Court DecisionMY-HC

WA-28NCC-266-03/2024

Konsortium Express Sdn Bhd v Embition Sdn Bhd (WA-28NCC-266-03/2024)

High Court of Malaysia26 Nov 2024

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THE BURDEN [27] The ordinary test when a winding up petition is opposed is for the respondent to show that the debt relied on to trigger the presumption of insolvency is bona fide disputed on substantial grounds, see Mann v Goldstein [1968] 2 All ER 769 and the Court S/N AQn0hitsdE2U9Uk9aqoJIw of Appeal in Tan Kok Tong v Hoe Hong Trading Co Sdn Bhd [2007] 4 MLJ 355, per Gopal Sri Ram JCA (as he then was). In other words, to dismiss or stay the Petition, it is enough to show a triable issue. [28] However, when the claim is subject to an arbitration agreement, Salford Estates (No 2) Ltd v. Altomart Ltd [2014] EWCA Civ 1575, sought to change this test by lowering the burden. [29] In Malaysia, Salford Estates (No. 2) was followed in several High Court decisions, in particular, NFC Labuan (supra), Awangsa Bina Sdn Bhd v Mayland Avenue Sdn Bhd [2019] 1 LNS 59 and more recently, in Setia Fontaines Sdn Bhd v Pro Tech Enterprise Sdn Bhd [2023] 12 MLJ 324. It has also been followed in numerous decisions throughout the Commonwealth. [30] Embition claims it has discharged this lower Salford Estates (No 2) burden. [31] Salford Estates (No. 2) was carefully and accurately explained by Liza Chan JC (as she then was) in V Medical Services M Sdn Bhd v Swissray Asia Healthcare Co Ltd [2023] 7 MLJ 155. Although reversed on other grounds, see Swissray Asia Healthcare Co Ltd v V Medical Services M Sdn Bhd [2024] 6 MLJ 135 (“Swissray Asia CA”), her Ladyship’s summary of Salford Estaters (No. 2) remains sound. [32] In short, her Ladyship held that Salford Estates (No. 2) was based on the finding that the legislative policy of the Arbitration Act of S/N AQn0hitsdE2U9Uk9aqoJIw 10 1996 (UK) dictated giving effect to the parties’ arbitration agreement. The giving effect to this legislative policy necessitated lowering the burden in winding up petitions so that the parties will be forced to arbitrate rather than to determine whether the underlying debt was genuinely disputed on substantial grounds, the traditional test. [33] Her Ladyship said: “[16] The English Court of Appeal in 2014 in its decision in Salford Estates (No 2) Ltd v Altomart Ltd (No 2) [2015] Ch 589; [2014] EWCA Civ 1575, held that the test to be applied in respect of a disputed debt governed by an arbitration agreement ought to be lowered, and that, the English courts when faced with a disputed debt that was subject to an arbitration agreement, ought to dismiss or stay the winding up application, save in ‘wholly exceptional circumstances’ which the judge found ‘difficult to envisage’. Sir Terence Etherton C, (with whom Longmore and Kitchin LJJ agreed) delivering the judgment of the court held this would be in accordance with the principle which mandated upholding the parties’ agreement to arbitrate and the legislative policy that is in favour of arbitration although the court found that the mandatory stay provisions in s 9 of the 1996 Act (UK Arbitration Act) did not apply …”. [Emphasis mine] [34] Her Ladyship continued citing Sir Terence Etherton C. Selected passages include: “[41] There is no doubt that the debt mentioned in the petition falls within the very wide terms of the arbitration clause in the Lease. S/N AQn0hitsdE2U9Uk9aqoJIw The debt is not admitted. In accordance with the decision in the Halki Shipping case, that is sufficient to constitute a dispute within the 1996 Act, irrespective of the substantive merits of any defence, and, were there proceedings on foot to recover the debt, to trigger the automatic stay provision in s 9(1) of the 1996 Act. For the reasons I have given, I consider that, as a matter of the exercise of the court’s discretion under s 122(1)(f) of the 1986 Act, it was right for the court either to dismiss or to stay the petition so as to compel the parties to resolve their dispute over the debt by their chosen method of dispute resolution rather than require the court to investigate whether or not the debt is bona fide disputed on substantial grounds. … [18] … the result of Salford, it seems to me, is to place a very heavy obstacle in the way of a party who presents a petition claiming sums due under an agreement that contains an arbitration clause’. The problem for such a petitioner is that the company is entitled to have the petition dismissed without having to show, as would normally be the case, that the debt upon which the petition is based is, to use the time-hallowed expression, bona fide disputed on substantial grounds. What the Court of Appeal decided in clear terms in the Salford Estate case was that, where there is an arbitration clause, it is sufficient to show that the debt is ‘disputed’ and for that it is sufficient to show that the debt is not admitted. … The court appeared to take the view that the Salford approach practically leaves no allowance for the winding up court to examine the genuineness of the dispute raised by the debtor-company. …” [Emphasis mine] [35] In short, so long as the claim prima facie falls within the arbitration clause and the claim is denied, this is sufficient to establish that the S/N AQn0hitsdE2U9Uk9aqoJIw claim is ‘disputed’, such that the winding up Court will dismiss or stay the winding up Petition. [36] It is obvious that this low burden (if a burden at all) compels the winding up Court to dismiss a Petition and to force the parties to arbitrate, merely if the claim is denied. The effect of the lowering of the burden is deliberate and calculated. It is decidedly pro-arbitration. [37] The reason, it is said, is to give effect to the policy behind the arbitration legislation, which is to honour arbitration agreements. The referral to arbitration is virtually automatic, ignoring the policy behind the winding up legislation and the purpose it fulfils. [38] In this regard, it has become increasingly common for the Courts to uphold this pro-arbitration approach. The most obvious example is Singapore’s objective to turn Singapore into a regional hub for arbitration, see Quentin Loh JC’s observation in Ting Kang Chung John v Teo Hee Lai Building Constructions Pte Ltd and others [2010] 2 SLR 625 at para 62. See also Swissray Asia Healthcare Co Ltd v V Medical Services M Sdn Bhd [2024] 6 MLJ 135 at paras 62 and 65. In AnAn Group (Singapore) Pte Ltd v VTB Bank (Public Joint Stock Co) [2020] 1 SLR 1158, the Court of Appeal in Singapore noted from Re Southwest Pacific Bauxite (HK) Ltd [2018] 2 HKLRD 449, that like England, the Hong Kong legislature and Courts have also adopted a pro-arbitration stance. [39] There are, however, difficulties with the reasoning in Salford (No 2). S/N AQn0hitsdE2U9Uk9aqoJIw The Difficulties with Salford (No 2) [40] First, the policies of the winding up legislation were not properly considered before affording priority to arbitration. Winding up is a public process with its own public policies. The Court of Appeal in Whitehouse v. Wilson [2006] EWCA Civ 1688 emphasised the public interest in the winding up process. Indeed, the purpose is to effect a means to collectively administer the assets of an insolvent company for the benefit of the creditors, primarily the unsecured creditors. [41] Without such process, there would be scramble by creditors to obtain assets on a ‘first come first served basis’. A liquidation provides an ordered process whereby no one creditor will receive full payment in priority to and at the expense of other creditors who will receive nothing or next to nothing. It has been described as a ‘class action’, see the Court of Appeal in Kumpulan Liziz Sdn Bhd (in liquidation) v Pembinaan Azam Jaya Sdn Bhd [2022] 1 MLJ 570 at para 150. It exists for the benefit of a class of creditors. It is a statutory regime rooted in public policy. Its purpose, however, is not to resolve disputes between litigants. [42] The arbitration process is also creature of statute. In contrast, it manages a dispute resolution process which is effected by agreement between the contracting parties. The policy behind the arbitration legislation is to give effect to the parties’ agreement to their choice of dispute resolution. S/N AQn0hitsdE2U9Uk9aqoJIw [43] The competing policies were neatly set out by the Court of Appeal of Singapore in Larsen Oil and Gas Pte Ltd v Petroprod Ltd (in official liquidation in the Cayman Islands and in compulsory liquidation in Singapore) [2011] 3 SLR 414 at [1]): “Arbitration and insolvency processes embody, to an extent, contrasting legal policies. On the one hand, arbitration embodies the principles of party autonomy and the decentralisation of private dispute resolution. On the other hand, the insolvency process is a collective statutory proceeding that involves the public centralisation of disputes so as to achieve economic efficiency and optimal returns for creditors.” [Emphasis mine] [44] It is difficult to understand how the policy of arbitration to hold contracting parties to their agreement to arbitrate, trumps the policy behind the winding up legislation, which has existed for centuries for the benefit of an entire class of persons who may be substantial in number. For example, in FamilyMart China Holding Co Ltd v Ting Chuan (Cayman Islands) Holding Corp [2024] 1 All ER (Comm) 697 at para 71 albeit in the different context of non-arbitrable claims, the Privy Council considered the Singapore case of Larsen Oil (supra) where the Court of Appeal refused to stay the arbitration proceedings thus allowing insolvency claims falling within an arbitration clause to proceed, as it would undermine the policy aims of the insolvency regime. In FamilyMart (supra), the Privy Council held: “Subject matter non-arbitrability may also arise as a result of public policy considerations. In the Singaporean case of Larsen Oil and Gas Pte Ltd S/N AQn0hitsdE2U9Uk9aqoJIw v Petropod Ltd (in liq) (Cayman Islands and Singapore)) [2011] SGCA 21, [2011] 3 SLR 414 ('Larsen') V K Rajah JA, delivering the judgment of the Singapore Court of Appeal, at para 44 recognised two grounds for excluding from arbitration a dispute which fell within the scope of an arbitration agreement. The first was where the legislature had precluded the use of arbitration to determine the particular type of dispute and the second was where 'there is an inherent conflict between arbitration and the public policy considerations involved in that particular type of dispute'. Larsen was concerned with claims by the liquidator of an insolvent company for the avoidance of unfair preferences and payments made with an intention to defraud a creditor which arose only on the onset of insolvency and could be pursued by the liquidator of the insolvent company for the benefit of the company's creditors. The court refused the application by Larsen, the recipient of the alleged preference, to stay the legal proceedings for arbitration of the dispute on grounds of public policy, namely that it would affect the substantive rights of the company's creditors and undermine the policy aims of the insolvency regime.” [Emphasis mine] [45] It is important therefore, to examine and weigh the policy aims of the insolvency regime as against the arbitration regime, before deciding which regime should trump the other. Such an analysis was decidedly absent in the reasoning in Salford Estates (No. 2). [46] With the greatest of respect, by ignoring the policy behind the winding up provisions, the reasoning in finding that arbitration trumped the winding up regime is unsafe. [47] Secondly, by applying Salford (No 2) strictly, a mere bare denial of the debt would result in the dismissal of the winding up petition. There would be no need to show that there was a bona fide dispute S/N AQn0hitsdE2U9Uk9aqoJIw which requires arbitration. It follows that the Petition would be dismissed even if the debt was shown to be genuinely disputed. [48] This is the logical result of Salford (No 2). In NFC Labuan Shipleasing Ltd v Semua Chemical Shipping Sdn Bhd [2017] MLJU 900, the Court read Salford Estates (No. 2) thus: “[58] Thus, nevertheless, given that the Court’s power to make a winding-up order is discretionary, the English Court of Appeal further decided that the Court will exercise its discretion under Section 122(1) of the Insolvency Act 1986 to decline to wind up a company where the debt upon which the petition is based is subject to an arbitration agreement and that debt is not admitted. This would be the position even where the Court takes the view that the debt is not bona fide disputed on substantial grounds.” [Emphasis mine] [49] It would follow that even if the debt were admitted, the parties would be forced to partake in a wasteful and unnecessary arbitration merely by a disingenuous denial of the debt. On these facts where the debt was admitted, the Court of Appeal in Swissray Asia (CA) (supra) refused to follow Salford Estates (No. 2). It was noted that to follow Salford Estates (No. 2) in these circumstances, would open the door to abuse, allowing the stifling legitimate winding up petitions. “[84] To countenance the lower threshold test advocated by Salford Estates, would open the door to parties in breach of their contractual obligations subjecting the system to abuse by the mere assertion of a dispute no matter how frivolous in nature, just in order to derail or to S/N AQn0hitsdE2U9Uk9aqoJIw defeat the legitimate presentation of a winding up petition and in so doing, abuse the process.” [Emphasis mine] [50] It is implicit in the reasoning of the Court of Appeal that if there is any legislative policy favouring arbitration it does not, without more, trump legitimate winding up proceedings. Sian Participation [51] The lower burden of Salford Estates (No.2) is no longer good law. [52] Some two (2) weeks after Swiss Ray Asia (CA) (supra) was decided on 6.6.2024, on 19.6.2024, the Privy Council in Sian Participation Corp (in liquidation) v Halimeda International Ltd (Virgin Islands) [2024] UKPC 16, held that Salford Estates (No. 2) was wrongly decided, no longer representing the law in England and Wales. [53] The primary reason is that it was wrong to find that the legislative policy of the arbitration legislation overrides the discretion to wind up, which will be rendered illusory. Indeed, if a mere denial is all that is required to cause a dismissal or stay, this effectively gives rise to a mandatory stay over and above section 9 of the 1996 Act (UK). This would be to artificially extend section 9 and would be contrary to the express intention of Parliament. “75. Embodied within that passage is the primary reasoning for it, which is that the legislative policy embodied in the 1996 Act extends to prohibiting the continuation of proceedings to which the mandatory stay S/N AQn0hitsdE2U9Uk9aqoJIw provided by section 9 does not apply. It is also implicit that the discretion to wind up would be virtually illusory where the debt relied upon by the petitioner was merely not admitted, even if not genuinely disputed on substantial grounds. There would in such circumstances be, in substance, virtually a mandatory stay of the petition, ...”. [Emphasis mine] [54] The Privy Council considered the position in other jurisdictions. In particular, it was noted that in Hong Kong, there were divergent cases where Salford Estates (No. 2) was not followed. “82. In Dayang (HK) Marine Shipping Co Ltd v Asia Master Logistics Ltd [2020] HKCFI 311 (“Dayang”) William Wong SC siting as a deputy judge held that what he called the “Salford Lasmos” approach should not be adopted. … . Fourthly, the Salford Estates approach imposes an unprecedented fetter upon the court's discretion to wind up.
But Ka Chon v Interactive Brokers LLC [2019] HKCA 873 was another Hong Kong case … Nonetheless the Court of Appeal expressed its own doubts about the Salford Lasmos approach. The particular reasons given (obiter) by Kwan V-P were, first, that nothing in the Hong Kong Arbitration Ordinance, nor in its travaux preparatoires, contemplated a large curtailment of the court's existing statutory discretion to wind up, where no mandatory stay was provided. Secondly the Eastern Caribbean Court of Appeal had in Jinpeng declined to follow Salford, within a statutory and policy framework indistinguishable from that applicable in Hong Kong. …
None of the general objectives of arbitration legislation (efficiency, party autonomy, pacta sunt servanda and non-interference by the courts) are offended by allowing a winding up to be ordered where the creditor's unpaid debt is not genuinely disputed on substantial grounds. To require S/N AQn0hitsdE2U9Uk9aqoJIw the creditor to go through an arbitration where there is no genuine or substantial dispute as the prelude to seeking a liquidation just adds delay, trouble and expense for no good purpose. Party autonomy and pacta sunt servanda are not offended because seeking a liquidation is not something which the creditor has promised not to do. And by ordering a liquidation the court is not resolving anything about the debt, nor interfering with the resolution of any dispute about it.
Above all there is nothing anti-arbitration in this conclusion. …
The reasoning in Salford Estates calls for review against those considerations. The Board has already observed that the Court of Appeal arrived correctly at first base: namely by concluding that a creditor's winding up petition is not subject to a mandatory stay under section 9. But the Chancellor then just assumed, without further analysis, that the policy inherent in the 1996 Act went further into the prohibition of court proceedings than did section 9 itself. He simply said: “It is entirely appropriate that the court should, save in wholly exceptional circumstances which I presently find difficult to envisage, exercise its discretion consistently with the legislative policy embodied in the 1996 Act.” With great respect the Board considers that assumption to have been wrong, at least in relation to winding up (or liquidation) proceedings on the insolvency ground, for the reasons already given. The legislative policy embodied in the 1996 Act, and in all similar legislation founded upon the Model Law, is that claims or matters within the scope of an arbitration agreement should be resolved in arbitration and not resolved in court. But nothing about a debt covered by an arbitration agreement is resolved in winding up or liquidation proceedings in court. The legislative policy therefore stops short of such proceedings.” [Emphasis mine] S/N AQn0hitsdE2U9Uk9aqoJIw [55] In short, the Privy Council found no express legislative policy that favours arbitration over the winding up regime. As stated, such policy would render the winding up regime, also a product of statute, ‘illusory’ or ‘largely curtailed’. [56] Further, the Privy Council confirmed that the mandatory stay in section 9 of the 1996 Act (UK) does not apply to winding up proceedings. Instead, the mandatory stay is taken to actually set the limit of any legislative policy conferring priority on arbitration over other regimes. In short, the ambit of any legislative policy is prescribed by the legislation itself, being section 9. At paras 91 to 92, the Privy Council held: “91. The clearest legislative signal about the boundary of the policy that a party to an arbitration agreement should arbitrate is the extent of the mandatory stay provision which implements article 8 of the Model Law. That identifies the extent of the negative obligation: not to seek resolution of a dispute in court. A winding up petition or similar application lies outside both that boundary and therefore the extent of the underlying policy.
None of the general objectives of arbitration legislation (efficiency, party autonomy, pacta sunt servanda and non-interference by the courts) are offended by allowing a winding up to be ordered where the creditor's unpaid debt is not genuinely disputed on substantial grounds. To require the creditor to go through an arbitration where there is no genuine or substantial dispute as the prelude to seeking a liquidation just adds delay, trouble and expense for no good purpose. Party autonomy and pacta sunt servanda are not offended because seeking a liquidation is not something which the creditor has promised not to do. And by S/N AQn0hitsdE2U9Uk9aqoJIw ordering a liquidation the court is not resolving anything about the debt, nor interfering with the resolution of any dispute about it.” [Emphasis mine] [57] The finding that where there was no genuine dispute of the debt, there can be no need to go through an unnecessary arbitration, is precisely the reasoning of our Court of Appeal in Swiss Ray Asia (CA) (supra). The Privy Council continued: “But the Chancellor then just assumed, without further analysis, that the policy inherent in the 1996 Act went further into the prohibition of court proceedings than did section 9 itself. … With great respect the Board considers that assumption to have been wrong, at least in relation to winding up (or liquidation) proceedings on the insolvency ground.” [Emphasis mine] [58] As the mandatory stay under section 9 did not apply to winding up petitions, then a winding up petition fell outside the policy to prioritise arbitration. Hence, the test was returned to traditional one: that only where the claim was disputed on genuine and substantial grounds, would the Petition be dismissed. The Privy Council in Sian Participation so concluded at para 122: “122. The Board concludes:
As a matter of BVI law, the correct test for the court to apply to the exercise of its discretion whether to make an order for the liquidation of a company where the debt on which the application is based is subject to an arbitration agreement or an exclusive jurisdiction clause and is said S/N AQn0hitsdE2U9Uk9aqoJIw to be disputed is whether the debt is disputed on genuine and substantial grounds. …
There remains the question whether the Board should make a Willers v Joyce direction, namely that Salford Estates should no longer be followed in England and Wales, and that this decision of the Board, so far as it holds that Salford Estates was wrongly decided, now represents the law of England and Wales.
The Board considers that such a direction should be given. Our conclusion that Salford Estates was wrongly decided was not merely a conclusion about the law of the BVI. It was a conclusion about English law, even though informed in its reasoning by the study of overseas decisions and academic writings, as decisions about English law often are. The Board is aware that it is the current practice of the Companies Court in England and Wales to follow Salford Estates in exercising a supposed discretion to stay or dismiss a creditors' winding up petition on the ground that the petitioner's debt is covered by an arbitration clause, without being shown to be genuinely disputed on substantial grounds. The Board's view is that this should cease and it so directs.” [Emphasis mine] [59] The traditional test upheld in Sian Participation was referred to by the Court of Appeal without criticism in Peninsula Education (Setia Alam) Sdn Bhd (previously known as Segi International Learning Alliance Sdn Bhd) v Biaxis (M) Sdn Bhd (in liquidation) [2024] 5 MLJ 388 (“Peninsula Education”). I take this to be an implicit approval of Sian Participation, which now represents the law in Malaysia. S/N AQn0hitsdE2U9Uk9aqoJIw [60] So, I answer the first question on the basis that Sian Participation (supra) has now established that Salford Estates (No 2) was wrongly decided. And the test reverts to the traditional test: the Petition would be dismissed if the claim (even if falling within an arbitration agreement) was disputed on genuine and substantial grounds. I am bound by the decisions of the Court of Appeal in Peninsula Education (supra) and in Swissair (CA) (supra) which are aligned with Sian Participation and not Salford (No 2). [61] Therefore, Embition’s submission that the Petition should be dismissed as the prima facie test in Salford (No 2) was met, fails. [62] The next question is whether a CIPAA award meets the traditional test upheld by Sian Participation. So, if the CIPAA debt is disputed on genuine and substantial grounds, the Petition (Encl 1) will be dismissed. CIPAA AWARD IS UNDISPUTABLE [63] The starting point is to examine the policy behind CIPAA. It is to ease the cash flow of contractors in the construction industry. The Federal Court in Jack-In Pile (M) Sdn Bhd v Bauer (M) Sdn Bhd and another appeal [2020] 1 MLJ 174 at para 70, accepted that the purposes and policy of the CIPAA provisions are correctly stated in UDA Holdings Bhd v Bisraya Construction Sdn Bhd & Anor and another case [2015] 11 MLJ 499 (although overruled on other grounds). In UDA Holdings (supra), Mary Lim J (as she then was) held: S/N AQn0hitsdE2U9Uk9aqoJIw “This impasse was recognised as stifling the lifeblood of the industry that policy intervention through legislation was seen fit. CIPAA is intended to provide an intervening provisional decision or ‘a temporary balance … in appropriate circumstances … in favour of those who claim payment, at the temporary expense if necessary of those who pay’. These adjudication decisions, ‘being quick and dirty’, also ‘provide a quick enforceable interim decision under the rubric of ‘pay now, argue later’ are necessary so as to give ‘life’ back to the enterprise or underlying contract which had reached an impasse or stalemate. It is in the very nature of the scheme or mechanism that the substantive issues relating to the payment can still be argued at a later point; or taken concurrently at separate proceedings initiated in court or at arbitration” [Emphasis mine] [64] Embition emphasises that the Adjudication Decision (and notwithstanding the Enforcement Judgment) only has temporary finality and is subject to the pending Arbitration, see UDA Holdings Bhd v Bisraya Construction Sdn Bhd & Anor And Another Case [2015] 5 CLJ 527 and Bina Puri Construction Sdn Bhd v Hing Nyit Enterprise Sdn Bhd [2015] CLJU 305. It is therefore not undisputable. [65] And I cannot appreciate how its temporary nature could result in a debt being undisputable in winding up proceedings, with its potentially fatal and permanent consequences for the debtor. [66] Perhaps the solution is to adopt the analysis in Sian Participation. That the policy of CIPAA to ease the cash flow of contractors is limited by CIPAA itself and does not extend beyond what CIPAA provides. Thus, the policy will be limited to allowing an Adjudication S/N AQn0hitsdE2U9Uk9aqoJIw decision to be binding to the extent allowable under section 13 and only enforceable to the extent prescribed by section 28. Section 13 [67] As stated above, an Adjudication decision under CIPAA is temporary and provisional. This is as a result of section 13. It provides that an Adjudication decision is only binding unless:
it is set aside by the High Court on any of the grounds referred to in section 15;
the subject matter of the decision is settled by a written agreement between the parties; or
the dispute is finally decided by arbitration or the court. [68] I can see the difficulty in understanding how a CIPAA Debt is undisputable and beyond contestation in a winding up petition, when section 13 provides that an Adjudication decision and therefore the CIPAA debt, is disputable in on-going or subsequent arbitration or Court proceedings. [69] This would mean that a CIPAA debt is disputable in an arbitration but not so in a winding up Petition. [70] If not undisputable, a debtor may resist a winding up petition based on an Adjudication decision, on the traditional test. This will not conflict with the legislative purpose of CIPAA to ease cash flow S/N AQn0hitsdE2U9Uk9aqoJIw difficulties; as section 28 provides that an Adjudication decision may be enforceable by other execution proceedings. Section 28 [71] Indeed, the enforcement proceedings to recover a CIPAA debt in section 28 does not include winding up for three (3) reasons. [72] First, section 28 only provides for the enforcement of an adjudication decision in accordance with the rules of ‘execution’ of a judgment. It provides: “28. Enforcement of adjudication decision as a 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.” [Emphasis mine] [73] Such enforcement does not include winding up proceedings as they are not execution proceedings, see Maril-Rionebel (M) Sdn Bhd & Anor v Perdana Merchant Bankers Bhd and Other Appeals [2001] 4 MLJ 187 per Gopal Sri Ram JCA at para 30. This was recognised by the Court of Appeal in Blue Dream (supra): S/N AQn0hitsdE2U9Uk9aqoJIw “But a petition for winding up is not execution. For a winding up petition is not based upon any judgment of a court. Normally, it is based on the inability of a company to pay its debts as and when they fall due. Such inability is normally evidenced by the company’s inability to satisfy or compound a notice of demand issued pursuant to s 218 of the Companies Act.” [Emphasis mine] [74] Secondly, winding up proceedings must not be used as a method of collecting debts, including a CIPAA debt; that would be an abuse of process. See the Court of Appeal in Anjakan Rezeki Sdn Bhd v UI Lead Sdn Bhd [2018] MLJU 2188 at para 21. Megarry J in Re Lympne Investments Ltd [1972] 2 All ER 385 held: “The Companies Court must not be used as a debt-collecting agency, nor as a means of bringing improper pressure to bear on a company. The effects on a company of the presentation of a winding-up petition against it are such that it would be wrong to allow the machinery designed for such petitions to be used as a means of resolving disputes which ought to be settled in ordinary litigation, or to be kept in suspense over the company's head while that litigation is fought out.” [Emphasis mine] [75] Thirdly, after a thorough examination of the authorities in other jurisdictions on analogous regimes, Daryl Goon J in ASM Development (KL) Sdn Bhd v Econpile (M) Sdn Bhd [2021] 8 MLJ 99, observed that the enforcement provisions in other jurisdictions although being more robust, do not preclude insolvency proceedings, see paras 118 to 119 and 122 to 123. However, the S/N AQn0hitsdE2U9Uk9aqoJIw decision was overruled in Bludream City Development Sdn Bhd v Pembinaan Bina Bumi Sdn Bhd [2024] 4 MLJ 67 (infra). [76] Indeed, to allow the winding up on the basis of a CIPAA award with temporary finality is harsh. Winding up would lead to seriously prejudicial if not fatal outcome for any company including Embition, such as the damage to its business, reputation and employees. The damage may be irreparable and permanent. [77] Conversely, I repeat that to disallow winding up based on an undisputable CIPAA debt will not offend the policy behind CIPAA. A CIPAA debt may still be legitimately collected by enforcement through other traditional execution proceedings under section 28, other than winding up. [78] In conclusion, the approach of allowing a beneficiary of an Adjudication decision to collect his debt through execution proceedings and by simultaneously allowing a debtor to defend winding up proceedings by raising the traditional defence that the CIPAA debt is bona fide disputed on substantial grounds, would strike a sensible balance between these competing interests. Bludream City [79] The Court of Appeal in Bludream City Development Sdn Bhd v Pembinaan Bina Bumi Sdn Bhd [2024] 4 MLJ 67 did not accept this analysis. S/N AQn0hitsdE2U9Uk9aqoJIw [80] The material facts in Bludream (supra) are indistinguishable from the facts in this this case. In both cases, there were Adjudication decisions on the debts in question; there were also enforcement decisions enforcing both claims. And the applications to stay and set aside such Adjudication decisions were dismissed. [81] The crux of the decision of the Court of Appeal is set out in paras 37 to 39 of the judgment. “[37] Be that as it may, the appellant further implored us that the decision is still disputable and that the appellant has referred the dispute to arbitration. The decision in the circumstances only enjoyed temporary finality. Consequently, the appellant should not be wound up and reliance has been made on the cases of ASM Development (KL) Sdn Bhd v Econpile (M) Sdn Bhd [2021] 8 MLJ 99 and Setia Fontaines Sdn Bhd v Pro Tech Enterprise Sdn Bhd [2023] MLJU 628. Additionally, the appellant relied on the Singapore cases of Lim Poh Yeoh (Alias Lim Aster) v TS Ong Construction Pte Ltd [2016] SGHC 179 and AnAn Group (Singapore) Pte Ltd v VTB Bank (Public Joint Stock Co) [2020] SGCA 33; [2020] 1 SLR 1158 (CA). [38] It is trite and plain that a company may be wound-up on the ground of inability to pay debts albeit the payment sought is not a judgment debt: see PECD Construction Sdn Bhd v Freehold Point Sdn Bhd [2015] 1 186; [2008] 3 CLJ 215. This is commonly done for debt premised on unpaid invoices and thereafter upon the service of notice which invokes the statutory presumption accorded by s 466(1)(a) of the CA. In such instances, it is also common that the non-paying party will seek a Fortuna injunction to restrain the commencement or continuation of the winding up proceeding. If it is established there is a bona fide dispute on the alleged debt on substantial or reasonable grounds, either the Fortuna injunction will be granted, see Lafarge Concrete (M) Sdn Bhd v Gold S/N AQn0hitsdE2U9Uk9aqoJIw Trend Builders Sdn Bhd [2012] 6 MLJ 817 or the winding up proceeding will be struck out: see Pembinaan Purcon v Entertainment Village (M) Sdn Bhd [2004] 1 MLJ 545. [39] For winding up proceeding based on unpaid construction payment debts arising after the advent of the CIPAA particularly where the debt is based on an adjudicated decision, it is our view critical to properly understand the notion of disputability of the debt. Put in another way, disputability must be seen in its proper context. In this regard, we hold that an unpaid debt unadjudicated in a the CIPAA proceeding will be disputable if the non-paying party has prima facie established a bona fide dispute of the debt on substantial or reasonable grounds. However, if the dispute on the debt has been adjudicated which resulted in an adjudication decision obtained in favour of the unpaid party, the debt ceases to be disputable in an ensuing winding up proceeding. This is because the disputed debt has been independently adjudicated by a neutral third party. More pertinently, it should not be open to the non-paying party to again dispute the debt when the sanctity of the adjudication decision has been preserved by the subsequent court orders refusing to set aside and/or stay as well as allowing enforcement of the adjudication decision as a judgment pursuant to ss 16, 27 and 28 of the CIPAA respectively. Consequently, it is immaterial in the winding up court that the non-paying still disputes the adjudicated debt and has referred the dispute to arbitration or the court for final determination: see
Barisan Performa Sdn Bhd v Hype Park City Sdn Bhd [2018] MLJU …” [Emphasis mine] [82] Whilst the Court of Appeal acknowledged that that a CIPAA debt only has temporary finality, it nevertheless found that the CIPAA debt was ‘undisputable’ for the purposes of a winding up Petition. However, the Court of Appeal also held that it may nevertheless be S/N AQn0hitsdE2U9Uk9aqoJIw disputable in an arbitration. The Court of Appeal continued from para 39 cited in para 76 above: “… The disputability of the dispute can only be done in the arbitration or the court to enable the parties to finally re-contest the dispute de novo unabated by the adjudication decision as well as without attracting res judicata because the adjudication decision enjoyed temporary but not perpetual finality: see G-Pile Sistem Sdn Bhd v CMMC Sdn Bhd and Anor [2021] MLJU 2694; [2021] 1 LNS 1727. [Emphasis mine] [83] Clearly, to hold that Adjudication decision is undisputable, a debtor will not be able to resist winding up on a CIPAA award. This is especially severe if the CIPAA debt is pending an appeal to the Court of Appeal; and where the very claim is pending arbitration pursuant to which, the CIPAA debt may be reversed. [84] Similarly, the Court of Appeal in Bludream City (supra) did acknowledge the draconian and severe effects of winding up: “[40] We are nonetheless mindful that winding up proceeding is a draconian procedure which may result in irreparable damage to business and reputation but we think have to heed the legislative objective of the CIPAA to alleviate the financial woes prevalent in the Malaysian construction industry. The objective of the CIPAA is threefold as stated in the preamble thereto, viz:
facilitate regular and timely payment;
provide a mechanism for speedy dispute resolution through adjudication; and S/N AQn0hitsdE2U9Uk9aqoJIw
provide remedies for recovery of payment in the construction industry. [41] … On the other hand, we have also duly considered and find that if the appellant is wound up, the appellant through the liquidator may still recover from the respondent should the appellant ultimately succeed instead in the ongoing arbitration proceeding between them. [42] In the premises, we are, with respect, constrained to hold that the decisions in ASM Development (KL) Sdn Bhd v Econpile (M) Sdn Bhd and Setia Fontaines Sdn Bhd v Pro Tech Enterprise Sdn Bhd relied upon by the appellant were erroneously made.” [Emphasis mine] [85] In short, the Court of Appeal held that the policy behind the CIPAA provisions will trump the draconian effects of a winding up, notwithstanding that the contractor may have the benefit of execution proceedings under section 28. Further, at para 39: “[39] For winding up proceeding based on unpaid construction payment debts arising after the advent of the CIPAA particularly where the debt is based on an adjudicated decision, it is our view critical to properly understand the notion of disputability of the debt. Put in another way, disputability must be seen in its proper context. In this regard, we hold that an unpaid debt unadjudicated in the CIPAA proceeding will be disputable if the non-paying party has prima facie established a bona fide dispute of the debt on substantial or reasonable grounds. However, if the dispute on the debt has been adjudicated which resulted in an adjudication decision obtained in favour of the unpaid party, the debt ceases to be disputable in an ensuing winding up proceeding. This is because the disputed debt has been independently adjudicated by a S/N AQn0hitsdE2U9Uk9aqoJIw neutral third party. More pertinently, it should not be open to the non-paying party to again dispute the debt when the sanctity of the adjudication decision has been preserved by the subsequent court orders refusing to set aside and/or stay as well as allowing enforcement of the adjudication decision as a judgment pursuant to ss 16, 27 and 28 of the CIPAA respectively. Consequently, it is immaterial in the winding up court that the non-paying still disputes the adjudicated debt and has referred the dispute to arbitration or the court for final determination: see
Barisan Performa Sdn Bhd v Hype Park City Sdn Bhd [2018] MLJU …” [Emphasis mine] [86] As stated in para 82 above, the Court of Appeal also accepted that a company could be wound up notwithstanding that the company may successfully dispute the CIPAA debt in a pending arbitration. Thus, the position remains that the Adjudication decision and the CIPAA debt may be disputed in an arbitration but not for the purposes of a winding up. REMEDIES & ORDERS [87] I am bound by the decision of the Court of Appeal in Bludream. The finding that an adjudication decision based on a CIPAA debt (with or without an Enforcement Order in place) is undisputable gave me little or no options. While section 469 of CA 2016 may be very widely drafted in terms of discretion on the hearing of a Petition, it is deceptively so. I did consider exercising my discretion under section 469 to either stay or adjourn the Petition pending the CA Appeal and/or Arbitration. However, that may be inappropriate as S/N AQn0hitsdE2U9Uk9aqoJIw to delay will allow Embition the ability to incur further debt to the prejudice of the other creditors. [88] In Sian Participation (supra), the issue of the Court’s discretion on the hearing of a winding up Petition was considered. The Privy Council held: “35. Fourthly, and in sharp contrast with the role of the court (or arbitrator) in proceedings for the enforcement of a debt, the court's powers on the hearing of a liquidation application (or winding up petition) are discretionary. That is not to say that the court's discretion is entirely unfettered. In principle, a petitioning creditor with an unpaid debt which is not genuinely disputed on substantial grounds is often described as being in substance entitled to an order, as a statutory right, ex debito justitiae: see Bryanston Finance Ltd v de Vries [1976] Ch 63, 78; In re Crigglestone Coal Co Ltd [1906] 2 Ch 327, p 337; and In re Southard & Co Ltd [1979] 1 WLR 1198, 1203, approved in Ebbvale Ltd v Hosking [2013] UKPC 1, para 25.” [Emphasis mine] [89] If the debt is not genuinely disputed, then the petitioner has a statutory right, ex debito justitiae, to a winding up order. Given that the Court of Appeal in Bluedream has decided that an Adjudication Decision is undisputable, the test in Sian Participation is met. The CIPAA Debt owed to the Petitioner cannot be genuinely disputed on substantial grounds, quite simply because it is undisputable. [90] As such, the Petitioner has a statutory right, ex debito justitiae, to the winding up order. Accordingly, I granted the winding up order prayed for in Encl 1. S/N AQn0hitsdE2U9Uk9aqoJIw Dated 27th January 2025 ...................t.t........................... YA Tuan Saheran Suhendran Judicial Commissioner, High Court of Malaya, Kuala Lumpur. Dinesh (Nandrajog) for the Petitioner Kevin Wong Gia Meng + Vivian Siew (Jason Teoh & Partners) for the Respondent Cases Referred to: • Smartframe Sdn Bhd v Anjung Bahasa Sdn Bhd [2011] 4 CLJ 416 • Pontian United Theatre Sdn Bhd v Southern Finance Bhd [2006] 2 MLJ 602 • Maju Holdings Sdn Bhd v Spring Energy Sdn Bhd [2021] 8 MLJ 275 • Mann v Goldstein [1968] 2 All ER 769 • Tan Kok Tong v Hoe Hong Trading Co Sdn Bhd [2007] 4 MLJ 355 • Salford Estates (No 2) Ltd v. Altomart Ltd [2014] EWCA Civ 1575 • Awangsa Bina Sdn Bhd v Mayland Avenue Sdn Bhd [2019] 1 LNS 59 • Setia Fontaines Sdn Bhd v Pro Tech Enterprise Sdn Bhd [2023] 12 MLJ 324 • V Medical Services M Sdn Bhd v Swissray Asia Healthcare Co Ltd [2023] 7 MLJ 155 • NFC Labuan Shipleasing Ltd v Semua Chemical Shipping Sdn Bhd [2017] MLJU 900 • Ting Kang Chung John v Teo Hee Lai Building Constructions Pte Ltd and others [2010] 2 SLR 625 • Swissray Asia Healthcare Co Ltd v V Medical Services M Sdn Bhd [2024] 6 MLJ 135 • AnAn Group (Singapore) Pte Ltd v VTB Bank (Public Joint Stock Co) [2020] 1 SLR 1158 S/N AQn0hitsdE2U9Uk9aqoJIw • Re Southwest Pacific Bauxite (HK) Ltd [2018] 2 HKLRD 449 • Whitehouse v. Wilson [2006] EWCA Civ 1688 • Kumpulan Liziz Sdn Bhd (in liquidation) v Pembinaan Azam Jaya Sdn Bhd [2022] 1 MLJ 570 • Larsen Oil and Gas Pte Ltd v Petroprod Ltd (in official liquidation in the Cayman Islands and in compulsory liquidation in Singapore) [2011] 3 SLR 414 • FamilyMart China Holding Co Ltd v Ting Chuan (Cayman Islands) Holding Corp [2024] 1 All ER (Comm) 697 • Sian Participation Corp (in liquidation) v Halimeda International Ltd (Virgin Islands) [2024] UKPC 16 • Peninsula Education (Setia Alam) Sdn Bhd (previously known as Segi International Learning Alliance Sdn Bhd) v Biaxis (M) Sdn Bhd (in liquidation) [2024] 5 MLJ 388 • Jack-In Pile (M) Sdn Bhd v Bauer (M) Sdn Bhd and another appeal [2020] 1 MLJ 174 • UDA Holdings Bhd v Bisraya Construction Sdn Bhd & Anor And Another Case [2015] 5 CLJ 527 • Bina Puri Construction Sdn Bhd v Hing Nyit Enterprise Sdn Bhd [2015] CLJU 305 • ASM Development (KL) Sdn Bhd v Econpile (M) Sdn Bhd [2021] 8 MLJ 99 • UDA Holdings Bhd v Bisraya Construction Sdn Bhd & Anor and another case [2015] 11 MLJ 499 • Bludream City Development Sdn Bhd v Pembinaan Bina Bumi Sdn Bhd [2024] 4 MLJ 67 • Maril-Rionebel (M) Sdn Bhd & Anor v Perdana Merchant Bankers Bhd and other appeals [2001] 4 MLJ 187 • Anjakan Rezeki Sdn Bhd v UI Lead Sdn Bhd [2018] MLJU 2188 • Re Lympne Investments Ltd [1972] 2 All ER 385 Legislation referred to: • Construction Industry Payment and Adjudication Act 2012 • Companies Act 2016 • Arbitration Act of 1996 (UK) Decision date: 26th November 2024 S/N AQn0hitsdE2U9Uk9aqoJIw

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Cited by

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Authorities cited

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Doesn't follow[2020] HKCFI 311External
“ons. In particular, it was noted that in Hong Kong, there were divergent cases where Salford Estates (No. 2) was not followed. “82. In Dayang (HK) Marine Shipping Co Ltd v Asia Master Logistics Ltd [2020] HKCFI 311 (“Dayang”) William Wong SC siting as a deputy judge held that what he called the “Salford Lasmos” approac”
Refers toAdjudication ActExternal
“INTRODUCTION [1] This matter concerns a petition (“the Petition”) to wind up the Respondent (“Embition”) for failing to satisfy an adjudication decision under the Construction Industry Payment and Adjudication Act 2012 (‘CIPAA’). The Index hereof is as below. Contents Page INTRODUCTION & INDEX 2 BACKGROUND FACTS 3 The”
Refers toARBITRATION ACT 1952Legislation
“Asia CA”), her Ladyship’s summary of Salford Estaters (No. 2) remains sound. [32] In short, her Ladyship held that Salford Estates (No. 2) was based on the finding that the legislative policy of the Arbitration Act of S/N AQn0hitsdE2U9Uk9aqoJIw **Note : Serial number will be used to verify the originality of this docum”
Refers toCompanies ActExternal
“IN THE HIGH COURT OF MALAYA AT KUALA LUMPUR IN THE FEDERAL TERROTORY OF KUALA LUMPUR, MALAYSIA COMPANIES WINDING-UP NO. WA-28NCC-266-03/2024 In the Matter of Sections 465(1)(e) and 466(1)(b) of the Companies Act, 2016 And In the Matter of Embition Sdn Bhd (Company No. 1082956-X) And In the Matter of Rules 7(1) and (7)(”
Refers toHong Kong Arbitration OrdinanceExternal
“another Hong Kong case … Nonetheless the Court of Appeal expressed its own doubts about the Salford Lasmos approach. The particular reasons given (obiter) by Kwan V-P were, first, that nothing in the Hong Kong Arbitration Ordinance, nor in its travaux preparatoires, contemplated a large curtailment of the court's exist”

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Refers toINSOLVENCY ACT 1967Legislation
“rtheless, given that the Court’s power to make a winding-up order is discretionary, the English Court of Appeal further decided that the Court will exercise its discretion under Section 122(1) of the Insolvency Act 1986 to decline to wind up a company where the debt upon which the petition is based is subject to an arb”
Refers toUK Arbitration ActExternal
“mandated upholding the parties’ agreement to arbitrate and the legislative policy that is in favour of arbitration although the court found that the mandatory stay provisions in s 9 of the 1996 Act (UK Arbitration Act) did not apply …”. [Emphasis mine] [34] Her Ladyship continued citing Sir Terence Etherton C. Selected”
Cites[2011] SGCA 21Case
“nd Gas Pte Ltd S/N AQn0hitsdE2U9Uk9aqoJIw **Note : Serial number will be used to verify the originality of this document via eFILING portal 15 v Petropod Ltd (in liq) (Cayman Islands and Singapore)) [2011] SGCA 21, [2011] 3 SLR 414 ('Larsen') V K Rajah JA, delivering the judgment of the Singapore Court of Appeal, at pa”
Cites[2015] CLJU 305External
“d is subject to the pending Arbitration, see UDA Holdings Bhd v Bisraya Construction Sdn Bhd & Anor And Another Case [2015] 5 CLJ 527 and Bina Puri Construction Sdn Bhd v Hing Nyit Enterprise Sdn Bhd [2015] CLJU 305. It is therefore not undisputable. [65] And I cannot appreciate how its temporary nature could result in”
Cites[2016] SGHC 179Case
“99 and Setia Fontaines Sdn Bhd v Pro Tech Enterprise Sdn Bhd [2023] MLJU 628. Additionally, the appellant relied on the Singapore cases of Lim Poh Yeoh (Alias Lim Aster) v TS Ong Construction Pte Ltd [2016] SGHC 179 and AnAn Group (Singapore) Pte Ltd v VTB Bank (Public Joint Stock Co) [2020] SGCA 33; [2020] 1 SLR 1158”
Cites[2017] MLJU 900External
“he Petition would be dismissed even if the debt was shown to be genuinely disputed. [48] This is the logical result of Salford (No 2). In NFC Labuan Shipleasing Ltd v Semua Chemical Shipping Sdn Bhd [2017] MLJU 900, the Court read Salford Estates (No. 2) thus: “[58] Thus, nevertheless, given that the Court’s power to m”
Cites[2018] MLJU 2188External
“winding up proceedings must not be used as a method of collecting debts, including a CIPAA debt; that would be an abuse of process. See the Court of Appeal in Anjakan Rezeki Sdn Bhd v UI Lead Sdn Bhd [2018] MLJU 2188 at para 21. Megarry J in Re Lympne Investments Ltd [1972] 2 All ER 385 held: “The Companies Court must”
Cites[2019] HKCA 873External
“83. But Ka Chon v Interactive Brokers LLC [2019] HKCA 873 was another Hong Kong case … Nonetheless the Court of Appeal expressed its own doubts about the Salford Lasmos approach. The particular reasons given (obiter) by Kwan V-P were, first, that nothing in”
Cites[2020] SGCA 33Case
“ally, the appellant relied on the Singapore cases of Lim Poh Yeoh (Alias Lim Aster) v TS Ong Construction Pte Ltd [2016] SGHC 179 and AnAn Group (Singapore) Pte Ltd v VTB Bank (Public Joint Stock Co) [2020] SGCA 33; [2020] 1 SLR 1158 (CA). [38] It is trite and plain that a company may be wound-up on the ground of inabi”
Cites[2021] MLJU 2694External
“the adjudication decision as well as without attracting res judicata because the adjudication decision enjoyed temporary but not perpetual finality: see G-Pile Sistem Sdn Bhd v CMMC Sdn Bhd and Anor [2021] MLJU 2694; [2021] 1 LNS 1727. [Emphasis mine] [83] Clearly, to hold that Adjudication decision is undisputable, a”
Cites[2023] MLJU 628External
“pellant should not be wound up and reliance has been made on the cases of ASM Development (KL) Sdn Bhd v Econpile (M) Sdn Bhd [2021] 8 MLJ 99 and Setia Fontaines Sdn Bhd v Pro Tech Enterprise Sdn Bhd [2023] MLJU 628. Additionally, the appellant relied on the Singapore cases of Lim Poh Yeoh (Alias Lim Aster) v TS Ong Co”
Cites[2024] UKPC 16External
“Some two (2) weeks after Swiss Ray Asia (CA) (supra) was decided on 6.6.2024, on 19.6.2024, the Privy Council in Sian Participation Corp (in liquidation) v Halimeda International Ltd (Virgin Islands) [2024] UKPC 16, held that Salford Estates (No. 2) was wrongly decided, no longer representing the law in England and Wal”
Approves[2013] UKPC 1External
“e: see Bryanston Finance Ltd v de Vries [1976] Ch 63, 78; In re Crigglestone Coal Co Ltd [1906] 2 Ch 327, p 337; and In re Southard & Co Ltd [1979] 1 WLR 1198, 1203, approved in Ebbvale Ltd v Hosking [2013] UKPC 1, para 25.” [Emphasis mine] [89] If the debt is not genuinely disputed, then the petitioner has a statutory”

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Content

1 IN THE HIGH COURT OF MALAYA AT KUALA LUMPUR IN THE FEDERAL TERROTORY OF KUALA LUMPUR, MALAYSIA COMPANIES WINDING-UP NO. WA-28NCC-266-03/2024 In the Matter of Sections 465(1)(e) and 466(1)(b) of the Companies Act, 2016 And In the Matter of Embition Sdn Bhd (Company No. 1082956-X) And In the Matter of Rules 7(1) and (7)(2) of the Companies (Winding-Up) Rules 1972 And In the Matter of Order 32 Rule 6 and Order 92 Rule 4 of the Rules of Court 2012 BETWEEN KONSORTIUM EXPRESS SDN BHD (Company No.: 756027-X) ...PETITIONER AND EMBITION SDN BHD (Company No.: 1082956-X) ...RESPONDENT S/N AQn0hitsdE2U9Uk9aqoJIw GROUNDS OF JUDGMENT INTRODUCTION [1] This matter concerns a petition (“the Petition”) to wind up the Respondent (“Embition”) for failing to satisfy an adjudication decision under the Construction Industry Payment and Adjudication Act 2012 (‘CIPAA’). The Index hereof is as below. Contents Page INTRODUCTION & INDEX 2 BACKGROUND FACTS 3 The CIPAA Proceedings & the Arbitration 3-4 THE PETITIONER’S CASE 5 Not Genuinely Disputed 5 Unable to Pay its Debts 5-6 EMBITION’S CASE 6-7 The Adjudication Decision & Temporary Finality 7-8 COURT’S DECISION 8 THE BURDEN 8-12 The Difficulties with Salford (No 2) 13-17 Sian Participation 17-23 CIPAA AWARD IS UNDISPUTABLE 23-25 Section 13 25-26 Section 28 26-28 Bludream City 28-33 REMEDIES & ORDERS 33-34 S/N AQn0hitsdE2U9Uk9aqoJIw BACKGROUND FACTS [2]

Preamble

Pursuant to a Letter of Award dated 13.6.2018 ("LOA"), Embition appointed the Petitioner to carry out infrastructure works (“Works”) in a project known as “Construction and Completion of Infrastructure Works for Cadangan Pembangunan (Guarded Community) on Lot 424, Mukim Ulu Kelang, Selangor Darul Ehsan” (the “Project”), see: Exhibit “CKL-1”, Encl. [3] Embition claimed that the Works were delayed due to the Petitioner’s breaches of the LOA. The Petitioner applied for extensions of time (“EOTs”), which were allowed by the project architect (“Architect”). The Architect also certified claims for variation orders (“VO Claims”). [4] Embition consistently disputed the VO Claims and the EOTs. The CIPAA Proceedings & the Arbitration [5] On 27.12.2022, the Petitioner made a claim against Embition for RM1,347,044.94 under section 5 of CIPAA. On 6.1.2023, Embition disputed liability for RM1,279,425.69 proffering a cross-claim of RM847,380.75 as at 31.12.2022 together with liquidated damages accruing at RM15,000.00 per day. [6] On 26.1.2023, the Petitioner, by a Notice of Adjudication, initiated adjudication proceedings against Embition. S/N AQn0hitsdE2U9Uk9aqoJIw [7] The adjudicator delivered his decision dated 15.5.2023 (“Adjudication Decision” or Encl 15) ordering Embition to pay the Petitioner RM1,347,044.94 with interest and costs, see Exhibit “CKL-2”, Encl. 2. [8] On 7.6.2023, the Petitioner filed an enforcement application via OS 91 (“Enforcement Application”). Embition filed Encl OS 81 which prayed for an order to set aside Encl 15 (“Setting Aside”) and filed OS 80 for a stay pending arbitration (“Stay”). [9] On 20.10.2023, the High Court granted the Enforcement Application (“the Enforcement Decision”) over the Adjudication Decision resulting in an enforceable debt (“CIPAA Debt”). And the Court dismissed the Stay and Setting Aside applications, see: Exhibit “CKL-3”, Encl. 2. [10] Embition appealed (“the CA Appeal”). I was informed that the hearing date before the Court of Appeal is fixed on 31.1.2025, see Exhibit “CKL-4”, Encl. 2. [11] There is also an ongoing arbitration initiated by Embition against the Petitioner on 4.1.2023 (“the Arbitration”). The evidentiary hearing of the Arbitration was fixed between 26.11.2024 and 29.11.2024, see Exhibit “CKL-5”, Encl. 21. [12] As such, there were several on-going proceedings whereby the Adjudication Decision and thereby, the CIPAA Debt were questioned. S/N AQn0hitsdE2U9Uk9aqoJIw THE PETITIONER’S CASE [13] On 19.3.2024 and after the Arbitration was commenced, the Petitioner filed the Petition to wind up Embition. [14] The Petitioner’s case is straight forward. It claims that the Petition ought to be granted as:

the CIPAA Debt is not genuinely disputed;

Embition is unable to pay its debts. Not Genuinely Disputed [15] First, the Petitioner submits that the CIPAA Debt is not disputed notwithstanding the CA Appeal. It treats the CIPAA Debt as a judgment debt, which (without more) is due notwithstanding an appeal. [16] The Petitioner further submits that a Court cannot go behind the Adjudication Decision and the Enforcement Judgment nor to decide the merits of the CIPAA claim in the Petition, citing Smartframe Sdn Bhd v Anjung Bahasa Sdn Bhd [2011] 4 CLJ 416 at para 8.1. Unable to Pay its Debts [17] Secondly, the Petitioner claims that Embition failed to pay the CIPAA Debt in totality. On the expiry of a demand by the Petitioner S/N AQn0hitsdE2U9Uk9aqoJIw under section 466 of the Companies Act 2016 (“CA 2016”), Embition was deemed to be unable to pay its debts, see Pontian United Theatre Sdn Bhd v Southern Finance Bhd [2006] 2 MLJ 602 at headnote (1). [18] After completion of garnishee proceedings against Embition for the then outstanding sum due as at 29.11.2023 of RM1,500,099.45, Embition now owed the Petitioner RM1,411,296.31 being the balance due as at 27.2.2024. [19] As such, the Petitioner asks that the Petition be granted. EMBITION’S CASE [20] Embition submits that if the CIPAA debt was genuinely disputed, the Petition should be dismissed as an abuse of process. And a Fortuna injunction may be granted restraining the winding up. It is settled that a winding up order could never be based on a disputed debt; nor could a disputed debt be adjudicated in a winding up petition. [21] Embition claims that the CIPAA Debt is bona fide disputed. The Petition ought to be dismissed by reason, inter alia, that:

the CIPAA Debt has been disputed since the inception of the Adjudication process. And further, winding up proceedings are not a proper form to determine disputed debts;

S/N AQn0hitsdE2U9Uk9aqoJIw

the Petition is premised on the Adjudication Decision premised on the CIPAA Debt, which has been appealed vide the CA Appeal. It is also the subject of the Arbitration in which Embition has raised a set-off or counterclaim of liquidated damages of RM14.94m for non-completion of the Works, relying on Maju Holdings Sdn Bhd v Spring Energy Sdn Bhd [2021] 8 MLJ 275. See Exhibit “CKL-5”, Encl 21;

the VO Claims are also denied as the Petitioner failed to obtain Embition’s final approval under Clause 11.1(c) of the LOA. The Adjudication Decision & Temporary Finality [22] Embition relies heavily on the proposition that the Adjudication Decision (notwithstanding the Enforcement Judgment) has only temporary finality and should not be the basis of a winding up petition. [23] In this regard, the issue of whether the Architect was entitled to certify the Petitioner’s EOT Applications, and the issues in the VO Claims involves technical and complex questions. Therefore, Embition notified the arbitrator that it will be calling a Delay Expert and a Quantum Expert to testify at the evidentiary hearing from 26.11.2024 to 29.11.2024. [24] Embition submits that the Arbitration is the more appropriate forum to determine these issues. And it would be unsafe to wind up S/N AQn0hitsdE2U9Uk9aqoJIw Embition by merely relying on findings made in the Adjudication Decision without hearing testimony from witnesses. [25] In addition, as the Arbitration and the CA Appeal, both challenging the Adjudication decision and the CIPAA Debt will be heard soon. Given these challenges, it would be unfair to wind up Embition at this stage. It was submitted that I ought to dismiss the Petition, otherwise Embition would be severely prejudiced by being deprived of having its disputes dealt with in the Arbitration. [26] I find these arguments persuasive. I must, however, deal with two

issues central to Embition’s case, being:

the burden to show a bona fide dispute so that the Petition may be dismissed;

whether a CIPAA Adjudication decision when combined with an enforcement order (and dismissal of a stay and setting aside) makes the Adjudication decision and the CIPAA Debt, undisputable.

Court’s Decision

para

THE BURDEN [27] The ordinary test when a winding up petition is opposed is for the respondent to show that the debt relied on to trigger the presumption of insolvency is bona fide disputed on substantial grounds, see Mann v Goldstein [1968] 2 All ER 769 and the Court S/N AQn0hitsdE2U9Uk9aqoJIw of Appeal in Tan Kok Tong v Hoe Hong Trading Co Sdn Bhd [2007] 4 MLJ 355, per Gopal Sri Ram JCA (as he then was). In other words, to dismiss or stay the Petition, it is enough to show a triable issue. [28] However, when the claim is subject to an arbitration agreement, Salford Estates (No 2) Ltd v. Altomart Ltd [2014] EWCA Civ 1575, sought to change this test by lowering the burden. [29] In Malaysia, Salford Estates (No. 2) was followed in several High Court decisions, in particular, NFC Labuan (supra), Awangsa Bina Sdn Bhd v Mayland Avenue Sdn Bhd [2019] 1 LNS 59 and more recently, in Setia Fontaines Sdn Bhd v Pro Tech Enterprise Sdn Bhd [2023] 12 MLJ 324. It has also been followed in numerous decisions throughout the Commonwealth. [30] Embition claims it has discharged this lower Salford Estates (No 2) burden. [31] Salford Estates (No. 2) was carefully and accurately explained by Liza Chan JC (as she then was) in V Medical Services M Sdn Bhd v Swissray Asia Healthcare Co Ltd [2023] 7 MLJ 155. Although reversed on other grounds, see Swissray Asia Healthcare Co Ltd v V Medical Services M Sdn Bhd [2024] 6 MLJ 135 (“Swissray Asia CA”), her Ladyship’s summary of Salford Estaters (No. 2) remains sound. [32] In short, her Ladyship held that Salford Estates (No. 2) was based on the finding that the legislative policy of the Arbitration Act of S/N AQn0hitsdE2U9Uk9aqoJIw 10 1996 (UK) dictated giving effect to the parties’ arbitration agreement. The giving effect to this legislative policy necessitated lowering the burden in winding up petitions so that the parties will be forced to arbitrate rather than to determine whether the underlying debt was genuinely disputed on substantial grounds, the traditional test. [33] Her Ladyship said: “[16] The English Court of Appeal in 2014 in its decision in Salford Estates (No 2) Ltd v Altomart Ltd (No 2) [2015] Ch 589; [2014] EWCA Civ 1575, held that the test to be applied in respect of a disputed debt governed by an arbitration agreement ought to be lowered, and that, the English courts when faced with a disputed debt that was subject to an arbitration agreement, ought to dismiss or stay the winding up application, save in ‘wholly exceptional circumstances’ which the judge found ‘difficult to envisage’. Sir Terence Etherton C, (with whom Longmore and Kitchin LJJ agreed) delivering the judgment of the court held this would be in accordance with the principle which mandated upholding the parties’ agreement to arbitrate and the legislative policy that is in favour of arbitration although the court found that the mandatory stay provisions in s 9 of the 1996 Act (UK Arbitration Act) did not apply …”. [Emphasis mine] [34] Her Ladyship continued citing Sir Terence Etherton C. Selected passages include: “[41] There is no doubt that the debt mentioned in the petition falls within the very wide terms of the arbitration clause in the Lease. S/N AQn0hitsdE2U9Uk9aqoJIw The debt is not admitted. In accordance with the decision in the Halki Shipping case, that is sufficient to constitute a dispute within the 1996 Act, irrespective of the substantive merits of any defence, and, were there proceedings on foot to recover the debt, to trigger the automatic stay provision in s 9(1) of the 1996 Act. For the reasons I have given, I consider that, as a matter of the exercise of the court’s discretion under s 122(1)(f) of the 1986 Act, it was right for the court either to dismiss or to stay the petition so as to compel the parties to resolve their dispute over the debt by their chosen method of dispute resolution rather than require the court to investigate whether or not the debt is bona fide disputed on substantial grounds. … [18] … the result of Salford, it seems to me, is to place a very heavy obstacle in the way of a party who presents a petition claiming sums due under an agreement that contains an arbitration clause’. The problem for such a petitioner is that the company is entitled to have the petition dismissed without having to show, as would normally be the case, that the debt upon which the petition is based is, to use the time-hallowed expression, bona fide disputed on substantial grounds. What the Court of Appeal decided in clear terms in the Salford Estate case was that, where there is an arbitration clause, it is sufficient to show that the debt is ‘disputed’ and for that it is sufficient to show that the debt is not admitted. … The court appeared to take the view that the Salford approach practically leaves no allowance for the winding up court to examine the genuineness of the dispute raised by the debtor-company. …” [Emphasis mine] [35] In short, so long as the claim prima facie falls within the arbitration clause and the claim is denied, this is sufficient to establish that the S/N AQn0hitsdE2U9Uk9aqoJIw claim is ‘disputed’, such that the winding up Court will dismiss or stay the winding up Petition. [36] It is obvious that this low burden (if a burden at all) compels the winding up Court to dismiss a Petition and to force the parties to arbitrate, merely if the claim is denied. The effect of the lowering of the burden is deliberate and calculated. It is decidedly pro-arbitration. [37] The reason, it is said, is to give effect to the policy behind the arbitration legislation, which is to honour arbitration agreements. The referral to arbitration is virtually automatic, ignoring the policy behind the winding up legislation and the purpose it fulfils. [38] In this regard, it has become increasingly common for the Courts to uphold this pro-arbitration approach. The most obvious example is Singapore’s objective to turn Singapore into a regional hub for arbitration, see Quentin Loh JC’s observation in Ting Kang Chung John v Teo Hee Lai Building Constructions Pte Ltd and others [2010] 2 SLR 625 at para 62. See also Swissray Asia Healthcare Co Ltd v V Medical Services M Sdn Bhd [2024] 6 MLJ 135 at paras 62 and 65. In AnAn Group (Singapore) Pte Ltd v VTB Bank (Public Joint Stock Co) [2020] 1 SLR 1158, the Court of Appeal in Singapore noted from Re Southwest Pacific Bauxite (HK) Ltd [2018] 2 HKLRD 449, that like England, the Hong Kong legislature and Courts have also adopted a pro-arbitration stance. [39] There are, however, difficulties with the reasoning in Salford (No 2). S/N AQn0hitsdE2U9Uk9aqoJIw The Difficulties with Salford (No 2) [40] First, the policies of the winding up legislation were not properly considered before affording priority to arbitration. Winding up is a public process with its own public policies. The Court of Appeal in Whitehouse v. Wilson [2006] EWCA Civ 1688 emphasised the public interest in the winding up process. Indeed, the purpose is to effect a means to collectively administer the assets of an insolvent company for the benefit of the creditors, primarily the unsecured creditors. [41] Without such process, there would be scramble by creditors to obtain assets on a ‘first come first served basis’. A liquidation provides an ordered process whereby no one creditor will receive full payment in priority to and at the expense of other creditors who will receive nothing or next to nothing. It has been described as a ‘class action’, see the Court of Appeal in Kumpulan Liziz Sdn Bhd (in liquidation) v Pembinaan Azam Jaya Sdn Bhd [2022] 1 MLJ 570 at para 150. It exists for the benefit of a class of creditors. It is a statutory regime rooted in public policy. Its purpose, however, is not to resolve disputes between litigants. [42] The arbitration process is also creature of statute. In contrast, it manages a dispute resolution process which is effected by agreement between the contracting parties. The policy behind the arbitration legislation is to give effect to the parties’ agreement to their choice of dispute resolution. S/N AQn0hitsdE2U9Uk9aqoJIw [43] The competing policies were neatly set out by the Court of Appeal of Singapore in Larsen Oil and Gas Pte Ltd v Petroprod Ltd (in official liquidation in the Cayman Islands and in compulsory liquidation in Singapore) [2011] 3 SLR 414 at [1]): “Arbitration and insolvency processes embody, to an extent, contrasting legal policies. On the one hand, arbitration embodies the principles of party autonomy and the decentralisation of private dispute resolution. On the other hand, the insolvency process is a collective statutory proceeding that involves the public centralisation of disputes so as to achieve economic efficiency and optimal returns for creditors.” [Emphasis mine] [44] It is difficult to understand how the policy of arbitration to hold contracting parties to their agreement to arbitrate, trumps the policy behind the winding up legislation, which has existed for centuries for the benefit of an entire class of persons who may be substantial in number. For example, in FamilyMart China Holding Co Ltd v Ting Chuan (Cayman Islands) Holding Corp [2024] 1 All ER (Comm) 697 at para 71 albeit in the different context of non-arbitrable claims, the Privy Council considered the Singapore case of Larsen Oil (supra) where the Court of Appeal refused to stay the arbitration proceedings thus allowing insolvency claims falling within an arbitration clause to proceed, as it would undermine the policy aims of the insolvency regime. In FamilyMart (supra), the Privy Council held: “Subject matter non-arbitrability may also arise as a result of public policy considerations. In the Singaporean case of Larsen Oil and Gas Pte Ltd S/N AQn0hitsdE2U9Uk9aqoJIw v Petropod Ltd (in liq) (Cayman Islands and Singapore)) [2011] SGCA 21, [2011] 3 SLR 414 ('Larsen') V K Rajah JA, delivering the judgment of the Singapore Court of Appeal, at para 44 recognised two grounds for excluding from arbitration a dispute which fell within the scope of an arbitration agreement. The first was where the legislature had precluded the use of arbitration to determine the particular type of dispute and the second was where 'there is an inherent conflict between arbitration and the public policy considerations involved in that particular type of dispute'. Larsen was concerned with claims by the liquidator of an insolvent company for the avoidance of unfair preferences and payments made with an intention to defraud a creditor which arose only on the onset of insolvency and could be pursued by the liquidator of the insolvent company for the benefit of the company's creditors. The court refused the application by Larsen, the recipient of the alleged preference, to stay the legal proceedings for arbitration of the dispute on grounds of public policy, namely that it would affect the substantive rights of the company's creditors and undermine the policy aims of the insolvency regime.” [Emphasis mine] [45] It is important therefore, to examine and weigh the policy aims of the insolvency regime as against the arbitration regime, before deciding which regime should trump the other. Such an analysis was decidedly absent in the reasoning in Salford Estates (No. 2). [46] With the greatest of respect, by ignoring the policy behind the winding up provisions, the reasoning in finding that arbitration trumped the winding up regime is unsafe. [47] Secondly, by applying Salford (No 2) strictly, a mere bare denial of the debt would result in the dismissal of the winding up petition. There would be no need to show that there was a bona fide dispute S/N AQn0hitsdE2U9Uk9aqoJIw which requires arbitration. It follows that the Petition would be dismissed even if the debt was shown to be genuinely disputed. [48] This is the logical result of Salford (No 2). In NFC Labuan Shipleasing Ltd v Semua Chemical Shipping Sdn Bhd [2017] MLJU 900, the Court read Salford Estates (No. 2) thus: “[58] Thus, nevertheless, given that the Court’s power to make a winding-up order is discretionary, the English Court of Appeal further decided that the Court will exercise its discretion under Section 122(1) of the Insolvency Act 1986 to decline to wind up a company where the debt upon which the petition is based is subject to an arbitration agreement and that debt is not admitted. This would be the position even where the Court takes the view that the debt is not bona fide disputed on substantial grounds.” [Emphasis mine] [49] It would follow that even if the debt were admitted, the parties would be forced to partake in a wasteful and unnecessary arbitration merely by a disingenuous denial of the debt. On these facts where the debt was admitted, the Court of Appeal in Swissray Asia (CA) (supra) refused to follow Salford Estates (No. 2). It was noted that to follow Salford Estates (No. 2) in these circumstances, would open the door to abuse, allowing the stifling legitimate winding up petitions. “[84] To countenance the lower threshold test advocated by Salford Estates, would open the door to parties in breach of their contractual obligations subjecting the system to abuse by the mere assertion of a dispute no matter how frivolous in nature, just in order to derail or to S/N AQn0hitsdE2U9Uk9aqoJIw defeat the legitimate presentation of a winding up petition and in so doing, abuse the process.” [Emphasis mine] [50] It is implicit in the reasoning of the Court of Appeal that if there is any legislative policy favouring arbitration it does not, without more, trump legitimate winding up proceedings. Sian Participation [51] The lower burden of Salford Estates (No.2) is no longer good law. [52] Some two (2) weeks after Swiss Ray Asia (CA) (supra) was decided on 6.6.2024, on 19.6.2024, the Privy Council in Sian Participation Corp (in liquidation) v Halimeda International Ltd (Virgin Islands) [2024] UKPC 16, held that Salford Estates (No. 2) was wrongly decided, no longer representing the law in England and Wales. [53] The primary reason is that it was wrong to find that the legislative policy of the arbitration legislation overrides the discretion to wind up, which will be rendered illusory. Indeed, if a mere denial is all that is required to cause a dismissal or stay, this effectively gives rise to a mandatory stay over and above section 9 of the 1996 Act (UK). This would be to artificially extend section 9 and would be contrary to the express intention of Parliament. “75. Embodied within that passage is the primary reasoning for it, which is that the legislative policy embodied in the 1996 Act extends to prohibiting the continuation of proceedings to which the mandatory stay S/N AQn0hitsdE2U9Uk9aqoJIw provided by section 9 does not apply. It is also implicit that the discretion to wind up would be virtually illusory where the debt relied upon by the petitioner was merely not admitted, even if not genuinely disputed on substantial grounds. There would in such circumstances be, in substance, virtually a mandatory stay of the petition, ...”. [Emphasis mine] [54] The Privy Council considered the position in other jurisdictions. In particular, it was noted that in Hong Kong, there were divergent cases where Salford Estates (No. 2) was not followed. “82. In Dayang (HK) Marine Shipping Co Ltd v Asia Master Logistics Ltd [2020] HKCFI 311 (“Dayang”) William Wong SC siting as a deputy judge held that what he called the “Salford Lasmos” approach should not be adopted. … . Fourthly, the Salford Estates approach imposes an unprecedented fetter upon the court's discretion to wind up.

But Ka Chon v Interactive Brokers LLC [2019] HKCA 873 was another Hong Kong case … Nonetheless the Court of Appeal expressed its own doubts about the Salford Lasmos approach. The particular reasons given (obiter) by Kwan V-P were, first, that nothing in the Hong Kong Arbitration Ordinance, nor in its travaux preparatoires, contemplated a large curtailment of the court's existing statutory discretion to wind up, where no mandatory stay was provided. Secondly the Eastern Caribbean Court of Appeal had in Jinpeng declined to follow Salford, within a statutory and policy framework indistinguishable from that applicable in Hong Kong. …

Above all there is nothing anti-arbitration in this conclusion. …

The reasoning in Salford Estates calls for review against those considerations. The Board has already observed that the Court of Appeal arrived correctly at first base: namely by concluding that a creditor's winding up petition is not subject to a mandatory stay under section 9. But the Chancellor then just assumed, without further analysis, that the policy inherent in the 1996 Act went further into the prohibition of court proceedings than did section 9 itself. He simply said: “It is entirely appropriate that the court should, save in wholly exceptional circumstances which I presently find difficult to envisage, exercise its discretion consistently with the legislative policy embodied in the 1996 Act.” With great respect the Board considers that assumption to have been wrong, at least in relation to winding up (or liquidation) proceedings on the insolvency ground, for the reasons already given. The legislative policy embodied in the 1996 Act, and in all similar legislation founded upon the Model Law, is that claims or matters within the scope of an arbitration agreement should be resolved in arbitration and not resolved in court. But nothing about a debt covered by an arbitration agreement is resolved in winding up or liquidation proceedings in court. The legislative policy therefore stops short of such proceedings.” [Emphasis mine] S/N AQn0hitsdE2U9Uk9aqoJIw [55] In short, the Privy Council found no express legislative policy that favours arbitration over the winding up regime. As stated, such policy would render the winding up regime, also a product of statute, ‘illusory’ or ‘largely curtailed’. [56] Further, the Privy Council confirmed that the mandatory stay in section 9 of the 1996 Act (UK) does not apply to winding up proceedings. Instead, the mandatory stay is taken to actually set the limit of any legislative policy conferring priority on arbitration over other regimes. In short, the ambit of any legislative policy is prescribed by the legislation itself, being section 9. At paras 91 to 92, the Privy Council held: “91. The clearest legislative signal about the boundary of the policy that a party to an arbitration agreement should arbitrate is the extent of the mandatory stay provision which implements article 8 of the Model Law. That identifies the extent of the negative obligation: not to seek resolution of a dispute in court. A winding up petition or similar application lies outside both that boundary and therefore the extent of the underlying policy.

None of the general objectives of arbitration legislation (efficiency, party autonomy, pacta sunt servanda and non-interference by the courts) are offended by allowing a winding up to be ordered where the creditor's unpaid debt is not genuinely disputed on substantial grounds. To require the creditor to go through an arbitration where there is no genuine or substantial dispute as the prelude to seeking a liquidation just adds delay, trouble and expense for no good purpose. Party autonomy and pacta sunt servanda are not offended because seeking a liquidation is not something which the creditor has promised not to do. And by S/N AQn0hitsdE2U9Uk9aqoJIw ordering a liquidation the court is not resolving anything about the debt, nor interfering with the resolution of any dispute about it.” [Emphasis mine] [57] The finding that where there was no genuine dispute of the debt, there can be no need to go through an unnecessary arbitration, is precisely the reasoning of our Court of Appeal in Swiss Ray Asia (CA) (supra). The Privy Council continued: “But the Chancellor then just assumed, without further analysis, that the policy inherent in the 1996 Act went further into the prohibition of court proceedings than did section 9 itself. … With great respect the Board considers that assumption to have been wrong, at least in relation to winding up (or liquidation) proceedings on the insolvency ground.” [Emphasis mine] [58] As the mandatory stay under section 9 did not apply to winding up petitions, then a winding up petition fell outside the policy to prioritise arbitration. Hence, the test was returned to traditional one: that only where the claim was disputed on genuine and substantial grounds, would the Petition be dismissed. The Privy Council in Sian Participation so concluded at para 122: “122. The Board concludes:

As a matter of BVI law, the correct test for the court to apply to the exercise of its discretion whether to make an order for the liquidation of a company where the debt on which the application is based is subject to an arbitration agreement or an exclusive jurisdiction clause and is said S/N AQn0hitsdE2U9Uk9aqoJIw to be disputed is whether the debt is disputed on genuine and substantial grounds. …

124

There remains the question whether the Board should make a Willers v Joyce direction, namely that Salford Estates should no longer be followed in England and Wales, and that this decision of the Board, so far as it holds that Salford Estates was wrongly decided, now represents the law of England and Wales.

125

The Board considers that such a direction should be given. Our conclusion that Salford Estates was wrongly decided was not merely a conclusion about the law of the BVI. It was a conclusion about English law, even though informed in its reasoning by the study of overseas decisions and academic writings, as decisions about English law often are. The Board is aware that it is the current practice of the Companies Court in England and Wales to follow Salford Estates in exercising a supposed discretion to stay or dismiss a creditors' winding up petition on the ground that the petitioner's debt is covered by an arbitration clause, without being shown to be genuinely disputed on substantial grounds. The Board's view is that this should cease and it so directs.” [Emphasis mine] [59] The traditional test upheld in Sian Participation was referred to by the Court of Appeal without criticism in Peninsula Education (Setia Alam) Sdn Bhd (previously known as Segi International Learning Alliance Sdn Bhd) v Biaxis (M) Sdn Bhd (in liquidation) [2024] 5 MLJ 388 (“Peninsula Education”). I take this to be an implicit approval of Sian Participation, which now represents the law in Malaysia. S/N AQn0hitsdE2U9Uk9aqoJIw [60] So, I answer the first question on the basis that Sian Participation (supra) has now established that Salford Estates (No 2) was wrongly decided. And the test reverts to the traditional test: the Petition would be dismissed if the claim (even if falling within an arbitration agreement) was disputed on genuine and substantial grounds. I am bound by the decisions of the Court of Appeal in Peninsula Education (supra) and in Swissair (CA) (supra) which are aligned with Sian Participation and not Salford (No 2). [61] Therefore, Embition’s submission that the Petition should be dismissed as the prima facie test in Salford (No 2) was met, fails. [62] The next question is whether a CIPAA award meets the traditional test upheld by Sian Participation. So, if the CIPAA debt is disputed on genuine and substantial grounds, the Petition (Encl 1) will be dismissed. CIPAA AWARD IS UNDISPUTABLE [63] The starting point is to examine the policy behind CIPAA. It is to ease the cash flow of contractors in the construction industry. The Federal Court in Jack-In Pile (M) Sdn Bhd v Bauer (M) Sdn Bhd and another appeal [2020] 1 MLJ 174 at para 70, accepted that the purposes and policy of the CIPAA provisions are correctly stated in UDA Holdings Bhd v Bisraya Construction Sdn Bhd & Anor and another case [2015] 11 MLJ 499 (although overruled on other grounds). In UDA Holdings (supra), Mary Lim J (as she then was) held: S/N AQn0hitsdE2U9Uk9aqoJIw “This impasse was recognised as stifling the lifeblood of the industry that policy intervention through legislation was seen fit. CIPAA is intended to provide an intervening provisional decision or ‘a temporary balance … in appropriate circumstances … in favour of those who claim payment, at the temporary expense if necessary of those who pay’. These adjudication decisions, ‘being quick and dirty’, also ‘provide a quick enforceable interim decision under the rubric of ‘pay now, argue later’ are necessary so as to give ‘life’ back to the enterprise or underlying contract which had reached an impasse or stalemate. It is in the very nature of the scheme or mechanism that the substantive issues relating to the payment can still be argued at a later point; or taken concurrently at separate proceedings initiated in court or at arbitration” [Emphasis mine] [64] Embition emphasises that the Adjudication Decision (and notwithstanding the Enforcement Judgment) only has temporary finality and is subject to the pending Arbitration, see UDA Holdings Bhd v Bisraya Construction Sdn Bhd & Anor And Another Case [2015] 5 CLJ 527 and Bina Puri Construction Sdn Bhd v Hing Nyit Enterprise Sdn Bhd [2015] CLJU 305. It is therefore not undisputable. [65] And I cannot appreciate how its temporary nature could result in a debt being undisputable in winding up proceedings, with its potentially fatal and permanent consequences for the debtor. [66] Perhaps the solution is to adopt the analysis in Sian Participation. That the policy of CIPAA to ease the cash flow of contractors is limited by CIPAA itself and does not extend beyond what CIPAA provides. Thus, the policy will be limited to allowing an Adjudication S/N AQn0hitsdE2U9Uk9aqoJIw decision to be binding to the extent allowable under section 13 and only enforceable to the extent prescribed by section 28. Section 13 [67] As stated above, an Adjudication decision under CIPAA is temporary and provisional. This is as a result of section 13. It provides that an Adjudication decision is only binding unless:

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

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

the dispute is finally decided by arbitration or the court. [68] I can see the difficulty in understanding how a CIPAA Debt is undisputable and beyond contestation in a winding up petition, when section 13 provides that an Adjudication decision and therefore the CIPAA debt, is disputable in on-going or subsequent arbitration or Court proceedings. [69] This would mean that a CIPAA debt is disputable in an arbitration but not so in a winding up Petition. [70] If not undisputable, a debtor may resist a winding up petition based on an Adjudication decision, on the traditional test. This will not conflict with the legislative purpose of CIPAA to ease cash flow S/N AQn0hitsdE2U9Uk9aqoJIw difficulties; as section 28 provides that an Adjudication decision may be enforceable by other execution proceedings. Section 28 [71] Indeed, the enforcement proceedings to recover a CIPAA debt in section 28 does not include winding up for three (3) reasons. [72] First, section 28 only provides for the enforcement of an adjudication decision in accordance with the rules of ‘execution’ of a judgment. It provides: “28. Enforcement of adjudication decision as a 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.” [Emphasis mine] [73] Such enforcement does not include winding up proceedings as they are not execution proceedings, see Maril-Rionebel (M) Sdn Bhd & Anor v Perdana Merchant Bankers Bhd and Other Appeals [2001] 4 MLJ 187 per Gopal Sri Ram JCA at para 30. This was recognised by the Court of Appeal in Blue Dream (supra): S/N AQn0hitsdE2U9Uk9aqoJIw “But a petition for winding up is not execution. For a winding up petition is not based upon any judgment of a court. Normally, it is based on the inability of a company to pay its debts as and when they fall due. Such inability is normally evidenced by the company’s inability to satisfy or compound a notice of demand issued pursuant to s 218 of the Companies Act.” [Emphasis mine] [74] Secondly, winding up proceedings must not be used as a method of collecting debts, including a CIPAA debt; that would be an abuse of process. See the Court of Appeal in Anjakan Rezeki Sdn Bhd v UI Lead Sdn Bhd [2018] MLJU 2188 at para 21. Megarry J in Re Lympne Investments Ltd [1972] 2 All ER 385 held: “The Companies Court must not be used as a debt-collecting agency, nor as a means of bringing improper pressure to bear on a company. The effects on a company of the presentation of a winding-up petition against it are such that it would be wrong to allow the machinery designed for such petitions to be used as a means of resolving disputes which ought to be settled in ordinary litigation, or to be kept in suspense over the company's head while that litigation is fought out.” [Emphasis mine] [75] Thirdly, after a thorough examination of the authorities in other jurisdictions on analogous regimes, Daryl Goon J in ASM Development (KL) Sdn Bhd v Econpile (M) Sdn Bhd [2021] 8 MLJ 99, observed that the enforcement provisions in other jurisdictions although being more robust, do not preclude insolvency proceedings, see paras 118 to 119 and 122 to 123. However, the S/N AQn0hitsdE2U9Uk9aqoJIw decision was overruled in Bludream City Development Sdn Bhd v Pembinaan Bina Bumi Sdn Bhd [2024] 4 MLJ 67 (infra). [76] Indeed, to allow the winding up on the basis of a CIPAA award with temporary finality is harsh. Winding up would lead to seriously prejudicial if not fatal outcome for any company including Embition, such as the damage to its business, reputation and employees. The damage may be irreparable and permanent. [77] Conversely, I repeat that to disallow winding up based on an undisputable CIPAA debt will not offend the policy behind CIPAA. A CIPAA debt may still be legitimately collected by enforcement through other traditional execution proceedings under section 28, other than winding up. [78] In conclusion, the approach of allowing a beneficiary of an Adjudication decision to collect his debt through execution proceedings and by simultaneously allowing a debtor to defend winding up proceedings by raising the traditional defence that the CIPAA debt is bona fide disputed on substantial grounds, would strike a sensible balance between these competing interests. Bludream City [79] The Court of Appeal in Bludream City Development Sdn Bhd v Pembinaan Bina Bumi Sdn Bhd [2024] 4 MLJ 67 did not accept this analysis. S/N AQn0hitsdE2U9Uk9aqoJIw [80] The material facts in Bludream (supra) are indistinguishable from the facts in this this case. In both cases, there were Adjudication decisions on the debts in question; there were also enforcement decisions enforcing both claims. And the applications to stay and set aside such Adjudication decisions were dismissed. [81] The crux of the decision of the Court of Appeal is set out in paras 37 to 39 of the judgment. “[37] Be that as it may, the appellant further implored us that the decision is still disputable and that the appellant has referred the dispute to arbitration. The decision in the circumstances only enjoyed temporary finality. Consequently, the appellant should not be wound up and reliance has been made on the cases of ASM Development (KL) Sdn Bhd v Econpile (M) Sdn Bhd [2021] 8 MLJ 99 and Setia Fontaines Sdn Bhd v Pro Tech Enterprise Sdn Bhd [2023] MLJU 628. Additionally, the appellant relied on the Singapore cases of Lim Poh Yeoh (Alias Lim Aster) v TS Ong Construction Pte Ltd [2016] SGHC 179 and AnAn Group (Singapore) Pte Ltd v VTB Bank (Public Joint Stock Co) [2020] SGCA 33; [2020] 1 SLR 1158 (CA). [38] It is trite and plain that a company may be wound-up on the ground of inability to pay debts albeit the payment sought is not a judgment debt: see PECD Construction Sdn Bhd v Freehold Point Sdn Bhd [2015] 1 186; [2008] 3 CLJ 215. This is commonly done for debt premised on unpaid invoices and thereafter upon the service of notice which invokes the statutory presumption accorded by s 466(1)(a) of the CA. In such instances, it is also common that the non-paying party will seek a Fortuna injunction to restrain the commencement or continuation of the winding up proceeding. If it is established there is a bona fide dispute on the alleged debt on substantial or reasonable grounds, either the Fortuna injunction will be granted, see Lafarge Concrete (M) Sdn Bhd v Gold S/N AQn0hitsdE2U9Uk9aqoJIw Trend Builders Sdn Bhd [2012] 6 MLJ 817 or the winding up proceeding will be struck out: see Pembinaan Purcon v Entertainment Village (M) Sdn Bhd [2004] 1 MLJ 545. [39] For winding up proceeding based on unpaid construction payment debts arising after the advent of the CIPAA particularly where the debt is based on an adjudicated decision, it is our view critical to properly understand the notion of disputability of the debt. Put in another way, disputability must be seen in its proper context. In this regard, we hold that an unpaid debt unadjudicated in a the CIPAA proceeding will be disputable if the non-paying party has prima facie established a bona fide dispute of the debt on substantial or reasonable grounds. However, if the dispute on the debt has been adjudicated which resulted in an adjudication decision obtained in favour of the unpaid party, the debt ceases to be disputable in an ensuing winding up proceeding. This is because the disputed debt has been independently adjudicated by a neutral third party. More pertinently, it should not be open to the non-paying party to again dispute the debt when the sanctity of the adjudication decision has been preserved by the subsequent court orders refusing to set aside and/or stay as well as allowing enforcement of the adjudication decision as a judgment pursuant to ss 16, 27 and 28 of the CIPAA respectively. Consequently, it is immaterial in the winding up court that the non-paying still disputes the adjudicated debt and has referred the dispute to arbitration or the court for final determination: see

Barisan Performa Sdn Bhd v Hype Park City Sdn Bhd [2018] MLJU …” [Emphasis mine] [82] Whilst the Court of Appeal acknowledged that that a CIPAA debt only has temporary finality, it nevertheless found that the CIPAA debt was ‘undisputable’ for the purposes of a winding up Petition. However, the Court of Appeal also held that it may nevertheless be S/N AQn0hitsdE2U9Uk9aqoJIw disputable in an arbitration. The Court of Appeal continued from para 39 cited in para 76 above: “… The disputability of the dispute can only be done in the arbitration or the court to enable the parties to finally re-contest the dispute de novo unabated by the adjudication decision as well as without attracting res judicata because the adjudication decision enjoyed temporary but not perpetual finality: see G-Pile Sistem Sdn Bhd v CMMC Sdn Bhd and Anor [2021] MLJU 2694; [2021] 1 LNS 1727. [Emphasis mine] [83] Clearly, to hold that Adjudication decision is undisputable, a debtor will not be able to resist winding up on a CIPAA award. This is especially severe if the CIPAA debt is pending an appeal to the Court of Appeal; and where the very claim is pending arbitration pursuant to which, the CIPAA debt may be reversed. [84] Similarly, the Court of Appeal in Bludream City (supra) did acknowledge the draconian and severe effects of winding up: “[40] We are nonetheless mindful that winding up proceeding is a draconian procedure which may result in irreparable damage to business and reputation but we think have to heed the legislative objective of the CIPAA to alleviate the financial woes prevalent in the Malaysian construction industry. The objective of the CIPAA is threefold as stated in the preamble thereto, viz:

facilitate regular and timely payment;

provide a mechanism for speedy dispute resolution through adjudication; and S/N AQn0hitsdE2U9Uk9aqoJIw

provide remedies for recovery of payment in the construction industry. [41] … On the other hand, we have also duly considered and find that if the appellant is wound up, the appellant through the liquidator may still recover from the respondent should the appellant ultimately succeed instead in the ongoing arbitration proceeding between them. [42] In the premises, we are, with respect, constrained to hold that the decisions in ASM Development (KL) Sdn Bhd v Econpile (M) Sdn Bhd and Setia Fontaines Sdn Bhd v Pro Tech Enterprise Sdn Bhd relied upon by the appellant were erroneously made.” [Emphasis mine] [85] In short, the Court of Appeal held that the policy behind the CIPAA provisions will trump the draconian effects of a winding up, notwithstanding that the contractor may have the benefit of execution proceedings under section 28. Further, at para 39: “[39] For winding up proceeding based on unpaid construction payment debts arising after the advent of the CIPAA particularly where the debt is based on an adjudicated decision, it is our view critical to properly understand the notion of disputability of the debt. Put in another way, disputability must be seen in its proper context. In this regard, we hold that an unpaid debt unadjudicated in the CIPAA proceeding will be disputable if the non-paying party has prima facie established a bona fide dispute of the debt on substantial or reasonable grounds. However, if the dispute on the debt has been adjudicated which resulted in an adjudication decision obtained in favour of the unpaid party, the debt ceases to be disputable in an ensuing winding up proceeding. This is because the disputed debt has been independently adjudicated by a S/N AQn0hitsdE2U9Uk9aqoJIw neutral third party. More pertinently, it should not be open to the non-paying party to again dispute the debt when the sanctity of the adjudication decision has been preserved by the subsequent court orders refusing to set aside and/or stay as well as allowing enforcement of the adjudication decision as a judgment pursuant to ss 16, 27 and 28 of the CIPAA respectively. Consequently, it is immaterial in the winding up court that the non-paying still disputes the adjudicated debt and has referred the dispute to arbitration or the court for final determination: see

Barisan Performa Sdn Bhd v Hype Park City Sdn Bhd [2018] MLJU …” [Emphasis mine] [86] As stated in para 82 above, the Court of Appeal also accepted that a company could be wound up notwithstanding that the company may successfully dispute the CIPAA debt in a pending arbitration. Thus, the position remains that the Adjudication decision and the CIPAA debt may be disputed in an arbitration but not for the purposes of a winding up. REMEDIES & ORDERS [87] I am bound by the decision of the Court of Appeal in Bludream. The finding that an adjudication decision based on a CIPAA debt (with or without an Enforcement Order in place) is undisputable gave me little or no options. While section 469 of CA 2016 may be very widely drafted in terms of discretion on the hearing of a Petition, it is deceptively so. I did consider exercising my discretion under section 469 to either stay or adjourn the Petition pending the CA Appeal and/or Arbitration. However, that may be inappropriate as S/N AQn0hitsdE2U9Uk9aqoJIw to delay will allow Embition the ability to incur further debt to the prejudice of the other creditors. [88] In Sian Participation (supra), the issue of the Court’s discretion on the hearing of a winding up Petition was considered. The Privy Council held: “35. Fourthly, and in sharp contrast with the role of the court (or arbitrator) in proceedings for the enforcement of a debt, the court's powers on the hearing of a liquidation application (or winding up petition) are discretionary. That is not to say that the court's discretion is entirely unfettered. In principle, a petitioning creditor with an unpaid debt which is not genuinely disputed on substantial grounds is often described as being in substance entitled to an order, as a statutory right, ex debito justitiae: see Bryanston Finance Ltd v de Vries [1976] Ch 63, 78; In re Crigglestone Coal Co Ltd [1906] 2 Ch 327, p 337; and In re Southard & Co Ltd [1979] 1 WLR 1198, 1203, approved in Ebbvale Ltd v Hosking [2013] UKPC 1, para 25.” [Emphasis mine] [89] If the debt is not genuinely disputed, then the petitioner has a statutory right, ex debito justitiae, to a winding up order. Given that the Court of Appeal in Bluedream has decided that an Adjudication Decision is undisputable, the test in Sian Participation is met. The CIPAA Debt owed to the Petitioner cannot be genuinely disputed on substantial grounds, quite simply because it is undisputable. [90] As such, the Petitioner has a statutory right, ex debito justitiae, to the winding up order. Accordingly, I granted the winding up order prayed for in Encl 1. S/N AQn0hitsdE2U9Uk9aqoJIw Dated 27th January 2025 ...................t.t........................... YA Tuan Saheran Suhendran Judicial Commissioner, High Court of Malaya, Kuala Lumpur. Dinesh (Nandrajog) for the Petitioner Kevin Wong Gia Meng + Vivian Siew (Jason Teoh & Partners) for the Respondent Cases Referred to: • Smartframe Sdn Bhd v Anjung Bahasa Sdn Bhd [2011] 4 CLJ 416 • Pontian United Theatre Sdn Bhd v Southern Finance Bhd [2006] 2 MLJ 602 • Maju Holdings Sdn Bhd v Spring Energy Sdn Bhd [2021] 8 MLJ 275 • Mann v Goldstein [1968] 2 All ER 769 • Tan Kok Tong v Hoe Hong Trading Co Sdn Bhd [2007] 4 MLJ 355 • Salford Estates (No 2) Ltd v. Altomart Ltd [2014] EWCA Civ 1575 • Awangsa Bina Sdn Bhd v Mayland Avenue Sdn Bhd [2019] 1 LNS 59 • Setia Fontaines Sdn Bhd v Pro Tech Enterprise Sdn Bhd [2023] 12 MLJ 324 • V Medical Services M Sdn Bhd v Swissray Asia Healthcare Co Ltd [2023] 7 MLJ 155 • NFC Labuan Shipleasing Ltd v Semua Chemical Shipping Sdn Bhd [2017] MLJU 900 • Ting Kang Chung John v Teo Hee Lai Building Constructions Pte Ltd and others [2010] 2 SLR 625 • Swissray Asia Healthcare Co Ltd v V Medical Services M Sdn Bhd [2024] 6 MLJ 135 • AnAn Group (Singapore) Pte Ltd v VTB Bank (Public Joint Stock Co) [2020] 1 SLR 1158 S/N AQn0hitsdE2U9Uk9aqoJIw • Re Southwest Pacific Bauxite (HK) Ltd [2018] 2 HKLRD 449 • Whitehouse v. Wilson [2006] EWCA Civ 1688 • Kumpulan Liziz Sdn Bhd (in liquidation) v Pembinaan Azam Jaya Sdn Bhd [2022] 1 MLJ 570 • Larsen Oil and Gas Pte Ltd v Petroprod Ltd (in official liquidation in the Cayman Islands and in compulsory liquidation in Singapore) [2011] 3 SLR 414 • FamilyMart China Holding Co Ltd v Ting Chuan (Cayman Islands) Holding Corp [2024] 1 All ER (Comm) 697 • Sian Participation Corp (in liquidation) v Halimeda International Ltd (Virgin Islands) [2024] UKPC 16 • Peninsula Education (Setia Alam) Sdn Bhd (previously known as Segi International Learning Alliance Sdn Bhd) v Biaxis (M) Sdn Bhd (in liquidation) [2024] 5 MLJ 388 • Jack-In Pile (M) Sdn Bhd v Bauer (M) Sdn Bhd and another appeal [2020] 1 MLJ 174 • UDA Holdings Bhd v Bisraya Construction Sdn Bhd & Anor And Another Case [2015] 5 CLJ 527 • Bina Puri Construction Sdn Bhd v Hing Nyit Enterprise Sdn Bhd [2015] CLJU 305 • ASM Development (KL) Sdn Bhd v Econpile (M) Sdn Bhd [2021] 8 MLJ 99 • UDA Holdings Bhd v Bisraya Construction Sdn Bhd & Anor and another case [2015] 11 MLJ 499 • Bludream City Development Sdn Bhd v Pembinaan Bina Bumi Sdn Bhd [2024] 4 MLJ 67 • Maril-Rionebel (M) Sdn Bhd & Anor v Perdana Merchant Bankers Bhd and other appeals [2001] 4 MLJ 187 • Anjakan Rezeki Sdn Bhd v UI Lead Sdn Bhd [2018] MLJU 2188 • Re Lympne Investments Ltd [1972] 2 All ER 385 Legislation referred to: • Construction Industry Payment and Adjudication Act 2012 • Companies Act 2016 • Arbitration Act of 1996 (UK) Decision date: 26th November 2024 S/N AQn0hitsdE2U9Uk9aqoJIw

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Malaysian judgment

Case metadata

Court: High Court of Malaysia
Decision date: 26 Nov 2024
Case number: WA-28NCC-266-03/2024
Coram: YA Tuan Suhendran Sockanathan
Practice area: Application to wind up the respondent for failing to satisfy and adjudication award made under the Construction Industry Payment and Adjudication Act 2012 (CIPAA). Whether the respondent has shown that the debt upon which the petition is based is bona fide disputed on substantial grounds
Version: Alasan Penghakiman 1
Published: 27 Jan 2025
Source ID: 86f40901-6c2b-4d74-94f5-493d6aaa0923

Catchwords

Application to wind up the respondent for failing to satisfy and adjudication award made under the Construction Industry Payment and Adjudication Act 2012 (CIPAA). Whether the respondent has shown that the debt upon which the petition is based is bona fide disputed on substantial grounds

Parties

KONSORTIUM EXPRESS SDN BHD - petitioner - ejudgment_parties
EMBITION SDN BHD - respondent - ejudgment_parties
MALAYAN BANKING BERHAD - pihak-ketiga - ejudgment_parties

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Konsortium Express Sdn Bhd v Embition Sdn Bhd (WA-28NCC-266-03/2024)

High Court of Malaysia26 Nov 2024

The written judgment as the court issued it, with the coram, case number, and source links. Every paragraph has its own anchor.

Outcome

What the court ordered

THE BURDEN [27] The ordinary test when a winding up petition is opposed is for the respondent to show that the debt relied on to trigger the presumption of insolvency is bona fide disputed on substantial grounds, see Mann v Goldstein [1968] 2 All ER 769 and the Court S/N AQn0hitsdE2U9Uk9aqoJIw of Appeal in Tan Kok Tong v Hoe Hong Trading Co Sdn Bhd [2007] 4 MLJ 355, per Gopal Sri Ram JCA (as he then was). In other words, to dismiss or stay the Petition, it is enough to show a triable issue. [28] However, when the claim is subject to an arbitration agreement, Salford Estates (No 2) Ltd v. Altomart Ltd [2014] EWCA Civ 1575, sought to change this test by lowering the burden. [29] In Malaysia, Salford Estates (No. 2) was followed in several High Court decisions, in particular, NFC Labuan (supra), Awangsa Bina Sdn Bhd v Mayland Avenue Sdn Bhd [2019] 1 LNS 59 and more recently, in Setia Fontaines Sdn Bhd v Pro Tech Enterprise Sdn Bhd [2023] 12 MLJ 324. It has also been followed in numerous decisions throughout the Commonwealth. [30] Embition claims it has discharged this lower Salford Estates (No 2) burden. [31] Salford Estates (No. 2) was carefully and accurately explained by Liza Chan JC (as she then was) in V Medical Services M Sdn Bhd v Swissray Asia Healthcare Co Ltd [2023] 7 MLJ 155. Although reversed on other grounds, see Swissray Asia Healthcare Co Ltd v V Medical Services M Sdn Bhd [2024] 6 MLJ 135 (“Swissray Asia CA”), her Ladyship’s summary of Salford Estaters (No. 2) remains sound. [32] In short, her Ladyship held that Salford Estates (No. 2) was based on the finding that the legislative policy of the Arbitration Act of S/N AQn0hitsdE2U9Uk9aqoJIw 10 1996 (UK) dictated giving effect to the parties’ arbitration agreement. The giving effect to this legislative policy necessitated lowering the burden in winding up petitions so that the parties will be forced to arbitrate rather than to determine whether the underlying debt was genuinely disputed on substantial grounds, the traditional test. [33] Her Ladyship said: “[16] The English Court of Appeal in 2014 in its decision in Salford Estates (No 2) Ltd v Altomart Ltd (No 2) [2015] Ch 589; [2014] EWCA Civ 1575, held that the test to be applied in respect of a disputed debt governed by an arbitration agreement ought to be lowered, and that, the English courts when faced with a disputed debt that was subject to an arbitration agreement, ought to dismiss or stay the winding up application, save in ‘wholly exceptional circumstances’ which the judge found ‘difficult to envisage’. Sir Terence Etherton C, (with whom Longmore and Kitchin LJJ agreed) delivering the judgment of the court held this would be in accordance with the principle which mandated upholding the parties’ agreement to arbitrate and the legislative policy that is in favour of arbitration although the court found that the mandatory stay provisions in s 9 of the 1996 Act (UK Arbitration Act) did not apply …”. [Emphasis mine] [34] Her Ladyship continued citing Sir Terence Etherton C. Selected passages include: “[41] There is no doubt that the debt mentioned in the petition falls within the very wide terms of the arbitration clause in the Lease. S/N AQn0hitsdE2U9Uk9aqoJIw The debt is not admitted. In accordance with the decision in the Halki Shipping case, that is sufficient to constitute a dispute within the 1996 Act, irrespective of the substantive merits of any defence, and, were there proceedings on foot to recover the debt, to trigger the automatic stay provision in s 9(1) of the 1996 Act. For the reasons I have given, I consider that, as a matter of the exercise of the court’s discretion under s 122(1)(f) of the 1986 Act, it was right for the court either to dismiss or to stay the petition so as to compel the parties to resolve their dispute over the debt by their chosen method of dispute resolution rather than require the court to investigate whether or not the debt is bona fide disputed on substantial grounds. … [18] … the result of Salford, it seems to me, is to place a very heavy obstacle in the way of a party who presents a petition claiming sums due under an agreement that contains an arbitration clause’. The problem for such a petitioner is that the company is entitled to have the petition dismissed without having to show, as would normally be the case, that the debt upon which the petition is based is, to use the time-hallowed expression, bona fide disputed on substantial grounds. What the Court of Appeal decided in clear terms in the Salford Estate case was that, where there is an arbitration clause, it is sufficient to show that the debt is ‘disputed’ and for that it is sufficient to show that the debt is not admitted. … The court appeared to take the view that the Salford approach practically leaves no allowance for the winding up court to examine the genuineness of the dispute raised by the debtor-company. …” [Emphasis mine] [35] In short, so long as the claim prima facie falls within the arbitration clause and the claim is denied, this is sufficient to establish that the S/N AQn0hitsdE2U9Uk9aqoJIw claim is ‘disputed’, such that the winding up Court will dismiss or stay the winding up Petition. [36] It is obvious that this low burden (if a burden at all) compels the winding up Court to dismiss a Petition and to force the parties to arbitrate, merely if the claim is denied. The effect of the lowering of the burden is deliberate and calculated. It is decidedly pro-arbitration. [37] The reason, it is said, is to give effect to the policy behind the arbitration legislation, which is to honour arbitration agreements. The referral to arbitration is virtually automatic, ignoring the policy behind the winding up legislation and the purpose it fulfils. [38] In this regard, it has become increasingly common for the Courts to uphold this pro-arbitration approach. The most obvious example is Singapore’s objective to turn Singapore into a regional hub for arbitration, see Quentin Loh JC’s observation in Ting Kang Chung John v Teo Hee Lai Building Constructions Pte Ltd and others [2010] 2 SLR 625 at para 62. See also Swissray Asia Healthcare Co Ltd v V Medical Services M Sdn Bhd [2024] 6 MLJ 135 at paras 62 and 65. In AnAn Group (Singapore) Pte Ltd v VTB Bank (Public Joint Stock Co) [2020] 1 SLR 1158, the Court of Appeal in Singapore noted from Re Southwest Pacific Bauxite (HK) Ltd [2018] 2 HKLRD 449, that like England, the Hong Kong legislature and Courts have also adopted a pro-arbitration stance. [39] There are, however, difficulties with the reasoning in Salford (No 2). S/N AQn0hitsdE2U9Uk9aqoJIw The Difficulties with Salford (No 2) [40] First, the policies of the winding up legislation were not properly considered before affording priority to arbitration. Winding up is a public process with its own public policies. The Court of Appeal in Whitehouse v. Wilson [2006] EWCA Civ 1688 emphasised the public interest in the winding up process. Indeed, the purpose is to effect a means to collectively administer the assets of an insolvent company for the benefit of the creditors, primarily the unsecured creditors. [41] Without such process, there would be scramble by creditors to obtain assets on a ‘first come first served basis’. A liquidation provides an ordered process whereby no one creditor will receive full payment in priority to and at the expense of other creditors who will receive nothing or next to nothing. It has been described as a ‘class action’, see the Court of Appeal in Kumpulan Liziz Sdn Bhd (in liquidation) v Pembinaan Azam Jaya Sdn Bhd [2022] 1 MLJ 570 at para 150. It exists for the benefit of a class of creditors. It is a statutory regime rooted in public policy. Its purpose, however, is not to resolve disputes between litigants. [42] The arbitration process is also creature of statute. In contrast, it manages a dispute resolution process which is effected by agreement between the contracting parties. The policy behind the arbitration legislation is to give effect to the parties’ agreement to their choice of dispute resolution. S/N AQn0hitsdE2U9Uk9aqoJIw [43] The competing policies were neatly set out by the Court of Appeal of Singapore in Larsen Oil and Gas Pte Ltd v Petroprod Ltd (in official liquidation in the Cayman Islands and in compulsory liquidation in Singapore) [2011] 3 SLR 414 at [1]): “Arbitration and insolvency processes embody, to an extent, contrasting legal policies. On the one hand, arbitration embodies the principles of party autonomy and the decentralisation of private dispute resolution. On the other hand, the insolvency process is a collective statutory proceeding that involves the public centralisation of disputes so as to achieve economic efficiency and optimal returns for creditors.” [Emphasis mine] [44] It is difficult to understand how the policy of arbitration to hold contracting parties to their agreement to arbitrate, trumps the policy behind the winding up legislation, which has existed for centuries for the benefit of an entire class of persons who may be substantial in number. For example, in FamilyMart China Holding Co Ltd v Ting Chuan (Cayman Islands) Holding Corp [2024] 1 All ER (Comm) 697 at para 71 albeit in the different context of non-arbitrable claims, the Privy Council considered the Singapore case of Larsen Oil (supra) where the Court of Appeal refused to stay the arbitration proceedings thus allowing insolvency claims falling within an arbitration clause to proceed, as it would undermine the policy aims of the insolvency regime. In FamilyMart (supra), the Privy Council held: “Subject matter non-arbitrability may also arise as a result of public policy considerations. In the Singaporean case of Larsen Oil and Gas Pte Ltd S/N AQn0hitsdE2U9Uk9aqoJIw v Petropod Ltd (in liq) (Cayman Islands and Singapore)) [2011] SGCA 21, [2011] 3 SLR 414 ('Larsen') V K Rajah JA, delivering the judgment of the Singapore Court of Appeal, at para 44 recognised two grounds for excluding from arbitration a dispute which fell within the scope of an arbitration agreement. The first was where the legislature had precluded the use of arbitration to determine the particular type of dispute and the second was where 'there is an inherent conflict between arbitration and the public policy considerations involved in that particular type of dispute'. Larsen was concerned with claims by the liquidator of an insolvent company for the avoidance of unfair preferences and payments made with an intention to defraud a creditor which arose only on the onset of insolvency and could be pursued by the liquidator of the insolvent company for the benefit of the company's creditors. The court refused the application by Larsen, the recipient of the alleged preference, to stay the legal proceedings for arbitration of the dispute on grounds of public policy, namely that it would affect the substantive rights of the company's creditors and undermine the policy aims of the insolvency regime.” [Emphasis mine] [45] It is important therefore, to examine and weigh the policy aims of the insolvency regime as against the arbitration regime, before deciding which regime should trump the other. Such an analysis was decidedly absent in the reasoning in Salford Estates (No. 2). [46] With the greatest of respect, by ignoring the policy behind the winding up provisions, the reasoning in finding that arbitration trumped the winding up regime is unsafe. [47] Secondly, by applying Salford (No 2) strictly, a mere bare denial of the debt would result in the dismissal of the winding up petition. There would be no need to show that there was a bona fide dispute S/N AQn0hitsdE2U9Uk9aqoJIw which requires arbitration. It follows that the Petition would be dismissed even if the debt was shown to be genuinely disputed. [48] This is the logical result of Salford (No 2). In NFC Labuan Shipleasing Ltd v Semua Chemical Shipping Sdn Bhd [2017] MLJU 900, the Court read Salford Estates (No. 2) thus: “[58] Thus, nevertheless, given that the Court’s power to make a winding-up order is discretionary, the English Court of Appeal further decided that the Court will exercise its discretion under Section 122(1) of the Insolvency Act 1986 to decline to wind up a company where the debt upon which the petition is based is subject to an arbitration agreement and that debt is not admitted. This would be the position even where the Court takes the view that the debt is not bona fide disputed on substantial grounds.” [Emphasis mine] [49] It would follow that even if the debt were admitted, the parties would be forced to partake in a wasteful and unnecessary arbitration merely by a disingenuous denial of the debt. On these facts where the debt was admitted, the Court of Appeal in Swissray Asia (CA) (supra) refused to follow Salford Estates (No. 2). It was noted that to follow Salford Estates (No. 2) in these circumstances, would open the door to abuse, allowing the stifling legitimate winding up petitions. “[84] To countenance the lower threshold test advocated by Salford Estates, would open the door to parties in breach of their contractual obligations subjecting the system to abuse by the mere assertion of a dispute no matter how frivolous in nature, just in order to derail or to S/N AQn0hitsdE2U9Uk9aqoJIw defeat the legitimate presentation of a winding up petition and in so doing, abuse the process.” [Emphasis mine] [50] It is implicit in the reasoning of the Court of Appeal that if there is any legislative policy favouring arbitration it does not, without more, trump legitimate winding up proceedings. Sian Participation [51] The lower burden of Salford Estates (No.2) is no longer good law. [52] Some two (2) weeks after Swiss Ray Asia (CA) (supra) was decided on 6.6.2024, on 19.6.2024, the Privy Council in Sian Participation Corp (in liquidation) v Halimeda International Ltd (Virgin Islands) [2024] UKPC 16, held that Salford Estates (No. 2) was wrongly decided, no longer representing the law in England and Wales. [53] The primary reason is that it was wrong to find that the legislative policy of the arbitration legislation overrides the discretion to wind up, which will be rendered illusory. Indeed, if a mere denial is all that is required to cause a dismissal or stay, this effectively gives rise to a mandatory stay over and above section 9 of the 1996 Act (UK). This would be to artificially extend section 9 and would be contrary to the express intention of Parliament. “75. Embodied within that passage is the primary reasoning for it, which is that the legislative policy embodied in the 1996 Act extends to prohibiting the continuation of proceedings to which the mandatory stay S/N AQn0hitsdE2U9Uk9aqoJIw provided by section 9 does not apply. It is also implicit that the discretion to wind up would be virtually illusory where the debt relied upon by the petitioner was merely not admitted, even if not genuinely disputed on substantial grounds. There would in such circumstances be, in substance, virtually a mandatory stay of the petition, ...”. [Emphasis mine] [54] The Privy Council considered the position in other jurisdictions. In particular, it was noted that in Hong Kong, there were divergent cases where Salford Estates (No. 2) was not followed. “82. In Dayang (HK) Marine Shipping Co Ltd v Asia Master Logistics Ltd [2020] HKCFI 311 (“Dayang”) William Wong SC siting as a deputy judge held that what he called the “Salford Lasmos” approach should not be adopted. … . Fourthly, the Salford Estates approach imposes an unprecedented fetter upon the court's discretion to wind up.
But Ka Chon v Interactive Brokers LLC [2019] HKCA 873 was another Hong Kong case … Nonetheless the Court of Appeal expressed its own doubts about the Salford Lasmos approach. The particular reasons given (obiter) by Kwan V-P were, first, that nothing in the Hong Kong Arbitration Ordinance, nor in its travaux preparatoires, contemplated a large curtailment of the court's existing statutory discretion to wind up, where no mandatory stay was provided. Secondly the Eastern Caribbean Court of Appeal had in Jinpeng declined to follow Salford, within a statutory and policy framework indistinguishable from that applicable in Hong Kong. …
None of the general objectives of arbitration legislation (efficiency, party autonomy, pacta sunt servanda and non-interference by the courts) are offended by allowing a winding up to be ordered where the creditor's unpaid debt is not genuinely disputed on substantial grounds. To require S/N AQn0hitsdE2U9Uk9aqoJIw the creditor to go through an arbitration where there is no genuine or substantial dispute as the prelude to seeking a liquidation just adds delay, trouble and expense for no good purpose. Party autonomy and pacta sunt servanda are not offended because seeking a liquidation is not something which the creditor has promised not to do. And by ordering a liquidation the court is not resolving anything about the debt, nor interfering with the resolution of any dispute about it.
Above all there is nothing anti-arbitration in this conclusion. …
The reasoning in Salford Estates calls for review against those considerations. The Board has already observed that the Court of Appeal arrived correctly at first base: namely by concluding that a creditor's winding up petition is not subject to a mandatory stay under section 9. But the Chancellor then just assumed, without further analysis, that the policy inherent in the 1996 Act went further into the prohibition of court proceedings than did section 9 itself. He simply said: “It is entirely appropriate that the court should, save in wholly exceptional circumstances which I presently find difficult to envisage, exercise its discretion consistently with the legislative policy embodied in the 1996 Act.” With great respect the Board considers that assumption to have been wrong, at least in relation to winding up (or liquidation) proceedings on the insolvency ground, for the reasons already given. The legislative policy embodied in the 1996 Act, and in all similar legislation founded upon the Model Law, is that claims or matters within the scope of an arbitration agreement should be resolved in arbitration and not resolved in court. But nothing about a debt covered by an arbitration agreement is resolved in winding up or liquidation proceedings in court. The legislative policy therefore stops short of such proceedings.” [Emphasis mine] S/N AQn0hitsdE2U9Uk9aqoJIw [55] In short, the Privy Council found no express legislative policy that favours arbitration over the winding up regime. As stated, such policy would render the winding up regime, also a product of statute, ‘illusory’ or ‘largely curtailed’. [56] Further, the Privy Council confirmed that the mandatory stay in section 9 of the 1996 Act (UK) does not apply to winding up proceedings. Instead, the mandatory stay is taken to actually set the limit of any legislative policy conferring priority on arbitration over other regimes. In short, the ambit of any legislative policy is prescribed by the legislation itself, being section 9. At paras 91 to 92, the Privy Council held: “91. The clearest legislative signal about the boundary of the policy that a party to an arbitration agreement should arbitrate is the extent of the mandatory stay provision which implements article 8 of the Model Law. That identifies the extent of the negative obligation: not to seek resolution of a dispute in court. A winding up petition or similar application lies outside both that boundary and therefore the extent of the underlying policy.
None of the general objectives of arbitration legislation (efficiency, party autonomy, pacta sunt servanda and non-interference by the courts) are offended by allowing a winding up to be ordered where the creditor's unpaid debt is not genuinely disputed on substantial grounds. To require the creditor to go through an arbitration where there is no genuine or substantial dispute as the prelude to seeking a liquidation just adds delay, trouble and expense for no good purpose. Party autonomy and pacta sunt servanda are not offended because seeking a liquidation is not something which the creditor has promised not to do. And by S/N AQn0hitsdE2U9Uk9aqoJIw ordering a liquidation the court is not resolving anything about the debt, nor interfering with the resolution of any dispute about it.” [Emphasis mine] [57] The finding that where there was no genuine dispute of the debt, there can be no need to go through an unnecessary arbitration, is precisely the reasoning of our Court of Appeal in Swiss Ray Asia (CA) (supra). The Privy Council continued: “But the Chancellor then just assumed, without further analysis, that the policy inherent in the 1996 Act went further into the prohibition of court proceedings than did section 9 itself. … With great respect the Board considers that assumption to have been wrong, at least in relation to winding up (or liquidation) proceedings on the insolvency ground.” [Emphasis mine] [58] As the mandatory stay under section 9 did not apply to winding up petitions, then a winding up petition fell outside the policy to prioritise arbitration. Hence, the test was returned to traditional one: that only where the claim was disputed on genuine and substantial grounds, would the Petition be dismissed. The Privy Council in Sian Participation so concluded at para 122: “122. The Board concludes:
As a matter of BVI law, the correct test for the court to apply to the exercise of its discretion whether to make an order for the liquidation of a company where the debt on which the application is based is subject to an arbitration agreement or an exclusive jurisdiction clause and is said S/N AQn0hitsdE2U9Uk9aqoJIw to be disputed is whether the debt is disputed on genuine and substantial grounds. …
There remains the question whether the Board should make a Willers v Joyce direction, namely that Salford Estates should no longer be followed in England and Wales, and that this decision of the Board, so far as it holds that Salford Estates was wrongly decided, now represents the law of England and Wales.
The Board considers that such a direction should be given. Our conclusion that Salford Estates was wrongly decided was not merely a conclusion about the law of the BVI. It was a conclusion about English law, even though informed in its reasoning by the study of overseas decisions and academic writings, as decisions about English law often are. The Board is aware that it is the current practice of the Companies Court in England and Wales to follow Salford Estates in exercising a supposed discretion to stay or dismiss a creditors' winding up petition on the ground that the petitioner's debt is covered by an arbitration clause, without being shown to be genuinely disputed on substantial grounds. The Board's view is that this should cease and it so directs.” [Emphasis mine] [59] The traditional test upheld in Sian Participation was referred to by the Court of Appeal without criticism in Peninsula Education (Setia Alam) Sdn Bhd (previously known as Segi International Learning Alliance Sdn Bhd) v Biaxis (M) Sdn Bhd (in liquidation) [2024] 5 MLJ 388 (“Peninsula Education”). I take this to be an implicit approval of Sian Participation, which now represents the law in Malaysia. S/N AQn0hitsdE2U9Uk9aqoJIw [60] So, I answer the first question on the basis that Sian Participation (supra) has now established that Salford Estates (No 2) was wrongly decided. And the test reverts to the traditional test: the Petition would be dismissed if the claim (even if falling within an arbitration agreement) was disputed on genuine and substantial grounds. I am bound by the decisions of the Court of Appeal in Peninsula Education (supra) and in Swissair (CA) (supra) which are aligned with Sian Participation and not Salford (No 2). [61] Therefore, Embition’s submission that the Petition should be dismissed as the prima facie test in Salford (No 2) was met, fails. [62] The next question is whether a CIPAA award meets the traditional test upheld by Sian Participation. So, if the CIPAA debt is disputed on genuine and substantial grounds, the Petition (Encl 1) will be dismissed. CIPAA AWARD IS UNDISPUTABLE [63] The starting point is to examine the policy behind CIPAA. It is to ease the cash flow of contractors in the construction industry. The Federal Court in Jack-In Pile (M) Sdn Bhd v Bauer (M) Sdn Bhd and another appeal [2020] 1 MLJ 174 at para 70, accepted that the purposes and policy of the CIPAA provisions are correctly stated in UDA Holdings Bhd v Bisraya Construction Sdn Bhd & Anor and another case [2015] 11 MLJ 499 (although overruled on other grounds). In UDA Holdings (supra), Mary Lim J (as she then was) held: S/N AQn0hitsdE2U9Uk9aqoJIw “This impasse was recognised as stifling the lifeblood of the industry that policy intervention through legislation was seen fit. CIPAA is intended to provide an intervening provisional decision or ‘a temporary balance … in appropriate circumstances … in favour of those who claim payment, at the temporary expense if necessary of those who pay’. These adjudication decisions, ‘being quick and dirty’, also ‘provide a quick enforceable interim decision under the rubric of ‘pay now, argue later’ are necessary so as to give ‘life’ back to the enterprise or underlying contract which had reached an impasse or stalemate. It is in the very nature of the scheme or mechanism that the substantive issues relating to the payment can still be argued at a later point; or taken concurrently at separate proceedings initiated in court or at arbitration” [Emphasis mine] [64] Embition emphasises that the Adjudication Decision (and notwithstanding the Enforcement Judgment) only has temporary finality and is subject to the pending Arbitration, see UDA Holdings Bhd v Bisraya Construction Sdn Bhd & Anor And Another Case [2015] 5 CLJ 527 and Bina Puri Construction Sdn Bhd v Hing Nyit Enterprise Sdn Bhd [2015] CLJU 305. It is therefore not undisputable. [65] And I cannot appreciate how its temporary nature could result in a debt being undisputable in winding up proceedings, with its potentially fatal and permanent consequences for the debtor. [66] Perhaps the solution is to adopt the analysis in Sian Participation. That the policy of CIPAA to ease the cash flow of contractors is limited by CIPAA itself and does not extend beyond what CIPAA provides. Thus, the policy will be limited to allowing an Adjudication S/N AQn0hitsdE2U9Uk9aqoJIw decision to be binding to the extent allowable under section 13 and only enforceable to the extent prescribed by section 28. Section 13 [67] As stated above, an Adjudication decision under CIPAA is temporary and provisional. This is as a result of section 13. It provides that an Adjudication decision is only binding unless:
it is set aside by the High Court on any of the grounds referred to in section 15;
the subject matter of the decision is settled by a written agreement between the parties; or
the dispute is finally decided by arbitration or the court. [68] I can see the difficulty in understanding how a CIPAA Debt is undisputable and beyond contestation in a winding up petition, when section 13 provides that an Adjudication decision and therefore the CIPAA debt, is disputable in on-going or subsequent arbitration or Court proceedings. [69] This would mean that a CIPAA debt is disputable in an arbitration but not so in a winding up Petition. [70] If not undisputable, a debtor may resist a winding up petition based on an Adjudication decision, on the traditional test. This will not conflict with the legislative purpose of CIPAA to ease cash flow S/N AQn0hitsdE2U9Uk9aqoJIw difficulties; as section 28 provides that an Adjudication decision may be enforceable by other execution proceedings. Section 28 [71] Indeed, the enforcement proceedings to recover a CIPAA debt in section 28 does not include winding up for three (3) reasons. [72] First, section 28 only provides for the enforcement of an adjudication decision in accordance with the rules of ‘execution’ of a judgment. It provides: “28. Enforcement of adjudication decision as a 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.” [Emphasis mine] [73] Such enforcement does not include winding up proceedings as they are not execution proceedings, see Maril-Rionebel (M) Sdn Bhd & Anor v Perdana Merchant Bankers Bhd and Other Appeals [2001] 4 MLJ 187 per Gopal Sri Ram JCA at para 30. This was recognised by the Court of Appeal in Blue Dream (supra): S/N AQn0hitsdE2U9Uk9aqoJIw “But a petition for winding up is not execution. For a winding up petition is not based upon any judgment of a court. Normally, it is based on the inability of a company to pay its debts as and when they fall due. Such inability is normally evidenced by the company’s inability to satisfy or compound a notice of demand issued pursuant to s 218 of the Companies Act.” [Emphasis mine] [74] Secondly, winding up proceedings must not be used as a method of collecting debts, including a CIPAA debt; that would be an abuse of process. See the Court of Appeal in Anjakan Rezeki Sdn Bhd v UI Lead Sdn Bhd [2018] MLJU 2188 at para 21. Megarry J in Re Lympne Investments Ltd [1972] 2 All ER 385 held: “The Companies Court must not be used as a debt-collecting agency, nor as a means of bringing improper pressure to bear on a company. The effects on a company of the presentation of a winding-up petition against it are such that it would be wrong to allow the machinery designed for such petitions to be used as a means of resolving disputes which ought to be settled in ordinary litigation, or to be kept in suspense over the company's head while that litigation is fought out.” [Emphasis mine] [75] Thirdly, after a thorough examination of the authorities in other jurisdictions on analogous regimes, Daryl Goon J in ASM Development (KL) Sdn Bhd v Econpile (M) Sdn Bhd [2021] 8 MLJ 99, observed that the enforcement provisions in other jurisdictions although being more robust, do not preclude insolvency proceedings, see paras 118 to 119 and 122 to 123. However, the S/N AQn0hitsdE2U9Uk9aqoJIw decision was overruled in Bludream City Development Sdn Bhd v Pembinaan Bina Bumi Sdn Bhd [2024] 4 MLJ 67 (infra). [76] Indeed, to allow the winding up on the basis of a CIPAA award with temporary finality is harsh. Winding up would lead to seriously prejudicial if not fatal outcome for any company including Embition, such as the damage to its business, reputation and employees. The damage may be irreparable and permanent. [77] Conversely, I repeat that to disallow winding up based on an undisputable CIPAA debt will not offend the policy behind CIPAA. A CIPAA debt may still be legitimately collected by enforcement through other traditional execution proceedings under section 28, other than winding up. [78] In conclusion, the approach of allowing a beneficiary of an Adjudication decision to collect his debt through execution proceedings and by simultaneously allowing a debtor to defend winding up proceedings by raising the traditional defence that the CIPAA debt is bona fide disputed on substantial grounds, would strike a sensible balance between these competing interests. Bludream City [79] The Court of Appeal in Bludream City Development Sdn Bhd v Pembinaan Bina Bumi Sdn Bhd [2024] 4 MLJ 67 did not accept this analysis. S/N AQn0hitsdE2U9Uk9aqoJIw [80] The material facts in Bludream (supra) are indistinguishable from the facts in this this case. In both cases, there were Adjudication decisions on the debts in question; there were also enforcement decisions enforcing both claims. And the applications to stay and set aside such Adjudication decisions were dismissed. [81] The crux of the decision of the Court of Appeal is set out in paras 37 to 39 of the judgment. “[37] Be that as it may, the appellant further implored us that the decision is still disputable and that the appellant has referred the dispute to arbitration. The decision in the circumstances only enjoyed temporary finality. Consequently, the appellant should not be wound up and reliance has been made on the cases of ASM Development (KL) Sdn Bhd v Econpile (M) Sdn Bhd [2021] 8 MLJ 99 and Setia Fontaines Sdn Bhd v Pro Tech Enterprise Sdn Bhd [2023] MLJU 628. Additionally, the appellant relied on the Singapore cases of Lim Poh Yeoh (Alias Lim Aster) v TS Ong Construction Pte Ltd [2016] SGHC 179 and AnAn Group (Singapore) Pte Ltd v VTB Bank (Public Joint Stock Co) [2020] SGCA 33; [2020] 1 SLR 1158 (CA). [38] It is trite and plain that a company may be wound-up on the ground of inability to pay debts albeit the payment sought is not a judgment debt: see PECD Construction Sdn Bhd v Freehold Point Sdn Bhd [2015] 1 186; [2008] 3 CLJ 215. This is commonly done for debt premised on unpaid invoices and thereafter upon the service of notice which invokes the statutory presumption accorded by s 466(1)(a) of the CA. In such instances, it is also common that the non-paying party will seek a Fortuna injunction to restrain the commencement or continuation of the winding up proceeding. If it is established there is a bona fide dispute on the alleged debt on substantial or reasonable grounds, either the Fortuna injunction will be granted, see Lafarge Concrete (M) Sdn Bhd v Gold S/N AQn0hitsdE2U9Uk9aqoJIw Trend Builders Sdn Bhd [2012] 6 MLJ 817 or the winding up proceeding will be struck out: see Pembinaan Purcon v Entertainment Village (M) Sdn Bhd [2004] 1 MLJ 545. [39] For winding up proceeding based on unpaid construction payment debts arising after the advent of the CIPAA particularly where the debt is based on an adjudicated decision, it is our view critical to properly understand the notion of disputability of the debt. Put in another way, disputability must be seen in its proper context. In this regard, we hold that an unpaid debt unadjudicated in a the CIPAA proceeding will be disputable if the non-paying party has prima facie established a bona fide dispute of the debt on substantial or reasonable grounds. However, if the dispute on the debt has been adjudicated which resulted in an adjudication decision obtained in favour of the unpaid party, the debt ceases to be disputable in an ensuing winding up proceeding. This is because the disputed debt has been independently adjudicated by a neutral third party. More pertinently, it should not be open to the non-paying party to again dispute the debt when the sanctity of the adjudication decision has been preserved by the subsequent court orders refusing to set aside and/or stay as well as allowing enforcement of the adjudication decision as a judgment pursuant to ss 16, 27 and 28 of the CIPAA respectively. Consequently, it is immaterial in the winding up court that the non-paying still disputes the adjudicated debt and has referred the dispute to arbitration or the court for final determination: see
Barisan Performa Sdn Bhd v Hype Park City Sdn Bhd [2018] MLJU …” [Emphasis mine] [82] Whilst the Court of Appeal acknowledged that that a CIPAA debt only has temporary finality, it nevertheless found that the CIPAA debt was ‘undisputable’ for the purposes of a winding up Petition. However, the Court of Appeal also held that it may nevertheless be S/N AQn0hitsdE2U9Uk9aqoJIw disputable in an arbitration. The Court of Appeal continued from para 39 cited in para 76 above: “… The disputability of the dispute can only be done in the arbitration or the court to enable the parties to finally re-contest the dispute de novo unabated by the adjudication decision as well as without attracting res judicata because the adjudication decision enjoyed temporary but not perpetual finality: see G-Pile Sistem Sdn Bhd v CMMC Sdn Bhd and Anor [2021] MLJU 2694; [2021] 1 LNS 1727. [Emphasis mine] [83] Clearly, to hold that Adjudication decision is undisputable, a debtor will not be able to resist winding up on a CIPAA award. This is especially severe if the CIPAA debt is pending an appeal to the Court of Appeal; and where the very claim is pending arbitration pursuant to which, the CIPAA debt may be reversed. [84] Similarly, the Court of Appeal in Bludream City (supra) did acknowledge the draconian and severe effects of winding up: “[40] We are nonetheless mindful that winding up proceeding is a draconian procedure which may result in irreparable damage to business and reputation but we think have to heed the legislative objective of the CIPAA to alleviate the financial woes prevalent in the Malaysian construction industry. The objective of the CIPAA is threefold as stated in the preamble thereto, viz:
facilitate regular and timely payment;
provide a mechanism for speedy dispute resolution through adjudication; and S/N AQn0hitsdE2U9Uk9aqoJIw
provide remedies for recovery of payment in the construction industry. [41] … On the other hand, we have also duly considered and find that if the appellant is wound up, the appellant through the liquidator may still recover from the respondent should the appellant ultimately succeed instead in the ongoing arbitration proceeding between them. [42] In the premises, we are, with respect, constrained to hold that the decisions in ASM Development (KL) Sdn Bhd v Econpile (M) Sdn Bhd and Setia Fontaines Sdn Bhd v Pro Tech Enterprise Sdn Bhd relied upon by the appellant were erroneously made.” [Emphasis mine] [85] In short, the Court of Appeal held that the policy behind the CIPAA provisions will trump the draconian effects of a winding up, notwithstanding that the contractor may have the benefit of execution proceedings under section 28. Further, at para 39: “[39] For winding up proceeding based on unpaid construction payment debts arising after the advent of the CIPAA particularly where the debt is based on an adjudicated decision, it is our view critical to properly understand the notion of disputability of the debt. Put in another way, disputability must be seen in its proper context. In this regard, we hold that an unpaid debt unadjudicated in the CIPAA proceeding will be disputable if the non-paying party has prima facie established a bona fide dispute of the debt on substantial or reasonable grounds. However, if the dispute on the debt has been adjudicated which resulted in an adjudication decision obtained in favour of the unpaid party, the debt ceases to be disputable in an ensuing winding up proceeding. This is because the disputed debt has been independently adjudicated by a S/N AQn0hitsdE2U9Uk9aqoJIw neutral third party. More pertinently, it should not be open to the non-paying party to again dispute the debt when the sanctity of the adjudication decision has been preserved by the subsequent court orders refusing to set aside and/or stay as well as allowing enforcement of the adjudication decision as a judgment pursuant to ss 16, 27 and 28 of the CIPAA respectively. Consequently, it is immaterial in the winding up court that the non-paying still disputes the adjudicated debt and has referred the dispute to arbitration or the court for final determination: see
Barisan Performa Sdn Bhd v Hype Park City Sdn Bhd [2018] MLJU …” [Emphasis mine] [86] As stated in para 82 above, the Court of Appeal also accepted that a company could be wound up notwithstanding that the company may successfully dispute the CIPAA debt in a pending arbitration. Thus, the position remains that the Adjudication decision and the CIPAA debt may be disputed in an arbitration but not for the purposes of a winding up. REMEDIES & ORDERS [87] I am bound by the decision of the Court of Appeal in Bludream. The finding that an adjudication decision based on a CIPAA debt (with or without an Enforcement Order in place) is undisputable gave me little or no options. While section 469 of CA 2016 may be very widely drafted in terms of discretion on the hearing of a Petition, it is deceptively so. I did consider exercising my discretion under section 469 to either stay or adjourn the Petition pending the CA Appeal and/or Arbitration. However, that may be inappropriate as S/N AQn0hitsdE2U9Uk9aqoJIw to delay will allow Embition the ability to incur further debt to the prejudice of the other creditors. [88] In Sian Participation (supra), the issue of the Court’s discretion on the hearing of a winding up Petition was considered. The Privy Council held: “35. Fourthly, and in sharp contrast with the role of the court (or arbitrator) in proceedings for the enforcement of a debt, the court's powers on the hearing of a liquidation application (or winding up petition) are discretionary. That is not to say that the court's discretion is entirely unfettered. In principle, a petitioning creditor with an unpaid debt which is not genuinely disputed on substantial grounds is often described as being in substance entitled to an order, as a statutory right, ex debito justitiae: see Bryanston Finance Ltd v de Vries [1976] Ch 63, 78; In re Crigglestone Coal Co Ltd [1906] 2 Ch 327, p 337; and In re Southard & Co Ltd [1979] 1 WLR 1198, 1203, approved in Ebbvale Ltd v Hosking [2013] UKPC 1, para 25.” [Emphasis mine] [89] If the debt is not genuinely disputed, then the petitioner has a statutory right, ex debito justitiae, to a winding up order. Given that the Court of Appeal in Bluedream has decided that an Adjudication Decision is undisputable, the test in Sian Participation is met. The CIPAA Debt owed to the Petitioner cannot be genuinely disputed on substantial grounds, quite simply because it is undisputable. [90] As such, the Petitioner has a statutory right, ex debito justitiae, to the winding up order. Accordingly, I granted the winding up order prayed for in Encl 1. S/N AQn0hitsdE2U9Uk9aqoJIw Dated 27th January 2025 ...................t.t........................... YA Tuan Saheran Suhendran Judicial Commissioner, High Court of Malaya, Kuala Lumpur. Dinesh (Nandrajog) for the Petitioner Kevin Wong Gia Meng + Vivian Siew (Jason Teoh & Partners) for the Respondent Cases Referred to: • Smartframe Sdn Bhd v Anjung Bahasa Sdn Bhd [2011] 4 CLJ 416 • Pontian United Theatre Sdn Bhd v Southern Finance Bhd [2006] 2 MLJ 602 • Maju Holdings Sdn Bhd v Spring Energy Sdn Bhd [2021] 8 MLJ 275 • Mann v Goldstein [1968] 2 All ER 769 • Tan Kok Tong v Hoe Hong Trading Co Sdn Bhd [2007] 4 MLJ 355 • Salford Estates (No 2) Ltd v. Altomart Ltd [2014] EWCA Civ 1575 • Awangsa Bina Sdn Bhd v Mayland Avenue Sdn Bhd [2019] 1 LNS 59 • Setia Fontaines Sdn Bhd v Pro Tech Enterprise Sdn Bhd [2023] 12 MLJ 324 • V Medical Services M Sdn Bhd v Swissray Asia Healthcare Co Ltd [2023] 7 MLJ 155 • NFC Labuan Shipleasing Ltd v Semua Chemical Shipping Sdn Bhd [2017] MLJU 900 • Ting Kang Chung John v Teo Hee Lai Building Constructions Pte Ltd and others [2010] 2 SLR 625 • Swissray Asia Healthcare Co Ltd v V Medical Services M Sdn Bhd [2024] 6 MLJ 135 • AnAn Group (Singapore) Pte Ltd v VTB Bank (Public Joint Stock Co) [2020] 1 SLR 1158 S/N AQn0hitsdE2U9Uk9aqoJIw • Re Southwest Pacific Bauxite (HK) Ltd [2018] 2 HKLRD 449 • Whitehouse v. Wilson [2006] EWCA Civ 1688 • Kumpulan Liziz Sdn Bhd (in liquidation) v Pembinaan Azam Jaya Sdn Bhd [2022] 1 MLJ 570 • Larsen Oil and Gas Pte Ltd v Petroprod Ltd (in official liquidation in the Cayman Islands and in compulsory liquidation in Singapore) [2011] 3 SLR 414 • FamilyMart China Holding Co Ltd v Ting Chuan (Cayman Islands) Holding Corp [2024] 1 All ER (Comm) 697 • Sian Participation Corp (in liquidation) v Halimeda International Ltd (Virgin Islands) [2024] UKPC 16 • Peninsula Education (Setia Alam) Sdn Bhd (previously known as Segi International Learning Alliance Sdn Bhd) v Biaxis (M) Sdn Bhd (in liquidation) [2024] 5 MLJ 388 • Jack-In Pile (M) Sdn Bhd v Bauer (M) Sdn Bhd and another appeal [2020] 1 MLJ 174 • UDA Holdings Bhd v Bisraya Construction Sdn Bhd & Anor And Another Case [2015] 5 CLJ 527 • Bina Puri Construction Sdn Bhd v Hing Nyit Enterprise Sdn Bhd [2015] CLJU 305 • ASM Development (KL) Sdn Bhd v Econpile (M) Sdn Bhd [2021] 8 MLJ 99 • UDA Holdings Bhd v Bisraya Construction Sdn Bhd & Anor and another case [2015] 11 MLJ 499 • Bludream City Development Sdn Bhd v Pembinaan Bina Bumi Sdn Bhd [2024] 4 MLJ 67 • Maril-Rionebel (M) Sdn Bhd & Anor v Perdana Merchant Bankers Bhd and other appeals [2001] 4 MLJ 187 • Anjakan Rezeki Sdn Bhd v UI Lead Sdn Bhd [2018] MLJU 2188 • Re Lympne Investments Ltd [1972] 2 All ER 385 Legislation referred to: • Construction Industry Payment and Adjudication Act 2012 • Companies Act 2016 • Arbitration Act of 1996 (UK) Decision date: 26th November 2024 S/N AQn0hitsdE2U9Uk9aqoJIw