The recent Court of Appeal case of Bludream City Development Sdn Bhd (“Bludream”) v Pembinaan Bina Bumi Sdn Bhd (“PBB”) [2024] 4 MLJ 67 held that the court has jurisdiction and power to wind up a company for failure to comply with an adjudication decision.

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The Facts

Adjudication Decision and Enforcement Order

On 4.2.2020, PBB has obtained an adjudication decision against Bludream for the sum of RM5,510,197.91, together with interests and costs.

Subsequently, PBB has applied to the High Court under Section 28 CIPAA 2012 (“CIPAA”), and obtained an Order dated 11.8.2020 to enforce the adjudication decision as if it is a judgment or order of the High Court (“HC Enforcement Order”). The HC Enforcement Order was affirmed by the Court of Appeal on 19.5.2024 (“COA Enforcement Order”)

Bludream’s application for leave to appeal against the COA Enforcement Order to the Federal Court has been dismissed on 20.10.2022.

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Winding Up Proceedings

Armed with the HC Enforcement Order, on 24.8.2021, PBB served a statutory notice pursuant to section 465(1)(e) and 466(1)(a) of the Companies Act 2016 (“Statutory Notice”) demanding for payment of the sum of RM6,175,669.10 premised on the HC Enforcement Order.

Due to non-payment of the debt pursuant to the Statutory Notice, PBB commenced winding up proceedings at the High Court against Bludream, and obtained a Winding Up Order on 21.10.2022 (“Winding Up Order”).

On 15.11.2022, Bludream filed an appeal to the Court of Appeal against the Winding Up Order.

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Findings of the Court of Appeal

In support of its appeal against the Winding Up Order, Bludream argued that a party cannot rely on an enforced adjudication decision to commence winding up proceedings based on amongst others, the following grounds:

1. (a) There is no express provision provided in the CIPAA for the winning party to wind up the losing party premised on an adjudication decision.
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3. (b) There are bona fide disputes against the debt. The adjudicated dispute has been referred for final determination to arbitration / court.
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5. (c) Since an adjudication decision is only of temporary finality, the right to wind up a company based on an adjudication decision is contrary to the legislative intent of the CIPAA. Otherwise, the company would be wound up based on an adjudication decision that has permanency from which the company cannot recover.
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On 6.3.2024, the Court of Appeal has dismissed Bludream’s appeal against the Winding Up Order, and held amongst others, as follows:

1. (a) The court had jurisdiction and power to wind up Bludream for failure to pay the amount adjudicated under the adjudication decision. Pursuant to Section 31(2) CIPAA, “The remedies provided by this Act are without prejudice to other rights and remedies available in the construction contract or any written law, including any penalty provided under any written law.”. As such, although not expressly provided for under CIPAA, the remedy under Sections 465 and 466 of the Companies Act 2016 is available to PBB.
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3. (b) It is immaterial that the adjudicated dispute is pending final determination in arbitration proceedings. Disputability of a debt had to be seen in its proper context. As the disputed debt has been independently adjudicated by a neutral third party, the debt would cease to be disputable in an ensuing winding up proceeding. It should not be open for Bludream to again dispute the debt when the sanctity of the adjudication decision has been preserved by subsequent court orders pursuant to Section 28 of the CIPAA.
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5. (c) Although the court was mindful that winding up was a draconian procedure which might irreparably damage business and reputation, it had to heed the legislative objective of the CIPAA to alleviate the financial woes prevalent in the Malaysian construction.

On 22.7.2024, the Federal Court has dismissed Bludream’s application for leave to appeal to the Federal Court against the Winding Up Order.

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KEY TAKEAWAYS

This Court of Appeal’s decision has made it clear that upon delivery of an adjudication decision, and the adjudication decision remains binding pursuant to Section 13 CIPAA. In the absence of compliance with the adjudication decision by the non-paying party, the winning party is entitled to commence winding up proceedings against the non-paying party. This is irrespective that the disputes between the parties are still subject to final determination in litigation / arbitration.

This Court of Appeal’s decision also serves as a reminder to the stakeholders in the construction industry that the very purpose of CIPAA is to offer the parties a mechanism of “pay now, talk later”, and non-compliance with an adjudication decision may lead to the non-paying party being wound up by the courts, upon a presentation of a winding up petition by the winning party in the adjudication proceeding.

In light of the recent dismissal of Bludream’s leave application, this Court of Appeal’s decision remains a binding judicial precedent on this issue, until and unless there is a further development in law in the future.

This article is intended to be informative and not intended to be nor should be relied upon as a substitute for legal or any other professional advice.

About the Author

Lim Ren Wei
Associate
Dispute Resolution
Harold & Lam Partnership
renwei@hlplawyers.com

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