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2021 MarsdenLR 284
HIGH COURT MALAYA KUALA LUMPUR
MITISA HOLDINGS SDN BHD (IN LIQUIDATION) – Appellant
Versus
PORTNEKA SDN BHD & ANOTHER APPEAL – Respondent
[Civil Appeal Nos: WA-12BC-4-05/2021 & WA-12BC-5-05/2021]
Direct payments to sub-contractors by main contractor post-liquidation contravene the pari passu principle of creditor payments as mandated by the Companies Act.
Headnote:(A) Companies Act 2016 – Sections 527 and 528 – Appeal against trial judgments regarding payments to sub-contractors post-liquidation – Direct payments by PBLT to Portneka and Adamas not valid under pari passu principle – Winding up of Mitisa limits payment obligations despite prior arrangements. (Paras 30-39, 46-48)
(B) Privity of Contract – No contractual obligations between PBLT and the sub-contractors to make payments directly due to Mitisa's liquidation. The Sessions Court judge failed to adequately consider the nature of contractual relationships. (Paras 27, 36-37)
(C) Doctrine of Estoppel – Improper reliance on estoppel to circumvent statutory provisions regarding creditor rights in liquidation. (Paras 47-48)
Key Points: - The court held that direct payment by the main contractor (PBLT) to sub-contractors after the contractor (Mitisa) was wound up contravenes the pari passu principle of creditor payments. (!) (!) (!) - The court found that the direct payment arrangement in the main and sub-contracts was, in substance, a payment by PBLT as agent of Mitisa, not a direct contractual obligation between PBLT and the sub-contractors. (!) - Due to Mitisa's liquidation, all payments must be dealt with by the liquidator subject to the pari passu principle as per the Companies Act 2016. (!) - The sub-contractors cannot circumvent the pari passu principle through direct payment by PBLT. (!) - The sub-contractors must claim from Mitisa in liquidation through the filing of a proof of debt. (!) (!) - The lower court judge made a material error of law by failing to properly consider the nature of the direct payment. (!) - The doctrine of estoppel cannot be applied to exclude the provisions on the pari passu principle. (!) (!)
What is the legal effect of direct payments to sub-contractors by a main contractor after the contractor's liquidation under the pari passu principle?
What are the rights of a nominated sub-contractor to claim payment directly from the main contractor when the contractor is in liquidation?
What is the applicability of the doctrine of estoppel in circumventing the statutory pari passu principle in a liquidation.
JUDGMENT
Introduction
[1] These are appeals against the trial judgments of the Sessions Court relating to claims made by nominated sub-contractors in respect of the redevelopment of the Kuala Lumpur Police Contingent Headquarters.
[2] The Appellant ("Mitisa") in both Civil Appeal No WA-12BC-4-05/2019 ("Appeal no 4") and Civil Appeal No WA-12BC-5-05/2019 ("Appeal no 5") (collectively "Appeals") and Second Defendant in Suit No WA-B52C-28-07/2018 ("Suit no 28") and Suit No WA- B52C-9-02/2019 ("Suit no 9") (collectively "Suits") is a private limited company involved in the property development and construction business. Mitisa is presently undergoing compulsory liquidation.
[3] The Respondent ("Portneka") in Appeal no 4 and Plaintiff in Suit no 28 is a private limited company involved in the mechanical building services business.
[4] The Respondent ("Adamas") in Appeal no 5 and Plaintiff in Suit no 9 is a private limited company involved in the electrical services business.
[5] The First Defendant ("PBLT") in both Suits is a private limited company involved in construction management services for the Minister of Finance Incorporated of Malaysia.
Background And Preliminary
[6] By a contract dated 7 October 2009 ("Main Contract"), PBLT appointed Mitisa as the main contractor to carry out and complete the project named as the "Cadangan Pembangunan Tambahan bagi Ibu? Pejabat Polis Kontinjen Kuala Lumpur (IPK KL) serta Komponennya di atas Lot PT112, Seksyen 56, Mukim Bandar, Kuala Lumpur untuk Tetuan Polis Di Raja Malaysia" ("Project"). The Main Contract is based on the JKR 203A Conditions of Main Contract (Rev. 10/83).
[7] By a letter of award dated 24 October 2009 followed by the JKR 203N Conditions of Sub-Contract ("Mechanical Sub-Contract"), PBLT appointed Portneka as its nominated sub-contractor to carry out and complete the "Cadangan Kerja-Kerja Membekal, Menghantar, Memasang, Menguji Terima dan Mentauliah Sistem Pendingin Hawa dan Pengudaraan Mekanikal, Sistem Pencegah Kebakaran, Sistem Kawalan Bangunan dan Kerja-Kerja Berkaitan" ("Mechanical Works") for the Project.
[8] Likewise by a letter of award dated 24 October 2009 followed by the JKR 203N Conditions of Sub-Contract ("Electrical & IT SubContract"), PBLT appointed Adamas as its nominated sub-contractor to carry out and complete the "Cadangan Kerja-Kerja Membekal, Menghantar, Memasang, Menguji Terima dan Mentauliah Sistem Elektrikal Voltan Tinggi dan Rendah, Sistem Siaraya dan Pandang Dengar, Sistem Kamera Litar Tertutup, Sistem Kad Keselamatan, Sistem SMATV, Sistem Telefon dan Sistem Teknologi Maklumat" ("Electrical & IT Works") for the Project.
[9] The Main Contract contained, amongst others, the following provisions:
Clause 28(e)
The SO in issuing Interim Certificates under cl 47 of the Final Certificate under cl 18 hereof shall state separately the amount of interim or final payment due to each Nominated Sub-Contractor or Nominated Supplier which amount subject to cl 28(f) hereof, shall be paid by the Government direct to Nominated Sub-Contractor or Nominated Supplier. The amount paid by the Government direct to the Nominated Sub-Contractor or Nominated supplier shall be deemed to be a payment to the Contractor by the Government under and by virtue of this Contract.
Clause 28(f)
Subject to the relevant provisions in the sub-contract (Form PWD 203N or Form PWD 203P) as the case may be), the Contractor shall be entitled to be paid and the Government may pay to the Contractor out of any money otherwise due to a Nominated Sub-Contractor or Nominated Supplier:
(i) any amount which the Government or the SO on its behalf in exercise of any rights under this Contract has deducted from monies due to the Contractor and such deduction is in respect of some act or default solely of the Nominated Sub-Contractor or Nominated Supplier, his servant or agents;
(ii) any amount agreed by the Nominated Sub-Contractor or Nominated Suppliers. due to the Contractor, or any amount awarded in a
