) of the CA 1965 is neither a judgment nor an order. [12] Zulkefli Makinudin CJ (Malaya) delivering the judgment of the court in Ooi Woon Chee (supra) made specific reference to section 237(3) CA 1965 said: “[53] We are of the view a direction or advice given under s. 237(3) of the Act is not a judgment or order. In Re Sportsman's Leisure & Hobby Warehouse Pty Ltd (in liq) (1989) 7 ACLC 1270, the court in considering the nature of application for directions under s. 379(3) of the Companies (Queensland) Code which is similar to our s. 237(3) of the Act held at p. 1273 that a direction given under similar provisions is not a 'judgment' or 'order'. The court followed Re Blackbird Pies (Management) Pty Ltd (No 2) [1970] Qd R 33 wherein it was held: That subsection [s. 237(3)] does not, in my opinion enable the Court to make binding orders on persons in the nature of judgments. The directions which a Court may give on an application under it are more like the directions or advice which may be given under section 45 of the Trustees and the Executors Acts. Such directions are not in my opinion, subject to appeal. (Re Tooth's Trusts [1877] 5 Q.S.C.R. 10). I have set out these views on section 237(3) because it was contended that the decision of W.B. Campbell J created an estoppels between the parties. But there was no judgment and no order. In my opinion there was no estoppels. Nor was there any right of appeal. [54] The rationale or the purpose of s. 237(3) of the Act is to enable a liquidator both to obtain advice and to protect his position as to personal liability in the administration of the winding up. This reasoning has been followed in several Australian decisions. In Re Security Provident Fund Limited (in liq); Rodger v. Gourlay (1984) 2 ACLC 594 at p. 595 the Australian Supreme Court ruled that: The major matter is that the question asked in the summons (or at least questions 1 and 2) are outside the scope of liquidators' summons for directions. 8 It is clear, upon authority, that subsec. 379(3) does not enable the Court to make binding orders in the nature of judgment.... The function of a liquidators' summons for directions is to give him advice as to his proper course of action in the liquidation; ... In Re JW Murphy & PC Allen (1996) 19 ACSR 569, the Supreme Court of New South Wales held at p. 570: an application for directions under s. 379(3) of the Companies Code [or s. 479(3) of the Corporation Law] is an administrative non-adversary proceeding, and a direction given pursuant to that section has no effect on the substantive rights of persons external to the winding up.” [13] Directions pursuant to section 237(3) CA 1965 are described as “administrative non-adversary proceeding”. Therefore, the direction given by the High Court does not fall within section 67 of the CJA and is non-appealable. [14] In response, learned counsel of Kemacahaya argued that there are subsequent authorities departing from the principle expounded in Blackbird Pies (Management) Pty. Ltd. (No.2) [1970] QWN 33. Learned counsel relied on the case of Re: Securitibank Ltd [1978] 2 NZLR 133 where the Court of Appeal of New Zealand which had distinguished the case of Blackbird (supra): “A decision of the Supreme Court under s 241(3) is, in its terms, a direction to the liquidator. It is not simply an opinion for his guidance for his guidance which he is fee to follow, or ignore, as he chooses. It is binding on him. In certain contexts, “order” and “direction” are interchangeable terms (Benson v Benson [1941] P90,97;[1941] 2 All ER 335,340-3410.In my judgement, and with the greatest respect to the contrary view reached by Hanger J in Blackbird Pies (Management) Pty Ltd (No.2)[1970] QWN 33,35,this is the position where directions are given to a liquidator under s 241(3) of the Companies Act and 9 such directions constitute an order of the Supreme Court which is appealable under s 66 of the Judicature Act 1908.” [15] Learned counsel submitted that the nature of directions given by the High Court Judge are directions that are binding on the liquidator and not just an opinion for the liquidator’s guidance where he has the option whether to comply or not. The High Court Judge had made a binding order of which the liquidator is bound to follow. Our View [16] By virtue of the doctrine of stare decicis we are bound by the decision of the Federal Court in Ooi Woon Chee ( supra) that a direction pursuant to section 237(3) CA 1965 is an administrative proceeding by way of a direction, and does not fall within section 67 of the CJA and is non-appealable. However, as is obvious from the grounds of decision the learned Judge had made findings as opposed to giving directions or advice on administrative matters, envisaged by section 237(3) CA, the directions sought were outside the purview of section 237(3) CA. We had further considered the submissions of the parties and we were nevertheless of the view that the application by the Liquidator pursuant to section 237(3) CA 1965 and/or section 487(3) CA 2016 is in the first instance itself is a misconceived application, in that the asset which the Liquidator sought direction for is not in his custody. [17] Given that the RM800,000.00, the subject of the appeals, is not in the Liquidator’s custody, that is, not in the hands of the wound up company Kemacahaya, the Liquidator has no legal right over the sum of RM800,000.00 paid by Masterskill to SYABAS. The law does not allow 10 the Liquidator to make application in respect of asset not in his custody, that is, not in the hands of the wound up company. [18] In K Balasubramaniam (Likuidator Bagi Kosmopolitan Credit & Leasing Sdn Bhd) v. MBf Finance Bhd & Ors [2005] 1 CLJ 793, the appellant was a court appointed liquidator of Kosmopolitan Credit & Leasing Sdn Bhd ('KCL') that was wound up. The 2nd respondent were the receivers and managers of KCL appointed earlier under a debenture created by KCL and held by the 1st respondent. The appellant issued a notice in Form 33 under the Companies (Winding-Up) Rules 1972 ('1972 Rules') demanding the return of KCL's property in the 2nd respondent's possession. This was rejected. The appellant then commenced an action or declarations that the debenture and the appointment of the 2nd respondent was null and void. The appellant also sought for the return of the charged assets that were all movable assets from the 2nd respondent whilst that action was still pending. In the interim period, the appellant commenced an action pursuant to rule 38 of the 1972 Rules and section 235(2) CA 1965 for directions as to the future conduct of KCL's winding-up. [19] The main issue before the Federal Court in K Balasubramaniam (supra) was whether the respective rights of the 2nd respondent as receiver and manager appointed under the debenture and that of the appellant as the court appointed liquidator existed independently of the other or whether the said rights merged following the winding-up of KCL. 11 [20] Siti Norma Yaakob FCJ delivering the judgment of the court said: “The appellant's reliance on s. 237(3) is also misplaced as the scope of that section is confined to guidance on matters of law or principle and not on commercial decisions. The purpose of his getting the order is to enable him to file a suit against the 1st respondent to recover two sums of money totalling RM9.745 million which he maintains had been wrongly paid by KCL to the 1st respondent and which should be returned to him as the liquidator. From the very nature of the suit to be filed, the decision to commence such a proceeding is very much a commercial decision. In Sanderson v. Classic Car Insurance Pty Ltd [1985] 10 ACLR 115, the Supreme Court of New South Wales had to consider the scope of s. 379(3) of the Companies Code which is in pari materia with our s. 237(3). At p. 116 of the report, Young J had this to say. "Although s. 379(3) of the Companies Code is expressed in wide terms, it seems clear that it does not permit the liquidator or a provisional liquidator to come to the court whenever he feels some unease about a situation and wishes to obtain some sort of insurance against the possibility of error as well as an assurance that he is on the right track." That Australian case also listed the following four classes of cases where s. 379(3) is applicable.