STAY OF EXECUTION OF JUDGMENT PENDING APPEAL
This week’s blog covers Axis Megalink Sdn Bhd v Far East Mining Pte Ltd [2024] SGHC 47, a decision by the High Court (“Court”) on the principles for a stay of execution of judgment pending appeal.
Facts. The applicants, Axis Megalink Sdn Bhd (“Axis”) and Mr Lee Kien Han (collectively, the “Applicants”) brought an application against Far East Mining Pte Ltd (“FEM”) for a stay of execution of the judgment and costs order in HC/S 342/2021 (“Suit 342 Orders”) and for FEM’s solicitors to hold the sum of $200,000 (which Axis’s solicitors had previously held as security for costs in Suit 342), both pending Axis’s appeal in relation to the Suit 342 Orders.
Suit 342 was a claim by Axis for a sum of US$2m against FEM based on an engagement letter dated 16 August 2016 as Axis’s fees for acting as FEM’s introducer and arranger for a then-proposed reverse takeover of China Bearing (Singapore) Limited by FEM. FEM disputed Axis’s claims and counterclaimed against Axis for misrepresentations.
Axis’s claim against FEM was dismissed and FEM’s counterclaim was allowed. This resulted in a total sum of $403,497.02 being awarded to FEM ($10,210 in damages and $393,287.02 for costs).
Following the order, Axis’s solicitors released $200,000 (which were held as security for FEM’s costs) to FEM, resulting in $203,497.02 being outstanding and due to FEM as at the date of the hearing of Axis’s stay application.
Principles on the grant of a stay of execution. To start, the Court reiterated that the filing of an appeal does not operate as a stay of execution as the successful litigant should not be “deprived of the fruits of litigation pending an appeal” (at [7]).
However, the courts would also be mindful to ensure that any successful appeal by the judgment debtor is not rendered nugatory (at [8]).
Hence, the balance that is struck is that a judgment debtor bears the burden of showing that there are “special circumstances” justifying a stay (of execution of the judgment).
“Special circumstances”. So, what amounts to “special circumstances”? In general, the Court stated that the judgement debtor must show that unless a stay is granted, there is a “reasonably real” possibility that a successful appeal would be rendered nugatory, and this is a “question of fact in each case”
The Court then set out situations where a stay of execution may be granted:
Where “it can be shown by affidavit that there is no reasonable probability of getting back damages and costs that have been paid over, should the appeal succeed” (at [9]); or
Where “there is a likelihood of the judgment creditor becoming insolvent before the disposal of the appeal” (at [9]);
In contrast, “a mere offer to pay the judgment sum plus interest into court” (at [10]) would not amount to a “special circumstance”, and usually, the alleged merits of the appeal would also not be a relevant factor (at [10]).
Conditional stay of execution. Further, the Court noted that a conditional stay of execution (i.e., a stay conditional upon the satisfaction of specified conditions) is also available as a means to balance the competing interests (at [12]). In doing so, the Court noted the following as relevant factors that a court may consider at [13]:
The “likelihood of success of the appeal”;
Whether there exists “uncertainty as to whether the sum will be recovered on the outcome of the appeal”;
Time (such as whether the appeal would be quickly disposed);
Any failures to comply with previous court orders;
Any “ancillary negative consequences if a stay were to be imposed”, such as triggering a situation which entitles “other creditors to accelerate existing liabilities”; and
The “appellants’ willingness to give assurances to the respondent’s satisfaction”
The Court also referred to the Court of Appeal’s decision in Turf Club Auto Emporium Pte Ltd and others v Yeo Boong Hua and others and another appeal and other matters [2017] 2 SLR 12 as being “instructive in providing a broader conceptual analysis of when a court should grant a conditional stay” at [14].
What, however, is important to note is that the Court rejected Axis’s submission that when it comes to conditional stay, the applicant does not need to demonstrate “special circumstances”. In doing so, the Court declined to adopt the approach taken in the Malaysian High Court decision of Ahmad Suhairi bin Mat Ali v CIMB Bank Bhd and another [2023] 8 MLJ 586, reasoning that, a conditional stay is still, nonetheless, a stay, and “it would be wrong to have ordered a conditional stay in the absence of special circumstances that were necessary to justify a stay in the first place”. See [15] – [17].
Application. Turning to the facts, Axis argued that FEM was cash-flow insolvent, submitting that (at [18] – [21]):
FEM was an investment holding company with no business activities;
FEM had no assets and was a shell company;
FEM’s 2022 financial statements showed that FEM had no revenue generated in March 2021 to March 2022;
FEM’s 2023 financial statements also recorded no revenue generated in March 2022 to March 2023; and
FEM’s updated September 2023 financial statement which showed FEM to have current assets of about US$793,271 should be “treated with suspicion” as it was prepared after Axis had made the application and FEM “could not have had receivables… amounting to US$787,131 in 2023”
As against Axis’s position above, FEM relied on the updated September 2023 financial statement to show that it was not cash-flow insolvent and argued that Axis’s allegations were wrong (at [22]). Additionally, FEM submitted that the merits of the appeal were not in favour of a stay, and Axis’s offer to pay the damages and costs awarded into Court or to FEM’s solicitors should not justify an order for a stay as FEM would still be deprived of the fruits of its litigation (at [23]).
However, the Court was not persuaded by FEM and found that Axis successfully showed that there were “special circumstances” warranting a stay of execution (at [25]). The Court found that it “could not be said definitively” that the figures in the September 2023 financial statement had not been adapted to stave off Axis’s stay application (at [27]). FEM was also unable to provide any affidavit evidence to explain why FEM’s current assets in 2023 was so much higher than its current assets in 2022 which raised a “reasonable suspicion” that FEM’s financial position had not been accurately reflected (at [28]). The Court held that there was therefore a “reasonable probability” that Axis would be unable to recover damages and costs paid over to FEM should Axis succeed in its appeal (at [28]).
The Court also found that whether or not the appeal had merits or not should not be a relevant consideration when deciding whether to grant a stay of execution (at [32]).
In the end, the Court ordered a conditional stay conditioned on Axis paying over the damages and costs to FEM’s solicitors as stakeholders (at [36]). This was because: (a) it was not “strongly probable” that FEM would be unable to pay over the damages and costs (at [38]); and (b) Axis’s appeal was fixed on April 2024 which meant that the appeal would be heard soon. The Court opined that a conditional stay was the best approach to balance FEM’s right to the fruits of litigation and Axis’s right to recover costs and damages paid over if its appeal were to succeed (at [38]).
Significance. This decision reiterates that it is generally not so simple to obtain a stay of execution of a judgment.
Once a judgment has been delivered, the judgment creditor is generally entitled to the fruits of its litigation and the courts require “special circumstances” to be shown for the judgment debtor to obtain a stay.
This is important because while the judgment debtor may have a right to appeal, the mere fact that an appeal is lodged would not in and of itself stay the judgment. Of course, a judgment debtor may be able to apply for a conditional stay. But even then, “special circumstances” would still have to be first shown to justify a stay.
This publication is not intended to be, nor should it be taken as, legal advice; it is not a substitute for specific legal advice for specific circumstances. You should not take, nor refrain from taking, actions based on this publication. Chancery Law Corporation is not responsible for, and does not accept any responsibility for, any loss or damage that may arise from any reliance based on this publication.