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  • Writer's pictureGavin Jayapal

Fortune favours the bold but a Fortuna? The circumspect.



In life, there are but two things that are certain; death and taxes. For the artificial individuals that are companies though, there is an added certainty: credit.


All companies work on the basis of credit, wherein goods will be supplied and an invoice will be issued for the same. Invoices tend to have a requirement that the sum stated be settled within a fixed period of time.


Consider a simple example.


Company A ("A") is in the business of selling mobile phones. It contacts Company B ("B"), its longstanding supplier and places an order for 100 mobile phones. B sends a quote along, stating that the 100 mobile phones will cost RM50,000. A accepts the price quoted and puts in a Purchase Order.


B delivers mobile phones to A on the 1st of January 2014 and issues an invoice for RM50,000.00. The invoice states that the sum billed must be settled within a month failing which, B shall charge interest. A month goes by. Then six. B's sales executives put in numerous calls and letters to A's staff but nothing is forthcoming. A's staff tell B that the mobile phones delivered were of the wrong make and model and therefore, they shall not pay the full RM50,000.00.


Frustrated, B contacts its solicitors. On the 1st of July 2014, a letter is issued by B's solicitors, demanding payment within 7 days of receipt failing which, B shall institute recovery proceedings.


A writes back to B's solicitors outlining its side of the coin. Radio silence ensues for the month of July and A believes the matter somewhat settled.


August rolls in and a letter dated the 4th of August 2014 arrives that sends a chill down A's directorial bone. The solicitors acting for B have issued a Statutory Notice, pursuant to Section 466 of the Companies Act 1965, demanding payment within 21 days of receipt failing which, A shall be deemed unable to pay its debts and be deemed insolvent. B's solicitors further state that they shall proceed with the appropriate action including but not limited to winding up proceedings.


A's directors scramble for their phones and immediately ring their solicitors. A hasty meeting is called and the directors set out their side of the story. The solicitors for A put out an olive branch and ask that a meeting between the parties be held to "settle all outstanding matters". Calls are also made but the insouciant tone of B's solicitors hardly elicits confidence.


Meanwhile, the clock is ticking. 21 days will expire on the 25th of August 2014 and theoretically, a Petition for Winding-Up will be presented against A on the 26th.

In such a scenario, there is a legal remedy peculiar to the Malaysian Courts that A will be able to avail itself of; a Fortuna Injunction.


What is a Fortuna Injunction?


A Fortuna Injunction ("FI") is a relief granted by the Malaysian Courts to companies that find themselves in A's position. A FI is a legal tool that will enable A to injunct B from proceeding with the Petition, pending the disposal of the dispute between them.


The burden of proof in a FI application will rest on the Plaintiff (Westform Far East Sdn Bhd v Connaught Heights Sdn Bhd and other appeals [2010] 3 MLJ 459).


The eponymous Australian case of Fortuna Holdings Pty Ltd v The Deputy Commissioner of Taxation of the Commonwealth of Australia [1978] VR 83 acts as the basis for a FI.


Ironically, McGarvie J sitting in the Supreme Court of Victoria, dismissed the Plaintiff's application for an injunction.


His Lordship held that firstly, 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. Secondly, 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 in Mobikom Sdn Bhd v Inmiss Communications Sdn Bhd [2007] 3 MLJ 316.


One may be tempted to utilise the same test as that of American Cyanamid Co v Ethicon Ltd [1975] AC 396 and Keet Gerald Francis Noel John v Mohd Noor bin Abdullah & Ors [1995] 1 MLJ 193, but this would be wrong.


In Molop Corp Sdn Bhd v Uniperkasa (M) Sdn Bhd [2003] 6 MLJ 311, His Lordship Low Hop Bing J (as His Lordship was then known) referred to His Lordship's earlier judgment ofNatseven TV Sdn Bhd v Television New Zealand Ltd [2001] 4 CLJ 722 with affirmation:-

I agree with the reasons given by the English and New Zealand Court of Appeal respectively and by Abdul Malik J and hold that for the purpose of obtaining an interim injunction to restrain the defendant from proceeding with the winding up petition, the burden of proof cast on the plaintiff is only discharged by reference to the standard of proof or test in adducing evidence to establish a prima facie case and that the principle relating to the test of 'serious question to be tried' inAmerican Cyanamid Co v Ethicon Ltd [1975] AC 396; [1975] 1 All ER 504 as applied in Keet Gerald Francis Noel John v Mohd Noor bin Abdullah & Ors [1995] 1 MLJ 193 is not applicable as the applications there were not applications to restrain winding up petitions or proceedings, such as in the instant case before me.[Emphasis added] His Lordship's judgment was affirmed by the Court of Appeal in Tan Kok Tong v Hoe Hong Trading Co Sdn Bhd [2007] 4 MLJ 355 with their Lordships stating as follows:- "[9] Mr Lim Chee Wee of counsel has submitted that the judgments on the correct test to be applied as handed down by the different divisions of the High Court in this country are at variance; that they do not speak with one voice. With respect, we are unable to agree. The general principle, unchanging in substance, is this. A court will grant an interlocutory injunction whenever it is just and equitable to do so. Whether it is just and equitable to issue an injunction in a given fact pattern must 4 MLJ 355 at 361vary from case to case. Accordingly, it is not practical just to apply a uniform or standard measure for a wide ranging set of circumstances. That is because equitable relief is flexible and to apply a standard formula would be to deprive or erode the wide discretion which a court has in deciding whether or not to grant interim equitable relief. In the application of this general principle to the kind of injunction sought in the present instance, the test is whether the debt claimed is bona fide disputed on substantial grounds.

(see also Medallion Builders Sdn Bhd v Sinarlim Sdn Bhd [2010] MLJU 1707)

This then begs the question; what are circumstances which the Malaysian Courts have considered as being cogent grounds upon which a FI is to be granted? A closer look at case law will serve to elucidate upon this.


Points that persuade (aside from a bona fide disputed debt)


A categorical list, in lieu of the Court of Appeal's pronouncement in Tan Kok Tong will be impossible. However, from common law, it will be possible to distill several issues that Malaysian Judges have held to be relevant when considering an application for a FI.


1. A party's conduct


ln law, as with everything else, a misstep will lead to dire consequences. Such was the decision in Best Re (L) Ltd v Hanwha General Insurance Co Ltd [2014] 9 MLJ 125.

In dismissing the Plaintiff's application for a FI, the Court held that the Plaintiff's conduct was a necessary consideration. I can do no better than to quote Her Ladyship Has Zanah Megat J to illustrate this point:

[23] The plaintiff disputes on the existence of the reinsurance policies but has unequivocally admitted the existence and validity of the reinsurance policies in the email dated 3 February 2012, the existing agreement the supplementary agreement and notification emails (particularly in exhs A-11 to A-24 of defendant's AIR). I am of the opinion this allegation is plainly contrived and not bona fide. In fact the plaintiff acknowledged and admitted debts it owed to the defendant under the reinsurance policies, including the September installment based on these documents. [24] Therefore, I find that the allegation of the plaintiff is plainly and simply an afterthought calculated to stifle genuine statutory right to present a winding up petition against it and the allegation is inconsistent with undisputed contemporary documents where the plaintiff has admitted in all these contemporary documents that the September installment is due and payable to the defendant. It is settled law, when considering affidavit evidence, the court must reject any assertions of fact, denial or dispute by a party that is equivocal or lacking in precision or is inconsistent with undisputed contemporary documents. [25] Further it has never been the plaintiff's position at all material time that the defendant must first prove that it has properly handled each and every claim under the SKT Policies before the defendant is entitled to make a claim under the reinsurance policies. I find that the plaintiff has not referred to any contractual clause or provision to substantiate its contention. Therefore, this allegation is wholly without substance. [26] The plaintiff also alleges the defendant has not complied with all terms of the SKT Policies. I find that this assertion is lacking in precision and devoid of particulars. It is not stated what terms of the SKT policies that the defendant has purportedly not complied with. This allegation also has never been raised by the plaintiff at all material time and in any contemporary documents. Therefore, it is an afterthought.

2. The Statutory Notices are utilised as a threat when a stay over a Judgment (and the Judgment sum) has been granted


This ties in with the point above. Where a Statutory Notice is utilised as a threat against a party, the Court will view that as an abuse of process that will facilitate the granting of a FI.

This was decided by His Lordship S Nantha Balan JC in Sanjung Suria Sdn Bhd v PLB-KH Bina Sdn Bhd [2014] 7 MLJ 1, with His Lordship stating as follows:-

[51] Based on the circumstances of this case, I was satisfied that the 218 notice and the threat of winding up proceedings had only one purpose, which is to coerce SSSB into paying the amounts ordered under the judgment. That, coupled with the fact that there is a stay order, clearly constitutes an abuse of process, warranting intervention by this court. [52] To conclude the point, I take the view that, once a stay order has been granted, the judgment and the debt that arises there under is metaphorically speaking, put in suspended animation, save for the limited avenue of a winding up petition being presented at the behest of the judgment creditor, unless sooner restrained by a Fortuna injunction. [53] In the light of the principle established by the Court of Appeal inPacific & Orient Insurance Co Bhd v Muniammah a/p Muniandy on the status of a judgment debt which has been stayed, the position in law is that a Fortuna injunction may be granted (under the second branch of its juridical basis) since a judgment debt which has been stayed can properly be construed as a disputed debt.

3. To not grant the FI would result in juridical incongruity


Sanjung Suria acts as a goldmine of sorts for the jurisprudential leanings of the Judiciary. His Lordship S Nantha Balan JC further stated that where to disallow a FI would result in juridical incompatibility, the FI ought to be granted.

[53] In the light of the principle established by the Court of Appeal inPacific & Orient Insurance Co Bhd v Muniammah a/p Muniandy on the status of a judgment debt which has been stayed, the position in law is that a Fortuna injunction may be granted (under the second branch of its juridical basis) since a judgment debt which has been stayed can properly be construed as a disputed debt. [54] Also, I was mindful of the fact that if a Fortuna injunction is disallowed, then that would result in incongruity and would not be in keeping with the comity of judicial orders and a decision to disallow a Fortuna injunction, would in my view render the stay order given by the other court as an inefficacious and impotent judicial pronouncement. Such an outcome should wherever possible, and depending in the circumstances, be avoided. [55] The grant of a Fortuna injunction on the facts and circumstance of the present case, will ensure that such incongruity will not present itself. Further, 7 MLJ 1 at 16the fact that special circumstances have been shown and a stay order had granted by the other court is not without significance and is a relevant factor to be considered in the present application.

4. Irreparable damage and a failure to revert to status quo


His Lordship S Nantha Balan JC further stated in Sanjung Suria as follows:-

[57] Hence, if PKBSB is allowed to present the winding up petition and SSSB is thereafter wound up and the appeal to the Court of Appeal eventually succeeds, SSSB may not be restored to status quo. The damage to SSSB consequent upon winding up would (or may quite possibly) be irreparable and it would idle to speak of any restoring of status quo as it may be forever altered by the winding up. These are important and imperative considerations that must be kept in mind in dealing with an application of this type.

5. No Judgment is forthcoming


In the simple example outlined above, Company B has not obtained a regularised Judgment from a Malaysian Court against Company A. In Seawealth Nautical Sdn Bhd v Kekal Kaya Marin Sdn Bhd [2011[ 9 CLJ 577, His Lordship Mohamad Ariff Yusof J (as His Lordship then was) stated that the Defendant ought to have initiated a proper suit and obtained a regular Judgment before proceeding with proceedings to wind-up the Plaintiff. His Lordship did add a caveat that a failure to obtain a Judgment is not strictly a necessity:

[1] This is a proper case for the court to exercise its jurisdiction to grant a "Fortuna" injunction, on principles which have been accepted by the Court of Appeal in Mobikom Sdn Bhd v. Inmiss Communications Sdn Bhd [2007] 3 CLJ 295 (approving and adopting the principles in Fortuna Holdings Pty Ltd v. The Deputy Commissioner of Taxation [1978] VR 83). [2] A presentation of a Winding-Up Petition may be restrained by injunction where its presentation would amount to an abuse of the court's process. The facts of this case falls within the second principle in "Fortuna" ie, here there is clearly a disputed claim where the defendant is using a procedure which will invariably produce irreparable damage to the company rather than by a suitable alternative procedure. [3] The defendant should commence a proper suit and obtain a proper judgment before proceeding with winding-up proceeding. That, in the circumstances of this case, would be the suitable alternative procedure. ... [9] Granted a judgment debt is not a prerequisite, to proceed on a non-judgment debt requires more than a more mechanical adherence to the statutory provision ofs. 218(2)(a). If the debt is bona fidedisputed on substantial grounds, and if, in certain cases a petition if presented will be bound to fail, the courts can, and should, restrain the creditor from presenting a Winding-Up Petition, and if presented, to restrain further proceedings on it, to prevent abuse of the court's process. [10] On the evidence before me in this application, it is demonstrably clear the debt is vigorously disputed. The defendant is a sub-contractor doing wiring works on a shipping vessel. The plaintiff is the main contractor. All that the defendant has been able to show is its invoices to purportedly establish a sum due on a bare allegation that works have been done as per contract. The plaintiff has now produced a "job progress and completion status" document verified by a "Marine Surveyor" for the employer, which proves there is as yet no satisfactory completion of the works, which are still subject to testing and commissioning. How could a s. 218 Notice be served in such circumstances? [11] For these reasons, I allow the plaintiff's application as prayer in encl. 1 (originating summons) prayer 1, with costs RM5,000 to be paid by the defendant to the plaintiff within one month from the date of this order.

Conclusion


FI applications are a discretionary remedy made available under the inherent jurisdiction of the Court. To successfully obtain one and save one's business and assets, time is of the essence and it is of the imperative that one's solicitors are agile and adroit.

To revert back to our example from before, Company A's solicitors would have to immediately file a suit against Company B and accompany it with a Certificate of Urgency. Once a suit number has been procured, the FI application must be put in post-haste, accompanied also by a Certificate of Urgency. If need be, the FI Application may need to be put in ex partealthough as the Court is wont to do, service on the solicitors acting for Company B may be necessary before the Hearing commences. 

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