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Jaks Sdn Bhd v Zeta Letrik Sdn Bhd [2021] MLJU 1825, [2021] 1 LNS 1505
This case concerns an application for a Fortuna injunction to restrain the defendant from presenting a winding up petition based on an adjudication decision that was given in the defendant’s favour against the plaintiff. The case revolves around the following issues:
The principles and considerations in deciding whether to grant the Fortuna injunction;
The importance of contemporaneous evidence to show the existence (or absence) of a bona fide dispute of the debt in question;
What implications do applications for setting aside, staying and /or enforcement of the adjudication decision have on an application for a Fortuna Injunction? and
What happens to the monies under the retention sum following termination of the contract?
A. Facts:
(a) The defendant was appointed as a nominated subcontractor of the plaintiff. The plaintiff is a subsidiary of a public listed company. The Subcontract adopts the PAM conditions of subcontract 2008 (“PAM Subcontract Conditions”).
(b) The consultants would value and issue their recommendation for interim payments (“PVR”) in respect of the defendant’s works. Based on the PVRs, the plaintiff would then issue the interim payment certificates and pay the defendant.
(c) Between February to August 2020, there were 1 interim payment and 5 PVRs that were outstanding. The last part payment was made in October 2020. The balance outstanding amounted to RM 1.6 million.
(d) On November 2020, the defendant issued its latest progress claim for RM 5 million (inclusive of the unpaid amount above).
(e) On 16th December 2020, the defendant issued a notice of intent to suspend works under the PAM Subcontract Conditions if payment was not made. A day later, a meeting was held whereby the plaintiff said (for the very first time) that there was an over certification and overpayment (about RM 500,000.00) due to purported defects in the works. Nonetheless, the plaintiff offered to pay RM 1 million for the defendant to retract the notice to suspend. The defendant declined.
(f) On 22nd December 2020, the plaintiff issued a notice to take over most of the remaining works from the defendant, citing earlier breaches. This led to the defendant issuing a notice of termination on 29th December 2020.
(g) The next day, a joint inspection was held. Even though both parties could not agree on the assessment, the consultants issued their PVR No.51 (rev1) with a negative valuation.
(h) In February 2021, the defendant commenced adjudication against the plaintiff claiming for RM 6,654,238.23 consisting of both certified and uncertified work, VO works, materials on site and release of the retention sum.
(i) On 25th February 2021, a 2nd joint inspection was carried out. The consultants issued their PVR No.51 (rev2) on 15th April 2021 superseding their earlier valuation and the plaintiff issued their interim certificate with a negative amount of RM 2 million. Included in this PVR and interim certificate are back charges that appeared for the first time.
(j) On 21st May 2021, the adjudication decision was delivered, allowing the defendant’s claim of RM 6,160,776.36 together with cost (“Adjudication Decision”). The defendant issued to the plaintiff its notice under section 466 of the Companies Act 2016 based on the same.
(k) At the time of the hearing of the Fortuna Injunction, neither party filed any application to enforce, set aside or stay the Adjudication Decision.
B. Principle on Fortuna Injunction involving Adjudication decision
1. Whilst the decision did not refer to any of the recent cases regarding Fortuna injunctions in respect of demands made pursuant to an adjudication decision, (see ASM Development (KL) Sdn Bhd v. Econpile (M) Sdn Bhd [2020] MLJU 282; RZH Setia Jaya Sdn Bhd v Sime Darby Energy Solutions Sdn Bhd [2020] MLJU 1081; and Maju Holdings Sdn Bhd v Spring Energy Sdn Bhd [2020] MLJU 1196) the learned judge’s reasoning is consistent with principles emulated in those cases.
2. Firstly, following the FC case in Likas Bay Precint Sdn Bhd v. Bina Puri Sdn Bhd [2019] 3 MLJ 244, the learned judge held that there was no need to register the adjudication decision before proceeding with winding up proceedings.
3. Secondly, the learned judge applied the principles of granting a Fortuna injunction as laid out in the namesake case Fortuna Holdings Pty Ltd v The Deputy Commissioner of Taxation of the Commonwealth of Australia [1978] VR 83. In essence, the court may grant the injunction to restrain 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.”
4. Thirdly, following Tan Kok Tong v Hoe Hong Trading Co Sdn Bhd [2007] 4 MLJ 355 and Molop Corp Sdn Bhd v Uniperkasa (M) Sdn Bhd [2003] 6 MLJ 311, the learned judge held that when deciding whether to grant a Fortuna injunction, the “serious question to be tried” test is not applicable and that the court must be satisfied that the debt is bona fide disputed on substantial grounds.
5. And finally, following Pontian United Theatre Sdn Bhd v Southern Finance Bhd (formerly known as United Merchant Finance Bhd) [2006] 2 MLJ 602; [2006] 1 CLJ 1067, the learned judge held that mere averments of a meritorious counterclaim are not sufficient and that the plaintiff needed to show evidence of the same.
“[19] It is not sufficient for a company facing a winding up petition to merely aver by affidavit the existence of a meritorious counterclaim and exhibit for proof the statement of defence and counterclaim, which is not evidence. Evidence is required. The company must set out in the affidavit the facts on which the counterclaim is based, giving the necessary details so as to lend earnestness and weight to their claim and so that the petitioner will have a fair opportunity to present his side of the story by affidavit and the court, by considering the affidavits, will be able to assess, without actually deciding it, whether the claim has weight or raises a serious issue.” (emphasis is by the Court)
C. Whether the debt is bona fide disputed on substantial grounds
6. The plaintiff says there was a bona fide dispute to the debt arising on grounds that the adjudicator had erred by not taking into account, inter alia:
The defective works which led to the overpayment and over certification;
Back charges on the defendant; and
That the defendant is not entitled to the release of the retention sum.
7. On the defective works, the learned judge found that the allegation to be “most doubtful” in view that:
there is no evidence of such defects;
if the defects were discovered between June to December 2020, there was no basis for the plaintiff to be making part payments;
The plaintiff did not deny or challenge the amount under the 5 PVRs and interim certificate or any of the letters from the defendant requesting for payment; and
The offer to pay RM 1 million despite the allegation of overpayment, together with the timing of allegation when faced with the notice of intent to suspend the works which “stupendously raise the eyebrows ”.
8. On the allegation of back charges, the learned judge noted that:
These only appeared for the first time sometime in April 2021, i.e. after the Subcontract has been terminated and during the Adjudication proceedings;
In any event, the Plaintiff did not comply with Clause 26.13 of the PAM Subcontract Conditions in failing to give notice of its intention to set off the amount and the grounds on which such set-off is made; and
The Subcontract has already been terminated and as such, the Plaintiff can no longer impose any back charges.
9. The learned judge concluded the allegation that the debt is disputed are mere averments which are not substantiated by any cogent evidence and thus are not based on substantive grounds; and that the plaintiff had only started to dispute its debt the issuance of the notice to suspend the works.
D. What happens to the Retention Sum post-termination?
10. As for the retention sum, the learned judge followed the case of ABB Transmission and Distributions Sdn Bhd v Sri Antan Sdn Bhd & Anor [2009] 7 MLJ 644 which held “Retention money is held on the basis that the contract is on foot. If the contract in question has been repudiated, both parties are discharged from further performance of the contract and the retention money held which is trust money has to be paid back to its rightful owner. In this regard, that would be the plaintiff.”
11. As the Subcontract was terminated, the learned judge was of the view that the plaintiff could not deduct this sum.
E. Whether the Adjudication Decision needs to be enforced before the presentation of winding up petition
12. Following Likas Bay, the learned judge held that it was not necessary for the adjudication decision to be registered before presenting a winding up petition as the defendant is a creditor under section 466 of the Companies Act 2016, holding that “an adjudication decision was good and proper as a basis upon which a winding-up notice against the respondent may be filed for a debt ”.
F. Effect on failure to apply for a stay or setting aside of the Adjudication Decision
13. On this issue, the learned judge held that the Adjudication Decision is and remains binding as well as enforceable until it is set aside or until the dispute between the parties are finally determined by way of arbitration or court.
14. Following Kurniaan Maju Sdn Bhd v HSA Setiamurni Sdn Bhd [2020] 9 MLJ 103 and Bumimetro Construction Sdn Bhd v Mayland Universal Sdn Bhd and another case [2017] MLJU 1993, the court held that where the adjudication decision has not been stayed or set aside, “the court sees no serious issue to be tried and that any serious harm that may ensue arising from the presentation of a Petition may be averted by paying the Adjudicated Sum.”
15. The decision was upheld in the Court of Appeal.
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