Sem Wah Development Enterprise Sdn Bhd v Majlis Agama Islam dan Adat Istiadat Melayu Kelantan (DA-24NCvC-70-03/2023)

This is an application by the Plaintiff vis originating Summons dated 8/3/2023 for a Fortuna Injunction to injunct the Defendant from issuing, initiating and proceeding with a winding up proceeding against the Plaintiff.

This application emanates from a Consent Judgement entered on 15/3/2021 between both parties in regard to Kota Bharu Court Civil Suit No DA-22NCVC-19-03/2022 (“the suit”). In the suit, the Defendant sued the Plaintiff due to the failure of the Plaintiff to pay the Defendant the outstanding rental of a leased lands according to a Lease Agreement entered between both parties.

The Consent Judgement was entered as settlement to the suit in which the Plaintiff has to pay the Defendant the outstanding sum of RM6 million within 18 months from 1/4/2021. Pursuant to the Consent Judgement, the Plaintiff has made part payment totalling to RM2.6 million.

However, there are still balance of RM3.4 million (excluding ta’widh) owed by the Plaintiff upon which prompted the Defendant on 15/2/2023 to issue a Statutory Notice pursuant to section 465(1)(e) read together with section 466(1)(a) of the Companies Act 2016 (Act 777) to the Plaintiff. The Statutory Notice was issued for the Plaintiff to settle the outstanding rental as agreed in the Consent judgement.

The law on Fortuna Injunction is a kind of injunction by which an intended winding-up petition is sought to be restrained. Its name came from the case of Fortuna Holdings Pty Ltd v The Deputy Commissioner of Taxation [1978] VR 83.

The principle of the Fortuna Injunction is well established and accepted in our jurisdiction in which the court may grant such injunction whenever the interest of justice calls for or demand it. The principle was summarized by Justice Gopal Sri Ram JCA (as he then was) in Mobikom Sdn Bhd v Inmiss Communications Sdn Bhd [2007] 3 MLJ 316 as follows; “[5] The kind of injunction by which an intended winding up petition is sought to be restrained is known as a 'Fortuna injunction' taking its name from the case in which the juridical basis for the relief was first explained. See, Fortuna Holdings

Pty Ltd v The Deputy Commissioner of Taxation (1978) VR In that case, McGarvie J discussed the basis on which a court acts to restrain the presentation of a winding up petition and the two branches of the principle that guide courts in the grant of an injunction. In respect of the basis, his Honour said this: When a court restrains the presentation of a winding up petition to that court it exercises part of its inherent jurisdiction to prevent abuse of its process. Mann v Goldstein [1968] 1 WLR 1091, at pp 1093-4; [1968] 2 All ER 769. Usually a court acts against abuse of its process after proceedings have been commenced. Thus, existing proceedings may be stayed or dismissed, or documents delivered as a step in the proceedings may be struck out. This is done to relieve a party to the proceedings from an oppressive and damaging situation in which he has been placed through abuse of court process. The law has long recognized that with proceedings to wind up a company, intervention after the commencement of proceedings would often be too late to relieve the company of oppression and damage. The courts have recognized that irreparable damage may be done to a company merely through public knowledge of the presentation of a petition. Usually the damage flows from the loss of commercial reputation which results. The courts have also been conscious of the pressure which may be put on a company, by a person with a disputed claim against it, threatening to present a winding up petition unless, the company meets his claim. While that threat exists, the company, in order to avoid the damage involved in the presentation of a petition, is pressed to meet the claim although it may have substantial and genuine grounds for regarding itself as not required to do so. The decisions of the courts have established the principle that the presentation of a winding up petition may be restrained by injunction where its presentation would amount to an abuse of the process of the court. The courts apply this principle similarly to restrain the advertisement of a petition already presented. The principle enables companies to be protected from threatened or apprehended oppression and damage from abuse of court process. The basis on which the courts have intervened in the cases cited by counsel, has been that presentation of a winding up petition might of itself cause irreparable damage to the company. Given that basis, the application of the principle which entitles the courts to intervene to prevent abuse of process, depends on the existence of different elements in two distinct situations considered in the authorities. [emphasize added] [7] In RHB Bank Bhd v Malaysia Pacific Corp Bhd and another appeal [2018] 6 CLJ 55, the COA reiterated the same principle as follows; “[30] In respect of the Fortuna injunction, we agree with the submissions of the appellant that the conditions for the grant of such an injunction were not met on the facts and in law. The two requisite conditions or principles as laid down in Mobikom Sdn Bhd v Inmiss Communications Sdn Bhd [supra] and reiterated by this Court in Pacific & Orient Insurance Co Bhd v Muniammah Muniandy [supra] are described as follows: [26] The first principle laid down in that case is 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 an injunction under this principle, the applicant must satisfy both limbs of the principles, i.e.:

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. (see: Re A Company [1894] 1 Ch 349; Charles Forte Investment Ltd v Amanda [1964] 1 Ch 240;, [1963] 2 All ER 940; and Bryanston Finance Ltd v De Vries (No 2) [1976] 2 WLR 41;, [1976] 1 All ER 25] [8] Justice Liza Chan J in United Malaya Stores Sdn Bhd v. S. Selapa Sivalingam & Anor [2022] 6 CLJ 469 had enumerated the principle and concluded that there exist two branches of principle relating to the application of Fortuna Injuction as follows; First branch of principle The first branch applies in cases where the presentation of the petition might produce irreparable damage to the company and where the proposed petition has no chance of success. Second branch of principle The second branch applies 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. It may apply in cases where the petition, if presented, has a chance of success. In some cases, both the first and the second branches of the principle apply.” Analysis and findings of this court [9] The thrust of the issue in this application boils down to the Consent Judgement entered between parties. Basically, a Consent Judgement is a contract entered between parties with a force of a judgement. The parties cannot appeal against any Consent Judgement but it can be set aside if it was obtained by fraud. [10] The Federal Court in Tan Geok Lan v La Kuan [2004] 2 CLJ 301 explained the principle behind a Consent Judgement as follows; "A consent judgment or order is not the less a contract, and subject to the incidents of a contract, because there is superadded the command of the court, and its force and effect derives from the contract between the parties leading to, or evidenced by, or incorporated in, the consent judgment or order. A consent order must be given its full contractual effect, even if it relates to an interlocutory step in the action (see para. 390 @ p. 286, Halbury's Laws of England, 4th edn vol. 37). We gather from this proposition that (i) the agreement on the terms reached between the parties at the interlocutory stage of an action is a contract between the parties and (ii) the consent judgment or order arising out of that contract is also a contract between the parties except that the latter is superadded with the command of the court. In short, there are two contracts, one, before the court makes the order and two, after the order is made. After the order is made the first contract merges into the second contract. That being the case, short of the order being made, the first contract will have to be separately considered on its binding effect based on incidents of a contract". [11] It was contended by the Plaintiff that summarily, based on the Consent Judgement, both parties had agreed as follows;

the Plaintiff agreed to pay the agreed outstanding arrears of rentals as at 31/12/2020 at RM6 million whereas the first RM1 million to be paid on 31/3/2021, and the balance RM5 million to be paid within 18 months from 1/4/2021 (i.e. expire on 31/10/2022). In default, the Plaintiff has to pay 5% per annum ta’widh (penalty under Islamic finance) on the balance sums unpaid;

(ii) the new lease rental with effect from 1/1/2021 to follow the revised agreed new formula (which is not relevant to this case);

(iii) both parties shall enter into a fresh and new Lease Agreement containing the above settlement terms and the Defendant shall register the sub-lease within 18 months from the date of the consent judgment dated 15/3/2021 upon issuance of the titles;

(iv) the Plaintiff to settle the rentals for 2021 (using new formula) within 2021 itself;

the Plaintiff is responsible for the illegal settlers within the areas; and

(vi) the Defendant to pay the Plaintiff the land acquisition compensation for the 17.648 acres acquired in 2019 to the Plaintiff. [12] The Plaintiff was later, in compliance with the Consent Judgement, performed the following acts:

paid the rentals according to the new agreed rate from 1/1/2021;

(ii) paid RM2.6 million out of the RM6 million between 28/3/2021 to 6/4/2023 to the Defendant;

(iii) the Plaintiff assumed responsibilities to handle the illegal settlers; and

(iv) entered into a new Lease Agreement dated 30/9/2022. [13] The Defendant on the other hand, had entered into a new lease agreement only on 30/9/2023 and later issued a winding up notice dated 15/2/2023 against the Plaintiff claiming the outstanding sums of RM3,669.863.02 as at 15/2/2023. [14] The Plaintiff nevertheless claimed that the Defendant had failed to register the sublease within 18 months from 15/3/2021 and there was no extension of time was ever applied by the Defendant. The Plaintiff argues that the action by the Defendant to pay the stamping duties for the lease agreement and submitting for consent were only done after this application was filed. [15] It was further argued by the Plaintiff that due to the Defendant’s inaction, the Defendant shall now be injuncted from taking further action of filing a winding up action against the Plaintiff. This premise on the injustice and inequity the winding up action will cause the Plaintiff irreparable damage. [16] This court is of the opinion that the terms of the Consent Judgment is clear and unambiguous. It does not warrant additional interpretation or importation of meaning into the terms of the Consent Judgment beyond the recorded terms. Hence, the words in the Consent Judgement must be giving its natural and ordinary meaning. [17] In the case of Hean Sang Sdn Bhd v Kompleks Yik Foong Management Corporation [2015] 5 CLJ 93, Lee Swee Seng J (as he then was) held that the Consent Judgement is to be interpreted the same way as a contract and shall be given its natural and ordinary meaning. His Lordship opined; “[11] Words are the vehicle for our thoughts. Communication has evolved from the use of pictorial and sign language to that of the written word. Every written language has its own storehouse of words to convey even delicately different nuances of meaning. The age-old principle of giving words its natural and ordinary meaning when interpreting a written text in trying to ascertain the intention of the parties, whether in a contract or a consent judgment which in reality is a contract with the sanction of the court, still holds true. In Malaysia Discounts Bhd & Ors v. Pesaka Astana (M) Sdn Bhd & Ors [2008] 5 CLJ 130;; [2008] 6 MLJ 839 at p. 854, Ramly J (now FCJ) stated as trite the following: [41] It is trite law that a consent judgment is to be interpreted in the same way as a contract. Thus, the usual principles of contractual construction apply in the instant case: the paramount consideration is to ascertain the intention of the parties to the consent judgment. Such intention is objectively assessed by the court, in particular by reviewing the language employed in the consent judgment... (emphasis added) … [15] Applying the above principles to the interpretation of the consent judgment, one can conclude that the words employed in the consent judgment are clear and unambiguous.” [18] Upon perusing the Consent Judgement, it is clear that both parties have their own duty to be adhered to. There is nowhere in the Consent Judgement stated that the obligations of the parties therein are conditional and dependant towards the other obligations. [19] If this court is to give a different meaning to the Consent Judgement, it amounts to this court varying the Consent Judgement. This court is of the opinion that the only instances the consent judgement can be varied are only based on the following reasons:

Upon agreement of the other party or parties affected by it (see; Zainuddin bin Muhammad v ATSCO Ltd & anor [2003] 1 MLJ 369); or

If the Consent Judgement was entered by fraud or irregular (see; Cheah Theam Kheng v City Centre Sdn Bhd (in liquidation) [2011] MLJU 815). [20] Both instances were never contemplated by the Plaintiff. As such it is incumbent that both the Plaintiff and the Defendant are duty bound to obey the terms of the Consent Judgement. This as what was set by the COA in the case of Penang Port Commission v Kanagawi s/o Seperumaniam [2008] 6 MLJ 686 as follows; [36] It is trite law that 'a person against whom an order of court has been issued is duty bound to obey that order until it is set aside' (per Abdul Hamid Omar, Lord President, in Wee Choo Keong v MBf Holdings Bhd & Anor and another appeal [1993] 2 ML 217, SC, at p 220). It follows therefore that where a party disobeys an order, even if it is an irregular order, which has not been set aside, that party runs the risk of being committed for contempt (Grafton Isaacs v Emery Robertson 1985] 1 AC 97, PC, and Isaacs v Robertson [1984] 3 All ER 140, PC; and Datuk Hong Kim Sui v Tiu Shi Kian & Anor [1987] 1 ML 345, PC). [21] Based on these observations, this court in of the opinion that each party shall then perform the actions that they are required to and it in the absence of any specific agreement that the obligations were conditional and dependent on the other party performing their duty, each party are obligated to perform their obligation independently. If either party fails to perform any of the obligation, it gives right to the other party to exercise his right to enforce the unperformed obligation. [22] Moreover, with regard to the registration of new lease, this court also finds that the Plaintiff has neither raised any issue nor objection to the Defendant with regard to the registration of new lease. Further, by virtue of the Plaintiff’s letter dated 9/8/2022 and 25/8/2022, the Plaintiff has forwarded cheques amounting to RM300,000.00 and RM1 million respectively as part payment of the outstanding rental without raising any issue on the registration of the new lease. [23] This court also finds that the Plaintiff’s concern on the registration of the new lease, arises only after the Defendant issued the statutory notice. Clearly, the Plaintiff’s averments on the registration of lease is merely an afterthought as a defence to avoid a winding up petition. Hence, the Plaintiff is estopped from denying the Defendant from pursuing its right of presenting a winding up petition against the Plaintiff for its failure. [24] This court is of the opinion that on this issue alone, the Plaintiff has failed to satisfy this court that their inaction which brought the action of the Defendant in filing the winding up petition shall be considered as causing injustice and inequity to the Plaintiff which ought to be injuncted. [25] This brings this court to the next issue within the first branch of principle, whether the Defendant has a great chance of success in the winding up petition. On this issue, the Plaintiff disputed the alleged amounts demanded in the notice dated 15/2/2023 amounting to RM3,669,863.02. The basis of the dispute is in regards to the land acquisition compensation of RM571,360.00 which according to the Plaintiff shall be set-off from the total debt. [26] As discussed before, the Consent Judgment is crystal clear that the Defendant has to pay the Plaintiff the land acquisition compensation and there is no mention about the said amount shall be set-off. Instead the issue of set off was only arises upon discussion by parties. This by virtue of the Plaintiff’s solicitor’s letter dated 3/4/2023 and the Defendant’s solicitor’s letter dated 10/4/2023 respectively, the parties has agreed for the Compensation Sum to be set-off against the outstanding rental owing by the Plaintiff to the Defendant. [27]

Fortuna Holdings Pty Ltd v The Deputy Commissioner of Taxation [1978] VR 83 2. Mobikom Sdn Bhd v Inmiss Communications Sdn Bhd [2007] 3 MLJ 316 3. RHB Bank Bhd v Malaysia Pacific Corp Bhd and another appeal [2018] 6 CLJ 55 4. United Malaya Stores Sdn Bhd v. S. Selapa Sivalingam & Anor [2022] 6 CLJ 469 5. Tan Geok Lan v La Kuan [2004] 2 CLJ 301 6. Hean Sang Sdn Bhd v Kompleks Yik Foong Management Corporation [2015] 5 CLJ 93 7. Zainuddin bin Muhammad v ATSCO Ltd & anor [2003] 1 MLJ 369 8. Cheah Theam Kheng v City Centre Sdn Bhd (in liquidation) [2011] MLJU 815 9. Penang Port Commission v Kanagawi s/o Seperumaniam [2008] 6

MLJ 686 Lafarge Concrete (M) Sdn Bhd v Gold Trend Builders Sdn Bhd [2012]