A court can grant security for costs under s 580A of the Companies Act 2016 when there is credible testimony indicating that a company plaintiff may be unable to pay the costs of a successful defendant.

Aliza Sulaiman J:

Introduction

[1] This was an application by the Plaintiff for an order that the Defendant provides security for costs in the sum of RM500,000.00 to the Plaintiff or in the alternative, for a sum which the Court deems fit and appropriate.

[2] Apart from the Originating Summons ('O.S.') in encl 1, the other relevant cause papers are as follows:

(a) the Plaintiff's Affidavit in Support ('AIS') affirmed by its Contract Manager, Mr Foong Yeong Juen on 8 November 2021 (encl 2);

(b) the Defendant's Affidavit in Reply ('AIR') affirmed by Mr Quek Wan Hong on 13 December 2021 (encl 4); and

(c) the Plaintiff's Affidavit (2) affirmed by the same deponent on 22 December 2021 (encl 7).

[3] Upon consideration of the cause papers and the oral and written submissions by the parties, the Court had, on 28 January 2022, allowed the Plaintiff's application for security for costs in the sum of RM300,000.00 to be made on or before 23 February 2022, failing which, the pending arbitration proceedings shall be stayed. The Defendant was also ordered to pay RM3,000.00 as costs of the application, subject to allocatur.

[4] The Defendant is aggrieved by the said decision and has filed a Notice of Appeal on 25 February 2022. My full grounds of judgment are elaborated below.

Brief Background Facts

[5] By a Letter of Award dated 8 March 2017, the Defendant had appointed the Plaintiff as the main contractor for the project known as "Cadangan Mendirikan 16 Unit Bangunan Gudang / Pejabat 3-Tingkat: A) 4 Unit Gudang 2-Tingkat Dan Pejabat 2 Tingkat (Jenis A); B) 4 Unit Gudang 2-Tingkat Dan Pejabat 2 Tingkat (Jenis B); C) 4 Unit Gudang 2-Tingkat Dan Pejabat 2 Tingkat (Jenis C); D) 4 Unit Gudang 2-Tingkat Dan Pejabat 2 Tingkat (Jenis D) Di Atas Lot 1695 (Lot Lama - Lot 455), Jalan Nafiri, Valdor, Mukim 12, Seberang Perai Selatan For M/S. WSH Development Sdn Bhd." ('Project') for the total contract sum of RM31 million.

[6] Disputes arose between the parties and the Plaintiff invoked the termination clause to terminate the contract. Subsequently, the Plaintiff commenced an adjudication proceeding under the Construction Industry Payment and Adjudication Act 2012 [Act 746] ('CIPAA') against the Defendant for payment for works done.

[7] On 20 July 2020, the Adjudicator had decided in favour of the Plaintiff whereby the Defendant is to pay the Plaintiff the adjudication sum of RM3,093,610.84 with interest at the rate of 7.65% per annum from 16 August 2019 until full settlement and RM97,962.96 as adjudication costs.

[8] On 19 April 2021, the Plaintiff obtained an order from the High Court for the enforcement of the adjudication decision under s 28 CIPAA. On the same day, the Defendant's application to set aside the adjudication decision was dismissed with costs of RM3,000.00.

[9] On 11 May 2021, the Defendant issued a Notice of Arbitration against the Plaintiff to dispute the adjudicated amount which has been allowed to be enforced as if it is a judgment of the High Court. The learned Arbitrator, Datuk Sundra Rajoo, was appointed on 7 July 2021.

[10] The Defendant did not pay the adjudicated amount and this led the Plaintiff to commence garnishee proceeding against the Defendant. However, the said proceeding was later withdrawn.

[11] The Defendant also initiated a winding-up proceeding against the Defendant on 17 September 2021. The High Court in Pulau Pinang had granted an interim injunction to restrain the winding-up proceeding pending the disposal of the Defendant's O.S. seeking, among others, for a declaration that the winding up petition is mala fide and invalid in law and for an injunction to restrain the Plaintiff from proceeding with the winding up petition.

[12] On 14 November 2021, the Plaintiff filed the instant application for security for costs.

The Parties' Contentions

[13] The Plaintiff justified its application for the reasons that-

(a) the Defendant's financial standing is weak as supported by the financial audited report for the year 2020 in exhib