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Impact Of Arbitration Agreement Relating To Disputed Debts On Fortuna Injunction






A fortuna injunction is an injunction to restrain the filing of a winding-up petition. It bears its name from the case of Fortuna Holdings Pty Ltd v The Deputy Commissioner of Taxation of the Commonwealth of Australia [1978] VR 83. There are two principles governing the grant of a fortuna injunction:

 

(i) Where the presentation of a winding-up petition has no chance of success in law or in fact; or

 

(ii) Where the petitioner of the winding-up asserts a disputed claim.

 

In the recent Court of Appeal decision of Swissray Asia Healthcare Co. Ltd v V Medical Services M Sdn Bhd [Appeal No. W-02(NCC)(A)-1479-08/2022], the court was faced with the issue of whether a fortuna injunction ought to be granted in the presence of an arbitration agreement between contesting parties and where the debtor sought to restrain the filing of a winding-up on the grounds that the debt is disputed.

 

Brief Facts

 

The Appellant, a company incorporated in Taiwan (Swissray) and the Respondent, a Malaysian company (V Medical) entered into a Distributorship Agreement (Agreement) for medical machines, with an arbitration clause in the Agreement.

 

Pursuant to Swissray’s quotation and V Medical’s order, 2 medical machines were delivered to the University Malaya Medical Centre.

 

A dispute subsequently arose between the parties when the Swissray demanded payment for the medical machines. There were talks between parties for settlement, but ultimately failed to bring a resolution of the disputes. Thereafter, Swissray issued a statutory notice of demand under Section 466(1)(a) of the Companies Act 2016 (CA 2016).

 

In response, V Medical filed an originating summons for a fortuna injunction to restrain Swissray from filing the winding-up petition, on the grounds that there exists a disputed debt, as there was no award or final judgment obtained. The High Court granted the fortuna injunction in favour of V Medical. Dissatisfied, Swissray filed an appeal to the Court of Appeal.

 

Issues

 

The issues before the Court of Appeal were:

 

(i) In granting a fortuna injunction on the grounds that there existed a disputed debt, whether the applicant was required to show that there existed a bona fide dispute (bearing a higher threshold) or merely to establish that there existed a prima facie dispute (bearing a lower threshold)?

 

(ii) Whether the existence of an arbitration agreement and/or clause between the contesting parties would lower the threshold, i.e. prima facie dispute test, in granting a fortuna injunction?

 

Decision & Analysis


The Court of Appeal relied on the decision of Tan Kok Tong v Hoe Hong Trading Co Sdn Bhd [2007] 4 MLJ 355 that in deciding whether to grant a fortuna injunction to restrain a winding-up petition based on a statutory demand, the court must be satisfied that the debt is bona fide disputed on substantial grounds. The governing principle is that the court in deciding whether to grant a fortuna injunction is exercising its inherent jurisdiction aimed at preventing abuse of the court’s process.

 

The Court of Appeal in the instant case is of the view that the principle of preventing abuse ought to apply both ways. In the same way where a fortuna injunction will be granted to prevent a petitioner from abusing the court process by filing a winding-up petition to assert pressure upon its debtor to meet its claim. Equally, an applicant for a fortuna injunction ought not to abuse the court process by merely alleging that the debt was disputed when in fact there was no such dispute and/or no substantial dispute to the said debt.

 

In short, the Court of Appeal held that the court should only grant a fortuna injunction where the applicant is able to satisfy the court that there is a bona fide dispute as to the debt on substantial grounds. It is also pertinent to reiterate that whether there is a disputed debt is fact sensitive.

 

Furthermore, the Court of Appeal held that the mere existence of an arbitration agreement and/or clause cannot be relied on to evade what would otherwise be a legitimate claim to a debt due and owing. The court rejected the principle enunciated in the English Court of Appeal decision of Salford Estates (No. 2) Ltd v Altomari Ltd [2014] EWCA Civ 1575, where it was held that the test to be applied in respect of a dispute debt governed by an arbitration agreement ought to be lowered when deciding whether to grant a fortuna injunction.

 

The Court of Appeal held that to apply the principle in Salford is tantamount to saying that in face of an arbitration clause, judges are to abdicate their responsibility and refrain altogether to inquire into the genuineness of the disputed debt. In the instant case, the court was satisfied that V Medical had unequivocally admitted to the debt, as such, there could not be a disputed debt warranting the exercise of the court’s discretion to grant a fortuna injunction. Swissray’s appeal was allowed and the fortuna injunction was set aside accordingly.

 

Conclusion

 

A fortuna injunction will be granted on the grounds that there exists a disputed debt, only if the court is satisfied as to the genuineness of the disputed debt and/or there is a bona fide dispute as to the said debt.


Furthermore, an arbitration agreement and/or clause will not automatically entitle the applicant to a fortuna injunction and does not change the test to be applied in determining whether to grant a fortuna injunction. Ultimately, the key consideration governing the court’s discretion to grant a fortuna injunction is the prevention of any abuse of the court’s process.


9 July 2024

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