Mohd Ghazali Ahmad Nasuruddin v 1. Chok Kai Kuang (WA-22NCC-147-04/2016)

CHOK KAI KUANG

GAINWELL SDN BHD (Company NO.: 343172-K) ...DEFENDANTS BEFORE YANG ARIF TUAN MOHD NAZLAN MOHD GHAZALI JUDGE JUDGMENT Introduction [1] This is an application by the Plaintiff for the appointment of receiver and manager (“R&M”) for the proper collection and distribution of the assets of a partnership following the dissolution of the same, pursuant to a Judgment of this Court on 27 March 2017 (“the Judgment”). [2] I allowed the application at the conclusion of the hearing of the same in enclosure 108, and highlighted the key reasons for the granting of the order. These grounds of judgment set out the full reasons for my decision. Key Background Facts [3] The Judgment was the outcome of a writ action brought by the Plaintiff against the First Defendant, given a partnership dispute Page 2 of 12 between the two, who are senior professional engineers and were the only two partners in the firm known as “Ingenieur Bersekutu” (“the Firm”). [4] It was not in dispute that the Plaintiff’s statement of claim and the First Defendant’s counter-claim both prayed for the dissolution of the Firm. This was also made express by the parties at the start of the trial of the main suit. In the Judgment, with a view to ensuring a practical, expedient and fair resolution of the distribution of partnership assets, I allowed for an R&M to be appointed, as prayed for by the Plaintiff, to facilitate the liquidation process of the Firm. Thus, the following prayer for relief pleaded by the Plaintiff in his statement of claim was granted in the Judgment:- “3. Suatu Perintah bahawa penerima dan pengurus, atau orang lain atas pemberian jaminan, boleh dilantik untuk: a) memungut, membawa masuk dan menerima hutang-hutang yang sekarang kena dibayar dan terakru dan semua aset-aset, harta serta barang-barang lain kepunyaan perkongsian yang dikenali sebagai Ingenieur Bersekutu; b) mengagihkan/membahagikan apa-apa bayaran atau lebihan (“surplus”) atas kadar ........... seperti diperuntukkan di dalam Perjanjian Perkongsian; c) mengendalikan akaun-akaun bagi perkongsian dan/ atau membuka akaun bank baru dan membuat segala transaksi yang diperlukan, dengan syarat bahawa segala perakaunan yang sewajarnya dibuat; d) memfailkan ke Mahkamah pernyataan hal ehwal (“statement of affairs”) yang menunjukkan aset-aset dan liabiliti-liabiliti perkongisan setiap tiga (3) bulan dari tarikh perlantikan mereka; dan e) menjalankan segala tugas-tugas sebagai penerima dan pengurus dan memohon semua arahan yang diperlukan bagi tujuan ini. [5] The Plaintiff then moved to file enclosure 108 herein for the appointment of the proposed R&M. The First Defendant however opposed this application. Summary of Contentions of Parties [6] In essence, the Plaintiff submitted that the appointment of the R&M would be in line with Order 30 r 1 of the Rules of Court 2012 Page 3 of 12 (“the RC 2012”) and is a consequence of the Judgment, and in any event a natural outcome of a dissolution of partnership where disagreements run among the partners. [7] The Plaintiff alleged that the First Defendant, would in any event oppose the appointment of any R&M as the same would disrupt the First Defendant’s attempts to dissipate the assets of the Firm, which continues to be in jeopardy if the appointment of an R&M is delayed, [8] The primary objection of the First Defendant, on the other hand, is founded on the argument that the Plaintiff did not secure the consent of the First Defendant on the appointment of the R&M which ought to have been done on mutual agreement. [9] The First Defendant in particular referred to a Consent Order granted by this Court on 31 October 2016, prior to the Judgment, binding the two former partners to the following terms:- “MAKA ADALAH SECARA PERSETUJUAN DIPERINTAHKAN: a) Bahawa Plaintif dan Defendan Ke-1 (sama ada secara sendirinya dan/atau kakitangan-kakitangannya dan/atau pegawai-pegawai dan/atau ejen-ejennya) akan kekal mengurus perkongsian secara bersama dan akan menjaga statuts quo; b) yang mana akan berkuatkuasa secara serta merta dan pada setiap masa sehingga guaman ini dan juga penggulungan perkongsian diselesaikan secara penuh dan muktamad.” [10] The Consent Order, according to the First Defendant naturally entails that all matters pertaining to the Firm until the final winding-up of the same are to be managed and decided mutually by the Plaintiff and the First Defendant. This should include the appointment of the R&M. As such, the unilateral filing of enclosure 108 by the Plaintiff stands in complete disobeyance to that Consent Order. This is especially so since a Consent Order is a valid contract between the parties which is merged into the consent order (see the Federal Court decision in Tan Geok Lan v La Kuan @ Lian Kuan [2004] 3 MLJ 465). [11] In addition to asserting that enclosure 108 wrongfully sought to enlarge the scope of the Judgment by encroaching on the management of the Firm as well, the First Defendant maintained that an appointment of R&M for purposes of winding-up is purely founded on the Page 4 of 12 basis of mutual interest to the partners, neglect of which additionally violates Section 40 of the Partnership Act 1961. Evaluation and Findings of the Court The Appointment of R&M required mutual agreement of parties? [12] The crux of the First Defendant’s contention is that the Plaintiff had moved this Court on the application for appointment without the agreement of the First Defendant. The question therefore is whether the consent of parties is a pre-requisite to the appointment of an R&M. [13] The answer to this question is a resolute no. In the first place, the First Defendant’s reliance on the Consent Order is misconceived. The Consent Order is in a nature of an interim injunction requiring the parties to jointly manage the Firm and maintain status quo until disposal of the suit and the completion of the winding-up of the Firm. The suit has since been disposed of, as manifested in the Judgement. Although the winding-up has not completed, the terms of the Judgment expressly provided for the appointment of an R&M as an independent party to deal with the liquidation process, and specifically with the distribution of partnership assets between the parties in dispute. [14] In other words, the Consent Order must to such extent be taken to have been superseded by the Judgment. Further insistence on mutual agreement may render the Judgment to be of little utility, if one party can easily with or without good reason withhold agreement for the appointment, thus frustrating the true realisation of the outcome of the main suit. This is not in consonance with the pursuit of justice which this Court cannot accept. [15] Further, it cannot justifiably be said that the Plaintiff is disobeying the Consent Order for in any event, the terms of the Consent Order do not state or even touch on the issue of the appointment of the R&M. It is manifest that the purpose of the Consent Order was to ensure that each of the partners must consult the other in matters of management of the Firm, which thus ought to be exercised on joint basis. [16] As such, there is absolutely nothing wrong with a party seeking the assistance of the Court if the other party refused consent or declined cooperation, especially on a matter such as the appointment of Page 5 of 12 an R&M which is mandated by the terms of the Judgment in any event. If the position were otherwise, the fruits of the litigation could not be pursued, because consent is withheld and resort to the Court prohibited. [17] The disagreement between the parties in the instant case cannot be more serious and obvious. The First Defendant’s argument that he was merely asking for more details about the proposed R&M and was not out-rightly against the appointment was also less than convincing. For I had decided to reserve my decision on this enclosure 108 for about 2 weeks to give time to the parties to resolve the matter, if possible. That did not work out, and both refused any concessions on a matter which is only meant to facilitate the liquidation and separation process. There are grounds for appointment of R&M [18] Furthermore, quite apart from the terms of the Judgment, the Plaintiff’s application is also supported by his averments concerning the First Defendant’s attempts to dissipate the assets of the Firm. While the Plaintiff, in his averments repeated the allegations previously raised at trial, I was more interested to know if such allegations included conduct of the First Defendant post-Judgment. [19] According to the Plaintiff, based on the documents obtained from the Board of Engineers Malaysia, the First Defendant has registered a new firm using the name “Ingenieur Bersekutu Consulting Engineer”. This is clearly infringing paragraph 5 of the Judgment for the continued use of the name “Ingenieur Bersekutu”, despite the order of Court expressly forbidding either party from its use, as follows:- “5. Suatu Perintah bahawa kedua-dua pihak dihalang dari menggunakan nama “Ingenieur Bersekutu” bagi tujuan projek-projek dan/atau apa-apa urusan perkongsian atau urusan peribadi tanpa persetujuan satu sama lain.” [20] The First Defendant still has not disclaimed his use of the name. This arguably, as the Plaintiff submitted thus increases the probability of dissipation of assets, by reason of the First Defendant’s continued use of the former firm’s letterhead without giving notification of the Firm’s true status; and as he may persuade unwary clients to make payment for claims of the Firm’s projects to his new firm instead, given that the names of the two firms are similar. Thus, in this context, it could be said that there is basis to the argument that the Plaintiff has a good Page 6 of 12 prima facie title to the partnership assets (as does the First Defendant on equal basis, as per the Judgment), that the partnership assets are in jeopardy and the Plaintiff as the applicant would be in a worse off position if the proposed appointment is delayed (see Lim Poh Choo v Absolute Ascend Sdn Bhd & Anor [2008] 7 CLJ 810). This is yet another ground that justifies the appointment of a R&M. No basis to reject the proposed R&M [21] Nor has the First Defendant proffered any basis for its disagreement of the appointment of the proposed R&M. The Plaintiff had proposed Mr. Sathiea Seelean a/l Manickam, who practises at Messrs Morison Anuarul Azizan Chew in Kuala Lumpur, to be appointed as the R&M of the Firm. His appointment as a professional is, according to the Plaintiff, sought to impartially resolve the winding-up and the Firm’s pending issues. [22] At this juncture, it appears that the First Defendant has no cause to speculate or cast allegations of bias against Mr. Sathiea Seelean a/l Manickam, who is an experienced and qualified insolvency professional, and formally approved by the Ministry of Finance, and whose duties lie to the Court and in accordance with Judgment. As such, I do not see any basis to deny this appointment. It is after all designed to bring closure to the dispute between the parties. The First Defendant’s objection merely delays the resolution of what is just and right. It should be for the party objecting to the appointment of an R&M, like the First Defendant herein, to furnish evidence of partiality on the part of the proposed R&M. This the First Defendant did not do. Source of Authority to appoint R&M [23] No less importantly, not only does the Judgment not stipulate the requirement for mutual appointment of the R&M, but also that the true basis of the appointment, that is Order 30 r 1 of the RC 2012 too does not require the agreement of the First Defendant, for it is all too obvious that the appointment is by the Court. Order 30 r 1 reads as follows:- “1. Application for receiver and injunction (O. 30 r. 1)

An application for the appointment of a receiver may be made by notice of application. Page 7 of 12

An application for an injunction ancillary or incidental to an order appointing a receiver may be joined with the application for such order.

Where the applicant intends to apply for the immediate grant of such injunction, he may do so ex parte with the application for such order.

The Court hearing an application under paragraph (3) may grant an injunction, restraining the party beneficially entitled to any interest in the property of which a receiver is sought from assigning, charging or otherwise dealing with that property until after the hearing of a notice of application for the appointment of the receiver and may require such a notice of application, returnable on such date as the Court may direct, to be used.” [24] It is of significance to note that whilst an application for the appointment of a receiver under Order 30 r 1 is generally made to preserve any property where litigation is pending, there is no rule prohibiting appointment after the resolution of the litigation, for the overarching premise is the preservation of assets, especially if they are in jeopardy, and more so when the judgment of the Court ordered the same like the case presently. Fundamentally, the source of the authority of the Court in this regard is the Courts of Judicature Act 1964 (“the CJA”). [25] The Schedule to the CJA, specifying the additional powers of the High Court provides in paragraph 6 thus:- “6. Power to provide for the interim preservation of property the subject matter of any cause or matter by sale or by injunction or the appointment of a receiver or the registration of a caveat or a lis pendens or in any manner whatsoever”. [26] It should be noted that the structure of non-corporate receivership is not contained in statute like that of corporate receivership, although not unusually, a receiver is appointed over a non-corporate entity to collect and safeguard its assets for the purpose of realisation or at least protection of those assets for the benefit of a party or to protect a party’s contractual rights, especially concerning a partnership dispute where the Courts will intervene to prevent detrimental effects of a dispute especially to the business and third parties such as creditors or employees. Page 8 of 12 [27] Whilst receivers are generally readily appointed following dissolution of a partnership or prior to dissolution of a partnership if there has been such breakdown of good faith between the partners as to make dissolution inevitable (see, for example, the observations of Lord Cozens-Hardy in Re Yenidje Tobacco Co Ltd [1916] 2 Ch 426), in the instant case, I emphasise that I have already ordered, in the Judgment, upon conclusion of the main suit, that an R&M be appointment as prayed for by the Plaintiff who was successful in the main suit. [28] Whilst the Courts should refuse to intervene in cases where it is more practical and cost effective for the partners themselves to undertake the winding up of the partnership, case law authorities have shown that a receiver would likely be appointed in circumstances where partnership assets are in jeopardy or that the partners are in serious dispute. Thus in the Supreme Court of Western Australia case of Wedge v Wedge [1995] 12 WAR 489, faced with competing proposals amongst the partners in dispute, one asking for the appointment of an R&M to consider the sale of the partnership assets, and another seeking the appointment of a valuer to facilitate possible buy-outs, Parker J ruled that the interests of the parties would be best served by the appointment of an independent R&M with freedom to determine the most appropriate method of realising the assets of the partnership. [29] Indeed, there is, based on my research, caselaw authority which held that in the absence of cooperation between partners post-dissolution, an independent third party such as a receiver may be appointed to take over the affairs of the partnership. Thus, the Court of Appeal of Singapore in Hwang Ju-In v Huang Han Chao [1997] 2 MLJ 229 held as follows:- “As regards the contention of counsel for the respondent, there is evidence that the partnership has substantial book-debts to be collected; that the respondent has not taken any steps to collect such debts and that some of them will soon be statute-barred if not already statute-barred. There is no doubt that there is no co-operation at all between the parties and it is therefore desirable that an independent third party such as a receiver take over the affairs of the partnership, collect book-debts, prepare final accounts and thus complete the dissolution of the partnership.” [30] Furthermore, although strictly inapplicable, the scheme of the Companies Act 2016 on receivers and managers of corporations similarly provides for the appointment to be made by the Court in Section 374 and nowhere in the Act is it mentioned that there must be Page 9 of 12 agreement among the relevant parties before an application for such appointment could be considered. [31] The powers of the appointed R&M are derived from and defined and limited by the order of the Court making the appointment. A Court-appointed R&M is an officer of the court responsible to perform the duties stipulated in the Court order. Indeed, any attempt by any of the partners to interfere with the exercise of the duties of the appointed R&M in dealing with the assets vested in him could even constitute contempt of Court (see Murray v King [1984] 55 ALR 559). In the instant case before me, it bears repetition that the very terms of the Judgment itself already provide expressly for the appointment of the R&M. [32] The Supreme Court in Zainal Abidin Putih & Anor v Che Wan Development Sdn Bhd [1992] 2 MLJ 233 held that a court-appointed receiver is an officer of the Court and his remit is to discharge certain duties prescribed by the order appointing him. Thus Gunn Chit Tuan SCJ stated:- “We would start off by pointing out that the appellants were appointed receivers by the court and are therefore first and foremost officers of the court, and to use the words of Viscount Haldane LC in William H Parsons & Ors v The Sovereign Bank of Canada 3 ‘put in to discharge certain duties prescribed by the order appointing him’.” [33] There is also authority that a receiver may even be appointed despite the absence of the relevant parties before the Court, if the proposed appointment of a receiver cannot prejudice the interest of those absent parties (see Holmes v Bell [1840] 48 ER 1102). [34] There is thus no legal requirement that upon dissolution of a partnership, whether by operation of law, court order or agreement, all the partners must jointly make an application for the appointment of a receiver. This ignores the fact that cases requiring the involvement of receivers are often those where the partners cannot agree on anything, and is contrary to the main reason why a receiver is essential. [35] Any of the parties to the partnership agreement may apply to the Court for the appointment of a receiver to wind up the business and affairs of the partnership and to have the property of the partnership applied in payment of the debts and liabilities of the firm and to have the surplus assets applied in payment to what is due to the partners of the firm, and in compliance with the provisions on the rules for distribution of Page 10 of 12 assets on final settlement of accounts under Section 46 of the Partnership Act 1961. [36] The First Defendant’s argument on the Plaintiff breaching Section 40 of the Partnership Act 1961 is also difficult to sustain. Section 40 states as follows:-

Continuing authority of partners for purposes of winding up After the dissolution of a partnership, the authority of each partner to bind the firm, and the other rights and obligations of the partners, continue, notwithstanding the dissolution, so far as may be necessary to wind up the affairs of the partnership, and to complete transaction begun but unfinished at the time of the dissolution, but not otherwise: Provided that the firm is in no case bound by the acts of a partner who has become bankrupt; but his proviso does not affect the liability of any person who has, after the bankruptcy, represented himself or knowingly suffered himself to be represented as a partner of the bankrupt. [emphasis added] [37] It has not been shown by the First Defendant in what manner this statutory provision had been violated by the Plaintiff. I see no infringement in the instant case. This section provides for the continuation of the authority of the partners of a firm in the process of being dissolved. It is manifest that as stated in the above mentioned Section 40, such authority is only for the purposes of concluding unfinished transactions and completing the winding up of the firm. In the instant case, the Judgment had already authorised parties to appoint an R&M, and the appointment of one would necessarily mean that the R&M takes over the management of the firm, and in this case, in respect of the winding up process of the Firm. [38] Lord Atkinson in the House of Lords decision in Moss Steamship Co Ltd v Whinney [1912] AC 254 made it clear that:- “This appointment of a receiver and manager over the assets and business of a company does not dissolve or annihilate the company... Both continue to exist; but it entirely supersedes the company in the conduct of its business; deprives it of all power to enter into contracts in relation to that business, or to sell, pledge, or otherwise dispose of the property put into the possession, or under the control of the receiver and manager. Its powers in these respects are entirely in abeyance”. Page 11 of 12 [39] The same effects of appointment would apply to a partnership. As such even notwithstanding the fact that the Judgment had already provided for the appointment, the application for the appointment of the R&M to deal with the dissolution of a partnership would in my view be a valid exercise of the authority of the Plaintiff as a former partner under Section 40 of the Partnership Act 1961 which does not state that such authority must be jointly exercised. Neither can it be said, as the First Defendant seemed to contend, that the appointment of an R&M would deny the authority of the First Defendant to deal with winding up matters of the Firm, for the appointment itself is plainly designed to address the winding up of the Firm in situation like presently in the absence of cooperation between the partners. Scope of R&M Appointment and Powers 40] I however find some merit in the submission of the First Defendant in that some of the prayers in this application in enclosure 108 by the Plaintiff for the appointment of the R&M appear to be additional to the terms of the Judgment and beyond the ambit of winding up but extends also to general management of the Firm as well. I thus agree that such additional powers are unnecessary for being inconsistent with the objective of the appointment. As such I only allow prayers 1, 2 (a) and (c) but not (b), 3, 4, 5, 7, 8 and 9. I disallow prayer 2

because it seeks to incorporate a Jadual A which was enclosed with the application, which contained a list of additional powers which encompass general management powers. [41] These included the power to undertake any business of the partnership (paragraph e) and to change the registered office of the Firm (paragraph k) and to employ and dismiss staff for the Firm (paragraph o). I find all these are either inconsistent with the purpose of appointment or in any event unnecessary as the terms of the Judgment have more than adequately set out the broad objective for the appointment. [42] I also decide against granting prayer 6 which sought to dispense with the need for the giving of security. The requirement for security is stated in Order 30 r 2 of the RC 2012. It reads:-

Giving of security by receiver (O. 30 r. 2)

Where a judgment is given, or order made, directing the appointment of a receiver, then, unless the judgment or order otherwise directs, a person shall Page 12 of 12 not be appointed receiver in accordance with the judgment or order until he has given security in accordance with this rule. [43] I see no basis to do away with the requirement of giving of security, and neither has the Plaintiff proffered any cogent reasons for its dispensation. I find it more imperative that the requirement for security be adhered to, in situations like the present, where the appointment is objected to by the First Defendant. Conclusion [44] In view of the foregoing reasons, the Plaintiff has successfully justified the need for the appointment of the proposed R&M, on account of not only the earlier Judgment, but also the various reasons discussed above. [45] As such I allow enclosure 108, apart from prayers 2(b) and 6, as stated earlier. Dated: 17 August 2017 (MOHD NAZLAN BIN MOHD GHAZALI) Judge High Court NCC1 Kuala Lumpur Counsel Counsel for Plaintiff Wan Zafran Messrs Wan Marican Hamzah & Shaik Kuala Lumpur Counsel for Defendant Wallace Wong Messrs Thomas Lai & Wallace Wong Kuala Lumpur