Zulkefli Makinudin JCA:

[1] This is an appeal by the plaintiff against the decision of the High Court at Kuala Lumpur in dismissing the plaintiff's application for an order that the plaintiff be given leave pursuant to s. 263(2) of the Companies Act 1965 ("the Act") to proceed with its counter-claim against the defendant in Kuala Lumpur High Court Civil Suit No. S5-22-77-2004 ("the S5 Suit").

Background Facts

[2] The relevant background facts of the case are as follows:

[3] The plaintiff is a development company engaged in the development project of a complex known as Galaxy Ampang, of which the defendant as the main contractor was responsible for the building construction thereof, having taken over the contract from the previous contractor.

[4] The matters relating to the works in question are contained in those documents known as the Letter of Intent dated 18 May 1996, the Supplementary Letter of Award dated 29 August 1997, a new Letter of Award dated 29 August 1997 and another Letter of Award dated 1 September 1999. The defendant's action in the S5 Suit was filed pursuant to the failure of the plaintiff and the defendant to effect the Final Settlement Agreement dated 13 March 2001. Under the said Final Settlement Agreement the plaintiff was to pay the defendant the amount of RM900,000 to be paid in cash and a specific performance of the units of properties in the complex to be transferred to the defendant or his nominees. Alternatively the defendant is seeking from the plaintiff a sum of RM1,585,668 representing the value of the said units and RM156,443.30 representing the short-fall of the contra-value and rental for a tower crane amounting to RM365,000.

[5] Under a Settlement Agreement dated 22 December 1999, the parties resolved to settle the payment of the works completed up till 22 December 1999 which was to be effected by monetary as well as contra-payment in the form of sale and purchase agreements in respect of contra-units in the complex. Subsequently a second Settlement Agreement was entered into on 13 March 2001 (the Final Settlement Agreement) which inter alia supercedes the aforesaid Settlement Agreement dated 22 December 1999 particularly in the mode of payment.

[6] Consequent to the cessation of works by the defendant, as envisaged by the said Final Settlement Agreement, the plaintiff appointed another new contractor to complete the remaining works left. Upon examining the works to be continued and completed the new contractor discovered serious latent defects which were so fundamental as to render it impossible to continue the works from where the defendant left them for the new contractor to take over. The latent defects had to be rectified first and in certain instances to be redone, as they were wrongly carried out and completed contrary to specifications and basic requirements. The estimated costs of rectifying these latent defects is about RM17,898,000 and is now made the subject of the plaintiffs counter-claim against the defendant's claims under the Final Settlement Agreement.

[7] After the defence and counter claim was filed by the plaintiff, the defendant was voluntarily wound up by their creditors on 28 April 2004. The defendant's defence to the plaintiff's counter-claim is, inter alia, that the plaintiff's counter-claim is baseless, frivolous and vexatious as it was made merely to delay and avoid the plaintiff's liability to the defendant.

[8] Parties have filed their respective pleadings in the court and the plaintiff's appeal against the summary judgment obtained by the defendant in the said S5 Suit pursuant to O. 14 of the Rules of High Court 1980 ("RHC 1980") was allowed by the court, whilst the defendant's application for specific performance pursuant to O. 81 of the RHC 1980 was withdrawn by the defendant with no order as to costs. The matter is now fixed for case management.

Decision Of The Court On Appeal

[9] We heard this appeal on 17 May 2006 and we were unanimous in our decisio