AWANGSA BINA SDN BHD v MAYLAND AVENUE SDN BHD

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.

Holding Letter

1. We refer to your letter dated 14 March 2023.

2. We have been instructed by our client that your client may proceed with any adjudication and/or arbitration proceedings deemed necessary by your client.

3. However, any adjudication and/or arbitration proceedings will be vigorously defended by our client. Kindly also be informed that we have our client’s instructions to accept service of all legal process on our client’s behalf.

4. For the avoidance of doubt, all our client’s rights are expressly reserved.

Letter to Deny Liability

We refer to your letter dated +++

Kindly be informed that the alleged +++ are not within the scope of +++

Indeed, we have taken all necessary steps to +++

We further deny the +++’s claims for the sum of +++ in its entirety as the alleged amount is wholly unsubstantiated and, in any event, excessive.

 Therefore, you shall not release the sum of ++++, being +++.

Can you cancel a Schedule H SPA after signing it?

 Anand Raj Giri A/L Haripasar Giri v Country Garden Danga Bay Sdn Bhd

The brief facts are as follows:-

11–10–2017 Purchaser signed the Sales Form and Schedule H SPA (“SPA”) for the purchase of a property worth RM670,380. Paid Deposit of RM10,000.

9–11–2017 Purchaser made part payment to the Developer.

16–4–2018 Purchaser made another 2 part payments. Total paid to Developer at this stage is RM80,445.20.

7–8–2018 Developer dated the SPA.

On or around August 2018, Purchaser did not want to continue with the Purchase, citing financial issues.

18–1–2019 Purchaser signed the Deed of Revocation sent to him by the Developer. In the Deed of Revocation, there is a clause that allows the Developer to forfeit 10% of the Purchase Price (same substantial remedy as in Clause 11 (2) of the SPA).

20–8–2019 Purchaser commenced an action against the Developer.

26–9–2019 Developer refunded RM8,916.68 to the Purchaser, after deducting RM67,038.00 and RM4,491 as legal fees incurred by the Developer which arose from the purchase of the property.

The learned Magistrate held for the Purchaser/Plaintiff.

On appeal to the High Court, the learned Judicial Commissioner allowed the appeal and held for the Developer.

Dissatisfied, the Purchaser/Plaintiff appealed to the Court of Appeal.

The issues which were raised before the Court of Appeal were essentially:-

(a) Whether a Purchaser under a Schedule H SPA can cancel the SPA 2 years after signing the same, in reliance of a Sales Form that was signed by the Purchaser?

(b) Is the Purchaser entitled to claim for a full refund of Deposit paid to the Developer in reliance of the Sales Form?

(c) Whether the Deed of Revocation is valid and enforceable?

The solicitors for the Plaintiff/Purchaser submitted that:-

(a) The learned Judicial Commissioner in holding that the Purchaser in refusing to perform the SPA, has repudiated the SPA, and therefore the Developer elected to terminate the SPA, is plainly wrong because:-

(i) This was not pleaded by the Defendant in its pleadings;

(ii) The learned Judicial Commissioner made a finding that is contrary to the testimony of witnesses;

(iii) In making a finding that the Purchaser has repudiated the SPA and the Developer has elected to terminate the SPA, the learned Judicial Commissioner referred to Clause 11 (1) (c) SPA.

(iv) The 30-day notice requirement in Clause 11 (2) SPA has to be fulfilled before the Developer can terminate the SPA.

(v) Clause 11 is immaterial. The Developer never terminated the SPA. The precondition was never fulfilled.

(b) The Deed of Revocation should not be accepted because:-

(i) it was not in compliance with Clause 11 (2) SPA, and is consequently not valid.

(ii) it was never signed by the Defendant.

(iii) There was no evidence to show that the Deed of Revocation was agreed by the Developer. RM8,916.68 was only refunded to the Purchaser after this Suit was commenced.

(c) On the Sales Form, 2 issues were raised:-

(i) Whether Clause (f) is applicable?

There is no conflict between the Sales Form and the SPA, because it deals with a different situation — Sales Form caters to a cancellation by the Purchaser, while Clause 11 SPA deals with situation where termination by the Developer.

(ii) Does the SPA supersede the terms of the Sales Form?

The Sales Form was intended to exist together with the SPA, therefore, there was no conflict between the SPA and the Sales Form.

On behalf of the Developer, we submitted the following in relation to the SPA:-

(a) The SPA took effect on 11.10.2017. Refer to PJD Regency (Federal Court Decision).

(b) The SPA, being a Statutory Agreement, prevails over the Sales Form.

(c) The Sales Form is no longer applicable once the SPA is signed.

(d) If we were to refer to Clause (i) of the Sales Form, it “…will be construed with the provisions of the SPA…” and “in the event of any conflict, the provisions of the SPA shall prevail.”

(e) Clause (f) of the Sales Form states that “…in event of cancellation… charge 5% deposit as administrative fee and balance of deposit will be refunded.” However, Clause (f) catered for a scenario where the SPA has not been signed, because Clause (b) states that the Purchaser needs to sign the SPA in 7 days.

(f) Further, the reference to the word “deposit” in Clause (f) should be read together with Clause (a) of the Sales Form, which states that the deposit refers to the sum of RM10,000 and not any other sum (that is in the SPA).

Further, on the Deed of Revocation, we submitted that if only a situation under Section 8A of the Housing Development (Control and Licensing) Act 1966 occurs, i.e., if the Developer abandons the project, then the Purchaser may terminate the SPA, subject to certain terms and conditions:-

(1) Notwithstanding anything contained in any agreement, a purchaser shall at any time be entitled to terminate the sale and purchase agreement entered into in respect of a housing development which the licensed housing developer is engaged in, carries on, undertakes or causes to be undertaken if-

(a) the licensed housing developer refuses to carry out or delays or suspends or ceases work for a continuous period of six months or more after the execution of the sale and purchase agreement;

(b) the purchaser has obtained the written consent from the end financier; and

(c) the Controller has certified that the licensed housing developer has refused to carry out or delayed or suspended or ceased work for a continuous period of six months or more after the execution of the sale and purchase agreement.

(Case law has impliedly shown that a Deed of Revocation signed between parties may be used as a mode of such termination, notwithstanding that the Controller’s certification is not obtained. See Cemerlang Land Sdn Bhd v Ali bin Saat & Anor and other appeals [2018] 1 MLJ 331 Court of Appeal.)

In the present case, it was the Purchaser who wanted to cancel the deal, in response to which the Developer had prepared the Deed of Revocation. Although the Deed of Revocation was not signed by the Developer, it was acted upon by the Developer when it refunded RM8,916.68 to the Purchaser.

Further, the Deed of Revocation is in compliance with Clause 11 SPA, as the substantive remedy is same, i.e., both Clause 11 SPA and Deed of Revocation provide that the Developer can forfeit 10% of the Purchase Price.

It was conceded that the Developer never issued any 30-day notice as required under Clause 11 (2) SPA, but the point here is, it would be futile for the Developer to issue any such notice, since it was the Purchaser who had decided to cancel the deal (although technically speaking he cannot do so) and he also went on to cancel the bank loan. Therefore, the 30-day notice is no longer necessary. The Developer has no other choice except to prepare the Deed of Revocation, which was duly signed by the Purchaser.

The Developer had a legitimate expectation that the SPA will be performed. It was only after 2 years of signing the SPA that the Purchaser decided not to continue with the purchase. Therefore, based on parties’ agreement, the Developer forfeited 10% of the Purchase Price RM67,038 and the legal fees borne by the Developer on behalf of the Purchaser, amounting to RM4,491.

The Learned Judicial Commissioner therefore correctly decided that the Appeal at the High Court should be allowed.

Last but not least, if this Appeal is allowed, it would potentially create a floodgate in the housing industry, where the Purchaser can simply renege on a Schedule H SPA anytime, without having to deal with any repercussions.

After listening to parties, the Court of Appeal unanimously decided that the applicable agreement has to be the SPA as prescribed, and not the Sales Form. When the Purchaser indicated his intention to cancel, the Developer had followed up with a Deed of Revocation. Therefore, the High Court was correct to point out that there was repudiation by the Purchaser, that the Developer decided to accept. A non-compliance of Clause 11 (2) SPA cannot invalidate the Deed of Revocation when the Purchaser has agreed to it. There is no appealable error, and the appeal is thereby dismissed with costs of RM5,000.00, subject to allocatur.

Bar Council Life Insurance for Members

Nomination Form

Application for Termination of Winding Up

 
Mode: Summons in Chambers (Understanding: Notice of motion is only for those matters listed in the winding up rules), supported by Affidavit in Support

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Lee Shih stated on 4.12.2017 that "The Companies Act 2016 only provides for the prescribed form under section 493 for lodging the court order for termination. This is found on the SSM website. The procedure for such termination would have to be governed generally under case law as well as the Winding Up Rules 1972. The winding up rules do not explicit set out the procedure for termination (and neither does it set out the stay procedure), but I am of the view that the application can be made by way of Summons in Chambers under Rule 6 read together with Rule 7 (2) of the Winding Up Rules.

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So the story was, we applied by SIC, and proposed to make all payments to Insolvency Department. 

Insolvency had no objections to a stay, pending their preparation of a report. 

In the end, client had to pay fees of approximately RM115K to the Insolvency Department for the termination to be granted (fees charged by the Insolvency Department).

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Moral of the story: Don't ignore demands from creditors, if you're wound up and wish to revive the company, it would be a more challenging task. 

But we managed to get the Winding Up Order terminated within 1 month of its grant, which was not bad at all. 

Settlement Proposal

1. We refer to the above matter, wherein we act for +++, the +++.

2. We also refer to your letter dated +++ and the telephone conversation between +++.

Strictly on a without prejudice basis, we are instructed by our client to propose the following terms and conditions, as full and final settlement of the above matter:-

(a) Our client is agreeable to pay the sum of +++ to your client, as full and final settlement of the above matter (“Settlement Sum”).

(b) The Settlement Sum shall be released to you as the solicitors for your client, as stakeholder on or before +++ subject to the following terms and conditions:-

(i) Your client shall forthwith withdraw +++ upon receipt of the Settlement Sum by you as stakeholder;

(ii) Upon the +++, you may proceed to release the Settlement Sum to your client; and

(iii) Both parties shall bear their own costs in relation to the above matters.

(c) This Settlement constitutes a full final settlement of all claims and/or liabilities between +++ and +++, and all Parties shall have no further claims and/or liabilities whatsoever against each other.

4. Pending negotiation between Parties, we would be grateful if your client can hold +++ in abeyance.

5. We trust you will impress upon your client that our client is prepared to resolve the above matter amicably and we would be grateful if you could revert with your client’s agreement on the above terms within seven (7) days from the date hereof.

6. For the avoidance of doubt, our client expressly reserves all its rights.