Bakti Dinamik SDN BHD V Bauer (Malaysia) SDN BHD (2016) MLJU 916 PDF

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Document: Bakti Dinamik Sdn Bhd v Bauer (Malaysia) Sdn Bhd [2016] MLJU 9…
Bakti Dinamik Sdn Bhd v Bauer (Malaysia) Sdn Bhd [2016] MLJU
916
Copy Citation
Malayan Law Journal Unreported
HIGH COURT (KUALA LUMPUR)

MOHD NAZLAN BIN MOHD GHAZALI, JC
SAMAN PEMULA NO.: 24NCC-345-09/2015
7 September 2016
Chetan Jethwani (Kumar Partnership) for the plaintiff.

Wong Li Wei (Mohanadass Partnership) the defendant.
Mohd Nazlan bin Mohd Ghazali JC:

JUDGMENT Introduction
[1] This is an application documented in enclosure 1, arising from an originating summons firstly, for a
declaration that a winding up notice issued by the defendant to the plaintiff and any intended petition
thereafter constitute an abuse of the process of the Court; and secondly, an injunction to restrain the
defendant from presenting the winding up petition against the plaintiff until the full resolution of the
dispute between the parties.
Context
[2] Pending the hearing of enclosure 1, the plaintiff had also filed an application in enclosure 7 for an
interlocutory Fortuna injunction for the same purpose of preventing the defendant from presenting a
petition following the issuance of a winding up notice under Section 218 of the Companies Act 1965 by
the defendant against the plaintiff. Following the inter parte hearing of the application, I allowed the
same. Parties have since been furnished with the judgment containing the full reasons for my decision.
This can also be found in Bakti Dinamik Sdn Bhd v Bauer (Malaysia) Sdn Bhd [2016] 1 LNS 645.
[3] It is not in dispute that the true essence and substance of enclosure 1 is an application for a
Fortuna injunction to restrain the defendant from presenting a petition for the winding up of the plaintiff.
There are in fact no new issues of substance introduced by the parties in the hearing for enclosure 1
that have not already been raised in the proceeding for enclosure 7. The arguments contained in the
https://advance.lexis.com/documentpage/?pdmfid=1000516&crid=dbd10201-86d7-43cf-a66e-2d684bef0ddf&config=00JAA0ZGJkMDNiNC00ZmY4L… 1/11
written submissions of the parties for enclosure 1 are identical to the ones previously highlighted in the
parties’ respective written submissions for enclosure 7. The only one new issue concerns a new
development that did not truly concern the merits of the application. I will deal with this towards the
end of this judgment.
[4] Having evaluated the affidavits and the written submissions, I arrived at the decision to allow the
application in enclosure 1 for a declaration that the winding up notice is an abuse of process and a
Fortuna injunction be granted to restrain the filing of a winding up petition. The reasons for the decision
are very substantially similar to the grounds for my earlier ruling which had allowed enclosure 7. As
such, for the record and sake of completeness, I shall set out my grounds for the same hereunder,
albeit in summary fashion.
Key Background Facts
[5] The Plaintiff is the employer, owner and developer of a project known as the Residensi Tribeca
which consists of a 37 storey block of service apartments at Jalan Imbi in Kuala Lumpur (“the Project”).
[6] The Plaintiff appointed HVC Hundred Vision Construction Sdn Bhd (“HVC”) as the main contractor
for the Project. The main contractor was a turnkey contractor for the entire project covering all the
construction works. HVC in turn engaged the Defendant as a subcontractor for earthworks, which
included reinforced concrete drain diversions, piling and basement substructure works.
[7] The Project is being administered by Veritas Architects Sdn Bhd (“the Architect”) and Dr. C C Wong
Jurutera Perunding as the consultant engineer. The valuation of works on the site is carried out by
Perunding Kos T&K Sdn Bhd (“the Quantity Surveyor”).
[8] During the course of the construction works, specifically the piling activities carried out by the
Defendant, one of the buildings adjacent to the project site, owned by Wagner Piano Sdn Bhd (“Wagner
Piano”) was claimed to have suffered damage, resulting in the latter instituting a suit to restrain the
construction works and claim damages.
[9] There was a delay to the completion of the works by the Defendant with the Architect issuing a
Certificate of Non Completion to the main contractor to certify the delay and the imposition of
Liquidated Ascertained Damages (LAD). No Certificate of Non Completion was issued to the Defendant.
In fact, a Certificate of Practical Completion was issued on 13 March 2015 by the Architect to HVC in
relation to the scope of work of the Defendant.
[10] The Defendant, however, on 29 June 2015 issued a Notice pursuant to Section 218 of the
Companies Act 1965 (“the Section 218 Notice”) claiming payment of the sum of RM3,976,313.38 from
the Plaintiff said to be due under Interim Certificates No. 15, 16 and 17.
[11] The Plaintiff then issued a response on 16 July 2015 stating that the Section 218 Notice was
issued in bad faith and that there was no debt due from the Plaintiff to the Defendant under the Interim
Certificates, highlighting in particular that:-
(i) The interim certificates on which the Section 218 Notice was based were qualified and subject to
deductions for LAD in the amount of RM1,230,000.00;
(ii) There were damages for defective works in the amount of RM100,000.00;
(iii) The sum was subject to deductions resulting in damage to neighbouring properties as result of poor
workmanship including the damage to Wagner Piano where a liability of RM3,825,224.40 has
arisen;
(iv) The Plaintiff was entitled to set off a sum of RM1,558,961.12 with respect to the works done by the
Defendant.
[12] The Plaintiff then filed these proceedings in enclosure 1 for a declaration that the Section 218
Notice was void and of no effect and for a Fortuna injunction to restrain the defendant from presenting
any winding up petition.
Summary of Contentions by Parties
[13] The thrust of the arguments advanced by the Plaintiff to support its application for a Fortuna
injunction are twofold. The first is that there is no privity of contract between the Plaintiff and the
Defendant to justify the latter issuing a notice of winding up under Section 218 of the Companies Act
1965 (‘the CA”) dated 29 June 2015 (“the Section 218 Notice”) in the first place. Secondly, the Plaintiff
has a cross-claim against the Defendant in that the amount being claimed in the Section 218 Notice is
premised on the non-payment of the interim certificates number 15, 16 and 17 directed against HVC,
being the main contractor for the Project, not the Plaintiff, and which is subject to deductions in favour
of the Plaintiff for LAD imposed by the Architect and other defective works carried out by the Defendant.
[14] The Defendant on the other hand resisted the application and contended that its claim for
RM3,976,313.38 was valid for it was the total certified sums which are still outstanding for work done
by the Defendant. The certificate of practical completion had been issued by the Architect to HVC, the
main contractor in respect of the subcontract works of the Defendant, pursuant to which the works
under the responsibility of the Defendant were practically completed on 28 February 2015. HVC did not
at any time issue any certificate of non-completion (“CNC”) against the Defendant.
[15] Instead, the Architect issued four CNCs against HVC on 19 November 2014, 6 February 2015, 4
March 2015 and 20 April 2015. The Defendant thus contended that not having been issued with any
CNC, no liquidated damages could be imposed on the Defendant, relying also on clauses 16.1 and 26.13
of the Sub-Contract. It is thus entitled to the payment of RM3,976,313.38 as set out in the Section 218
Notice for neither the Plaintiff, whom the Defendant asserted had the obligation to make direct payment
to the Defendant under the terms of the letter of award, nor HVC had paid the Defendant for work done
prior to the issuance of the CPC.
[16] The Defendant further argued that the Plaintiff’s claims in respect of firstly, the LAD for
RM1,230,000.00 and secondly the damage to the property of Wagner Piano are of no relevance to the
Defendant for these are matters to be resolved between the Plaintiff and HVC as the main contractor,
since the CNCs were all issued against HVC and not the Defendant. There is additionally no right of set-
off against the sums certified in the Interim Certificates for the same reason that there was not a single
CNC issued against the defendant. The Defendant relies on the Court of Appeal decision in Dataran
Rentas Sdn Bhd v BMC Constructions Sdn Bhd [2008] 2 MLJ 856 which held that the question whether a
building contract admits of a right of set-off is one that turns upon the true construction of the contract
which may have the effect of modifying the common law and equitable rights of set off of the
contracting parties. The Defendant again referred to clauses 16.1 and 26.13 of the Sub-Contract to the
effect that in the instant case, there is no right of set-off that can be exercised by the Plaintiff.
[17] It is also the submission of the Defendant that the Plaintiff now blaming the Defendant to be
responsible for the damage to the property of Wagner Piano when the former did not during the
material period prior to the issuance of the Section 218 Notice allege to the same effect is thus clearly
an afterthought. It was not raised in the defence of the Plaintiff in the earlier suit instituted by Wagner
Piano, nor throughout the course of the subcontract works right through the issuance of the CPC.
[18] The Defendant further asserted that the obligation on the part of the Plaintiff to pay the
Defendant is not based on the existence of a contractual relationship but instead on the premise that
there is indebtedness owing by the Plaintiff to the Defendant. Thus the Defendant submitted that a debt
may arise not only by agreement and in the instant case the claim is based on the interim certificates
which, by their nature, constitute a debt due by the Plaintiff to the Defendant.
[19] In essence, the Defendant therefore argued that there is no bona fide disputed debt on
substantial grounds nor any basis to allege an abuse of process on the part of the Defendant who is
merely exercising its statutory right to pursue a winding up process under the CA.
Evaluation and Findings by this Court The Law
[20] The jurisprudential basis of the applicability of Fortuna injunctions in this country in part may be
traced to the eponymous Australian case of Fortuna Holdings Pty Ltd v The Deputy Commissioner of
Taxation of the Commonwealth of Australia [1978] VR 83, a decision of the Supreme Court of Victoria.
It established that an injunction would only be granted in circumstances where to allow the petition
would be an abuse of process as the petition has no chance of success. And that the Plaintiff would have
to show that the petition, if presented, would likely be dismissed. To do this, the Court would have to
consider whether there is a bona fide dispute of debt based on substantial grounds. The same principles
were adopted and applied by our Court of Appeal, such as in Mobikom Sdn Bhd v Inmiss
Communications Sdn Bhd [2007] 3 MLJ 316.
[21] In another decision of the Court of Appeal, in the case of Pacific & Orient Insurance Co Bhd v
Muniammah Muniandy [2011] 1 CLJ 947, Ramly Ali JCA (as he then was) provided most instructively
the following explanation:-
[25] An application for an injunction to restrain an intended winding-up petition against a

company is known as a “Fortuna Injunction”, taking its name from the case of
Fortuna Holdings Pty Ltd v. The Deputy Commissioner of Taxation [1978] VR 83. In
that case the court laid down the basis on which a court acts to restrain the
presentation of a winding-up petition and the two principles that guide courts in the
grant of an injunction to that effect. (see also: Mobikom Sdn Bhd v. Inmiss
Communications Sdn Bhd [2007] 3 CLJ 295 (Court of Appeal).
[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 injunction under this principle, the applicant must
satisfy both limbs of the principle i.e:
(i) 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).
[27] This principle is not applicable to the present case. The respondent herein had
obtained a valid and enforceable judgment against the insured as well as the insurer
(appellant). The intended petition if filed is not bound to fail. He has a good chance to
succeed. Therefore whether or not it causes irreparable damage is of no
consequence. Thus the injunction applied for by the appellant in the present case,
cannot be granted by court under this principle.
[28] The second principle established in the Fortuna case is that an injunction of that
nature may be granted in cases where a petitioner proposing to present a petition
has chosen to assert a disputed claim, by a procedure which might produce
irreparable damage to the company, rather than by a suitable alternative procedure.
[29] This principle applies only to disputed debt. It does not apply to cases where the debt
in question is undisputed. As long as the debt cannot be disputed, it is not

consequence whether or not it will cause irreparable damage to the company, if
presented. A valid and enforceable judgment of court as in the present case, (unless
set aside or stayed) cannot be considered a disputed debt. The law is settled on this
point. Therefore, an order for injunction as prayed for by the appellant in the present
case, also cannot be granted under this principle.”
[22] The Courts may thus grant a Fortuna injunction to prevent the presentation of a winding up
petition on the basis of either the petition has no chance of success and might produce irreparable
damage to the company, or that an assertion of a disputed claim is made in the petition by way of a
procedure that might produce irreparable damage. The Courts must be satisfied that the Plaintiff has
established a prima facie case of an abuse of process by the presentation of a petition particularly on
the basis of a disputed debt.
There is No Debt from the Plaintiff as there Is No Contractual Relationship between the
Plaintiff and the Defendant
[23] On the evidence before me in this application, whilst the Defendant’s claim as the sub-contractor
in respect of work done is premised on the interim certificates no. 15, 16 and 17 and the certificate of
practical completion, these were issued by the Architect to the main contractor (HVC) in respect of the
contract between the plaintiff and the main contractor (the Main Contract). Although the contract
between the Defendant and HVC, being the Letter of Award from the latter to the former dated 26
August 2013 (“the Letter of Award”) in clause 7.5 expressly provides for the payment by the main
contractor to the sub-contractor to be made by the Plaintiff on behalf of the main contractor, in my view
it is fundamental that the doctrine of privity of contract must be firmly upheld. Here, the Plaintiff is not
privy to the Letter of Award contract between the Defendant and the main contractor, and even that
clause 7.5 states to the effect that it does not in any event give the defendant the contractual right
against the Plaintiff.
[24] Given its importance in this application, I reproduce clause 7.5 of the Letter of Award hereunder:-
“Notwithstanding the conditions of the Sub-Contract, Bakti Dinamik Sdn Bhd (hereinafter
referred to as the “Employer”), Hundred Vision Sdn Bhd (hereinafter referred to as the
“Contractor”) and Bauer Sdn Bhd (hereinafter referred to as the “Sub-Contractor”) agree
that all payments to be made by the Contractor to the Sub-Contractor in accordance with
the Sub-Contract shall instead be made directly by the Employer to the Sub-Contractor for
and on behalf of the Contractor within the Period of Honouring of Certificate of Payment.
All direct payments made under this provision shall not create a privity of contract between
the Employer and the Sub-Contractor”. [emphasis added]
[25] It is thus clear that the Plaintiff, as the employer, in making payment pursuant to the Letter of
Award on any interim certificates to the sub-contractor, being the Defendant, is purely performing an
act on behalf of the main contractor, HVC. In the first place, surely it can only arise if there is an
obligation on the part of HVC to make payment to the Defendant. But this is patently only secondary to
the more pertinent and applicable point that even if HVC were contractually bound to effect such
payments, the Plaintiff’s alleged failure to do so on behalf of HVC is of no legal or contractual
consequence vis-à-vis the rights of the Defendant. It is so trite that this must be the case in the
absence of a contractual relationship between the Plaintiff and the Defendant. And nothing could be
more crystal clearly worded than the aforesaid last sentence of clause 7.5 which unmistakably states to
such exact effect.
[26] The Plaintiff’s position on this point is further fortified by the fact that the very interim certificates
the Defendant relies on each contains the statement that the amount due in the respective certificates
is owing from the Plaintiff as the employer to HVC, the main contractor (“is now due to the Contractor
by the Employer”). The Defendant is thus a third party to these interim certificates too. Additionally, the
letters accompanying each of the certificates from the Architect are clearly addressed and directed to
HVC, albeit these letters seek to instruct HVC on what sums are due to be released to the Defendant in
respect of the sub-contracted works. But the Defendant is not a party to the interim certificates or the
letters accompanying them in as much as the Plaintiff is not privy to the Letter of Award.
[27] Further, Clause 24.1(c) of the Agreement and Conditions of PAM Sub-Contract 2006 (For Use
Where the Sub-Contractor is Nominated Under The PAM Contract 2006) which expressly permits the
Defendant to end his appointment in the event of non-payment by the main contractor clearly supports
what is already plain and obvious that the Defendant’s recourse is only against the main contractor, not
the Plaintiff. Additionally, this Clause 24.1(c) specifically provides that such payment obligation by the
main contractor in respect of any certificate is however subject to any set off the main contractor could
be entitled to under the same contract with the Defendant.
[28] In my judgment, accordingly, in the absence of a contractual relationship between the Plaintiff
and the Defendant, the claim of unpaid debt made by the latter is thus unsustainable. The Defendant
cannot premise its Section 218 Notice on a debt which is not due from the Plaintiff. Even if a debt is
established given non-payment of the said interim certificates, it would be for HVC, the party which is
seized of the contractual nexus with the Defendant that must answer the claim. In order to vindicate its
right for payment under the Letter of Award, the Defendant’s avenue is to first make a claim against
HVC. Even if that is successfully established, still, it is not for the Defendant to enforce the same against
the Plaintiff directly, for the same overarching reason of the Plaintiff not being contractually privy to the
relationship between the Defendant and HVC.
[29] This Court cannot countenance a departure from the well-entrenched rule in the law of contract
that a third party can neither benefit nor suffer from a contract executed by other parties. A contract
cannot be enforced against or by a third party (see the leading common law authority of Tweddle v
Atkinson [1861] 1 B & S 393 and the Privy Council decision in Kepong Prospecting Ltd & Ors v Schmidt
[1968] 1 MLJ 170). The law thus treats the Plaintiff as a stranger to the Sub-Contract, in as much as
the Defendant a third party to the Main Contract.
Whether a Debt arises independently of a Contract
[30] The Defendant’s argument that a debt may come into existence independently of or in the
absence of a contractual basis by relying on the House of Lords authority in the case of Fibrosa Spolka
Akcyjna v Fairbairn Lawson Combe Barbour Ltd [1942] 2 All ER 122 is in my view, an unwarranted
attempt to create an exception to the doctrine of privity of contract. The fundamental point decided by
the House of Lords was the right to repayment of money prepaid under a contract which was discharged
by impossibility of performance or frustration.
[31] In essence, the Defendant is trying to make the argument that firstly, the right for payment in its
favour arose from a “debt” owed by the Plaintiff, which term was referred to by the case of Watta
Battery Industry Sdn Bhd v Uno-Batt Manufacturing Sdn Bhd [1993] 1 MLJ 149 as denoting not only the
obligation of the debtor to pay, but also the right of the creditor to receive and enforce payment.
Secondly, more significantly this alleged obligation on the part of the Plaintiff to pay the debt is not
founded on a contract, but created by law in the form of a quasi-contract. The Defendant did not fully
develop its argument on this point, but this appears to be the contention of the Defendant.
[32] Such assertions by the Defendant are untenable and without merit, as is its reliance on Fibrosa
Spolka wholly misconceived and unjustified. That case is a leading authority on the subject of frustration
of contract. The House of Lords decided that where a party receives no benefit from a contract, but has
paid part of the consideration prior to frustration, then that party can recover the advance payment
since there has been a total failure of consideration. It has little resemblance to the facts, nor relevance
to the real and substantive issues before the Court in the instant case. Frustration of contracts by
definition involves the pre-existence of a contract which performance is subsequently frustrated. In the
instant case, it is incontrovertible that there is no contract between the Plaintiff and the Defendant to
start with. Neither is frustration of any relevance to the instant case.
[33] Moreover, Fibrosa Spolka held that whilst recovery is based on a quasi-contractual right, this right
is not premised on any implied promise to repay but instead on an obligation imposed by law with the
overriding objective of preventing unjust enrichment. Thus in the process, the whole discussion by the
House of Lords in that case on money had and received was similarly focused on dissecting
circumstances such as payments made in error justifying the law demanding a recipients of money to
repay or return the same because it would be simply wrong for the person not to do so.
[34] It cannot therefore by any shred of imagination be argued that there is in this instant case before
this Court, a quasi-contract or that in any event, payment should be made by Plaintiff to the Defendant
in order to prevent any form of an unjust benefit or enrichment to the Plaintiff. In my view, it is quite
plain that Fibrosa Spolka cannot apply to the instant case because the latter does not involve a contract
between the parties in dispute in this suit, there is no frustration, and significantly the issue of unjust
enrichment does not arise at all.
[35] I am therefore satisfied that on the issue of the absence of a contractual relationship between the
Plaintiff and the Defendant alone, given the clear absence of any debt owing by the Plaintiff under the
Main Contract to the Defendant, the Section 218 Notice issued by the Defendant is not sustainable
under the law, and thus allowing a winding up petition be presented on its basis would be an abuse of
process. A petition, if presented on the Section 218 Notice in the instant case would be bound to fail.
This therefore more than justifies the granting of a Fortuna injunction to prevent the presentation of a
winding up petition by the Defendant against the Plaintiff in relation to the said Section 218 Notice.
Thus, it is not strictly necessary to consider the second basis relied on by the Plaintiff to support its
application for the Fortuna injunction. However, for completeness, and should I be adjudged to be
wrong on the aforesaid first ground, I shall in any event still analyse the second ground proffered by the
Plaintiff.
The Plaintiff Has a Valid Cross-Claim
[36] It should be stated that the Letter of Award, as is standard, expressly provides its terms and
those in the Agreement and Conditions of PAM Sub-Contract 2006 (For Use Where the Sub-Contractor
is Nominated Under The PAM Contract 2006) (“PAM Sub-Contract”) as forming an integral part of the
sub-contract between the parties.
[37] These clauses however do little to advance the case of the Defendant, if at all, since they cannot
offer an effective riposte to the fundamental issue of the absence of contractual nexus between the
Plaintiff and the Defendant which thus resolves this instant case in favour of the Plaintiff.
[38] But these clauses are, in my assessment, relevant when the second basis of contention proffered
by the Plaintiff to apply for a Fortuna injunction is analysed. As stated above, the Plaintiff also contends
that the debt alleged by the Defendant is subject to cross claims and cannot be construed as being final.
The Plaintiff’s case, apart from relying on the doctrine of privity of contract argument, is that the sums
certified under the interim certificates are expressly stipulated to be subject to any deductions of LAD
that may be imposed by the Plaintiff. The material words appearing on these certificates are thus:-
“Please note that the Employer reserves the right to deduct the total Liquidated Damages
amounting to .......”
[39] The letters from the Architect accompanying the certificates as addressed to HVC too clearly
provide for the right of the Plaintiff to deduct any liquidated damages that may be imposed as a
consequence of any delay in the completion of the works.
[40] Whilst the intention is for the Plaintiff, as the employer in the construction project, to have the
right to make LAD deductions, in as much as for a contractor and a sub-contractor be paid for work
completed, the Defendant’s contention in response is not unattractive for it is rooted in the now familiar
basis of the absence of any contractual relationship between the Plaintiff and the Defendant. The interim
certificates, and the letters that accompany each of them concern the relationship between the Plaintiff
and HVC. Thus the right of the Plaintiff to impose LAD is exercisable against HVC, the main contractor,
and not against the Defendant, the sub-contractor. The Letter of Award granted to the Defendant is
plainly between the main contractor and the sub-contractor. It certainly speaks of the right to impose
LAD on the Defendant, but that right, under contract law, is exercisable by HVC, not the Plaintiff who
has no contractual nexus with the Defendant.
[41] In this regard, it would not be surprising if the Defendant were to charge that the Plaintiffs’
position may be construed as amounting to a contradiction. On the one hand, they argued that the lack
of contractual relationship should bar the Defendant from presenting a winding-up petition. On the other
hand, the Plaintiff is also at the same time asserting the existence of a cross-claim despite the fact that
such claim is to be enforced against HVC, not the Defendant who is not contractually privy to any
contract with the Plaintiff.
[42] Upon deeper evaluation however, I find that the basis of the contention of the Plaintiff is not
without merit. Whilst both parties attack the case of the other on the same ground of the absence of
any contractual relationship between the parties, the position of the Defendant is unmistakably flawed
in its totality since it is trying to claim a debt from a wrong party. On the other hand, the Plaintiff is
seeking to prevent the Defendant from presenting a winding up petition by asserting the existence of a
cross-claim. This cross-claim is however not against the Defendant but against HVC. But this without
more does not render the Plaintiff’s argument necessarily faulty.
[43] Whilst any action by the Plaintiff against non-completion by the Defendant would require the
Plaintiff to first claim against HVC, a successful claim would likely result in HVC in turn making a
demand for payment or LAD deductions against the Defendant under the Sub-Contract. In other words,
assuming the claim for the non-completion by the Defendant to be valid, the Defendant could well suffer
LAD deductions should the Plaintiff initiate the requisite process against HVC first. The fact that the
Plaintiff has not yet commenced any such claims does not mean there would not be one in the future.
[44] It is in this sense that the case of the Plaintiff on cross-claims is not flawed despite the absence of
contractual relationship. In other words, whilst this same ground renders the position of the Defendant
untenable under the law (for failing the legal pre-requisite that there must be a debt owed by the
debtor, which in this instant case, is not the correct party), such effect does not to the same extent
afflict that of the Plaintiff who is attempting to show the existence of a debt which is disputed on
substantial grounds. And the question whether there is a valid cross-claim by the Plaintiff which could,
albeit indirectly, be ultimately enforced against the Defendant despite the absence of contractual nexus
cannot be summarily dismissed as it is an issue that remains to be established by evidence.
[45] The question then is whether the cross-claim by the Plaintiff is sufficiently meritorious to render
the alleged debt to be bona fide disputed on substantial grounds. To start with, I should add that the
absence of a contractual nexus is a factor that weighs down the position of the Plaintiff not
inconsiderably. The Defendant referred to the Court of Appeal decision in Dataran Rentas Sdn Bhd v
BMC Constructions Sdn Bhd [2008] 2 MLJ 856 which in turn cited the Federal Court decision in
Pembenaan Leow Tuck Chui & Sons Sdn Bhd v Dr Leela’s Medical Centre Sdn Bhd [1995] 2 MLJ 57 and
argued that these cases established that once interim certificates have been issued, payment must be
made, without the setting off of any quantum or monies, or asserting any cross-claims.
[46] It is true that the importance of paying up on duly issued interim certificates to the construction
industry cannot be emphasised enough. But in the final analysis what matters is the true construction of
the document governing the rights and obligation of the contracting parties in any given project. The
Defendant in the instant case also cited the English Court of Appeal decision in Dawnays Ltd v F G
Minter Ltd and another [1971] 2 All ER 1390. But payment obligations are not necessarily absolute and
automatic, for even in Dawnays it is recognised that certain deductions may be permitted. Indeed this
right of set-off and cross-claims is also acknowledged in Dataran Rentas, where Gopal Sri Ram JCA
emphasized that the question whether a building contract admits a right of set off is one that turns upon
the true construction of the particular contract.
[47] In Hasjuara (M) Sdn Bhd v Bio Science Capital Sdn Bhd [2009] MLJU 1252, the High Court
considered Dataran Rentas and concluded that in the latter case the common law and equitable rights of
set-off had been modified by the terms of the contract whereby the contractual conditions precedent to
the exercise of the right to a set-off were clearly absent, such that the appellant could not, on the facts,
assert such a right of set-off.
[48] It is observed that in Hasjuara, like in the instant case, there is no judgment debt. It cannot
therefore be readily said that there is no disputed debt. Similarly, in both cases, there are clear
provisions entitling deductions for LAD given the delay in the completion of the works. In the instant
case, the three interim certificates each stated specific amount of LAD entitled to be deducted by the
plaintiff. So too there are assertions of cross-claims for defective works which have not been finalized,
rendering the amount stated in the Section 218 Notice less than certain. Further, it is not critical that
the cross-claims must have been litigated, for, as made clear by the High Court in Josu Engineering
Construction Sdn Bhd v TSR Bina Sdn Bhd [2014] 11 MLJ 916, to evaluate a cross claim which is
genuine and based on substantial grounds at the stage hearing a Fortuna injunction application would
be to determine the merits of that claim prematurely or to litigate the issue twice.
[49] In the instant case, in my assessment, there is sufficient evidence to support the contention that
the Plaintiff is reasonably entitled, apart from to the LAD for late completion, to seek recovery from the
Defendant as its sub-contractor in respect of civil claims arising from the damage by construction works
done to the neighbouring properties. For example, in a letter from the Architect to HVC dated 10
October 2014 (well before the Section 218 Notice of 29 June 2015), the Architect updated HVC that the
Architect, together with the project’s civil and structural engineers, had concluded that the piling and
basement structure works undertaken by the sub-contractor were responsible for causing cracks to the
shop-lot belonging to Wagner Piano. The cross-claim can thus be construed as genuine and based on
substantial grounds.
[50] It has not escaped my attention that there are two fundamental points which distinguish the
instant case from Dataran Rentas and Hasjuara. In Dataran Rentas and Hasjuara, the dispute was
between the employer and the main contractor. Thus unlike in the instant case, those suits were
between contracting parties. There was no question on the pivotal issue of the absence of a contractual
nexus. As I mentioned earlier, this issue alone justified the granting of the injunction against the
Defendant in the instant case.
[51] The second point of distinction is that both Dataran Rentas and Hasjuara involved the stage of the
hearing of a winding up petition itself. Although the formulation of the critical question of whether a
debt claimed under the winding up notice is bona fide disputed on substantial grounds is in essence the
same in a Fortuna injunction application (to decide whether to grant an injunction to stop the petition)
or as in hearing the petition proper (to decide whether to grant the winding up order), the decisions in
these two cases therefore did not strictly consider the situation in the context of a step earlier in time,
namely an application for a Fortuna injunction to prevent the petition from being presented. Indeed
there are authorities which held that matters such as cross-claims should rightfully only be considered
during the hearing of the petition itself, and not appropriate to be relied on as a basis to stall the
presentation of the petition by way of a Fortuna injunction (see the Court of Appeal decision in Zalam
Corporation Sdn Bhd v Dolomite Readymixed Concrete Sdn Bhd [2011] 9 CLJ 705).
[52] The assertion of the existence of cross-claims was not accepted in Zalam Corporation, but
importantly, in that case, the defendant already had secured a judgment debt, which formed the basis
of its winding up notice. In the instant case, like in Hasjuara, there is no judgment debt. It is also
worthy of mention that in Josu Engineering, the cross-claim even defeated the statutory right of a
judgment creditor to present a petition, albeit the cross-claim itself was in the nature of an interlocutory
judgment.
[53] It was further held by the High Court in Josu Engineering that the injunction was also allowed to
prevent irreparable damage to the plaintiff in that case. However, as referred to earlier in this judgment,
in Pacific & Orient Insurance, the Court of Appeal was clear in stating that the question of whether there
was irreparable damage was wholly irrelevant when there is a judgment debt, as a petition would thus
be bound to fail. In any event, again, in the instant case, there is no judgment debt. As such, there is
stronger basis to consider the cross-claim at this stage.
[54] In any event, I am satisfied that the Plaintiff in the instant case has shown that it and the project
will suffer irreparable harm if the injunction is not granted, especially considering the implications of a
winding up petition on the ongoing Residensi Tribeca Project, including in respect of any such petition
constituting an event of default under the relevant financing arrangements binding the Plaintiff in the
Facilities Agreement with HSBC Bank Malaysia Berhad dated 10 December 2014, more so since it was
averred on behalf of the Plaintiff that there were already 164 confirmed end-purchases in respect of
whom 73 purchasers had obtained end financing for the acquisition of the units.
[55] Furthermore, it is also observed that the financial solvency of the Plaintiff is not challenged by the
Defendant. Its financial statements for the year ended 31 December 2014, as exhibited to the affidavit
in support, disclosed cash and cash equivalent balances in the amount of RM23,807,634.00. It would be
relevant that the insolvency of the plaintiff be shown in a Fortuna injunction application (see the Court
of Appeal decisions in Tan Kok Tong and Westform Far East Sdn Bhd v Connaught Heights Sdn Bhd and
other appeals [2010] 3 MLJ 459).
[56] In my view, considering the nature and context of the claims between the parties in the instant
case, there is nothing preventing the Defendant from pursuing what is probably a more efficient dispute
resolution mechanism, by making an adjudication claim pursuant to the Construction and Industry
Payment and Adjudication Act 2012 (“CIPAA”). This could be the more suitable alternative procedure for
the Defendant to assert its claim, instead of inflicting upon the Plaintiff undue pressure via a winding up
notice through the medium of the winding up court that could occasion irreparable damage to by any
account an otherwise commercially solvent company, and when there is no judgment debt.
[57] I do not agree that the Plaintiff’s claim is an afterthought intended to stifle a genuine statutory
right. In the first place, the absence of a contractual relationship means the Defendant’s claim of debt
owing to it from the Plaintiff must necessarily fail. If that is not sufficient, it is clear that the said debt is
bona fide disputed on substantial grounds, considering there is no judgment debt and taking into
account the assertions of right of set-off and the existence of cross-claims. A petition, if one be
presented on the strength of the Section 218 Notice in the instant case, is thus bound to fail. This is the
classic formulation of the first principle or ground entitling the grant of Fortuna injunction, as made clear
by cases such as Pacific & Orient Insurance.
[58] Further, the Defendant’s pursuit of the Section 218 Notice may also be construed as falling within
the second principle of Fortuna injunction given the Defendant’s choice of instituting the winding up
process as it has, and in the process risking irreparable damage to the otherwise solvent Plaintiff,
instead of invoking the more suitably structured resolution mechanism under CIPAA. In short, in all
situations, in the instant case, allowing the Section 218 Notice to stand and a winding up petition be
presented would be an abuse of process that the Court will not countenance.
New Development
[59] During the course of these proceedings, parties attempted to reach a settlement of the dispute,
and the Plaintiff had made a payment for the sum of RM1,258,911.34 to the Defendant. The letter
enclosing the payment was marked “without prejudice”. As negotiations failed, the plaintiff at the
hearing of enclosure 1 sought for the return of the said sum to the Plaintiff. The Plaintiff contended that
if the Section 218 Notice is found to be an abuse of process, the payment received by the Defendant
“from the said abuse of process” must be restored to the Plaintiff. The Plaintiff further asserted that the
issue on “without prejudice” is irrelevant because, relying on the English case of Rush & Tompkins Ltd v
Greater London Council [1989] 1 AC 1280, the Plaintiff is not using the letter to establish any admission
from the Defendant. The letter ought to be admitted to show the sum was in fact paid to the Defendant.
https://advance.lexis.com/documentpage/?pdmfid=1000516&crid=dbd10201-86d7-43cf-a66e-2d684bef0ddf&config=00JAA0ZGJkMDNiNC00ZmY4… 10/11
[60] I note from the affidavits for the Plaintiff that the payment was made after the Plaintiff filed
enclosure 1 but before I allowed enclosure 7 for the Fortuna injunction for the Plaintiff on 8 April 2016.
This information was understandably not disclosed to me before I delivered my decision on enclosure 7.
This must also have been because the payment was made on a without prejudice basis. Following my
decision, the Plaintiff has now chosen to waive its right to privilege by disclosing the same, and seek
recovery of the said sum.
[61] I am however not persuaded that this is a matter that I should determine for two principal
reasons. First, the payment was made after the commencement of proceedings initiated by the Plaintiff,
and secondly, the request is neither specified in nor falling within the scope of enclosure 1. As such, I
make no order on the request for the return of the said sum from the Defendant to the Plaintiff.
Conclusion
[62] On the basis of the foregoing analysis and reasons, it is my judgment that the Plaintiff has
successfully established its case for the grant of a Fortuna injunction to restrain the presentation of a
winding up petition by the Defendant against the Plaintiff. If permitted to subsist, the Section 218 Notice
too would constitute an abuse of process. It therefore must be held to be void. I accordingly allow
Enclosure 1 with costs.

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Malayan Law Journal Unreported

HIGH COURT (KUALA LUMPUR)

Chetan Jethwani (Kumar Partnership) for the plaintiff.

Mohd Nazlan bin Mohd Ghazali JC:

Key Background Facts

Summary of Contentions by Parties

Evaluation and Findings by this Court The Law

[25] An application for an injunction to restrain an intended winding-up petition against a

(see: Re A Company [1894] 1 Ch 349; Charles Forte Investment Ltd v. Amanda

in question is undisputed. As long as the debt cannot be disputed, it is not

Whether a Debt arises independently of a Contract

The Plaintiff Has a Valid Cross-Claim

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