Merais Sdn Bhd v Lai King Lung & 1 Lagi (B-02(NCVC)-3-01/2018)

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1 IN THE COURT OF APPEAL, MALAYSIA (APPELLATE JURISDICTION) CIVIL APPEAL NO: B-02(NCvC)(W)-3-01//2018 BETWEEN MERAIS SDN BHD (COMPANY NO. 174432-W) … APPELLANT

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(1) month from the date of the said Decision which would have ended on 28.12.2017, the required sanction could certainly not be obtained by 28.12.2017 as it could take some time for the application to be processed.” [18] As it turned out, the Official Receiver sanctioned the appeal with retrospective effect from 21 December 2017. [19] According to the appellant, applying for a sanction prior to receiving firm instructions to appeal from the appellant “will be a futile exercise” because the application will be made in anticipation of such instructions; the application requires undertakings to be given by the appellant and the appellant’s solicitors; and unnecessary time and costs will be incurred.” Since the application for sanction was made promptly and since ultimately, it was granted with retrospective effect in view of the circumstances of the case, the appellant submitted that the respondents’ complaints were baseless, that the application was “made frivolously and to derail the administration of justice”; and to “circumvent the merits of the case being ventilated” which the appellant invited the Court not to countenance. 8 Our analysis and decision [20] As mentioned at the outset, we disagreed with the submissions of the respondents. We found the application without merit and proceeded to dismiss it with costs. [21] The respondent’s application is made pursuant to sections 483(2) and/or 486(1) of the Companies Act 2016 [Act 777]. The respondent has also invoked the inherent jurisdiction of the Court, a recourse which we do not readily subscribe to nor encourage when there are specific written provisions on the matter. [22] Sections 483(2) and 486(1) read respectively as follows: Custody and vesting of company’s property

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(2) On the application of the liquidator, the Court may order that all or any part of the property belonging to the company or held by trustees on behalf of the company shall vest in the liquidator and the property shall, subject to subsection

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(3), vest accordingly and the liquidator may, after giving such indemnity, if any, as the Court directs, bring or defend any action which relates to that property or of which is necessary to bring or defend for the purpose of effectually winding up of the company and recovering its property. 9

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(3) Where an order is made under subsection (2), every liquidator in relation to whom the order is made shall within seven days of the making of the order-

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(2) The exercise by the liquidator in a winding up by the Court of the powers conferred by this section is subject to the control of the Court and any creditor or contributory may apply to the Court with respect to any exercise or proposed exercise of any of those powers. [23] The general powers of the liquidator which may be exercised without seeking the authority of the Court or the Committee of Inspection are as spelt out in Part I of the Twelfth Schedule: 10 The liquidator may-

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(1994) 13 ACSR 5 in support; and HLE Engineering Sdn Bhd v HTE Letrik Bumi JV Sdn Bhd [supra]. [36] However, in none of those decisions, or in the decisions in Winstech Engineering Sdn Bhd v Espl (M) Sdn Bhd [supra]; Small Medium 15 Enterprise Development Bank Malaysia Bhd v Blackrock Corp Sdn Bhd & Ors [supra]; or even Akira Sales & Services (M) Sdn Bhd v Nadiah Zee Binti Abdullah & Another Appeal [supra] is there a suggestion that there can never be retrospective leave or sanction. On the contrary, a closer examination of these cases reveal that there may be retrospective leave or sanction, or leave nunc pro tunc granted in appropriate cases; or even the application of the principle of ratification. In our view, that call does not arise in the instant appeal as the sanction has already been granted by the Official Receiver but in the event there is such a need, the circumstances are in fact ripe for a grant of retrospective leave or for a nunc pro tunc leave. We will explain. [37] It is a misconception and an erroneous reading of the decision in Hup Lee Coachbuilders to suggest that that Court of Appeal’s decision supports the proposition that retrospective sanction is not possible. A careful reading of the decision will readily show that it was the peculiar circumstances of that case and the conduct of the appellant that certain observations were made by the Court of Appeal. [38] In that appeal, the appellant together with another had filed a civil suit against the respondent, seeking to recover monies paid on false invoices. At the time of filing of the suit in June 2009, the appellant had already been wound up; it was wound up in May 2006 and the Official Receiver had been appointed its liquidator. Without obtaining leave either from the Court or from the liquidator, the appellant sued the respondent. More importantly, the appellant did not disclose its own wound-up status in the writ or the 16 Statement of Claim filed against the respondent. The respondent objected to the appellant’s locus standi to initiate action. [39] Despite being directed to amend its writ and Statement of Claim to disclose that status of insolvency, or to obtain sanction, the appellant did neither. The action was thus struck out. [40] Subsequently, the action was reinstated but, on terms; that sanction was to be obtained by a particular dateline [30 November 2010]. Where the sanction was so obtained, the appellant was to write to the “Managing Judge Unit” to have the case fixed for case management. [41] The Official Receiver gave a conditional sanction on 29 November 2010 and upon meeting its terms, sanction was granted on 3 March 2011. [42] Meanwhile, on 28 February 2011, the respondent filed an application to strike out the proceedings pursuant to Order 18 r 19(1)(b) and (d) of the Rules of the High Court 1980 on the grounds, inter alia, that the appellant’s action was vexatious, frivolous and scandalous, and an abuse of process because the appellant had no locus standi to proceed with the claim as leave of the Court was not obtained before the action was commenced. [43] The respondent’s application was allowed and the decision was affirmed on appeal. [44] What is interesting is what was argued by the appellant at the Court of Appeal. It had submitted that leave was not required at all because under 17 section 226(3) of the Companies Act 1965, leave is only required if action is to be brought against the wound-up company. Since it is the wound-up company that was suing, section 226(3) did not arise. [45] The Court of Appeal disagreed clarifying that the relevant provisions were sections 233(1) and (2), and not, section 226(3). Since the appellant was already wound-up at the material time of commencement of the civil suit against the respondent resulting in all its assets and liabilities being vested in the liquidator, and since leave had never been sought from either the liquidator or from the Court to commence action, neither the company, its shareholders or its directors have any locus standi to commence action without the liquidator or the Court’s leave. The action filed therefore “is clearly illegal and invalid. The action ought to be struck out.” [46] The Court of Appeal further found that there was- “…no evidence to show that the commencement of the present action by the appellant itself on 26 February 2009 was done with the knowledge and authority of the official assignee as the liquidator. Clearly, the appellant or its shareholders or creditors cannot usurp the powers of the liquidator in initiating the present action against the respondent. The appellant cannot commence the action and then later, after objections raised by the respondent, apply for leave or sanction from the official assignee. There are no provisions of law to authorize that leave or sanction of the official assignee is to have retrospective effect. Therefore the action was invalid and void ab initio. Subsequent leave or approval by the official assignee office which came more than two years later cannot legalize or validate an action which was invalid and void ab initio.” 18 [47] It is under those circumstances and conditions that the Court of Appeal made its observations, that the sanction granted and effective from 3 March 2011, applied for and obtained two years after the respondent had raised its objections, was not and could not be made retrospective by the Court. [48] Similar considerations can be seen in the Federal Court decision of Winstech Engineering Sdn Bhd v Espl (M) Sdn Bhd [supra]. In Winstech Engineering, the respondent had filed a motion to strike out the applicant’s application for leave to appeal to the Federal Court on the ground that there was no leave or sanction from the official receiver as liquidator for the applicant to file such an application. The motion was allowed. [49] The Federal Court first found the two warring parties approaching the issue of whether leave was required to appeal under two different legislations: the appellant relying on the Bankruptcy Act 1967 whilst the respondent relied on the Companies Act 1965. Since the appellant was a company, the Federal Court opined that where there is specific law enacted, that law must prevail over any other similar laws. As for the matter of whether leave was required, the Federal Court found no reason to depart from Hup Lee, adding that the doctrine of ratification was not applicable as the application for sanction did not specify that it was to be retrospective. [50] The Federal Court further said: “[21] The issue of prejudice or miscarriage of justice does not arise in the circumstances, as the applicant, on its own accord, had failed to utilize the enabling 19 provisions of the law to commence the impugned legal proceedings. The Court, in law, is not in a positon to render assistance to such a litigant.” [51] What is, however, overlooked is that the Federal Court acknowledged in Winstech Engineering that following the English decision in Re Saunders (A bankrupt); Re Bearman (A bankrupt) [1997] Ch 60, leave nunc pro tunc or retrospective leave may be granted: “[22] …in appropriate circumstances, which has to be proven, leave nunc pro tunc may be given under s 236(2)(a) of the Companies Act subject to the discretion of the Courts under s 236(3) of the Act. Such discretion and control by the Court under s 236(3) is to be read together with s 226(3) of the Act. This is notwithstanding the fact that the proceedings had already commenced.” [emphasis added] [52] In Re Saunders, after proceedings had already been commenced against a couple of bankrupt solicitors, the various plaintiffs applied for leave of Court under section 285(3) of the Insolvency Act 1986. Lindsay J carefully examined the approaches of the Courts and the relevant legislations of Australia, New Zealand, Canada and India before concluding that the Court in appropriate circumstances may give retrospective leave. His Lordship rejected the submission that proceedings continued without leave are to be considered irretrievably null, and found that the particular facts before him justified the granting of such leave. 20 [53] Lindsay J found that the Australian experience preferred a more pragmatic approach. In Thomson v Mulgoa Irrigation Co Ltd (1894) 4 BC (NSW) 33, Manning J recognized the absurdity of requiring the same pleadings to be filed all over again gave the plaintiff leave nunc pro tunc to institute the suit. This decision was followed in Re Clarke, ex p Clarke

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(1896) 17 LR (NSW) (B&P) 85, with the Court observing that leave was in fact not absolutely necessary; and in Howe v R M MacDougall Pty Ltd

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(1939) 13 WCR (NSW) 180, where Long Innes CJ opined that in an ordinary case, the Court would have no hesitation in granting leave nunc pro tunc and moulding the order in such a way as to see that no injustice was suffered and to avoid the costs of instituting proceedings de novo. Yet another decision which favoured the grant of a nunc pro tunc order was the decision in Battiston v Maiella Construction Pty Ltd [1967] VR 349 where if retrospective leave was not given, the plaintiff would have been left without remedy. This was because the limitation period had expired. [54] The position was the same in Canada, New Zealand and India. Closer to home was the decision in Re Hutton (a bankrupt) ex parte Mediterranean Machine Operations Ltd v Haigh [1969] 2 Ch 201, where proceedings were stayed and leave was also granted to continue. Lindsay J found the only case that went the other way was Re Excelsior Textile Pty Ltd [1964] VR 574 where the Court was of the view that retrospective leave was not within the power of the Court to grant. Hence, the grant of retrospective leave or leave nunc pro tunc was well within the jurisdiction of the Court to make, but only where the circumstances are appropriate. What is appropriate is fact sensitive and a matter of discretion. 21 [55] On the facts in Winstech Engineering, the Federal Court found after examining the sanction by the official receiver dated 19 August 2013 that there was actually no application for the sanction to be made retrospectively. There was also no material placed before the Court to consider and justify a grant of a nunc pro tunc leave. Hence, the respondent’s preliminary objection was allowed. [56] Being mindful of the earlier observations of the Federal Court in Winstech about citing and relying on other legislation when there is specific legislation on the subject matter, we find the recent Federal Court decision of Akira Sales & Services (M) Sdn Bhd v Nadiah Zee Binti Abdullah & Another Appeal [supra] cited by the respondent, in fact of no real relevance in this appeal as that is a decision on the matter of sanction to file and maintain appeals under the Bankruptcy Act 1967, and not under the Companies Act 1965 or 2016. [57] The fact patterns in both decisions of the Court of Appeal of HLE Engineering Sdn Bhd v HTE Letrik Bumi JV Sdn Bhd [supra] and Small Medium Enterprise Development Bank Malaysia Bhd v Blackrock Corp Sdn Bhd & Ors [supra] also reveal similar failure to procure the necessary sanctions at the material time. In HLE Engineering, no sanction was at all sought while in Small Medium Enterprise Development Bank Malaysia Bhd, the sanction was sought almost four years after the writ was filed; and it would seem that there was no effort to secure it retrospectively. [58] All this is entirely different from the circumstances and conditions in our present appeal. Not only do we find an appellant who has diligently set about 22 attending to the matters of mandate and sanction according to the legal provisions, it has done so timeously. It promptly informed and sought the Official Receiver’s sanction to appeal against a part of the decision of the High Court [see letter dated 22 December 2017]. It also promptly informed of the registration details of the appeal and sought the sanction to be granted retrospectively – see letter dated 5 January 2018. [59] In response, the Official Receiver has quite clearly in its letter dated 2 February 2018, stated that it has granted sanction for Messrs. Paul Ong & Associates to be the solicitors for the appellant in the appeal filed; that subject to the conditions in (a) to (e), the sanction is to be of retrospective effect from 21 December 2017, that is, the date the Notice of Appeal was filed. [60] Under such circumstances, the respondent’s complaint is completely devoid of merit. Quite unlike the cases citied, there is sanction here; and the sanction is clearly effective from the date of the Notice of Appeal. [61] We are of the view that the Official Receiver as the liquidator of the appellant has the necessary authority to consider and grant a sanction which is effective on a date other than the date it was made. This is particularly so given the circumstances, that there must first arise a decision to appeal before the matter of sanction is relevant. Since the decision to appeal must be made within a month, it is only after this decision to appeal is made that the Official Receiver is approached for its sanction. And, as is evident from the contents of the letters exchanged, the matter of the application for such sanction is neither a routine nor a simple business. Letters of undertaking 23 from the necessary parties including solicitors, guarantors and contributories have to be secured and provided. [62] Until and unless the liquidators, both private and public, find some way to resolve its concerns and reply all requests promptly, we can expect some delay between the application for sanction and the actual grant of sanction, if it is ultimately granted. In the facts of the present appeal, we note that the Insolvency Office or the Official Receiver’s response had not unduly delayed the application; it had responded just under two months from the time of request. Although that may be commendable, it is still way past the time for the filing of any appeal. And, we can appreciate the dilemma of the appellant, to appeal and simultaneously apply for sanction; or apply for sanction and then appeal. If the latter was the option, the appellant would have been faced with a different complexion of arguments. [63] Given the legal provisions, we take the view that the steps taken and the sanction secured by the appellant were proper and valid. We do not see the matter to be irretrievably a nullity. We draw two analogies to further explain our views. [64] First, unlike the express terms of say section 68 of the Courts of Judicature Act 1964 where no appeal may be brought in certain matters unless there is leave from the Court of Appeal, sections 483 and/or 486 whether read together with Part I of the Twelfth Schedule or otherwise, do not contain the same prohibitory terms. This suggests that these provisions are more directory in nature as opposed to the mandatory terms of the Courts of Judicature Act and the Court of Appeal Rules. 24 [65] This then brings us to our second point which fortifies our earlier point. If an application for retrospective leave or leave nunc pro tunc may be sought from the Court and the Court may, in appropriate circumstances, grant such leave or sanction, we cannot see why the liquidator, may not likewise do the same. In situations such as these where sanction or leave of the Court is sought, the role of the Court is to supervise and control the liquidator and to consider appeals against its decisions. [66] Since the Official Receiver has seen it fit, after it had been appropriately satisfied and had imposed conditions, to grant the sanction sought retrospectively to the date of the Notice of Appeal, and it is an authority which it has, we see no reason why we should question that decision. Unlike the factual matrix of the cases cited where the issue of prejudice and miscarriage of justice did not arise because of the applicant’s own conduct, failure and dereliction in compliance with the law, we do not see any presented in the instant appeal. [67] For the record, we add that had there been an application for retrospective leave or leave nunc pro tunc sought by the appellant before us, we would have granted it unhesitatingly. The reasons and explanations offered are matters of record and are strong cogent reasons for the grant of such leave. [68] However, since the Official Receiver has already granted the necessary sanction, the respondent’s Notice of Motion is without merit and must be dismissed. 25 [69] Since the making of this decision, our learned brother Justice Hamid Sultan JCA has taken a similar approach in Reebok (M) Sdn Bhd v CIMB Bank Berhad [2018] 1 LNS 1186, distinguishing and clarifying the facts in Winstech Engineering, Hup Lee and Small Medium Enterprise Development Bank Malaysia Bhd, as we have undertaken in this judgment. [70] Like the facts in the present appeal, the appellant who had sanction at the High Court had subsequently applied for sanction to appeal; but had filed a notice of appeal in order to preserve the right of appeal while awaiting sanction. Sanction was given by the time of the hearing of the motion to strike out the appeal on similar grounds as enclosure 3. The respondent also argued that the sanction obtained could not be backdated. [71] That submission was rejected. At paragraph 19, His Lordship opined that: “Retrospective sanction is a well-accepted jurisprudence in many jurisdiction especially in winding up proceedings as opposed to bankruptcy proceedings.” Conclusion [72] As we can see from the factual matrix, the appellant had duly complied with the legal requirements. However, it was simply not possible for the appellant to obtain the sanction prior to the filing of the Notice of Appeal. The 26 application was made promptly on the same day as the filing of the Notice of Appeal on 22 December 2017. [73] The Official Receiver has seen it fit to grant leave retrospectively, as sought. We have no reason to interfere in that exercise of authority. The respondent’s application in enclosure 3 is without merit and is therefore dismissed with costs. Dated: 13th March 2019 (MARY LIM THIAM SUAN) Judge Court of Appeal Malaysia 27 Counsel/Solicitors For the appellant: Gabriel Daniel (Sukhdev Kaur with him) Messrs Paul Ong & Associates Unit No. B-2-8, Block B 2nd Floor Megan Avenue 1 No. 189, Jalan Tun Razak 50400 Kuala Lumpur For the respondents: Justin Voon (Ho Kok Yew & Khor Heng How with him) Messrs Owee & Ho D2-U2-15, Solaris Dutamas No. 1, Jalan Dutamas 1 50480 Kuala Lumpur