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Case Update: Limitation Act does not apply to a Proof of Debt that is accepted and not formally rejected by a liquidator

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28 April 2023

COMPANY LAW
Duties and Powers of Liquidator – Proof of Debts – Limitation Act 1953 – Interest – Absence of Any Contractual Provision – Appeal

Genisys Integrated Engineers Pte Ltd v. UEM Genisys Sdn Bhd (in Liquidation) & Ors
Civil Appeal No. 02(f)-45-05/2022(W) | Federal Court
- see the grounds of judgment here

Facts By a Shareholders’Agreement, UEM Group Berhad formerly known as United Engineers (Malaysia) Berhad (UEM) and Genisys Integrated Engineers Pte Ltd (‘the Appellant’) agreed to form UEM Genisys Sdn Bhd (‘1st Respondent’) with UEM and the Appellant holding 51% and 49% respectively of its issued share capital. Subsequently, Gammon Construction Limited (Gammon) and Road Builder (M) Sdn Bhd, established an unincorporated joint venture known as Gammon- Road Builder Joint Venture (GRBJV). GRBJV entered into an agreement with Vietnam-Malaysia Joint Venture Company Limited (Vimas) to perform works, described as the construction, completion and maintenance of an international class hotel in Hanoi, Vietnam (Main Contract). GRBJV appointed the 1st Respondent to undertake works under the Main Contract and subsequently, the 1st Respondent subcontracted the works under the M&E contract to the Appellant. GRBJV with the consent of Vimas, novated all its rights and obligations under the Main Contract to Gammon-CC1 Construction Co. Ltd. (Gammon-CC1). Gammon guaranteed Gammon-CC1’s performance in respect of the M&E Contract. By an agreement between Vimas and Gammon-CC1, Gammon-CC1 ceased all their works on the Hanoi Sheraton Hotel Project and instructed their sub-contractors, including the 1st Respondent, to cease works. Gammon-CC1 failed to make payment pursuant to the Certificate of Payment. The 1st Respondent then commenced an action against Gammon pursuant to the Guarantee to claim for the outstanding sum. The 1st Respondent was subsequently wound up and the 2nd and 3rd Respondents were appointed as the 1st Respondent’s liquidators. The Appellant then lodged a Proof of Debt (POD), however, in 2015, the Respondents and Gammon entered into a Consent Judgment where it was agreed that a total sum of USD1,215,000.00 will be paid by Gammon to the Respondents. The full sum as stipulated in the Consent Judgement was then paid. Four years after the POD was filed by the Appellant and shortly after the Consent Judgment was entered, the Liquidators informed the Appellant that its claim in the POD had been admitted after deducting the Procurement Fee and interest. The Appellant accepted the amount payable under protest and without prejudice to its rights inter alia on the basis that the Liquidators were not entitled to charge interest on the Procurement Fee. The learned High Court Judge allowed the Appellant’s claim and found that the Appellant's entitlement was not time-barred as it was not based on the architect's certificate of payment in the year 2000 but on the Consent Judgment entered in 2015. On appeal, the Court of Appeal disagreed with the High Court and allowed the Respondents’ appeal. Hence, this appeal.

Issue 1. Can the Limitation Act 1953 apply to Proof of Debt which is accepted and not formally rejected by a Liquidator?
2. Can the Liquidators unilaterally impose interest on the basis of a commercial decision and at a rate unilaterally decided by them despite the absence of any contractual provision and/or agreement by the Appellant?

Held In allowing the appeal, the Federal Court Judge, YA Dato' Sri Hasnah held that there was never any rejection of the sum claimed under the POD by the Liquidators. The very act of deduction from the sum claimed by the Appellant is a tacit admission of the sum claimed for otherwise there can be no deductions to begin with. Such admission amounts to an acknowledgment that if the Limitation Act applies, it provides for a fresh accrual of action in which case, the claim is not time-barred. On the question of whether the Limitation Act applies, the language of the Limitation Act clearly provides that it is an Act providing for limitation of actions and arbitrations. Under Section 2 of the Limitation Act, ‘action’ includes a suit or any other proceeding in a court of law. While liquidators may act in quasijudicial capacities, the Federal Court held that the whole exercise of settling proofs of debts by the liquidator is still not an exercise “in a court of law”. Therefore, the Limitation Act 1953 does not apply to a Proof of Debt that is accepted and not formally rejected by a liquidator. In respect of the 2nd issue, the Federal Court held that as liquidators, the Respondents cannot exercise their discretion arbitrarily but must be based on just and equitable principles where the interest of the wound-up company is paramount. The Federal Court held that if the POD is based on a contract then the liquidator must meticulously examine and decide based on the terms of the contract. The liquidator cannot act and impose terms outside the purview of the contract. The Federal Court disagreed with the Court of Appeal’s reasoning that the Liquidators could arrive at a commercially sensible conclusion by the imposition of the interest and held that the imposition of the late payment interest for over 20 years was outside the scope of the terms of the Subcontract, and was not only incredulous but clearly unlawful. In conclusion, the Federal Court allowed the appeal and set aside the decision of the Court of Appeal.

Zul Rafique & Partners
{28 April 2023}

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