Facing Winding-Up Petitions Filed for Collateral Purposes or to Exert Undue Pressure

The Court of Appeal decision of Conweld Engineering Sdn Bhd & Others v Goh Swee Boh @ Goh Cheng Kin & Another

Introduction

The Court of Appeal recently confirmed that the tort of abuse of process remains recognised as a distinct tort and cause of action under Malaysian law. The Court of Appeal declined to follow the approach adopted in Singapore where the tort of abuse of process is no longer recognised as a distinct cause of action for various policy reasons. 

The Court of Appeal decision also provides valuable confirmation on the protection and/or remedies available to companies who are forced to defend or fend off baseless winding-up petitions filed by errant creditors and/or other parties.  

What is the Tort of Collateral Abuse of Process

Before delving into the decision of the Court of Appeal, it is worth discussing what the tort of collateral abuse of process involves. 

Generally, a collateral abuse of process is where a party who has instituted proceedings has done so for a purpose other than to obtain redress for a genuine grievance or to effect an object beyond that which the legal process offers. In the event where the action was not brought for the purpose of obtaining relief but for some other ulterior motive, the court has a duty, not a discretion to decline to adjudicate on matters which constitute an abuse of the courts’ process, i.e by the dismissal of such action. 

In Goldsmith v Sperrings [1977] 1 WLR 478, Lord Denning neatly summed up the position and the concept of a “collateral abuse of process”:

“In a civilised society, legal process is the machinery for keeping and doing justice. It can be used properly or it can be abused. It is used properly when it is invoked for the vindication of men's rights or the enforcement of just claims. It is abused when it is diverted from its true course so as to serve extortion or oppression: or to exert pressure so as to achieve an improper end. When it is so abused, it is a tort, a wrong known to the law.

The judges can and will intervene to stop it. They will stay the legal process, if they can, before any harm is done. If they cannot stop it in time, and harm is done, they will give damages against the wrongdoer.” 

The Court of Appeal in Malaysian Building Society Bhd v Tan Sri General Ungku Nazaruddin bin Ungku Mohamad [1998] 2 MLJ 425 (“MBSB”) set out the requirements of the tort as being: 

1. The Court action complained of must have been initiated; 
2. The dominant purpose of the initiated action must be to obtain a collateral advantage or for some other purpose other than to obtain genuine redress offered by the process; and 
3. The defendant in the action complained of must have suffered damage. 

As an example, in Sukumaran a/l Ramasamy & Ors v Public Bank Bhd [2022] MLJU 525, the court held that an action was an abuse of process as it was filed as a tactical manoeuvre to pressure the defendant to accede to the plaintiff’s request for a higher rebate and to revert to the original monthly instalment payments despite the fact that the increase in monthly instalments payable had been caused by the plaintiff’s own default in the first place. 

In Radiant Preference Sdn Bhd & Ors v Mohaizi bin Mohamad & Anor [2015] 11 MLJ 637, the court found that the defendant had committed an abuse of process when it wrongfully filed a winding-up petition against the plaintiff company with the collateral purpose of causing permanent damage and embarrassment to the plaintiff company and its directors as they were listed in the database of CTOS Data Systems Sdn Bhd. The winding-up petition was presented despite the fact that the defendant had previously agreed to allow a moratorium and defer the filing of the petition in order to allow the plaintiff time to settle the outstanding debt. 

Analysis of the Decision in Conweld Engineering

In Conweld Engineering, the plaintiff initiated a suit against the defendants alleging that they had committed the tort of abuse of process when it wrongfully filed a winding-up petition pursuant to Section 465(1)(f) and (h) of the Companies Act 2016 against Conweld Engineering. After a full trial, the High Court made the following material findings: 

1. The High Court held that under Malaysian law, the tort of abuse of process is a distinct cause of action and declined to follow the approach taken by the Singapore Court of Appeal in Lee Tat Development Pte Ltd v Management Corporation of Grange Heights Strata Title Plan No. 301 [2018] SGCA 50 which had refused to recognise the tort of abuse of process as a distinct cause of action in Singapore for various policy reasons. 
2. While the High Court found that the defendants did file the winding-up petition for the predominant purpose of putting pressure on the plaintiffs to buy out the defendants at a price they had demanded, the High Court Judge dismissed the claim as the plaintiffs could not prove that it had suffered any loss or damage as a result of the filing of the winding-up petition. 

Dissatisfied, the plaintiffs appealed to the Court of Appeal. 

The Court of Appeal affirmed the High Court’s decision and confirmed that the tort of abuse of process is recognised as a distinct cause of action in Malaysia, in line with the approach in the MBSB decision. In making this decision, the Court of Appeal considered that: 

1. The decision of Low Hop Bing JCA in the Court of Appeal decision of Lim Chee Kuo v The Pacific Bank Berhad [2011] 5 MLJ 230 that:
   “As a general rule, a litigant who is a party to civil proceedings who claims that those proceedings are an abuse of process must take that objection in those very proceedings under O 18 r 19(1)(d). The filing of a collateral action is itself an abuse of process which must result in it being struck out.”
   did not take into account or cite the position laid out by the Court of Appeal in MBSB. The Court of Appeal also held that the High Court decision of Gasing Heights Sdn Bhd v Aloyah Bte Abdul Rahman & Ors [1996] 3 MLJ 259 which took a similar position to Lim Chee Kuo was decided before MBSB. 
2. The recognition of the tort of abuse of process as a distinct and separate cause of action is especially critical where it was not open for parties to apply for a striking-out order pursuant to O 18 r 19 of the Rules of Court 2012. 
3. Specifically on winding-up petitions, the Court of Appeal also pointed out that unlike a normal civil suit, it was procedurally impossible for those opposing the petition to mount a counterclaim to seek damages for the tort of collateral abuse of process. Indeed, the Federal Court decision of Blue Valley Plantations Berhad v Periasamy [2011] 5 MLJ 521 held that the court will generally decline to entertain a striking out application under O 18 r 19 of the Rules of Court 2012 when it comes to winding-up proceedings. As such, it was important to allow parties to file a separate action for collateral abuse of process in order to obtain the appropriate remedy.

For completeness, the Court of Appeal went on to affirm the High Court’s decision that without proof of damages, the plaintiffs had failed to establish its cause of action of collateral abuse of process as damages suffered was an essential element of the tort. As such, the plaintiffs appeal was dismissed. 

Conclusion

Conweld Engineering is a welcome decision as it clearly confirms that parties are able to seek redress from the courts in a separate action, if they were subjected to a collateral abuse of process, particularly when remedies are unavailable to them in the original action – such as in the case of winding-up petitions. This decision also would discourage parties from filing winding-up petitions merely to exert undue pressure as companies would have additional redress in such situations.