O. 81 Rules of the High Court 1980 & O. 14 Rules of the High Court 1980

summary

To sum up, this is a case where the plaintiff is in essence seeking to recover a liquidated sum due from the defendants. That sum represents the balance due to the plaintiff under the consent order recorded in the winding up proceedings. What the plaintiff seeks to do is to recover that sum by resort to RHC O. 81. It cannot do that as the substance of its claim falls squarely within the O. 14 jurisdiction. The two jurisdictions – under O. 14 and O. 81 – are mutually exclusive. The High Court had no jurisdiction to deal with the plaintiff’s claim under O. 81. This is not a mere technicality and is not saved by O. 1A

The Judgement

LEE TENG SIONG v. LEE KHENG LIAN & ORS
COURT OF APPEAL, PUTRAJAYA
Gopal Sri Ram JCA, Mohd Ghazali Yusoff JCA, Hashim Yusoff JCA
[CIVIL APPEAL NO: W-02-647-2005]
31 JULY 2006
JUDGMENT
Gopal Sri Ram JCA:
[1] The only point at issue here is whether an application for summary judgment which ought properly to be moved under RHC O. 14 but is moved under O. 81 is saved by the terms of O. 1A. Here is the factual matrix from which this question emerges.
[2] The plaintiff in the action (appellant before us) and the defendants (respondents in this appeal) are shareholders in a company called Lee Geok Thye Holdings Sdn Bhd ("the Company"). Following disputes between them, the plaintiff presented a petition to wind up the company on the just and equitable ground under s. 218(i) of the Companies Act 1965. The defendants who were represented by solicitors gave notice of their intention to appear and oppose the petition. The winding up proceedings came to an end when the plaintiff and the defendants (named as opposing contributories) entered into a consent order which was in essence a buy out by the defendants of all the plaintiff’s shares in the company and some other assets. The agreed purchase price was RM10,000,000. The plaintiff was to deposit the share certificates in respect of his shares and the duly executed transfer forms with his solicitor. He did that. The defendants paid two instalments of the purchase price. There was then a default. Thereafter, the plaintiff instituted an action to recover the balance of the purchase price. After delivery of the pleadings, the plaintiff moved for summary judgment. His summons for judgment recites that it was taken out under RHC O. 81 r. 1. The learned judge who heard the summons dismissed it. In essence he gave two reasons for his decision. First, that the consent order did not bind the defendants: for it was only the company which was the respondent in the winding up proceedings. The defendants were not parties to the winding up proceedings and they did not make payment to the plaintiff. On the other hand, it was the company which made the payments. Second, the consent order does not provide for a remedy against the defendants. In the circumstances, the plaintiff had no cause of action against the instant defendants and his action was an abuse of process. The plaintiff has now appealed against that order of dismissal.
[3] Now, let me say at once that it is the usual practice of this court to refuse to entertain appeals against the refusal of summary judgment. That practice was established in 1994 when this court was constituted. Once a judge has held that there are triable issues disclosed in the papers before him, we generally allow his view to prevail. For, upon such an appeal, we are only a court of review and it is not our function to trawl through the pleadings and scrutinise the affidavits to see if the judge was wrong. Once the High Court holds that there are triable issues of fact, it is best that the matter is left to proceed to the stage of case management and then on to its conclusion in the usual way. Indeed, this court is entitled to dismiss an appeal against an interlocutory order without hearing full argument unless some manifest injustice would ensue. An example of the exercise of this power is SBJ Stephenson Limited v. Mandy [1999] EWCA Civ 1720, where the English Court of Appeal dismissed an appeal against the grant of an interim injunction on the ground that it would be entirely pointless and indeed wrong for there to be a debate at the appellate stage as to whether the plaintiff in that case had a seriously arguable case justifying interim relief until trial. The court accepted that it would not be a correct use of the court’s time or cost efficient to enter into the merits of the appeal. The same applies in our jurisdiction.
[4] But this is not a usual case. It is out of the norm. Here there is no dispute as to facts. Quite the contrary. Because, all the material facts are common ground between the parties. What is contended is that the judge misdirected himself on a point of law. The misdirection, it is said, inter alia, lies in the finding by the learned judge that the defendants were not parties to the winding up. I think that there is force in the plaintiff’s complaint. A winding up petition is not a lis inter partes. It is not like a civil suit. It is a lis ad rem. All sorts of persons have an interest in winding up proceedings. You have the creditors. You have the contributories, who, by definition, include the holders of fully paid shares. The view I take is supported by the judgment of Harman J in Re Western Welsh International System Buildings Ltd [1985] 1 BCC 99, 296, at 99, 297.
[5] I must mention that during his argument, learned counsel for the plaintiff also referred us to two authorities to show that the company was only a nominal party to the winding up proceedings and that the real litigants are the shareholders. They are Re Crossmore Electrical & Civil Engineering Ltd [1989] 5 BCC 37 and Re Hydroscan Ltd [1991] BCC 19. But these are decisions on
s. 459 of the UK Companies Act, the equipollent of s. 181 of our Companies Act 1965 which concerns proceedings for oppression, unfair prejudice and unfair discrimination inter se the members of a company. They are therefore unhelpful for present purposes.
[6] That said, there are two added features in this case to which I must make reference. First the consent order makes it abundantly clear that the parties to the agreement embodied in it were the plaintiff of the one part and the defendants (described as "opposing contributories") of the other part. A consent order of the type that is under consideration here is really nothing more than an agreement for valuable consideration that has been entered into between parties to an ongoing litigation. It must be honoured by the respective obligors in the absence of any statutory or common law impediment. And like any ordinary contract, it cannot be impeached save by way of a fresh action based on any of those grounds on which an agreement may be set aside. See, Tio Chee Hing v. Tractors Malaysia [1973] 1 MLJ 66 (reversed by the Privy Council on the merits); Hock Hua Bank Bhd v. Sahari bin Murid [1981] 1 MLJ 143.
[7] In Habib Mian v. Mukhtar Ahmad AIR [1969] All 296, Pathak J when delivering one of the judgments of the Full Bench said:
There is authority for the proposition that a compromise decree is a creature of the agreement on which it is based and is subject to all the incidents of such agreement, that it is but a contract with the command of a Judge superadded to it and in construing its provisions the fundamental principles governing the construction of contracts are applicable. Nagappa v. Venkat Rao [1901] ILR 24 Mad 265; Amrit Sundari v. Sharajuddin AIR [1915] Cal 464; CJ Smith v. A. Kanny AIR [1924] Pat 231 and Jahuri Lal v. Kandhai Lal, AIR [1935] Pat 123.
One of the cardinal principles in the construction of contracts is that the entire contract must be taken as constituting an organic synthesis, embodying provisions which balance in the sum of reciprocal rights and obligations. It is through the prism of that principle that the terms of the compromise decree must be analysed.
[8] In my judgment, the consent order vested in the plaintiff a cause of action he did not previously have against the defendants. Tong Lee Wah & Anor v. Chin Ah Kwi & Ors [1971] 2 MLJ 75 is authority for the view I take. In that case, Gill FJ when delivering the unanimous decision of the Federal Court said:
After a judgment by consent has been passed and entered, it cannot afterwards be varied on the ground of mistake, except for reasons sufficient to set aside an agreement (see Attorney-General v. Tomline (1877–8) 7 Ch D 388). The general rule is that after a judgment has been passed and entered, even where it has been taken by consent and under a mistake, the court cannot set it aside otherwise than in a fresh action brought for the purpose unless (a) there has been a clerical mistake or an error arising from an accidental slip or omission, or (b) the judgment as drawn up does not correctly state what the court actually decided and intended to decide, in either of which cases the application may be made by motion in the action (see Ainsworth v. Wilding [1896] 1 Ch 673). The same rule must apply, a fortiori, where the parties have entered into an agreement in pursuance of the terms of settlement embodied in the consent order.
In re Hearn [1913] 108 LT 452, 737 is usually cited as the authority for the proposition that a consent order, embodying a new agreement between the parties beyond the scope of the action, can only be enforced in a fresh suit. In that case not only did the compromise go outside the ambit of the original action but, first, no liberty to apply had been reserved at all and the stay was absolute and unqualified, and, secondly, the relief sought by an application in the same proceedings was not a mere enforcement of the agreed terms but to modify them to give effect to the original intention in changed circumstances. It was held by Sargant J that such an application could not be made by a summons in the original action which was commenced in 1908 by originating summons, but that independent proceedings must be taken. An appeal against that decision was dismissed by the Court of Appeal. The main ground for the decision in the Court of Appeal was that the applicant was seeking relief against trustees outside the ambit of the compromise itself, but Cozens-Hardy M.R. went on to say at page 738:
But apart from that, although that alone is a sufficient ground for dismissing this appeal, there is also this further ground – namely, that this is an attempt to enforce, not a title under the will, which alone was dealt with by the trustees’ summons, but an entirely new and independent bargain between the husband and the wife, and that could not be done in the old proceedings.
[9] The second feature is this. After the consent order had been entered into, the instant defendants took out an application in the winding up to set it aside. It was the defendants’ case that their solicitor had entered into the consent order without their authority. Vincent Ng J rejected that contention. His judgment is reported in [2003] 4 CLJ 834. After examining the evidence before him he made the following findings:
Prior to the filing of this motion, there was part performance of the consent order, in that the petitioner deposited his share certificates and the duly executed memorandum of transfer with his solicitors, and the applicants and the other opposing contributories had made two payments. The applicants and the other contributories then defaulted in the payment of the third and subsequent instalments. Hence, in my view, the applicants, by the present motion are attempting to renege from the consent order and to get out of their obligations to perform the agreed terms of the consent order.
[10] These findings bind the defendants in the instant suit. Indeed I can find no clearer case of estoppel. And I need only quote from the speech of Lord Radcliffe in Society of Medical Officers of Health v. Hope [1960] AC 551:
The principles of law governing estoppel per rem judicatam inter partes are generally repeated in the form derived from the words of de Grey CJ in the Duchess of Kingston’s Case [1776] 20 St.Tr. 355, 538n and quoted by Lord Selborne LC in Reg. v. Hutchings [1881] 6 QBD 300, 304 (CA):
... the judgment of a court of concurrent’ (or of exclusive) ‘jurisdiction, directly upon the point, is conclusive ... between the same parties coming incidentally in question in another court for a different purpose. But neither the judgment of a concurrent or exclusive jurisdiction is evidence of any matter which came collaterally in question, though within their jurisdiction; nor of any matter incidentally cognisable, nor of any matter to be inferred by argument from the judgment.
Other authorities have added the requirement that there must be a lis inter partes for the judgment to proceed upon, and that the court must be a court ‘of competent jurisdiction that has seisin of the case for the purpose of reaching a final decision inter partes’: see Inland Revenue Commissioners v. Sneath [1932] 2 K.B. 362, 380-381.
[11] Based on what I have said thus far, it appears that the learned judge in the present instance fell into error in holding that the defendants were not parties to the consent order. They were. He also erred in holding that the plaintiff did not have a cause of action. The plaintiff surely has a good cause of action. He and the defendants had entered into a solemn bargain. The defendants had, after making part payments to him, refused further performance. He was therefore the victim of a breach of contract and was entitled to sue. If these be the only points at issue, then this appeal may well succeed and leave may have to be granted to the plaintiff to sign summary judgment on the uncontroverted facts. But that is not the case. And that brings me to the real issue in this appeal: the one identified at the commencement of this judgment.
[12] If you look at the plaintiff’s summons for judgment, you will see that it says that it is – and here I quote the actual words used – "an application on the part of the abovenamed plaintiff under O. 81 r 1 of the Rules of the High Court 1980". The prayer in the summons for judgment claims an order that the defendants pay to the plaintiff "the sum of RM6,800,000 being the balance of the purchase price for the assets as set out on the Schedule hereto". The Schedule sets out the plaintiff’s shares in the company and in another company called Malinjaya Sdn Bhd and two lots of land in the District of Kuala Pilah.
[13] The defendants argue that what the plaintiff’s claim is for a liquidated sum and not for the relief of specific enforcement. The plaintiff ought therefore to have proceeded under O. 14 and not under O. 81. The plaintiff says that it does not matter that the summons recites that it was being taken out under O. 81 and that the learned judge could have simply proceeded under O. 14. In support of his argument, the plaintiff relies on O. 1A which reads:
In administering any of the rules herein the court or a judge shall have regard to the justice of the particular case and not only to the technical non-compliance of any of the rules herein.
[14] It is the plaintiff’s submission that though the application states that it was made under O. 81 and not under O. 14, this is a mere technicality and should be ignored by the court as inconsequential. The judge, it is said, should have acted under
O. 14 and entered judgment for the plaintiff. Having given the arguments in this case my most anxious consideration I have come to the conclusion that this appeal must fail and that the order of the judge must be upheld, albeit for different reasons.
[15] At common law, a court – even a superior court of record – has no jurisdiction to enter judgment summarily against a defendant to an action. It was the English Rules of the Supreme Court 1883 that empowered the High Court to enter judgment summarily in cases where a writ was specially indorsed. However, special indorsement of a writ was not permitted in cases involving an allegation of fraud or in cases of libel, slander and malicious prosecution. In 1957, our Rules Committee discontinued the use of the FMS Civil Procedure Code and introduced the Rules of the Supreme Court 1957 which were based (save in areas of the levying of execution) on the 1883 Rules. Under the 1957 Rules, the O. 14 procedure as framed in the 1883 Rules was introduced, although this summary judgment jurisdiction did already exist under the provisions of the Civil Procedure Code. There was however no jurisdiction in the High Court to enter judgment summarily in cases of specific performance and rescission. The jurisdiction to enter summary judgment in cases of specific performance was conferred through an amendment to the 1957 Rules by the introduction of an O. 14A. In the comprehensive procedural changes that took place in 1980, this summary jurisdiction was written into O. 81 which is the current empowering provision. Take away O. 81 and you cannot enter summary judgment for specific performance or rescission. Likewise with O. 14. Take it away and the court has no jurisdiction to enter summary judgment. I have made these points to show that RHC O. 14(1) and O. 81(1) are not merely procedural in nature. They are jurisdictional. I cannot overemphasise that absent these two rules of court there is no power in the High Court to enter summary judgment.
[16] Further, O. 14 in r. 2(3) makes it amply clear that it is mutually exclusive from O. 81. It says:
This Order shall not apply to an action to which Order 81 applies.
This exclusivity is important because the jurisdiction that the court exercises under the former is distinct from the latter. Thus, a plaintiff cannot move under O. 14 until after appearance is entered. However, an appearance to the writ is not a sine qua non of the summary judgment jurisdiction conferred under O. 81. Also, O. 81 is only concerned with the forms of specific relief or damages as an alternative thereto as provided by that rule of court. Last but not the least, the procedure to be followed under O. 81 is markedly different from that prescribed by O. 14.
[16] All that I have said thus far accords with the views expressed by this court in Choong Mee Leng v. Lam Chong Seng [2005] 3 CLJ 350. At the risk of repetition, this is the view that was expressed:
4. It is not open to argument that the foregoing rule of court is jurisdictional in nature. But for the rule the court has no jurisdiction to enter summary judgment in the cases set out therein. It is to be noticed that O. 81 does not include the declaratory decree among the relief that may be granted summarily. Compare this with the English RSC 1997 which empowers an English court to summarily grant a declaration that a contract is at an end. But neither the English rule of court nor ours empowers a court to include a declaration that a contract is subsisting. It follows that the court has no power to enter summary judgment either under procedure prescribed by O. 14 or O. 81 save in a case expressly provided for in either of these rules of court.
5. In Cotra Enterprises Sdn Bhd v. Pakatan Mawar (M) Sdn Bhd [2001] MLJU 358, Ahmad Maarof JC had before him a case in which the plaintiff had sought summary judgment under O. 14 for a declaration the substance of which was that five written agreements he had entered into were void and had been rescinded. The learned judicial commissioner held – and in our judgment correctly held – that the declaration sought was in essence an order for rescission within O. 81 and therefore fell outside the scope of O. 14. In the present case the facts are inverted. Here the respondent obtained a declaration under O. 81 when that form of relief is not one of the remedies available summarily under the Order. It is our very respectful view that the High Court was plainly wrong in making the order which it did as it simply did not have the power to do so.
6. In CE Heath Plc v. Ceram Holding Co [1988] 1 WLR 1219, Neill LJ made the following observation:
The scope of O. 14 proceedings has been a matter which has been determined by the rules. There would therefore appear to be little, if any, room for an argument that the court has some wider powers in these fields than that conferred by the rules, or that it has some residual or inherent jurisdiction to grant relief where it is just to do so, or that the wide language of the statute confers some additional powers to act outside and beyond the rules.
7. That passage in our respectful judgment applies to the summary procedure created by RHC O. 81.
[17] What we are therefore concerned with are not two different procedures to achieve the same result but two entirely different types of jurisdiction. Now, O. 1A (of which I must confess to be the draftsman) speaks of the "technical non-compliance of any of the rules". A good example of a technical point is the very recent case of Alliance Bank Malaysia Bhd v. Mukhriz Mahathir [2006] 6 CLJ 723. In that case objection was taken to the admissibility of an affidavit on the ground that the affidavit did not carry a complete jurat. Ramly Ali J treated the omission as a pure technicality and excused it. But what we have here is a jurisdictional point: not a mere technical non-compliance of the rules of court. And, it is settled law that neither consent nor waiver may confer jurisdiction on a court that has none. As Lord Reid said in Essex County Council v. Essex Incorporated Congregational Church Union [1963] 1 All ER 326 at p 330:
[I]n my judgment it is a fundamental principle that no consent can confer on a court or tribunal with limited statutory jurisdiction any power to act beyond that jurisdiction, or can estop the consenting party from subsequently maintaining that such court or tribunal has acted without jurisdiction.
[18] An irregularity may be waived by the court; a want of jurisdiction cannot. It therefore follows that O. 1A has no application to the present instance.
[19] In support of his argument that the High Court should have treated the mention of O. 81 as a matter of no consequence learned counsel for the plaintiff cited Lee Chong Lim v. Standard Chartered Bank Malaysia Berhad [2004] 6 CLJ 447. In that case, the plaintiff sought summary judgment purportedly under O. 81 for specific performance of an agreement he had with the defendant bank. One of the grounds on which the summons was opposed was that the contract was to lend money and that specific enforcement of such a contract would not be granted in accordance with well established principles that guide the discretion of a Court of Equity. The learned judge in that case appears to have treated a substantive objection going to discretion as a purely procedural objection. He said:
First, I shall deal with the purely procedural point that the application does not come within the ambit of O. 81(1)(a), (b) and (c) to which counsel for the defendant has correctly submitted is concerned merely with specific performance ‘for the sale, purchase or exchange of property, or for the grant or assignment of a lease of any property, with or without an alternative claim for damages’.
Rightly therefore, this application should have been made under the general provision of O. 14 which has a larger foot-print to include the grant of an order of specific performance of other contracts. But an incorrect citation of the orders of the RHC is not necessarily fatal, where the substance of the application is clear and comprehensible to the defendant - to seek by way of an application for summary judgment the specific performance of a contract. The court looks to the substance not the form. The rule is now made all that much clearer with the recent introduction of O. 1A of the RHC …
[20] With respect, I am unable to accept the view taken by the learned judge in Lee Chong Lim v. Standard Chartered Bank Malaysia Berhad. As I have already said, what appears to have been taken was a point of substance and not mere procedure. Also, the jurisdictional point taken before us does not appear to have been argued in that case. I therefore do not think that that case really assists the instant plaintiff.
[21] There is another point I need to mention. It has to do with the approach of the learned judge in this case. Now, what he had before him was a summons for judgment. Whether it be one made under O. 14 or O. 81, the only question he had to answer was whether there were bona fide triable issues that merited a full trial. He would certainly have been entitled to identify such issues. Unfortunately he went further to make findings on the merits of the case. This, with respect is outside the scope and purview of the two orders earlier referred to. If authority is needed, you will find it in Diamond Peak Sdn Bhd & Anor v. Tweedie [1980] 2 MLJ 31.
[22] To sum up, this is a case where the plaintiff is in essence seeking to recover a liquidated sum due from the defendants. That sum represents the balance due to the plaintiff under the consent order recorded in the winding up proceedings. What the plaintiff seeks to do is to recover that sum by resort to RHC O. 81. It cannot do that as the substance of its claim falls squarely within the O. 14 jurisdiction. The two jurisdictions – under O. 14 and O. 81 – are mutually exclusive. The High Court had no jurisdiction to deal with the plaintiff’s claim under O. 81. This is not a mere technicality and is not saved by O. 1A.
[23] For the reasons already given, this appeal fails. I would dismiss it with costs and affirm the orders made by the learned judge but for different reasons. The deposit must be paid out to the respondents to account of their taxed costs.
[24] By way of postscript I must add that this dismissal does not preclude the plaintiff from filing a fresh application under O. 14 as this is not a case where the summons for judgment has been dismissed on merits. So no question of issue estoppel may arise here as happened in Malayan United Finance Bhd v. Noormurni Sdn Bhd [1988] 1 MLJ 395.
[25] My learned brothers Mohd Ghazali bin Mohd Yusoff and Hashim bin Dato’ Haji Yusoff JJCA have seen this judgment in draft and have expressed their agreement with it.
* * * * * *
Case(s) referred to:
Alliance Bank Malaysia Bhd v. Mukhriz Mahathir [2006] 6 CLJ 723 HC (refd)
Choong Mee Leng v. Lam Chong Seng [2005] 3 CLJ 350 CA (foll)
Diamond Peak Sdn Bhd & Anor v. Tweedie [1980] 2 MLJ 31 (refd)
Essex County Council v. Essex Incorporated Congregational Church Union [1963] 1 All ER 326 (refd)
Habib Mian v. Mukhtar Ahmad AIR [1969] All 296 (refd)
Hock Hua Bank Bhd v. Sahari Murid [1981] 1 MLJ 143 (refd)
Lee Chong Lim v. Standard Chartered Bank Malaysia Berhad [2004] 6 CLJ 447 HC (dist)
Lee Teng Siong v. Lee Geok Thye Holdings Sdn Bhd [2003] 4 CLJ 834 HC (refd)
Malayan United Finance Bhd v. Noormurni Sdn Bhd [1988] 1 CLJ 149; [1988] 1 CLJ (Rep) 190 SC (refd)
Re Crossmore Electrical & Civil Engineering Ltd [1989] 5 BCC 37 (dist)
Re Hydroscan Ltd [1991] BCC 19 (dist)
Re Western Welsh International System Buildings Ltd [1985] 1 BCC 99 (foll)
SBJ Stephenson Limited v. Mandy [1999] EWCA Civ 1720 (refd)
Society of Medical Officers of Health v. Hope [1960] AC 551 (foll)
Tio Chee Hing v. Tractors Malaysia [1973] 1 MLJ 66 (refd)
Tong Lee Wah & Anor v. Chin Ah Kwi & Ors [1971] 2 MLJ 75 (foll)
Legislation referred to:
Companies Act 1965, ss. 181, 218(i)
Rules of the High Court 1980, O. 1A, O. 14A, O. 81 r. 1
Companies Act [UK], s. 459
For the appellant - RR Sethu (NH Wong with him); M/s NH Wong & Assoc
For the respondents - Hamid Sultan Abu Backer; M/s Hamid Sultan Loga Chitra & Assoc
[Appeal from High Court, Kuala Lumpur; Civil Suit No: D3-22-452-04]
Reported by Suresh Nathan

Dormant Companies – “Wind-It Up”

Very common is the “joint venture vehicle”, (the shelf company purchased hurriedly by the investors) lost in its purpose, when such joint venture fails to take off. Sometimes, companies are formed for other motive (best known to its founding fathers) but later losing directions and purpose. The common mistake which its directors and shareholders do is to fail to wind up the company. The company is just left in abeyance. You should wind it up.

http://corporategovernancebangsar.blogspot.com/

The Malaysian Chapter - Some thoughts on s218(1) of the Companies Act, 1965

1) Section 218(1) of the Companies Act (Malaysian Companies Act 1965) sets out the circumstances in which a company may be wound up by the Court, of which s218(1)(e) being one of the “common” grounds i.e. inability of the company to pay its debts.

2) Upon service and the non-payment of a s218 notice, the presumption under s218(2)(a) will be invoked that the company is deemed unable to pay its debts.

Judgment

3) It is also trite law that the Petitioner does not need to be armed with a Judgment to invoke the presumption under s218. Nevertheless and unfortunately, many judges and the official receivers department seek this (a judgment) as a “prerequisite”. .

The Court of Appeal affirmed that “It is not provided under the Act that a petitioner must be armed with a judgment debt prior to the filing of a petition to wind up a company” (Syarikat Mohd Noor Yusof Sdn Bhd v Polibina Engineering Enterprise Sdn Bhd (in liquidation) – COA [2006] 1 MLJ 446)

“Under s218(2)(a) of the Act, once a notice to pay a debt has been served on a company, the company has to meet the presumptive challenge of the section by disputing the existence of the debt which can be done by either showing that the debt is non-existent or that the petitioner is not its creditor.” (Tan Ah Teck (t/a Plumcon Plumbing & Construction Co) v Coffral (Malaysia) Sdn Bhd – HC [1992] 1 MLJ 553)


The Debt - A liberal interpretation

4) Being a statutory right, the Federal Court decided that Courts ought to adopt a liberal interpretation in considering of the provisions of s218(2)(a) of the Companies Act and even a demand not specifying an exact sum was deemed sufficient. Commercial reality demands of this liberal interpretation otherwise leaving this section an absurdity. The leading case of Re Fabo Pty applied. The Courts are looking into the commercial insolvency of the company rather than technical objections of the demand.

“The court should adopt a liberal interpretation when considering the provisions of s218(2)(a)of the Act. The adoption of a literal interpretation would be difficult as it would compel the court not to make a winding up order notwithstanding the existence of clear evidence that an undisputed sum exceeding RM500 has remained unpaid after a demand made without any reasonable explanation for the failure to pay. Further, commercial reality demands that liberal interpretation be adopted.

A notice of demand under s218 need not specify the exact sum due as at the date of demand. So long the sum due exceeded RM500 and remained unpaid after the demand made without any reasonable explanation to the satisfaction of the court, there is therefore neglect to pay such sum within the meaning of the section” (Malaysia Air Charter Co Sdn Bhd v Petronas Dagangan Sdn Bhd – FC [2000] 4 MLJ 657)

A statutory right/ Commercial Insolvency

5) In any event, the right to present a Petition is a statutory one and cannot be taken away unless the company/Plaintiff can seriously challenge and prove that the debt is substantially and bona fide disputed. Furthermore, the party must prove that they are able to pay the debt and are not commercially insolvent.

6) Following the Privy Council, Sri Hartamas Development Sdn Bhd v MBF Finance Bhd – SC [1992] 1 MLJ 313 decided that, “In dealing with ‘commercial insolvency’, that is, of a company being unable to meet current demands upon it, we would respectfully follow the Privy Council in the Malayan Plant case and cite the following observations from Buckley on the Companies Act (13th Ed) at p 460:In such a case it is useless to say that if its assets are realized there will be ample to pay twenty shillings in the pound: this is not the test. A company may be at the same time insolvent, and wealthy. It may have wealth locked up in investments not presently realizable; but although this be so, yet if it have not assets available to meet its current liabilities it is commercially insolvent and may be wound up”

Conclusion

Alas, as aforemetioned, many courts seek a judgment as a “prerequisite” before the Winding-Up..

Removal of Liquidators, Quickson & the Deloitte’s case

Section 108(2) of the Insolvency Act 1986
Section 108(2) provides that the "court may, on cause shown, remove a liquidator and appoint another."


Quickson (South & West) Ltd v Katz [2004]

In recent times there has been case law when the Court has required some “show cause” reflecting characteror unfitness. This has been correctly "re-aligned" when the Court has said that there is no need for such special circumstances - Ehterton J in Quickson

Etherton J in Quickson,
…………… therefore, that it is quite clear from the entire line of authority stretching back to 1867 that, in appropriate circumstances, there may be good cause to remove a liquidator, notwithstanding the failure of the applicant to prove misfeasance as such, and even though no reasonable criticism can be made of his conduct.
In my judgment, that summary of the application of the legal principles to the present case is too narrow and too rigid, and does not properly reflect the broad discretion of the court under IA s.108(2). It appears to be an analysis which has transformed the observation of Neuberger J in AMP Enterprises that the court expects any liquidator to be efficient and vigorous and unbiased in his conduct of the liquidation (at para [23]) into a pre-condition of removal under s.108(2) that, in order to succeed, the applicant must show that the liquidator has failed to act in an efficient, vigorous and unbiased manner, and will continue to fail to do so in the future.

Neuberger J himself emphasised (at para [21]) that it is inappropriate to lay down what facts will and what facts will not constitute sufficient grounds for removal under s.108(2). In that case, he made helpful and practical comments that it should not be seen to be easy to remove a liquidator merely because it can be shown that in one or more respects his conduct has fallen short of the ideal, and it is necessary to bear in mind the expense and disruption of a substitute appointment. Similarly, as I have already said, Nourse LJ in Edennote (at p.398) observed that the creditors’ lack of confidence in the liquidator must be reasonable, and the court will pay due regard to the impact of removal on the liquidator’s professional standing and reputation. Factors such as those might, taking into account all the circumstances, warrant a refusal to remove a liquidator even where there are reasonable criticisms that can be made of the liquidator’s conduct of the liquidation.

On the other hand, it is quite clear from the entire line of authority stretching back to 1867 that, in appropriate circumstances, there may be good cause to remove a liquidator, notwithstanding the failure of the applicant to prove misfeasance as such, and even though no reasonable criticism can be made of his conduct: see Millett J in Re Keypak Homecare at p.416, approved by the Court of Appeal in Re Edennote at p.398.

In my judgment, the touchstone for an appraisal of whether good cause has been shown for the removal of a liquidator is the principle stated by Bowen LJ in Re Adam Eyton (at p.306) :


"The due cause is to be measured by reference to the real, substantial, honest interests of the liquidation, and to the purpose for which the liquidator is appointed."

See Also
Deloitte’s case Privy Council Appeal No. 44 of 1998

1. The statutory jurisdiction to remove a liquidator.
The companies legislation which was under consideration by the Court of Appeal was the Companies Law (1995) Revision. The legislation has since been consolidated and revised as the Companies Law (1998) Revision. The parties are agreed that there are no material differences between the two, though the section numbers have been altered as a result of the addition of a new section 4 in the 1998 Revision. Their Lordships will refer to the provisions of the 1995 Revision. The legislation is based upon the English Companies Act 1862.

Section 106(1) provides:-
“(1) Any official liquidator may resign or be removed by the Court on due cause shown; and any vacancy in the office of an official liquidator appointed by the Court shall be filled by the Court.”

It is common ground that this section applies not only to a compulsory liquidation but also (by virtue of section 153) to a liquidation which is continuing subject to the supervision of the court. The corresponding section which applies to a voluntary winding up is section 143. This provides:-
“143. If, from any cause whatever, there is no liquidator acting in the case of a voluntary winding up, the Court may, on the application of a contributory appoint a liquidator or liquidators; and the Court may, on due cause shown, remove any liquidator and appoint another liquidator to act in the matter of a voluntary winding up.”

Their Lordships make two observations on these sections. In the first place, each of the sections has two limbs, one enabling the court to appoint a liquidator to fill a vacancy, and the other enabling it to remove a liquidator for cause. In the second place, save in the case of the appointment of a liquidator in a voluntary winding up where the application must be made by a contributory, there is no express restriction on the category of person who may make the application. Where an insolvent company is being voluntarily wound up, it appears that a creditor who wishes to apply for the appointment of a liquidator must either petition for a compulsory winding up or apply for the liquidation to continue under the supervision of the court.

In the course of argument reference was made to the cases on the corresponding statutory provisions in England. For convenience, therefore, their Lordships set out the terms of the relevant English section which corresponds to section 106 of the 1995 Revision. This is section 108 of the Insolvency Act 1986, which provides:-
“(1) If from any cause whatever there is no liquidator acting, the court may appoint a liquidator.

(2) The court may, on cause shown, remove a liquidator and appoint another.”

It will be seen that the two sections are in largely similar terms. Each contains the same two limbs; neither prescribes the person or persons who may make the application.

The appellants submit that as a matter of ordinary construction section 106 confers on the court a power to remove a liquidator for cause without any limitation on the category of person who may make the application. They draw a contrast with other sections of the Companies Law which do contain such a limitation. Section 95, for example, restricts the right to apply to the court for the winding up of a company to creditors and contributories. Sections 102 (application for a stay of proceedings), 140 (determination of questions in a winding up), and 143 (set out above) all contain express restrictions on the person or persons who may make the application. By contrast section 106 contains no requirement that the applicant should be a creditor or contributory, or that he should have a direct financial interest in the conduct of the liquidation. There is certainly no express requirement and, it is said, none should be implied, since it is impossible to foresee all the circumstances which may justify the removal of a liquidator.

The appellants concede that not everyone is a proper person to make the application. They submit that any person who has an interest in making the application or who may be affected by its outcome is a proper person to make it. They say that they are such persons since they are critically affected by decisions which the liquidators will make in the conduct of the proceedings which the Company has brought against them. The real question is whether they can establish due cause for the removal of the respondents as liquidators. This, it is submitted, is a separate question which can only be determined after a full investigation of the grounds upon which the removal of the liquidator is sought. Unless obviously ill founded, they submit, an allegation of impropriety could not be summarily dismissed without investigation; and an alleged conflict of interest is in like case. It is not to be supposed that the court would lightly permit its own officers to place themselves in a position where their interest conflicts with their duty.

The appellants have cited numerous authorities on the circumstances in which the English Court will exercise its power to remove a liquidator for cause. Their Lordships do not find them helpful to the appellants. They show that impropriety is not necessary; that it is sufficient to satisfy the court that the removal of the liquidator will be for the general advantage of the persons interested in the liquidation; that in the absence of impropriety the court will have regard to the wishes of the majority of those interested; but that where impropriety is shown the court may override their wishes. They do, however, show that the court has consistently regarded the creditors (in the case of an insolvent liquidation) and the contributories (in the case of a solvent liquidation) as the proper persons to make the application, being the only persons interested in the liquidation. Their Lordships have not been shown any case in which the court has removed a liquidator who is able and willing to act on the application of anyone who is not a creditor or contributory as the case may be.

The appellants place much reliance on recent cases in England under section 108(1) of the Insolvency Act 1986. They have been concerned with the situation which arises when an office-holder with numerous appointments is incapable of continuing in office. Where he has automatically vacated office on having his authorisation withdrawn, the court has appointed another office-holder in his place on the application of the former office-holder himself, his former partners, the Secretary of State, and the Insolvency Practitioners Association. The court has also acceded to an unopposed application by the former partners of an office-holder who has resigned from his firm and is unable to continue in consequence to remove him and appoint another partner in his place. In all these cases the applicant has had a professional or official responsibility to bring to the attention of the court the existence of a large number of vacancies which needed to be filled. The only question of substance was whether it was necessary to incur the expense and delay of calling meetings of the creditors in every case in order to fill them. The court was prepared to remove the office-holder and thus create the vacancies it was asked to fill only where the office-holder accepted that he was incapable of acting. In such a case it recognised the reality of the situation, which was that the office was to all intents and purposes already vacant. But it refused the application and left the decision to the creditors where the office-holder, though unwilling to continue in office, was capable of doing so: see In re Sankey Furniture Ltd. [1995] 2 B.C.L.C. 594 and In re A. & C. Supplies Ltd. [1998] 1 B.C.L.C. 603.

In their Lordships’ opinion two different kinds of case must be distinguished when considering the question of a party’s standing to make an application to the court. The first occurs when the court is asked to exercise a power conferred on it by statute. In such a case the court must examine the statute to see whether it identifies the category of person who may make the application. This goes to the jurisdiction of the court, for the court has no jurisdiction to exercise a statutory power except on the application of a person qualified by the statute to make it. The second is more general. Where the court is asked to exercise a statutory power or its inherent jurisdiction, it will act only on the application of a party with a sufficient interest to make it. This is not a matter of jurisdiction. It is a matter of judicial restraint. Orders made by the court are coercive. Every order of the court affects the freedom of action of the party against whom it is made and sometimes (as in the present case) of other parties as well. It is, therefore, incumbent on the court to consider not only whether it has jurisdiction to make the order but whether the applicant is a proper person to invoke the jurisdiction.

Where the court is asked to exercise a statutory power, therefore, the applicant must show that he is a person qualified to make the application. But this does not conclude the question. He must also show that he is a proper person to make the application. This does not mean, as the appellants submit, that he “has an interest in making the application or may be affected by its outcome”. It means that he has a legitimate interest in the relief sought. Thus even though the statute does not limit the category of person who may make the application, the court will not remove a liquidator of an insolvent company on the application of a contributory who is not also a creditor: see In re Corbenstoke Ltd. (No.2) (1989) 5 B.C.C. 767. This case was criticised by the appellants: their Lordships consider that it was correctly decided.

The standing of an applicant cannot therefore be considered separately and without regard to the nature of the relief for which the application is made. Section 106(1) does not limit the category of persons who may make the application. The appellants, therefore, do not lack a statutory qualification to invoke the section. But the question remains whether they have a legitimate interest in the relief which they seek. They are not asking the court to appoint a liquidator to fill a vacancy. They are asking the court to remove incumbent liquidators for cause. The English cases relied upon by the appellants show that an interest which is sufficient to support an application of the former kind may not be sufficient to support an application of the latter kind.

The Company is insolvent. The liquidation is continuing under the supervision of the court. The only persons who could have any legitimate interest of their own in having the respondents removed from office as liquidators are the persons entitled to participate in the ultimate distribution of the Company’s assets, that is to say the creditors. The respondents are willing and able to continue to act, and the creditors have taken no step to remove them. The appellants are not merely strangers to the liquidation; their interests are adverse to the liquidation and the interests of the creditors. In their Lordships’ opinion, they have no legitimate interest in the identity of the liquidators, and are not proper persons to invoke the statutory jurisdiction of the court to remove the incumbent office-holders.

The appellants’ case is not advanced by alleging that the respondents have a conflict of interest. This is not the same as impropriety or want of probity. Their Lordships observe that the expression “conflict of interest” is an abbreviation for “conflict of interest and duty”. The rule is that a fiduciary may not without the informed consent of his principal place himself in a position where his interest may conflict with his duty to the principal. The danger is that his interest may affect him in the discharge of his duty to the prejudice of his principal. The only persons with a legitimate interest in complaining of a breach of the rule are the persons to whom the duty is owed; and they may waive the breach. The appellants do not allege that the respondents have an interest which conflicts with any duty owed to them. They do not plead any such duty. They allege that the respondents have an interest which conflicts with their duty to the Company and its creditors. If such a conflict exists, it is for the creditors alone to decide what if anything to do about it.

2. The inherent jurisdiction of the Court over its own officers.
As liquidators of the Company the respondents are officers of the court. The court’s inherent jurisdiction to control the conduct of its own officers is beyond dispute. But it does not follow that the appellants are proper persons to invoke that jurisdiction. They say that the respondents are behaving unconscionably by reason of their conflict of interest. But they cannot say that the respondents are acting unconscionably to them.

The appellants complain of the manner in which the respondents have conducted the proceedings against them in Cause 104. Thus they make the application as defendants to existing proceedings. They do not allege that those proceedings disclose no cause of action or are an abuse of the process of the court. If such were the case, the appellants would have an obvious remedy. They complain that the respondents have not made Coopers & Lybrand UK defendants to Cause 104. But the appellants have the remedy in their own hands. If they want to make Coopers & Lybrand UK parties to the action, they can bring them in themselves as third parties. They complain that the respondents, being the persons in control of the proceedings on behalf of the Company, have interests which conflict with those of the Company and may accordingly not properly discharge their duties to the Company. It is strange to hear defendants complain that the proceedings against them may not be pursued with sufficient vigour. If the Company were not in liquidation, the appellants could not be heard to complain of such conduct on the part of its directors. It would be a matter within the exclusive competence of the shareholders. Their Lordships do not accept that the fact that the Company is in insolvent liquidation and that the liquidators’ duties are owed to the creditors rather than the shareholders gives the appellants a standing to complain which they would not otherwise have had.


Their Lordships consider that the answer they have returned to the first question effectively disposes of this question also. They will humbly advise Her Majesty that the appeal and the petition for special leave should both be dismissed. The appellants must pay the respondents’ costs of both the appeal and the petition before their Lordships’ Board.

Service of document on a Ltd company "Sdn Bhd"

Service of document on a Sdn Bhd is by leaving a copy of the said document at the registered address of the Company

Normally, the registered address will be the Company Secretary’s office, lawyer’s office eg. Chua Secretarial Services, Ah Chong Public Accountants, Muthu & Co. etc. It doesn’t matter what is the name of the company at the registered address. But the document must be left at the premises/office of the registered address (2nd Floor means 2nd Floor).

The document will almost always be acknowledged receipt at the registered address.

In the event, the receptionist at the registered office does not want to acknowledge receipt, then the document should be just left at the premises/office (not at the post box etc).

After the document is served, the person who serves the document will have to affirm an Statutory Declaration stating that he served the document at the registered address.

It is important that the document is actually served at the registered address otherwise the entire proceeding can be jeopardized. Therefore it is better to have an acknowledgment from the “accountant/secretary, lawyers etc” at the registered address

Since service of the document is by leaving a copy at the registered address, service can always be done on a Sdn Bhd. (with or without acknowledgement)

Megarry J in Re Clifton

“Bona fide and reasonableness are no mean coincident. Some of the most honest men in this world are unreasonable; some of us know some. Complete honesty may go inveterate obstinacy or impenetrable stupidity.”