A company's inability to pay costs may justify an order for security for costs even if specific statutory provisions are not cited in the application.

JUDGMENT

(Enclosure 10)

Faizah Jamaludin J:

[1] This is an application by the defendant ("Proton") for security for costs against the plaintiff ("GCA") in the sum of RM150,000.

[2] The reasons for the Proton's application for security for costs are as follows:

(i) In 2016, Proton had commenced proceedings against GCA, Kejuruteraan Emas Sdn Bhd ("KE") and Jefloy Sdn Bhd ("Jefloy") in the Shah Alam High Court Suit No BA-22NCVC-141-03-2016 ("2016 suit"). GCA had filed a counterclaim in the 2016 suit;

(ii) GCA had made various admissions in the 2016 suit that it is facing financial constraints;

(iii) On 25 January 2017, the Shah Alam High Court recorded a consent judgment in the 2016 suit in favour of Proton and struck out GCA's counterclaim with liberty to file afresh;

(iv) On 28 February 2020, the Registrar assessed damages in favour of Proton, where GCA and KE were found liable for damages in the sum of RM3,489,402.15;

(v) GCA has yet to pay Proton the damages awarded in the 2016 suit, despite Proton's various demands; and

(vi) GCA's financial condition is unknown since the SSM company search shows that GCA is an exempt private company as at 31 December 2014. As an exempt private company, GCA's financial status is not reported in the SSM company search.

[3] It is Proton's case that there is a substantial risk and a high probability that if Proton is successful in its defence in this instant suit, Proton will not be able to recover the cost of its defence from GCA. This is because GCA had admitted in the 2016 suit that it is facing financial constraints and it has repeatedly demonstrated its inability to pay Proton the judgment sum of RM3,489,402.15 ordered against it in the 2016 suit.

GCA's Preliminary Objection

[4] GCA had raised a preliminary objection against Proton's application for security for costs, namely that Proton in its written submissions had principally relied on s 580A of the Companies Act 2016 (" CA 2016") to support its application for security for costs.

[5] GCA submits that Proton cannot rely on s 580A of the CA 2016 since it had moved this Court pursuant O 23 of the Rules of 2012 ("ROC") and not s 580A of the 2016.

[6] Learned counsel for GCA argues that for this reason alone, Proton's application for security for costs should be dismissed in limine.

Decision Of This Court As Regards GCA's Preliminary Objection

[7] Proton in its notice of application (encl 10) stated that its application for security for costs was made pursuant to O 23 and/or O 92 r 4 of the ROC and/or this Court's inherent jurisdiction. It did not expressly state that it made the application pursuant to s 580A of the CA 2016.

[8] The issue at hand is whether this Court should dismiss Proton's application for security for costs in limine because it did not state that the application was made pursuant to s 580A of the CA 2016.

[9] Order 23 of the ROC comprises of three rules:

(i) Rule 1 of O 23 specifies four instances where the Court may, if having regard to all the circumstance of the case, thinks it is just to order the plaintiff to give such security for the defendant's costs of the action or other proceedings.

(ii)Rule 2 of O 23 specifies the manner of giving the security:

2. Manner of giving security

Where an order is made requiring any party to give security for costs, the security shall be given in such manner, at such time, and on such terms, if any, as the Court may direct.

(iii) Rule 3 of O 23 is the saving provision for any written law:

3. Saving for written law

This Order is without prejudice to the provisions of any written law which empowers the Court to require security to be given for the costs of any proceedings.

[10] Section 580A of the CA 2016 empowers the Court to order security for costs where there is evidence to suggest that a plaintiff company may be unable to pay its debts to the defendant in the event the defendant successfully defends the claim against it by the plaintiff. Section 580A of the 2016 was introduced by the Compan