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D-22NCC-273-2009
MALAYSIA
IN THE HIGH COURT AT KUALA LUMPUR
(COMMERCIAL DIVISION)
SUIT NO. D-22NCC-273-2009
Between
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WONG CHEE LIN
(NRIC No: 600801-13-5634)
… PLAINTIFF
And
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CHOW MING KONG
(NRIC No: 640903-07-5739)
… DEFENDANT
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BEFORE THE HONOURABLE JUDGE
Y.A. DATUK DR. HAJI HAMID SULTAN BIN ABU BACKER
IN CHAMBERS
JUDGMENT
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This is my judgment in respect of the defendant’s appeal against the decision
of the learned senior assistant registrar, who did not allow the defendant’s
application to set-aside the default judgment, dated 28.10.2009.
The central issue in this case is whether leave is required to initiate
proceedings against an undischarged bankrupt for debts incurred by the
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bankrupt from the plaintiff after the bankruptcy when the plaintiff had no
knowledge of the said bankruptcy.
Brief facts
1.
The defendant was first made a bankrupt on 9.4.2002 and a second
bankruptcy on 22.1.2003. The plaintiff unaware of both bankruptcies
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has advanced loan to the plaintiff from time to time from 4.10.2004 to
April 2005. There are admission and acknowledgement of these loans
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D-22NCC-273-2009
by the defendant in various letters dating from the year 2004 to 2009. A
letter dated 17.8.2009 reads as follows:Chow Ming Kong
No.12, Jalan Bangkung
Bukit Bandaraya
59100 Kuala Lumpur
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Ms. Wong Chee Lin
No.25 Lorong Kemaris 3
Bukit Bandaraya
59100 Kuala Lumpur
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Dear Chee Lin
Re: Acknowledgment of Friendly Loans
I, CHOW MING KONG @ MARTIN CHOW MING KONG (NRIC NO. 64090307-5739) of No.2, Jalan Telaga Ayer, Tg. Bunga. 11200 Pulau Pinang (currently
staying at No. 12, Jalan Bangkung, Bukit Bandaraya, 59100 Kuala Lumpur,
hereby acknowledge the following:

That you have since 2004 provided me with various interest free friendly
loans and in respect, I refer to my previous written acknowledgments to you dated
23 November 2004, 10 january 2005 and 13 October 2006 copies of which are
attached hereto.

I have defaulted in paying you the said loans on the due dates and, as at
17 August 2009, I acknowledge that I am indebted to you in the total sum of
RM2,222,692.80 in respect of the loans you have granted to me including interest
from the respective dates of default until 17 August 2009.
Dated this 17th day of August, 2009.
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Yours sincerely,
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-sgdCHOW MING KONG
(NRIC No. 640903-07-5739)
2.
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The record will show that the defendant had not protested to the
judgment and/or made any application to set aside the judgment at the
earliest opportunity notwithstanding the following events had taken
place namely:(i) The default judgment was served on the defendant on or about
4.11.2009;
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(ii) Based on the judgment a writ of seizure and sale was carried out
on 26.11.2009. The attachment was objected to by Director
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D-22NCC-273-2009
General of Insolvency (DGI). And the plaintiff consented to the
set-aside of the attachment and DGI took over possession of the
attached properties which it had not previously sought to take
control of;
(iii) Based on the default judgment a bankruptcy notice was served
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personally on the defendant. No objection was taken by the
defendant within 7 days of service thereby committing an act of
bankruptcy in the technical sense notwithstanding he was an
undischarge bankrupt;
(iv) Creditors petition was also served on the defendant personally on
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15.1.2010. And the defendant only filed an application inter alia
for an extension of time to file the application to set-aside BN. In
the supporting affidavit the defendant had averred that the lawyers
will be filing an application to set-aside the default judgment. The
application in this case was only filed on 5.10.2010 i.e. after more
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than two months. Subsequently the defendant applied to stay the
bankruptcy proceedings pending the outcome of this application
and the plaintiff consented to it in the bankruptcy proceedings.
3.
In essence there was substantial delay in filing the application to setaside the default judgment and there could not be any merit in respect
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of credible defence for the defendant had made admission as well as
acknowledgment. The only issue of significance is the issue of
irregularity and/or nullity; and the legal requirement for the defendant
to explain the delay in filing the application for the court to consider the
issue of irregularity.
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4.
Parties relied on the following cases namely:- Re Elias Ayoub Ex parte:
Brian Raymond Silvia [1983] FCA 112; Tuan Haji Ahmed Abdul
Rahman v. Arab-Malaysian Finance Berhad [1996] 1 CLJ 241; Hasil
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D-22NCC-273-2009
Bumi Perumahan Sdn Bhd & Ors v. United Malayan Banking Corp Bhd
[1994] 1 MLJ 312; Badiaddin bin Mohd Mahidin & Anor v. Arab
Malaysian Finance Bhd [1998] 1 MLJ 393; Muniandy a/l Thamba
Kaundan & Anor v. D & C Bank Bhd & Anor [1996] 1 MLJ 374;
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Tanavanus Sdn Bhd v. Simon Jingking Pingguan [1995] 2 MLJ 564;
Sama Credit & Leasing Sdn Bhd v. Pegawai Pemegang Harta,
Malaysia [1995] 1 MLJ 274; Ong Ah Seng v. Ong Sia Leong [1999] 8
CLJ 376; Stephen Wong Leong Kiong v. HSBC Bank Malaysia Bhd
[2009] 6 CLJ 466; Hughes v. Justin [1894] 1 Q.B. 667; Kong Ming
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Bank Berhad v. Lau Pang Thang & 2 Ors [1994] 4 CLJ 849; United
Malayan Banking Corp Bhd v. Mideast Development Sdn Bhd & Ors
[1991] 1 MLJ 55; MBF Finance Bhd. V. Malaysia Air Charter Co. Sdn
Bhd & Ors [1987] CLJ (Rep) 196; Ng Hee Thoong & Anor v. Public
Bank Berhad [1995] 1 CLJ 609; Kandasamy v. Mohamed Mustafa
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[1983] 2 MLJ 85; Tan Ooi Chee & Anor v. Kancing Realty Sdn Bhd
[1989] 1 MLJ 519; Chan Chin Min & Anor v. Lim Yok Eng (Lawful
Mother of Gan Swee Hock, Deceased) [1994] 3 CLJ 687; Tan Boon
Kean v. Public Prosecutor [1995] 4 CLJ 456; Kwong Yik Bank Berhad
v. Sa’adiah Binti Mastan [1994] 3 CLJ 781; RHB Bank Bhd v. SSB
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Consortium Bhd & Ors [2009] 5 CLJ 76; Watta Battery Industries Sdn
Bhd v. Uni-Batt Manufacturing Sdn Bhd and Chow Siew Hon & 4 Ors
(Interveners) [1993] 1 CLJ 555; JA v. JB [2005] SGDC 104; Barewa
Oil and Mining NL (in lig) v. ISIM Mineral Development Oty Ltd and
Others 38 A.L.R. 288; Australian Competition and Consumer
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Commission v. Kritharas; Re Kritharas 178 A.L.R. 363; Exhibit
Exhibition and Publishing Pty Ltd v. Consolidated Business Media Pty
Ltd and Another 2006 WASC 26.
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5.
D-22NCC-273-2009
I have read the application, affidavits and submissions of the parties in
detail. I take the view the defendant’s appeal must be dismissed. My
reasons inter alia are as follows:(i) The defendant says that the test for setting aside a default judgment
5
is to ascertain whether it is regular or irregular and if it is regularly
obtained the defendant must show a defence on the merits. The
proposition is correct if there was no delay or there are good
reasons to condone the delay unless the default judgment ab initio
is a nullity which is inter alia illegal (i.e.breach of statute etc;) or
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made excess of jurisdiction as enunciated in the case of Badiaddin
(supra).
(ii) In the instant case it is clear from the affidavit evidence no good
reasons were advance to condone the delay in setting aside the
default judgment and in consequence the issue as to irregularity or
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merit (as there is admission and acknowledgment of debt) is not
significant and the plaintiff is not taking issue on delay per se. In
consequence the only ground available for the defendant is based
on nullity.
(iii) On the issue of nullity the defendant says that the plaintiff was
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aware that the defendant was an undischarged bankrupt but
proceeded to file the claim without obtaining leave of the court as
required under section 8 of Bankruptcy Act 1967 (BA 1967). The
said section reads as follows:-
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(1) On the making of a receiving order the Director General of Insolvency
shall be thereby constituted receiver of the property of the debtor, and
thereafter, except as directed by this Act, no creditor to whom the debtor is
indebted in respect of any debt provable in bankruptcy shall have any remedy
against the property or person of the debtor in respect of the debt, or shall
proceed with or commence any action or other legal proceeding in respect
of such debt unless with the leave of the court and on such terms as the court
may impose.
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D-22NCC-273-2009
The defendant also relies on section 40 of BA 1967 to assert that
the debt is provable in bankruptcy. The said section reads as
follows:5
(1) Demands in the nature of unliquidated damages arising otherwise than by
reason of a contract, promise or breach of trust shall not be provable in
bankruptcy.
In essence the defendant says the plaintiff’s claim in the action
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herein is a debt provable in bankruptcy. And the submission of the
learned counsel for the defendant inter alia reads as follows:-
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“18. Section 40(1) of the Bankruptcy Act 1967 read together with section
40(7) thereof tells us that:(a) Demands in the nature of unliquidated damages by reason of contract,
promise or breach of trust which are quantifiable pursuant to Section 40(7)
are debts provable in bankruptcy;
(b) Demands in the nature of liquidated damages by reason of a contract,
promise or breach of trust (such demands being liquidated are inherently
quantifiable) are debts provable in bankruptcy;
(c) Demands for damages not pursuant to a contract, promise or breach of
trust 9such as demands premised on tortious acts) are not debts provable in
bankruptcy unless the damages have been liquidated by judgment or
agreement before the Receiving Order.
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19. Here the plaintiff’s claim is definitely a claim for liquidated or
quantifiable damages arising out of a contract (the plaintiff has alleged in
effect that there were friendly loan agreements between the defendant and
her) or promise (the plaintiff has alleged loans were given to the defendant
with a promise to repay them0 or even possibly a breach of trust. As such, the
plaintiff’s claim is encompassed by para 18(a) and 18(b) above, in that it is a
provable debt and hence leave under section 8(1) is required.”
In addition the learned counsel for the defendant submits as
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follows:“The plaintiff has relied heavily on the provision of section 40(3) of the
Bankruptcy Act in that the plaintiff states her debt is not provable in
bankruptcy as it was incurred after the date of the receiving order and not
before. However, this is misconceived as section 40(3) is subject to section
40(1) and 40(2) as section 40(3) uses the phrase “save as provided in
subsections (1) and (2)”. Therefore, only if the plaintiff’s claim is not caught
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D-22NCC-273-2009
under section 40(1) and/or 40(2), can reliance be placed on the general
provisions of section 40(3). Section 40(3) is a general provision as to what
debts are provable in bankruptcy whereas section 40(1) and 40(2) are specific
provisions on what debts are provable in bankruptcy in certain situations eg.
In the case of section 40(2) it is a specific provision on what debts are
provable in bankruptcy in a situation whereby the question of whether the
creditors concerned have or do not have notice of the bankruptcy is an issue.
The plaintiff herself is unsure of the requirements of the law as evidenced by
her action in instructing her solicitor to obtain confirmation from the Wilayah
Persekutuan Official Assignee (“the OA”) office via letters dated 13.10.2010
and 22.10.2010 as to whether leave was necessary to commence proceedings
against an undischarged bankrupt. Judgments in default which are tainted
with uncertainty have to be set aside, as was done in Tuan Haji Ahmed Abdul
Rahman.
The OA had replied via letter dated 29.10.2010 and confirmed that the
plaintiff is required to obtain leave from court as provided under section 8(1)
of the Bankruptcy Act prior to commencing the action. Therefore for this
reason alone the appeal herein should be allowed with costs.”
The learned counsel for the plaintiff says that (i) section 8(1) of
BA 1967 only applies to a creditor to whom the debtor is indebted
in respect of any debt provable in bankruptcy; (ii) a perusal of the
statement of claim in this action will show that the advances were
made by the plaintiff to the defendant from October to December
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2004, in January 2005 and in April 2005, well after the dates of the
2 receiving orders made against the defendant in his earlier
bankruptcy. The plaintiff’s debt is accordingly not provable in the
bankruptcy of the defendant and section 8(1) of the Act does not
apply to the plaintiff’s claim. Accordingly, the plaintiff does not
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require leave of the court before commencing the suit herein
against the defendant; (iii) there are numerous authorities to the
effect that where a creditor has a claim against an undischarged
bankrupt which is not provable in his prior bankruptcy, he can sue
the bankrupt without leave of the court. Many of those authorities
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also confirm that an undischarged bankrupt can incur liabilities
which can form the basis of a 2nd or subsequent bankruptcy against
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D-22NCC-273-2009
him. And relies on the following cases and it can be summarised
as follows:(a)
In Gan Hong Hoe v. Gan Kim Hee [1939] 1 MLJ 295, a case
decided under the previous Bankruptcy Act, the plaintiff
brought an action against the respondent for goods sold and
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delivered and the respondent pleaded that he was an
undischarged bankrupt. At the trial, it appeared that the
respondent was an undischarged bankrupt at the date of the
filing of the claim and the debt in respect of which the
respondent contracted was after the RO and AO had been
10
made against him. The High Court judge held that the claim
was not maintainable. On appeal, the Court of Appeal had
this to say:“The section does not enact that a bankrupt is incapable of making a
contract and that is what I understand the argument of the respondent
to be.
Section 9 (1) protects the bankrupt against actions for debts provable
in bankruptcy. The intention is not to deprive creditors of all their
rights but to put them all on an equal footing and to prevent
dissipation of assets. The creditor may not sue because he can prove in
the bankruptcy. Of course, leave of the Court can be given to sue on
terms but nothing in this case turns on this power of the Court. This
section 9 relates to causes of action accrued before the receiving
order, not to debts which do not become provable until after the
receiving order, and consequently could not be proved in the
bankruptcy.
I am confirmed in this view by section 30 (iii):
"An order of discharge shall release the bankrupt from all other
debts provable in bankruptcy".
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(b)
In Ex parte Watson. In re Roberts (1879) 12 Ch D 380, it
was held inter alia that if an undischarged bankrupt is
allowed by his trustee to carry on business again and acquire
property and contract new debts, the only thing which the
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D-22NCC-273-2009
new creditors can do is to obtain a new adjudication against
him. Such an adjudication is not void, it is only void by the
old trustee under certain conditions. The creditors under the
first bankruptcy can come in under the second and take their
share of the assets.
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(c)
In Re Kwan Chew Shen T/A Syarikat Kaaf v. Citibank NA
[1987] CLJ 314, AO and RO were made against Kwan
Chew Shen on 23 August 1982 and he remained an
undischarged bankrupt. He has been registered as the owner
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of a land since 1 November 1980 but did not disclose this to
the Official Assignee (OA). On 3 January 1983, he charged
the land to Citibank to secure the repayment of a loan to
him. The bank was not aware of the fact that he was an
undischarged bankrupt. The OA moved the court for a
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declaration that the charge was void. The High Court judge
V.C.George (as he then was) dismissed the motion of the
OA and held the charge to be valid as against the OA. The
following passage of the judgment is pertinent:
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“Before concluding it is perhaps relevant to consider one other
aspect of the matter based on the wide behalf that once a person is
adjudged bankrupt the right to enter into contracts ceases until
such time as he is discharged.
This is an erroneous belief.
Sections 36 and 38 of the Bankruptcy Act set out the
disqualifications and disabilities of a bankrupt. Inter alia he may
not hold certain offices, he may not sue without the sanction of the
Official Assignee, he may not without the permission of the Official
Assignee enter into or carry on any business, become a director
(or take part in the management) of any company and so on. While
he may not enter into a contract that would amount to his carrying
on a business, it is significant that there is no blanket prohibition,
express or implied, for a bankrupt to enter into a contract.
…
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The upshot of all this is that there appears to be no blanket
provision anywhere to the effect that a bankrupt is incapable of
making a contract.
I agree with Encik Ong See Seng that the provisions of s. 49 of the
Bankruptcy Act for there to be a second or subsequent receiving
order fortify the view that a bankrupt in fact is competent to enter
into contracts other than those that he had specifically been
excluded from entering into.”
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D-22NCC-273-2009
(d)
In Hock Hua Bank Bhd v. Choo Meng Chiong & Anor
[1999] 5 NLJ 312, the undischarged bankrupt purchased
land after he was adjudicated bankrupt and charged it to the
bank as security after he was adjudicated bankrupt. The
bank applied for an order for sale and joined the bankrupt
and the OA as defendants. The Court held that the Act does
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not prohibit a bankrupt from entering into a contract to
charge the land to the bank and the bankrupt had the
capacity to charge the land to the bank. It was also held that
the OA should not be made a party to the proceedings for
order for sale and that section 8(1) of the Act does not apply
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and leave of the court was not required.
(e)
In Cohen v. Mitchell [1890] Vol XXV 262, it was held that
where a bankrupt, who has not obtained his discharge, enters
into transactions in respect of property acquired after the
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bankruptcy, then, until the trustee intervenes, all such
transactions, with any persons dealing with the bankrupt
bona fide and for value, and whether with or without
knowledge of the bankruptcy, are valid against the trustee.
In that case, after Arthur Cohen became bankrupt and before
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he obtained a discharge, he carried on business in buying
and selling agricultural machines and Hyam Cohen
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D-22NCC-273-2009
advanced him several sums of money to enable him to do so.
One Foale wrongfully seized some of the machines and the
bankrupt brought an action for conversion against Foale and
assigned the cause of action to Hyam in consideration of the
money then owing to him. The issue is whether Hyam or the
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trustee should be entitled to the judgment sum. The Court of
Appeal held in favour of Hyam.
The learned counsel for the plaintiff says:“In the present case all the advances were made to the defendant well
after the RO made against him. It is clear that the plaintiff is not
entitled to prove in the defendant’s prior bankruptcy and she is
accordingly not a creditor whose claim is provable in bankruptcy.
Section 8(1) of the Act is not applicable. Furthermore, whether or not
the plaintiff had been informed of the defendant’s status as an
undischarged bankrupt at the time made no difference in law to her
right to obtain judgment against him. She has no legal remedy other
than to have him adjudicated bankrupt a 3rd time. Unlike the case of
Cohen v. Mitchell (supra) this is not a contest between the plaintiff and
the DGI as to who should retain after acquired property as the
plaintiff has not been paid a cent of the advances which were the
subject matter of the judgment.”
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(f)
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The case of Tanavanus Sdn Bhd v. Simon Jingking Pingguan
(supra)
which
is
relied
on
by
the
defendant
is
distinguishable. In that case, the plaintiff had brought an
action claiming unliquidated damages arising from a breach
of contract against the defendant, an undischarged bankrupt.
The latter entered conditional appearance and applied to set
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aside the writ on the ground that pursuant to section 8(1) of
the Act, the plaintiff’s claim is provable in bankruptcy. The
court held that a claim for unliquidated damages arising
from a breach of contract is a debt provable in bankruptcy
and that the plaintiff ought to have obtained leave of the
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D-22NCC-273-2009
court first. The court in that case did not consider whether
the plaintiff’s claim was one to which the defendant was
subject at the date of his RO or whether the claim arose by
reason of an obligation incurred before the date of the RO.
However, the RO against the defendant in that case was
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made on 8 January 1993 and the agreement alleged to have
been breached by the defendant was made with the plaintiff
on 3 September 1987 which was a date prior to the RO. It
would appear therefore that the plaintiff’s claim in that case
could have been brought by reason of an obligation incurred
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before the date of the RO. In the present case, the plaintiff’s
claim could not possibly have been the subject of proof in
the defendant’s bankruptcy as her advances were given well
after the date of the two (2) RO made against the defendant
in 2002 and 2003.
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(g)
The case of Sama Credit & Leasing Sdn. Bhd. v. Pegawai
Pemegang Harta Malaysia (supra) which the defendant
relied is also distinguishable. The case arose in the context
of an application filed by an undischarged bankrupt to set
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aside a second RO and Adjudicating Order (AO) made
against him on the ground that since an RO had earlier been
made against him, no further action could have been
commenced against him without leave of the court by virtue
of section 8(1) of the Act. His application was allowed by
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the judge whose decision was overruled by the Supreme
Court on appeal. The Supreme Court said that materials
before it were insufficient for it to consider the issue
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D-22NCC-273-2009
whether the appellant’s debt was probable in bankruptcy but
proceeded to say this:-
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“In contrast to s 8(1) which, as stated above, relates to a receiving
order, s 49(1) and (2) of the Act, on the other hand, renders the
making of a subsequent receiving order and an adjudication order
against an undischarged bankrupt permissible. Section 49(1) and
(2) reads as follows:
(1) Where a second or subsequent receiving order is made
against a bankrupt, or where an order is made for the
administration in bankruptcy of the estate of a deceased bankrupt,
then for the purposes of any proceedings consequent upon any
such order, the Official Assignee shall be deemed to be a creditor
in respect of any unsatisfied balance of the debts provable in the
last preceding bankruptcy against the property of the bankrupt in
the subsequent bankruptcy.
(2) In the event of a second or subsequent receiving order made
against a bankrupt being followed by an order adjudging him
bankrupt, or in the event of an order being made for the
administering in bankruptcy of the estate of a deceased bankrupt,
any property acquired by him since he was last adjudged bankrupt,
which at the date when the subsequent petition was presented had
not been distributed amongst the creditors in such last preceding
bankruptcy, shall (subject to any disposition thereof made by the
Official Assignee in that bankruptcy, without knowledge of the
presentation of the subsequent petition) vest in the Official
Assignee on account of the subsequent bankruptcy or
administration in bankruptcy as the case may be.
The equivalent of our s 49(1) and (2) in the English law is s 39(1)
and (2) of the Bankruptcy Act 1914. It must be noted that even
prior to 1914, a second or subsequent adjudication order may, on
a creditor's petition, be made against an undischarged bankrupt in
respect of liabilities incurred after the date of the receiving order
in the prior bankruptcy. See Re Roberts, ex p Watson (1879) 12 Ch
D 380, CA; Morgan v Knight (1864) 33 LJCP 168 though the
court may, in its discretion, refuse to make a further receiving
order if it is satisfied that there is no probability of any assets
being available for administration under the subsequent
bankruptcy. See Re Betts, ex p Betts [1897] 1 QB 50, CA.”
40
Accordingly, the Supreme Court in the Sama Credit case
expressly held that the materials before it were insufficient
for it to determine whether the claim against the bankrupt
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D-22NCC-273-2009
was probable in his bankruptcy so it cannot lend support to
the defendant’s contention that the plaintiff’s claim is
provable in the defendant bankruptcy.
6.
After having given much consideration to the submission of the learned
counsel of the defendant, I agree with the learned counsel for the
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plaintiff that the defendant’s argument is devoid of merit. In addition I
will say the issue of leave is only a procedural formality which may be
condoned by the court, on the facts of the case and also on case by case
basis provided there is no prejudice shown as in the instant case. The
jurisprudence relating to nullity of an order of court relating to a breach
10
of statute does not play a significant role in the case of a formal defect
(if any) in procedure which has not caused any prejudice to any person
in the right perspective.
7.
For reasons stated above I take the view that the defendant’s appeal
must be dismissed with costs.
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Costs – Whether Solicitor should be ordered to pay costs
8.
On the issue of costs I invited submission of the parties on the quantum
and whether it is a fit and proper case to order the solicitors to
personally bear the costs. Parties have requested another date for
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submission on this issue. In consequence the submission for costs is
fixed for hearing on 21-03-2011.
I hereby order so.
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(Y.A. DATUK DR. HAJI HAMID SULTAN BIN ABU BACKER)
Judge
High Court
Kuala Lumpur
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D-22NCC-273-2009
Date: 23rd February 2011
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For Plaintiff:
Vinayaga Raj A/L Rajaratnam ,
Messrs. Skrine,
Kuala Lumpur
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For Defendant:
Richard Lee (S.Janagasutha A/P D.Sivayogarajan with him),
Messrs. Matthews Hun Lachimanan,
Kuala Lumpur.
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