Winding-up Petition: No Longer An Effective Tool For Adjudication Decisions?

ASM Development (KL) Sdn Bhd v. Econpile (M) Sdn Bhd [Suit No: WA-24NCC-363-07/2019]

Court Tier (if applicable)                          High Court

Summary:

1. The High Court does not consider an enforced adjudication decision equivalent to a judgment of the High Court. This is apparent from the wordings of s. 28 of CIPAA which stated-“1) A party may enforce an adjudication decision by applying to the High Court for an order to enforce the adjudication decision as if it is a judgment or order of the High Court.”
   
   
2. Whether a Fortuna injunction would be granted would still be considered under the general principles thereunder, together with the issue of whether there is a genuine cross-claim arising.
   
   

Factual Background:
What happened in ASM Development was briefly, that:-

(i) Econpile was appointed by ASM as their main contractor in a construction project;

(ii) payment disputes arose and Econpile commenced adjudication proceedings against ASM and finally obtained an adjudication decision in its favour;

(iii) Econpile, in parallel to the adjudication proceedings, also issued a notice to arbitrate to ASM and a short time later, ASM also issued another notice to arbitrate against Econpile. Both arbitrations were consolidated and to be heard before a single arbitrator;

(iv) Econpile, relying on the adjudication decision in their favour, issued a winding up notice under s. 466 (1) (a) of the Companies Act, 2016;

(v) ASM then filed an originating summons praying for a Fortuna injunction;

(vi) ASM’s setting aside application of the adjudication decision was dismissed while Econpile’s application to enforce the adjudication decision was allowed; and

(vii) on 12.02.2020, the High Court allowed ASM’s Fortuna injunction with costs.

Court’s Reasoning:

1. The High Court found that ASM’s disputes on Econpile’s claims are bona fide and upon substantial grounds.
   
   
2. The Court considered, amongst others, that:-
   A. firstly, the very nature of an adjudication decision is such that which it may be enforceable “as if” it was a judgment debt when ordered to be so, it is nevertheless disputable. It is unlike a judgment rendered or given by the Court; and
   B. winding up petitions are not for the purpose of enforcement of either a judgment or order of High Court or an adjudication decision and thus not a form of enforcement within Section 28(1) of CIPAA. Therefore, presentation of winding up petition based upon an adjudication decision is not a specific statutory right provided under the CIPAA and is therefore subject to the general principles relating to abuse of the proceed of Court.
   
   1. The High Court accepted that winding up proceedings could still be commenced based on an adjudication decision [Likas Bay Precint Sdn Bhd v Bina Puri Sdn Bhd (2019) 3 MLJ 244]. However, the petitioner must still prove that there is no bona fide dispute on the adjudication decision.

   2. The conduct of the parties here, on the facts, showed that both the claims and cross-claims were seriously contested.

   
   Further Notes:
   1.This case is being appealed to the Court of Appeal, and so, it is possible the Court of Appeal may overturn the High Court’s decision.

   2.Until such determination, what it means for subscribers of adjudication under the CIPAA 2012 regime may instead pursue one of the modes of execution should they wish to seek payments arising from an enforced adjudication decision.
   
   3.This is because given the current trends, a majority of the respondents in adjudications have begun contesting the adjudication proceedings and commencing parallel legal suits or arbitration against claimants. This makes its harder to argue that there is no bona fide dispute on the adjudication decision.
   Furthermore, the filing of a setting aside or stay application of the adjudication decision could be sufficiently said that a bona fide dispute has arisen.