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Case Update: Costs can be ordered against a non-party in Winding-Up proceedings provided warning given in advance

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15 July 2022

COMPANY LAW
Winding-Up – Cost – Non-Party – Principle of Natural Justice – Companies Act 2016, s. 462

Twin Faber Sdn Bhd v Ng Cheng Keng
Appeal No: W-02(A)-1346-07/2021 | Court of Appeal
- see the grounds of judgment here

Facts Twin Faber (the ‘Appellant’) commenced a winding-up proceedings against LKD Trading Sdn Bhd. (‘LKD’). Ng Cheng Keng (the ‘Respondent’) was a manager in LKD at the material time. In the winding-up proceedings, the Respondent had affirmed 4 affidavits in opposition of the winding-up petition on behalf of LKD. The Respondent further filed a Notice of Motion to strike out the Companies Winding-Up Petition. Eventually, the High Court wound up LKD and ordered amongst others, costs granted against the Respondent who was a non-party in the Winding-Up Petition. The Respondent then filled an originating summons at the KL High Court against the Appellant stating that that the order of costs on an indemnity basis made against him just because he had affirmed the affidavits on behalf of LKD is void and illegal as it contravenes section 462 of the Companies Act 2016 (‘CA 2016’). The respondent also contended that the said order of costs is against the principle of natural justice. The High Court allowed in part the Originating Summons and set aside the order of costs against the respondent in the Companies Winding-Up Order on the grounds that the CA 2016 only permits the court to make orders as to costs to be payable out of the assets of the company. Hence this appeal.

Issues 1. Whether the Companies Winding-Up Court had the power to order costs against a non-party; and
2. Whether the Companies Winding-Up Order was lawful.

Held In allowing the appeal and setting aside the order of the High Court, Learned Judge Hadhariah binti Syed Ismail held that the Respondent had not only affirmed affidavits in opposition of the winding up petition on behalf of LKD, but had also filed a notice of motion to strike out the winding-up petition. The Respondent was therefore, the directing mind of LKD since the two directors of LKD have lodged a police report stating that they are not the directors of LKD. The Court of Appeal further held that the Respondent cannot complain that the order of costs against him was made by the court upon hearing the Appellant only. The Respondent only had himself to blame as he had chosen not to attend court despite the Appellant’s solicitors duly informing the Respondent of the hearing of the winding-up petition. In addition as to whether the court had power to order cost against a non-party, the Court of Appeal referred to the Federal Court decision in Takako Sakao which has established that costs can be ordered against a non-party provided warning was given in advance to the non-party that costs will be applied personally against him as in the case here. Hence there were merits in the appeal and as such the appeal was allowed by the Court of Appeal.

Zul Rafique & Partners
{15 July 2022}

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