The successful party in adjudication proceedings can commence winding-up proceedings against the losing party based on the adjudication decision. This has recently been confirmed by the Court of Appeal in Sime Darby Energy Solution Sdn Bhd (formerly known as Sime Darby Offshore Engineering Sdn Bhd) v RZH Setia Jaya Sdn Bhd [2022] 1 MLJ 458. Accordingly, a Fortuna Injunction to restrain the winning party from proceeding with the winding-up proceedings is unlikely to be granted by the court.

Earlier Conflicting Cases

We previously published an article titled, " Can a Company be Wound Up on a CIPAA Adjudication Decision?". The previous article examined the Court of Appeal's position in Likas Bay Precinct Sdn Bhd v Bina Puri Sdn Bhd [2019] 3 MLJ 244 and the High Court's position in ASM Development (KL) Sdn Bhd v Econpile (M) Sdn Bhd [2021] 8 MLJ 99 on the issue of whether a Fortuna injunction can be obtained to resist a winding-up petition that is premised on an adjudication decision.

In Likas Bay Precinct Sdn Bhd, the Court of Appeal held that the winning party could commence winding-up proceedings based on an adjudication decision. On the other hand, the High Court In ASM Development (KL) Sdn Bhd took a different position and held that if there is a genuine dispute, an injunction may be allowed to restrain the presentation of a winding-up petition commenced based on an adjudication decision. Although the decisions of the higher courts bind lower courts under the doctrine of stare decisis, several decisions post ASM Development (KL) Sdn Bhd appear to support the High Court's decision in ASM Development (KL) Sdn Bhd rather than follow the Court of Appeal's decision in Likas Bay Precinct Sdn Bhd.

The recent Court of Appeal decision in Sime Darby Energy Solution Sdn Bhd (formerly known as Sime Darby Offshore Engineering Sdn Bhd) v RZH Setia Jaya Sdn Bhd [2022] 1 MLJ 458 has clarified the law on this issue. The Court of Appeal held that whilst it is true that the losing party in the adjudication proceedings may challenge the statutory notice or the petition, the losing party can do so in the winding-up court. The losing party cannot restrain the successful party from commencing winding-up proceedings in the winding-up court based on an adjudication decision. Accordingly, the Court of Appeal allowed the appeal and the Fortuna Injunction granted by the High Court was set aside.

Background Facts

The background facts of Sime Darby Energy Solution Sdn Bhd (formerly known as Sime Darby Offshore Engineering Sdn Bhd) v RZH Setia Jaya Sdn Bhd [2022] 1 MLJ 458 are as follows:

  1. The Department of Irrigation and Drainage appointed RZH Setia Jaya Sdn Bhd ("RZH") to execute construction works for a project at the Melaka River. In turn, RZH appointed Sime Darby Energy Solution Sdn Bhd (formerly known as Sime Darby Offshore Engineering Sdn Bhd) ("Sime Darby") as a subcontractor to execute certain parts of the works.
  2. Disputes arose between the parties, and Sime Darby commenced adjudication proceedings under the Construction Industry Payment and Adjudication Act ("CIPAA") 2012. In the CIPAA proceedings, Sime Darby claimed a total amount of RM3,483,025 comprising claims for certified sums, non-certified progressive claims, variation orders, remeasurement works and other miscellaneous items.
  3. In the adjudication proceedings, RZH argued that although there was an unpaid certified amount of RM1,255,794 and a variation of RM80,631, RZH is entitled to set off and cross-claim the sum of RM5,180,000 as liquidated ascertained damages ('LAD') due to a delay of 535 days in Sime Darby's completion of the subcontract works.
  4. The adjudicator delivered his adjudication decision dated 31 October 2019 in favour of Sime Darby for RM1,806,538 ("Adjudication Decision"). In November 2019, Sime Darby applied for the Adjudication Decision to be enforced as a court judgement. RZH, on the other hand, applied to set aside the Adjudication Decision and steps were also taken to refer the disputes to arbitration.
  5. In January 2020, RZH was served with a statutory demand ("Statutory Demand") under section 466 of the Companies Act 2016 demanding the payment of RM1,806,538 being:
    • RM48,765 as reimbursement of the security paid in advance for the adjudication; and
    • RM1,782,156 as the adjudication sum awarded by the adjudicator in the said Adjudication Decision.
  6. RZH filed an injunction to restrain Sime Darby from filing or continuing any winding up petition against RZH based on the Statutory Demand. The High Court granted the injunction to restrain Sime Darby from filing any winding up petition against RZH based on the Statutory Notice.

Findings by the Court of Appeal

The Court of Appeal found that the learned Judicial Commissioner erred in his decision in granting the injunction. As at the hearing of the injunction application, RZH had not issued any letter of demand or commenced any arbitration proceedings against Sime Darby for the purported claim for LAD. The Court of Appeal held that RZH failed to prove any bona fide dispute of debt.

The Court of Appeal further accepted, in principle that:

"a debt that has been admitted, cannot be considered a disputed debt based on which the grant of an injunction to restrain the presentation of a winding up petition would be justified. Any application to grant the order under such circumstances should be regarded as an abuse of process of the court."

The Court of Appeal, in clear and unambiguous language, held that a successful party may proceed to wind up the losing party based on an adjudication decision even without having first to apply to enforce the decision under section 28 of CIPAA:

" ...As to whether a successful party in an adjudication proceeding is entitled to present a winding up petition, the law is now settled with the advent of the Court of Appeal decision is Likas Bay Precinct Sdn Bhd v Bina Puri Sdn Bhd [2019] 3 MLJ 244, it was held that one may proceed to wind up a company based on an adjudication decision under the CIPAA , even without having to first apply to enforce the same under s 28 of the CIPAA."

The Court of Appeal also took the view that, although it was held in ASM Development (KL) Sdn Bhd that the debt under an adjudication decision can still be disputed, this does entitle the losing party to a Fortuna injunction. However, the losing party still has a statutory right to challenge the statutory notice or petition in the winding-up court.

Conclusion

The law is now settled that a winning party may commence winding-up proceedings against the losing party based on an adjudication decision. A Fortuna Injunction to restrain the winning party from proceeding with the winding-up proceedings is unlikely to be granted by the court.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.