Quill Construction Sdn Bhd v Jita Construction Sdn Bhd (WA-24NCC-562-11/2024)

The plaintiff filed an Originating Summons dated 25-11-2024 and a Notice of Application [ex-parte] dated 27-11-2024 for a Fortuna injunction to restrain the defendant from commencing winding up proceedings based on an Adjudication Decision made under the Construction Industry Payment and Adjudication Act 2012 ("CIPAA") in the defendant’s favour.

I dismissed both the OS and the application on 06-12-2024.

These are my Grounds of Judgment.

A Fortuna injunction is the name given to a type of injunction applied by a plaintiff to restrain the filing of an intended winding up petition or if filed, its further prosecution. It takes its name from the Australian case of Fortuna Holdings Pty Ltd v The Deputy Federal Commissioner of Taxation [1978] VR 83 Supreme Court of Victoria where the juridical basis for the relief was explained.

The principles in respect of a Fortuna injunction have been accepted by our courts. [See Mobikom Sdn Bhd v Inmiss Communications Sdn Bhd [2006] 2 MLRA i CA, Pacific & Orient Insurance Co Bhd v Muniammah Muniandy [2010] 3 MLRA 267 CA, Sime Darby Energy Solution Sdn Bhd v RZH Setia Jaya Sdn Bhd [2021] 6 MLRA 485 CA and Swissray Asia Healthcare Co Ltd v V Medical Services M Sdn Bhd [2024] 6 MLJ 135 CA].

The following principles in respect of a Fortuna injunction can be distilled from decided cases-i. The presentation of a winding up petition may be restrained by injunction where its presentation, or if presented its further continuation, would amount to an abuse of the process of the court. The application of this principle has two branches. ii. The first branch applies in cases where the presentation or continuation of the petition might produce irreparable damage to the plaintiff company and where the petition has no chance of success. This branch will apply if the defendant has no locus standi to file a petition or does not satisfy the statutory requirements under the Companies Act 2016 to file a winding - up petition. [“No chance of Success limb”] iii. The second branch applies in cases where a defendant proposing to present a petition has chosen to assert a disputed claim, by a procedure which might produce irreparable damage to the plaintiff company, rather than by a suitable alternative procedure. [“Disputed Claim limb”] iv. In some cases, both the first and the second branches of the principle can apply. 4 v. A party who has an Adjudication Decision made under the CIPAA in its favour is entitled to present a winding-up petition based on the Adjudication Decision. There is no requirement to register the Adjudication Decision in court prior to presenting the petition. [See Likas Bay Precinct Sdn Bhd v Bina Puri Sdn Bhd [2019] 3 CLJ 499 CA per Abang Iskandar JCA, followed in Sime Darby Energy Solution Sdn Bhd v RZH Setia Jaya Sdn Bhd [2021] 6 MLRA 485 CA per Gunalan JCA and in Bludream City Development Sdn Bhd v Pembinaan Bina Bumi Sdn Bhd [2024] 3 MLRA 909 CA per Lim Chong Fong JCA] vi. A party who has an Adjudication Decision made under the CIPAA in its favour is entitled to present a winding-up petition based on the Adjudication Decision. The court will not grant a Fortuna injunction to restrain the presentation of the winding-up petition. [See Sime Darby Energy Solution Sdn Bhd v RZH Setia Jaya Sdn Bhd [2021] 6 MLRA 485 CA]. vii. The High Court decisions in ASM Development (KL) Sdn Bhd v Econpile (M) Sdn Bhd [2020] MLRHU 1417 HC and Setia Fontaines Sdn Bhd v Pro Tech Enterprise Sdn Bhd [2023] MLRHU 495 HC which held that a party is not entitled to present a winding-up petition based on an Adjudication Decision are no longer good law. [See Sime Darby Energy Solution Sdn Bhd v RZH Setia Jaya Sdn Bhd [2021] 6 MLRA 485 CA at [48 - 50] per Gunalan JCA 5 and Bludream City Development Sdn Bhd v Pembinaan Bina Bumi Sdn Bhd [2024] 3 MLRA 909 CA at [45] per Lim Chong Fong JCA].

In Sime Darby Energy Solution Sdn Bhd v RZH Setia Jaya Sdn Bhd [2021] 6 MLRA 485 CA Gunalan JCA said-

It is important to bear in mind that the Court of Appeal in Likas Bay (supra) pronounced in no uncertain terms without qualification that a party who is armed with an AD in its favour would be entitled to present a winding-up petition based on the award.

However, in ASM Development (supra) a contrary view was expressed that it does not mean the opposing party cannot challenge the petition or even the statutory notice. The debt under the adjudication decision can still be disputed and the court will have to decide whether it is so.

With respect, to our minds, this does not equate to entitling the party ordered to make payment under the AD to an order to restrain the successful party from presenting a winding-up petition as the former has a statutory right to challenge the statutory notice or petition before the winding-up court. Until and unless the AD is set aside, it can in law form the basis for the statutory notice which was the position in the present instance. Whether or not the respondent had a bona fide cross-claim against the appellant on merits to challenge the petition is a matter to be adjudged by the winding-up court. We are not convinced that an unproven cross-claim can be the basis for restraining the filing of a winding-up petition based on a valid and enforceable AD. [Emphasis added]

Sime Darby Energy Solution was followed in Bludream City Development Sdn Bhd v Pembinaan Bina Bumi Sdn Bhd [2024] 3 MLRA 909 CA where Lim Chong Fong JCA said-

Recently in Sime Darby Energy Solution Sdn Bhd v. RZH Setia Jaya Sdn Bhd (supra), Gunalan Muniandy JCA held as follows with emphasis added by us: “[57] Before us, having reviewed the authorities and principles relating to the CIPAA’s objectives and the parties’ respective contentions, the central question was whether the LJC had failed to properly and sufficiently appreciate and understand the objectives of CIPAA in granting the FI in this case. We have given due regard to the fact that there was genuine debt owing to the appellant based on an AD that was in law binding and enforceable, including by recourse to winding up proceedings. The respondent was amply shown to be not capable of settling the judgment debt upon service of the 466 statutory notice. …

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 [2020] MLRHU 1417 and Setia Fontaines Sdn Bhd v. Pro Tech Enterprise Sdn Bhd [2023] MLRHU 495. Additionally, the Appellant relied on the Singapore cases of Lim Poh Yeoh v. TS Ong Construction Pte Ltd [2016] SGHC 179 and AnAn Group (Singapore) Pte Ltd v. VTB Bank (Public Joint Stock Company) [2020] 1 SLR 279 (CA).

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 [2008] 1 MLRH 491. 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) 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 Trend Builders Sdn Bhd (supra) or the winding-up proceeding will be struck out; see Pembinaan Purcon v. Entertainment Village Sdn Bhd [2004] 5 MLRH 615.

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 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 27, 16 and 28 CIPAA respectively. Consequently, it is immaterial in the winding-up court that the non-paying party 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] MLRHU 3. 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 8 judicata because the adjudication decision enjoyed temporary but not perpetual finality; see G-Pile System Sdn Bhd v. CMMC Sdn Bhd And Anor [2021] MLRHU 1783.

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 we have to heed the legislative objective of the CIPAA to alleviate the financial woes prevalent in the Malaysian construction industry. The objective of CIPAA is threefold as stated in the preamble thereto, viz:

facilitate regular and timely payment;

(ii) provide a mechanism for speedy dispute resolution through adjudication; and

(iii) provide remedies for recovery of payment in the construction industry. [44] We know that the Respondent will possibly be amongst many unsecured creditors with a claim on the Appellant’s assets and there is no assurance that the adjudicated debt will be wholly recovered from the wound-up Appellant. That aside, there is also often a significance lapse of time between the Appellant entering into liquidation and the making of payment to the creditors by the liquidator. This is the commercial choice of the Respondent, probably of last resort because the other enforcement remedies had been pursued without fruition. 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 on-going arbitration proceeding between them. [45] In the premises, we are, with respect, constrained to hold that the decisions in ASM Development (KL) Sdn Bhd v. Econpile (M) Sdn Bhd (supra) and Setia Fontaines Sdn Bhd v. Pro Tech Enterprise Sdn Bhd (supra) relied upon by the Appellant were erroneously made… [9] In Pacific & Orient Insurance Co Bhd v Muniammah Muniandy [2010] 3 MLRA 267 CA Ramly Ali JCA made the following general observations on a Fortuna injunction- [25] An application for an injunction to restrain an intended winding-up petition against a company is known as a “Fortuna Injunction”, taking its name from the case of Fortuna Holdings Pty Ltd v. The Deputy Federal Commissioner of Taxation [1978] VR 83. In that case the court laid down the basis on which a court acts to restrain the presentation of a winding-up petition and the two principles that guide courts in the grant of an injunction to that effect. (see also: Mobikom Sdn Bhd v. Inmiss Communications Sdn Bhd [2006] 2 MLRA 700; [2007] 3 MLJ 316; [2007] 3 CLJ 295 (Court of Appeals). [26] The first principle laid down in that case in that an injunction of that nature may be granted by court where the presentation of the petition might produce irreparable damage to the company and where the proposed petition has no chance of success. In order to succeed in getting injunction under this principle, the applicant must satisfy both limbs of the principle ie: -

the intended petition has no chance of success, as a matter of law as well as a matter of fact; and

(ii) the presentation of such petition (which has no chance of success) might produce irreparable damage to the company. … [27] This principle is not applicable to the present case. The respondent herein had obtained a valid and enforceable judgment against the insured as well as the insurer (appellant). The intended petition if filed is not bound to fail. He has a good chance to succeed. Therefore, whether or not it causes irreparable damage is of no consequence. Thus, the injunction applied for by the appellant in the present case, cannot be granted by court under this principle. [28] The second principle established in the Fortuna case is that an injunction of that nature may be granted in cases where a petitioner proposing to present a petition has chosen to assert a disputed claim, by a procedure which might produce irreparable damage to the company, rather than by a suitable alternative procedure. [29] This principle applies only to disputed debt. It does not apply to cases where the debt in question is undisputed. As long as the debt cannot be disputed, it is not consequence whether or not it will cause irreparable damage to the company, if presented. A valid and enforceable judgment of court as in the present case, (unless set aside or stayed) cannot be considered a disputed debt. The law is settled on this point. Therefore, an order for injunction as prayed for by the appellant in the present case, also cannot be granted under this principle. [Emphasis added] Application to facts [10] The facts of this case are undisputed. On 01-11-2024, the Adjudicator has delivered its decision that the plaintiff is to pay to the defendant the sum of RM 989,038.68 with interest and costs. The defendant thus has an Adjudication Decision made under the CIPAA in its favour. [11] The plaintiff contends that it had issued a Notice of Arbitration dated 25-11-2024 to refer the dispute between the plaintiff and the defendant to arbitration. This is not a ground to support the grant of a Fortuna injunction. In fact, the plaintiff admitted a sum of RM 466,519.34 is due to the defendant instead of what was awarded in the Adjudication Decision. [See Enclosure 10 plaintiff’s written submissions at paragraphs 8 and 21]. [12] Further, the Adjudication Decision has not been stayed. The intended petition if filed is not bound to fail. In fact, the defendant has a good chance to succeed. Therefore, whether or not the filing of the intended petition will cause irreparable damage to the plaintiff is of no consequence. The first branch of the principle i.e. the No chance of Success limb is not satisfied by the plaintiff. [13] The second branch of the principle i.e. the Disputed Claim limb applies only to disputed debt. It does not apply to cases where the debt in question is undisputed. In the case before me the debt is an undisputed debt as the defendant has obtained an Adjudication Decision in its favour which has not been stayed or set aside. As long as the debt cannot be disputed, it is irrelevant whether or not the petition if filed will cause irreparable damage to the plaintiff company. Decision [14] For the reasons above,the Originating Summon and the application are both dismissed with costs of RM 1,000 each subject to allocatur. ………(signed)…..…… Leong Wai Hong Judge High Court of Malaya Kuala Lumpur (NCC 6) Dated: 27th December 2024. COUNSEL: 1) Koay Weng Man and Jeevapoorani for plaintiff. (Julian Stephanie (Kuala Lumpur)) 2) Suria Pillai and Tan Wei Sheng for defendant. (Liaw & Partners (Kuala Lumpur)) CASES REFERRED TO: 1) AnAn Group (Singapore) Pte Ltd v. VTB Bank (Public Joint Stock Company) [2020] 1 SLR 279 (CA). 2) ASM Development (KL) Sdn Bhd v Econpile (M) Sdn Bhd [2020] MLRHU 1417 HC. 3) Barisan Performa Sdn Bhd v. Hype Park City Sdn Bhd [2018] MLRHU

4) Bludream City Development Sdn Bhd v Pembinaan Bina Bumi Sdn Bhd [2024] 3 MLRA 909 CA. 5) Fortuna Holdings Pty Ltd v The Deputy Commissioner of Taxation [1978] VR 83 Supreme Court of Victoria. 6) G-Pile System Sdn Bhd v. CMMC Sdn Bhd And Anor [2021] MLRHU

7) Lafarge Concrete (M) Sdn Bhd v. Gold Trend Builders Sdn Bhd. 8) Likas Bay Precinct Sdn Bhd v Bina Puri Sdn Bhd [2019] 3 CLJ 499 CA. 9) Lim Poh Yeoh v. TS Ong Construction Pte Ltd [2016] SGHC 179. 10) Mobikom Sdn Bhd v Inmiss Communications Sdn Bhd [2006] 2 MLRA i CA. 11) Pacific & Orient Insurance Co Bhd v Muniammah Muniandy [2010] 3 MLRA 267 CA. 12) PECD Construction Sdn Bhd v. Freehold Point Sdn Bhd [2008] 1 MLRH 491. 13) Pembinaan Purcon v. Entertainment Village Sdn Bhd [2004] 5 MLRH

14) Setia Fontaines Sdn Bhd v Pro Tech Enterprise Sdn Bhd [2023] MLRHU 495. 15) Sime Darby Energy Solution Sdn Bhd v RZH Setia Jaya Sdn Bhd [2021] 6 MLRA 485 CA. 16) Swissray Asia Healthcare Co Ltd v V Medical Services M Sdn Bhd [2024] 6 MLJ 135 CA. LEGISLATION REFERRED TO: 1) Construction Industry Payment and Adjudication Act 2012 sections 27, 16 and 28. 2) Companies Act 2016 section 466(1)(a).