In the recent case of Genisys Integrated Engineers Pte Ltd v UEM Genisys Sdn Bhd & Ors [2023] 3 MLJ 627, the Federal Court had the occasion to consider whether the Limitation Act 1953 applies to a proof of debt. The Federal Court held that the Limitation Act 1953 does not apply to a proof of debt which is accepted and not formally rejected by a liquidator.
 
Background Facts
 
By a shareholders’ agreement, UEM Group Bhd (formerly known as United Engineers (M) Bhd) (“UEM”), and the Appellant, Genisys Integrated Engineers Pte Ltd, agreed to form UEM Genisys Sdn Bhd (“UEG”). UEM and the Appellant held 51% and 49% shares in UEG respectively. The Appellant is also a creditor of UEG.
 
Gammon Construction Ltd (“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 Co Ltd to construct, complete and maintain an international class hotel in Hanoi, Vietnam (“Main Contract”). By an agreement dated 24 May 1996, GRBJV appointed UEG to install mechanical and electrical works under the Main Contract (“M&E Contract”). UEG subcontracted the works under the M&E Contract to the Appellant (“Subcontract”).
 
In December 1996, GRBJV novated its rights and obligations under the Main Contract to Gammon-CC1 Construction Co Ltd (“Gammon-CC1”), and in 1997, GRBJV novated all its rights and obligations under the M&E Contract to Gammon-CC1. Pursuant to a guarantee, Gammon guaranteed Gammon-CC1’s performance in respect of the M&E Contract (“Guarantee”).
 
In 1998, Gammon-CC1 ceased all their works on the hotel in Hanoi and instructed their subcontractors, including UEG, to cease works. Thereafter, a certificate of payment was issued on 6 November 2000 (“Certificate of Payment”) certifying, among others, the final M&E contract sum and the final payment due and payable by the main contractor, Gammon-CC1, to UEG.
 
As Gammon-CC1 failed to make payment pursuant to the Certificate of Payment, UEG commenced an action against Gammon pursuant to the Guarantee to claim the sum of USD995,879.39 as the outstanding M&E contract sum vide High Court of Malaya at Kuala Lumpur Suit No.D2-22-1556-2006 (“Suit 1556”).
 
UEG was subsequently wound up on 20 October 2005.
 
The Appellant then lodged a proof of debt dated 28 March 2011 (“POD”) for USD997,750.70 which includes the M&E contract sum claimed in Suit 1556, with the 2^nd and 3^rd Respondents, the liquidators of UEG.
 
Subsequently, UEG and Gammon entered into a consent judgment on 5 August 2015 (“Consent Judgment”) where it was agreed that Gammon would pay a total sum of USD1,215,000 (“Consent Judgment Sum”) to UEG on or before 19 August 2015. Gammon eventually made payment to UEG on 23 August 2015 together with interest of USD832.19 for the delay.
 
Four years after the POD was filed, the 2^nd and 3^rd Respondents informed the Appellant that its claim for USD997,750.70 had been admitted to the extent of USD179,075.81 after deducting a procurement fee of USD445,660.190. A notice of dividend was issued for the sum of USD179,075.81 as the sum payable to the Appellant. The Appellant accepted the amount stated in the notice of dividend under protest. The Appellant took the position that the amount due and owing by UEG is USD995,879.38 and that the 2^nd and 3^rd Respondents are not entitled under the Subcontract to impose any interest for the procurement fee as the Subcontract itself does not provide for imposition of interest. The 2^nd and 3^rd Respondents maintained their position and paid the sum stated in the notice of dividend to Appellant.
 
The Appellant then commenced legal proceedings against the Respondents for the full sum set out in the POD in December 2017. The High Court allowed the Appellant’s claim and found that the Appellant is entitled to the sum as claimed in the POD. The Appellant’s claim was premised on UEG’s failure to fulfil its contractual obligations to pay the Consent Judgment Sum and the additional interest pursuant to the Subcontract as the Consent Judgment Sum and the additional interest are rights and benefits arising from the Subcontract. The High Court ordered UEG to pay the Appellant the sum of USD1,006,880 as special damages with interest. The High Court was of the view that the Appellant’s claim was not based on the Certificate of Payment dated 6 November 2000, but on the Consent Judgment. As such, the Appellant’s claim was not time-barred.
 
The High Court’s decision was reversed by the Court of Appeal. The Appellant applied for leave to appeal to the Federal Court and the same was allowed.
 
Arguments raised by the Parties
 
The Appellant argued that its claim against UEG is not time-barred as the claim is premised on the Consent Judgment dated 5 August 2015. More specifically, the Appellant argued that the Consent Judgment entered with Gammon arose from works done under the Subcontract. Pursuant to the terms of the Subcontract, UEG is obligated to pay the said sum to the Appellant. As such, the Appellant’s claim which was filed on 14 December 2017 was not time-barred as it is not based on the Certificate of Payment dated 6 November 2000 but on the Consent Judgment dated 5 August 2015. The Appellant further contended that the POD was never formally rejected by the 2^nd and 3^rd Respondents.
 
The 2^nd and 3^rd Respondents on the other hand argued that the Appellant’s claim was time-barred by virtue of section 6(1)(a) of the Limitation Act 1953 as the Appellant’s claim for the amount set out in the POD is based on the Certificate of Payment dated 6 November 2000 for which limitation would have set in on 20 November 2006 as the cause of action had accrued on 20 November 2000.
 
The Federal Court’s Decision
 
The Federal Court found in favour of the Appellant and held that Appellant’s claim was not time-barred. One of the reasons why the Federal Court found in favour of the Appellant was because the Federal Court was of the view that the Limitation Act 1953 does not apply to a proof of debt that is accepted and not formally rejected by the liquidator.
 
Some of the salient findings made by the Federal Court are as set out below.
 
The Appellant’s claim is based on the Consent Judgment dated 5 August 2015. As such, even if the Limitation Act 1953 applied, the Appellant’s claim which was filed on 14 December 2017 would have been well within the six years limitation.
 
Even if the Limitation Act 1953 applies, the Appellant’s claim would not have been time-barred. In this regard, the very act of the Respondents in deducting from the sum claimed by the Appellant amounts to an admission of debt. On that basis, section 29 of the Limitation Act 1953 which provides for a fresh accrual of cause of action in the event of admission of debt would apply.
 
Pursuant to Rule 92 of the Companies (Winding Up) Rules 1972 (“WUR”) it is mandatory for the liquidator to examine every proof of debt lodged with him and the grounds of the debt, and, in writing, to admit or reject it, in whole or in part, or require further evidence in support of the debt. In this regard, the liquidator must meticulously examine the proof of debts lodged by the creditors. After having examined the claim together with supporting documents, the liquidator must decide whether to accept or reject the proof of debt. If the liquidator decides to reject the proof of debt, he is legally required under the WUR to state, in writing, to the creditor whose claim he has rejected, the grounds for the rejection. Pursuant to Rule 92 of the WUR, the liquidator is required to issue a notice of rejection as prescribed in Form 59.
 
In the present case, by notifying the Appellant that they had admitted the POD to the extent of USD179,075.81 but subject to certain deductions, and proceeding to issue the notice of dividend, the 2^nd and 3^rd Respondents as the liquidators of UEG did not comply with the procedures provided under Rule 92 of the WUR. This did not amount to a rejection of the POD. If the liquidators’ intention was to reject the sum claimed by the Appellant in the POD, then they must do so by way of Form 59. This, the 2^nd and 3^rd Respondents did not do.
 
The liquidators’ attempt to rely on the limitation period as a defence against the Appellant’s claim is “clearly an afterthought”. In this regard, if a proof of debt has already been accepted, the liquidators cannot subsequently seek to rely on limitation two years later. If a liquidator rejects a proof of debt based on limitation, he must state so in clear and uncertain terms in the notice of rejection. This was not done by the 2^nd and 3^rd Respondents.
 
The Limitation Act 1953 does not apply to a proof of debt which has been accepted and not formally rejected by the liquidator. In this regard, the Preamble to the Limitation Act 1953 reads “An Act to provide for the limitation of actions and arbitrations.” Section 2 of the Limitation Act 1953 provides that “action” includes a suit or any other proceeding in a court of law. As such, it only applies to matters in a court of law. While liquidators may act in quasi-judicial capacities, the exercise of settling of proofs of debt by the liquidator is not considered as an exercise in a court of law.
 
Analysis
 
This decision by the Federal Court is certainly welcomed as it is the first reported case in Malaysia involving the applicability of the Limitation Act 1953 vis-à-vis a proof of debt. It also provides clear guidance to liquidators of the importance of complying with the provisions in the WUR in dealing with proofs of debt filed by the creditors of a company that has been wound up.
 
However, it should be noted that while the Federal Court referred to the Preamble of the Limitation Act 1953 which states that the said Act is one which provides for “limitation of actions and arbitrations” and opined that settling of proofs of debt by the liquidator is not considered as exercise in a court of law, hence suggesting that the Limitation Act 1953 does not apply to proofs of debt in general, the Federal Court ultimately did not expressly arrive at such a conclusion. The Federal Court’s conclusion in this case is that “…the Limitation Act 1953 does not apply to a proof of debt that is accepted and not formally rejected by a liquidator”. That being the case, one may actually ask whether the Limitation Act 1953 would have applied in a case where the proof of debt was lodged more than six years from the accrual of the cause of action and the liquidator remains silent. For example, would it have made a difference if the 2^nd and 3^rd Respondents had chosen to remain silent at all times after having received the POD? Arguably, this is a question that has been left open by the Federal Court.
 
From a practical point of view, there is no reason why a proof of debt should not be subject to the limitation period. As stated by the Federal Court, a proof of debt is essentially a documentary declaration made by the creditor, towards establishing or proving the debt that the company owes to the creditor. Monetary claims against companies under liquidation are to be made by way of proof of debts instead of legal proceedings. If a creditor who chooses to commence legal proceedings against a company under liquidation pursuant to a cause of action that arose more than six years ago would be time-barred under the Limitation Act 1953, it would be logical that a creditor who lodges a proof of debt in respect of the same cause of action should also be subject to the same limitation.
 
Case Note by Janice Ooi (Partner) of the Restructuring and Insolvency Practice of Skrine.