Non-Applicability of Section 10 of the Arbitration Act 2005 to a Winding Up Petition
The Learned Judge, Wong Chee Lin J in dismissing the Respondent’s Stay Application, held that Section 10 of the Arbitration Act 2005 has no applicability to a winding-up petition. In arriving at her decision, the Learned Judge concurred with the High Court decision in NFC Labuan Shipleasing Ltd v Semua Chemical Shipping Sdn Bhd [2017] MLJU 900, which reasoned, amongst others, that:-
i) A winding-up proceeding is sui generis and not in the nature of a substantive claim contemplated within the remit of Section 10 Arbitration Act 2005.
ii) A winding-up proceeding is not an execution proceeding based on a judgment or proceedings to resolve disputes between parties.
iii) Following therefrom, a winding-up petition is not a ‘proceeding’ that is susceptible to a stay pending arbitration and to grant a stay of winding-up petition under Section 10 of the Arbitration Act 2005 would be patently inappropriate and conceptually incongruent within the winding-up context.
Discretionary Powers under S465 Companies Act 2016 may be invoked when there is a prima facie dispute of debt
Having decided the above, the Learned Judge proceeded to examine the substantive merits of winding-up petition and the position in foreign jurisdiction in the English Court of Appeal decision in Salford Estates (No 2) Ltd v Altomart Ltd (No 2)[2015] Ch 589, Singapore High Court decision in Bdg v Bdh [2016] 5 SLR 977, and lastly Hong Kong Court of First Instance decision in Lasmos Limited v Southwest Pacific Bauxite (HK) Limited [2018] HKCFI 426.
After conducting a comprehensive examination on the foreign authorities, the Learned Judge was satisfied that there was prima facie a dispute as to the debt and exercised her discretion under Section 465 of Companies Act 2016 to dismiss the winding-up petition. In doing so, the following principles in the above authorities become relevant:-
a) The Companies Act confers the court the discretionary power to wind up a company and the Court shall only exercise this discretion in such a way which is not incongruent with the legislative policy embodied in the Act;
b) When the Parties have agreed to refer the dispute relating to the debt to arbitration, the merits of the dispute are to be decided by the arbitrator and not the court.
c) In such circumstance, it would be anomalous for the Court to conduct a summary judgment type analysis of liability for an unadmitted debt on which a winding-up petition is grounded.
d) The exercise of the discretion to wind up a company would inevitably mean that the Court would have to conduct a summary judgment type of analysis and enquiry onto the merits of the dispute of the debt, and thus, depriving the other Parties from its contractual bargain – i.e. to resolve any dispute by way of arbitration.
e) Further, the exercise of the discretion to wind up a company would also encourage parties to an arbitration agreement to by-pass the arbitration agreement by presenting a winding-up petition.
f) In the upshot, if there was prima facie a dispute of debt, the petition may be dismissed to enable parties to resolve the dispute over the debt by their chosen method of dispute resolution – arbitration, rather than require the court to investigate whether or not the debt is bona fide disputed on substantial grounds.
Case Extract
[25] Applying the decisions in Salford Estates, Bdg v Bdh and the Lasmos case, I should ascertain whether there is a prima facie dispute of the debt claimed by the Petitioner. Since the Respondent was relying primarily on section 10 of the Arbitration Act 2005, it did not elaborate on the basis on which it was disputing the debt claimed by the Petitioner but essentially this is what the Respondent is alleging:
- a)that it is entitled to a set off against rectification costs that are needed to be incurred;
- b)that the Respondent is also entitled to counterclaim for back charges that had been incurred; and
- c)that the claim incorporated amounts that are owing from the nominated sub-contractors and the nominated Suppliers.
[26] The Respondent had exhibited letters from some nominated sub- contractors to the effect that they have been paid directly by the Respondent and are not claiming against the Respondent.
[27] It was submitted for the Petitioner that the Respondent lacks bona fides as the claims were made only very recently and not when the Accounts were being finalised. Also I note that the Respondent could have but did not quantify its counterclaim or set off. If the Respondent has to show that the debt was disputed bona fide on substantial grounds, I would hold that the Respondent has not discharged that burden.
[28] However, applying the lower threshold of merely showing a prima facie dispute, since the debt here is the subject matter of an arbitration clause, I am of the view that the Respondent has discharged the burden of showing a prima facie dispute, bearing in mind that a denial of the indebtedness constitutes a dispute. The merits or otherwise of the dispute are matters to be decided by the arbitrator and not by this Court and the Respondent had given notice of arbitration to the Petitioner. Accordingly, I would not stay the winding up petition pending arbitration under section 10 of the Arbitration Act 2005 but, in the exercise of my discretion under section 465 of the Companies Act 2016, I would dismiss the winding up petition on the ground that the Respondent has shown the existence of a prima facie dispute which ought to be referred to arbitration.
