Pacific & Orient Insurance Co. Berhad V Muniammah A/P Muniandy

  

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DALAM MAHKAMAH TINGGI MALAYA DI KUALA LUMPUR

 

(BAHAGIAN DAGANG)

 

SAMAN PEMULA NO: D-24 NCC-107-2010

 

Dalam Perkara Seksyen 218 Akta Syarikat 1965

 

DAN

 

Dalam Perkara Seksyen 96 Akta Pengangkutan Jalan 1987

 

DAN

 

Dalam Perkara Aturan 5 Kaeah 3 Kaedah-Kaedah Mahkamah Tinggi 1980

 

DAN

 

Dalam Perkara Aturan 29 Kaedah 1 Kaedah-Kaedah Mahkamah

 

Tinggi 1980.

 

DAN

 

Dalam Perkara Aturan 92 Kaedah 4 Kaedah-Kaedah Mahkamah

 

Tinggi 1980.

 

ANTARA

 

PACIFIC & ORIENT INSURANCE CO. BERHAD …PLAINTIF

 

(No. Syarikat: 12557-W)

 

DAN

 

MUNIAMMAH A/P MUNIANDY

 

…DEFENDAN

 

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GROUNDS OF DECISION

 

The primary facts before me are quite commonplace. The Plaintiff/ Applicant applied to this court for injunctive relief to restrain the Defendant from filing a Winding-Up Petition against it. The Defendant/Respondent has a judgment already in its favour and is seeking to enforce the judgment by resorting to winding-up proceedings. The Defendant has, at this stage, served a section 218 notice under the Companies Act on the Plaintiff. The Plaintiff has failed to pay the judgment sum within the statutory period of 21 days of receipt of the notice. The Plaintiff applies to court for injunctive relief to restrain the Defendant from proceeding further. The Plaintiff has filed an appeal to the Court of Appeal against the judgment, but at this stage has not obtained a stay of execution on the judgment. This Court is informed an application for stay in the Court of Appeal is pending, but in the meanwhile, the Plaintiff has paid the full judgment sum into court.

 

There was a previous stay application before the High Court; the Plaintiff’s application was dismissed.

 

The Plaintiff is a large insurance company which is listed on Bursa with a healthy balance sheet position, and according to Plaintiff’s counsel can pay the relatively small damages awarded against it by the judgment. The full judgment sum which is the subject of the section 218 notice is RM89,374.03. The Plaintiff has a total asset in excess of RM600 million with total liabilities of slightly more than RM168 million.

 

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On 20th of April 2010, I heard the ex parte application by the Plaintiff/Applicant and allowed the application for injunctive relief to restrain the Defendant from presenting a Winding-Up Petition on the usual undertaking as to damages, and requirement that the Plaintiff must pay the judgment sum into court within two weeks from the date of this Court’s order. That judgment sum has been paid into court.

 

Parties are now before me on the inter partes hearing. I am mindful of the line of authorities that support the principle that the court should refuse injunctive relief where there is a definite judgment sum on which there is no stay of proceedings, although there has been an appeal filed. It is said, in such a fact situation, there does not exist a bona fide dispute as to the debt on substantial grounds. The filing of an appeal, of course, is evidence of the debt being disputed, but in law that dispute, in the absence of a stay, cannot be regarded as a bona fide dispute on substantial grounds.

 

There is also very strong authority in support for a broad general jurisdiction of the courts to grant injunctive relief on the basis of the principles as stated in the celebrated Australian case of “The Fortuna”, from which the term “Fortuna injunction” is derived. See Fortuna Holdings Pty Ltd v The Deputy Commissioner of Taxation [1978] VR 83. I am here referring to the Court of Appeal decisions in Mobikom v Inmiss Communication [2007] 3 CLJ 295 and Tan Kok Tong v Hoe Hong Trading Bhd [2007] 2 CLJ 305, and the recent High Court decision in Safeguards Corp Sdn Bhd v Rampai Town Centre [2009] 1 MLJ 129. There are two principles in relation to the grant of a Fortuna injunction, firstly, where there is clearly a disputed claim where the

 

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Defendant is using a procedure which will invariably produce irreparable damage to the Plaintiff company rather than by a suitable alternative procedure, and secondly, where the Winding-Up Petition, if presented, would have no chance of success since the debt is disputed on substantial grounds.

 

It has to be stressed that on an inter partes hearing of this nature, the test to be employed is not “serious question to be tried”, namely the American Cyanamid test, but the higher standard specified in the two principles above.

 

The Defendant has strongly resisted this application, and has highlighted that line of authority I have mentioned above, that an appeal does not operate as a stay of execution, and the Respondent is entitled as of right to present a Winding-Up Petition pursuant to sections 217(1) (b) and 218(1) (e) of the Companies Act, and the court cannot deprive the Defendant of the right, or reduce the extent of the right, by exercise of its inherent jurisdiction. Counsel for the Defendant relied very strongly on the High Court decision in SBSK Plantations Sdn Bhd v Dynasty Rangers (M) Sdn Bhd [2002] 1 MLJ 326, and an English Chancery Division decision in ComhiN Insurance Plc v Improvement Services Ltd and Others [1986]. In SBSK Plantations, supra, it was held, inter alia:

 

“Upon the Defendant obtaining the judgment, the debt ceases to be a disputed debt. Thereafter, the question whether the debt is a bona fide disputed debt becomes a nonissue. This is so even though the Plaintiff has filed an appeal against the judgment because of filing of an appeal does not have the effect of reverting the status of the

 

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judgment debt to its original status as a disputed debt before judgment was obtained.” (At page 339 of the report)

 

The view expressed in Cornhill Insurance is even more limited. Harman J had this to say:

 

“In my view the correct test in approaching these matters is exemplified first by Ungeod-Thomas J., who was a great master of equity (and I, it must be remembered, am being asked to exercise the ordinary equitable remedies, not the Company’s Court remedies), in Mann v Goldstein [1968] 1 WLR 1091, 1096 when he said:

 

“When the Creditor’s debt is clearly established it seems to me to follow that this Court would not, in general at any rate, interfere even though the company would appear to be solvent, for the Creditor would as such be entitled to present a petition and the Debtor would have his own remedy in paying the undisputed debt which they should pay. So, to persist in non-payment of the debt in such circumstances would itself either suggest inability to pay or that the application was an application that the court should give the Debtor relief which it itself could provide, but would not provide, by paying the debt.”

 

That appears to me to be sound reasoning and sound law. I reinforce it by a reference to In re A Company … in a matter in which counsel of the utmost distinction in Chancery at that time, both leading and junior, appeared, said that when a company was well-known and wealthy it was the more likely that delay in settlement of its obligations would create some suspicion of financial embarrassment:

 

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“Rich men and rich companies who did not pay their debts had only themselves to blame if it were thought that they could not pay them.”

 

In my view those words apply to this case also. This is a case of a rich company which could pay an undoubted debt and has chosen – I think I must use that word – not to do so

 

… In my view in such circumstances the Creditor was

 

entitled to (a) threaten to and (b) in fact if it chose to present a Winding-Up Petition, and I was wrong to make the ex parte

 

order which I made …. and I should not accede to this

 

motion to continue that order today.”

 

It is therefore seems from Cornhill Insurance that “rich companies”, that would not pay their debts, had only themselves to blame if it were “thought” that they could not pay them.

 

With due respect, I must say there are strong arguments which can be marshalled against adopting such a mechanistic view of the law in relation to the presentation of the Winding-Up Petition. Just because a section 218 notice has been served, that by itself would fulfil all the requirements of the law, irrespective of the peculiar factual circumstances of the case. To rely on a mere “thought” that the solvent company might be unable to pay its debt, will be, in my view, to miss the wood for the trees. In the ultimate analysis, a Commercial Court must decide, as it should, whether the company threatened with the Winding-Up Petition against them or Winding-Up Petition has been presented, is solvent and can pay the debt. The court must also be mindful of the serious commercial consequences which will visited upon the company, it winding-up proceedings are allowed to be mechanistically filed and

 

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proceeded. Take the present circumstances, for instance. The Plaintiff has paid the full judgment sum into court, and to that extent it will be the height of literalism to conclude that the Defendant is entitled to “think” the Plaintiff is unable to pay its debt just because a section 218 notice has been served on it and it has not paid the Defendant pursuant thereto.

 

The Plaintiff is also a listed company on Bursa Malaysia. I need also be mindful that it must announce immediately any commencement of winding-up under the Listing Requirements of Bursa, with its attendant consequences. The Plaintiff can of course choose to pay directly to the Defendant the full judgment debt, but it has chosen instead to pay the entire sum into court to preserve its statutory right of appeal. In these circumstances, will it be commercially just to allow the Defendant to proceed with winding-up proceedings? The Court of Appeal in Maril-Rionebel (M) Sdn Bhd & Anor v Perdana Merchant Bankers Berhad (And 4 Other Appeals) [2001] 3 AMR 2893 has held a petition for winding-up is not an execution, for it is not necessarily based on any judgment of a court, and further the issuance of a Section 218 notice is not a sine qua non for its presentation. Such being the case, in the circumstances of this case, will it not be more appropriate for the Defendant to resort to the more suitable alternative procedure or other forms of execution which will not produce irreparable damage to the Plaintiff company, rather than winding-up proceedings? In any event the full judgment sum has been paid into court, and so the argument on inability to pay the debt is conclusively answered as a matter of fact.

 

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Nevertheless, I am bound by the settled principles as decided by the case authorities. To recapitulate, there are two “branches” to the Fortuna principles, namely:

 

(a) the presentation of the petition might produce irreparable damage to the company and the proposed petition has no chance of success; or

 

(b) 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.

 

These principle here been recognised by our Court of Appeal in Mobikom v Inmiss (supra).

 

The underlying principle supporting these two “branches” is likewise stated in Fortuna as the prevention of oppression and abuse of court process: “The principle enables companies to be protected from threatened or apprehended oppression and damage from abuse of court process.”

 

If I may summarise and rephrase the two “branches”, they can be conveniently described as (a) “the production of irreparable damage with no chance of success” principle and (b) “the assertion of a disputed claim producing irreparable damage without resort to suitable alternative procedure” principle. Broad as the Fortuna principles may seem, they are also quite limited in application.

 

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On the facts here, the Defendant has a judgment in hand and after full trial at that, which has not been stayed. With this judgment already recorded in its favour, it cannot be legitimately concluded the first “branch” can be satisfied. Likewise, there can be no element of a “disputed claim” falling within the second branch. The presentation of a Winding-Up Petition may cause commercial harm and damage to be company, but the short answer to this surely has to be for the company to pay up the judgment sum, in the absence of a stay of execution. Since the Defendant is, by its own admission, a very solvent company, this should not be a major issue.

 

In the circumstances, I am dismissing this application by the Plaintiff for an interlocutory injunction and discharging the ex parte Order dated 20.4.2010 granted by this Court. Costs of RM15,000 to be paid by the Plaintiff to the Defendant within one month from the date of this Order. Further order that the monies paid into court be released to the Plaintiff.

 

Sgd.

 

( MOHAMAD ARIFF BIN MD. YUSOF ) HAKIM MAHKAMAH TINGGI DAGANG NCC 3 KUALA LUMPUR

 

Dated 27th May 2010.

 

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COUNSELS

 

For the plaintiff:

 

For the defendant:

 

Melvin Selvam

 

Messrs. Jagjit Singh & Co.

 

Brijnandan Singh & Shailender Bhar

 

Messrs. Brijnandan Singh Bhar & Co.

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