Axis Megalink Sdn Bhd v Far East Mining Pte Ltd [2024] SGHC 47

Background facts

The dispute between the applicants and FEM in Suit 342 centred on an engagement letter dated 16 August 2016 (the “Engagement Letter”). By the terms of the Engagement Letter, FEM engaged Axis as FEM’s introducer and arranger for a then-proposed reverse takeover of China Bearing (Singapore) Limited (“CBL”) by FEM (the “Transaction”). CBL was renamed Silkroad Nickel Ltd (“SRN”) after the completion of the Transaction. SRN was later delisted on 10 November 2022.

Against this backdrop, Axis claimed a sum of US$2m which it said was due to it as an arranger fee under the Engagement Letter. FEM resisted the claim on the basis that it had entered into the Engagement Letter without knowing that Mr Lee Kien Han (“Mr Lee”) was the beneficial owner of Axis. According to FEM, if it had known that Mr Lee was such, it would not have entered into the Engagement Letter due to Mr Lee being in a position of conflict in relation to the Transaction. FEM also counterclaimed against the applicants for misrepresentations in relation to Mr Lee’s ownership of Axis.

The applicable law

General principles on the grant of a stay of execution

With these background facts in mind, I turn to the applicable law. The starting point is that, as the Court of Appeal held in Lian Soon Construction Pte Ltd v Guan Qian Realty Pte Ltd [1999] 1 SLR(R) 1053, an appeal does not operate as a stay of execution (at [13]; see also, with respect to appeals to the Appellate Division of the High Court (the “Appellate Division”) and to the Court of Appeal, respectively, s 45(1) and s 60C(1) of the Supreme Court of Judicature Act 1969 (2020 Rev Ed) (“SCJA”)). This is because the successful litigant should not be deprived of the fruits of litigation pending an appeal.

However, as against this starting position, the court should also ensure that any appeal, if successful, is not rendered nugatory (see the Court of Appeal decision of Lee Sian Hee (trading as Lee Sian Hee Pork Trader) v Oh Kheng Soon (trading as Ban Hon Trading Enterprise) [1991] 2 SLR(R) 869 (“Lee Sian Hee”) at [5]). As such, while this court has the power to grant a stay, Axis bore the burden to show why there were “special circumstances” which justified the order of a stay (see the High Court decision of Taylor, Joshua James and another v Sinfeng Marine Services Pte Ltd and other matters [2019] SGHC 248 at [35], citing the High Court decision of Naseer Ahmad Akhtar v Suresh Agarwal and another [2015] 5 SLR 1032 at [96]).

The situations amounting to “special circumstances” that warrant a stay of execution

In contrast to these situations that may amount to “special circumstances” for a stay to be granted, the courts have held that a mere offer to pay the judgment sum plus interest into court pending the appeal would not justify the grant of a stay (see, eg, PT Sariwiguna Binasentosa v Sindo Damai Shipping Pte Ltd and others [2015] SGHCR 20 (“PT Sariwiguna”) at [30]). Otherwise, every judgment debtor would be entitled to a stay by making such an offer. Instead, the reality is that even if the judgment sum plus interest is paid into court, the successful litigant is still deprived of the fruits of litigation since the amount remains locked up. Similarly, the courts have held that the alleged merits of an appeal generally do not constitute a relevant factor for the purposes of a stay application, although there may be some qualifications to this starting point, as I discuss below.

Ultimately, the task of a court when considering a stay application pending an appeal is to “hold the balance between the interests of the parties (pending the hearing of [the] appeal) to avoid any prejudice to any of the parties” (see the Court of Appeal decision of PricewaterhouseCoopers LLP and others v Celestial Nutrifoods Ltd (in compulsory liquidation) [2015] 3 SLR 665 at [19]). As the English Court of Appeal explained, the risk of injustice if the stay is refused is that the appeal may be stifled, ie, the appellant may be prevented from bringing its appeal if the judgment creditor is allowed to enforce the judgment. On the other hand, the risk of injustice if the stay is granted is that, after an unsuccessful appeal, the respondent might be unable to enforce the judgment (see Sunico A/S and others v Revenue and Customs [2014] EWCA Civ 1108 at [27], citing the English Court of Appeal decision of Hammond Suddard Solicitors v Agrichem International Holdings Ltd [2001] EWCA Civ 2065 at [22]).

The possibility of a conditional stay of execution

In order to balance the competing interests just mentioned, a court can order a conditional stay of execution, that is, a stay that is conditional upon the satisfaction of specified conditions by the party seeking the stay. Such conditions may include the payment of the judgment sum into court or to the other party’s solicitors to be held as stakeholder pending the disposal of the appeal.

Prof Jeffrey Pinsler SC explains that whether such terms will be imposed “often depends on such matters as the likelihood of success of the appeal and whether there is uncertainty as to whether the sum will be recovered on the outcome of the appeal” (see Jeffrey Pinsler, Singapore Court Practice 2017 (LexisNexis, 2017) at para 57/15/3). The courts have considered various factors. For example, time could be another relevant factor in the granting of a conditional stay – where it is known that the appeal will be quickly disposed of, a court may be more inclined to grant a conditional stay since the money will be locked up for a relatively short time (see the English High Court decision of AMBA Carpet Services v Mowe [2004] EWHC 1606 (Ch) at [14]; and also the Court of Appeal decision of Turf Club Auto Emporium Pte Ltd and others v Yeo Boong Hua and others and another appeal and other matters [2017] 2 SLR 12 (“Turf Club Auto”) at [199(b)]). Further, a court might take into account factors such as any failure to comply with previous court orders, the risks of ancillary negative consequences if a stay were to be imposed (eg, payment of a large sum might potentially entitle other creditors to accelerate existing liabilities), and the appellants’ willingness to give assurances to the respondents’ satisfaction (see the English High Court decision of The Law Debenture Trust Corporation plc v Ukraine [2017] EWHC 1902 (Comm) at [6]).

Notably, despite the Malaysian High Court’s finding that there were no special circumstances justifying a stay (at [26]−[36]), it ordered that half the judgment sum be held in an interest-bearing clients’ account until the disposal of the appeal (at [48]), while the other half be released to the ex-employee (at [49]). The Court appears to have viewed this as a pragmatic compromise between allowing the ex-employee to enjoy some of the fruits of his successful litigation, versus the risk that the bank would be unable to recover the judgment sum were it to succeed in its appeal (at [47]). More notably for present purposes, the Court did not appear to have required proof of “special circumstances” in the granting of a conditional stay.

In so far as this is a correct reading of the case, I respectfully declined to follow the approach taken in Ahmad Suhairi. In my view, a conditional stay is still, taking away the attached conditions, a stay. As such, 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.

The parties’ arguments

Axis’s arguments

With the applicable law in mind, I turned to the parties’ arguments. Axis’s arguments in support of a stay were centred on FEM being an investment holding company with no business activities. Furthermore, Axis argued that because FEM no longer possessed any of the shares that it obtained from the Transaction, FEM had become a shell company which had no assets against which to enforce a judgment.

Axis explained how FEM came to be dispossessed of its ownership over the relevant shares as follows. At the outset, FEM held 162,318,253 SRN shares following the Transaction. Next, FEM essentially exchanged its SRN shares for shares in Horowitz Capital Ltd (“Horowitz”). This happened when Horowitz, acting through PrimePartners Corporate Finance Pte Ltd, made a voluntary conditional offer on 29 August 2022 to acquire the SRN shares, which FEM accepted. As a result, FEM tendered all its SRN shares and received 162,814,844 new ordinary shares in the capital of Horowitz. In the end, FEM transferred its shares in Horowitz to its director, Mr Syed Abdel Nasser bin Syed Hassan Aljunied (“Mr Aljunied”), and one Mr Colin Ong. FEM thereafter no longer held any of the shares that it had obtained, either directly or indirectly, from the Transaction.

Axis also argued that FEM was cash-flow insolvent. Among other things, Axis pointed out that FEM’s 2022 Financial Statements disclosed that there was no revenue generated for the financial years ending 31 March 2021 and 31 March 2022. In addition, FEM’s 2023 Financial Statements also recorded that there was no revenue generated for the financial years ending 31 March 2022 and 31 March 2023. Axis further highlighted that FEM’s 2020 Financial Statements showed that its current liabilities of US$43,443,519 exceeded its current assets of US$113,231. As for FEM’s updated balance sheet dated September 2023, which showed that FEM had current assets amounting to US$793,271, Axis submitted that it should be treated with suspicion as it was prepared after the present application was made. In any event, Axis argued that FEM could not have had receivables (as part of its current assets) amounting to US$787,131 in 2023 (from US$11,646 in 2022) because (a) the differential amount had previously been written off for there being no reasonable prospect of recovery, and (b) this amount could not be recovered within a maximum of six months and should not have been classified as a current asset. Ultimately, Axis’s position was that FEM was cash-flow insolvent and that its representations as to its financial situation should be treated with suspicion because of “its tendency to manipulate its accounts”.

Beyond these arguments, Axis argued that its appeal was not devoid of merit. As such, to ensure the least prospect of any possible injustice, Axis sought a stay of execution and a payment of the sums awarded to FEM’s solicitors as stakeholder.

FEM’s arguments

In response, FEM argued that Axis’s position that FEM had little to no assets against which Axis could enforce a judgment was one borne out of suspicion without any real basis. Indeed, as gleaned from its updated balance sheet dated September 2023, FEM was in a healthy financial position. To begin with, FEM’s current assets amounted to US$793,271, which exceeded its current liabilities of US$188,184. Thus, FEM’s total net current assets as of September 2023 were US$605,087. Further, FEM’s cash and cash equivalent of US$5,512 did not include the sum of $200,000 that Axis’s solicitors had paid to FEM’s solicitors. Moreover, as for Axis’s allegations about FEM’s wrongful classification of some of its current assets as such, Mr Aljunied had affirmed on affidavit that the “other receivables” were unsecured, interest free, non-trade and repayable on demand, and confirmed that FEM had the ability to demand and procure repayment of these receivables should it become necessary to do so.

My decision: Axis was granted a conditional stay

Having considered the parties’ arguments, I granted Axis a conditional stay for the following reasons.

Axis had shown special circumstances that warranted a stay

First, FEM’s 2023 Financial Statements was filed with ACRA after the present application was filed. Mr Joel Chng (“Mr Chng”), who appeared on behalf of FEM, pointed out that the Director’s Statement which included the said Financial Statements was signed off in September 2023, before the filing of the present application. Mr Chng therefore submitted that the 2023 Financial Statements were prepared before the present application was filed, but FEM was allowed an additional month to finalise that statement into a proper format. That was why the 2023 Financial Statements were only filed in October 2023. To be fair to Mr Chng, he rightly conceded this account was not backed up by any affidavit evidence. On balance, I found that this was sufficient to raise suspicions about the 2023 Financial Statements. It could not be said definitively that the figures had not been adapted to stave off the present application.

For these reasons, I concluded that Axis had succeeded in showing special circumstances that warranted the grant of a stay of execution.

It was immaterial that the appeal may not be devoid of merit

In concluding that Axis had shown special circumstances, I did not regard it relevant that the appeal may not be devoid of merit. As I stated above at [10], the merits of an appeal do not generally constitute “special circumstances” justifying the grant of a stay of execution. The cases are relatively clear that the presence of strong grounds for appeal is not by itself a reason for granting a stay (see the High Court decision of Lee Kuan Yew v Jeyaretnam Joshua Benjamin [1990] 1 SLR(R) 772 and Denis, cited by Strandore Invest A/S and others v Soh Kim Wat [2010] SGHC 174 (“Strandore”) at [10]). The reason for this is that the special circumstances which merit the grant of a stay are those which go towards the enforcement of the judgment and not those which relate to its validity or correctness. The validity or correctness of the judgment is a question to be resolved on appeal and should not affect the decision whether to grant a stay (see the High Court decision of NK Mulsan Co Ltd v INTL Asia Pte Ltd [2019] 3 SLR 453 (“NK Mulsan”) at [9], citing Denis).

However, there are some cases which appear to qualify the starting point above. For instance, NK Mulsan explains that while the alleged merits of an appeal do not usually constitute a relevant factor for the purpose of a stay application, such merits can matter if “it can be easily gleaned, without a minute examination of the merits, that the appeal will be likely to fail or succeed” (at [11]). In this connection, the High Court decision of Strandore suggests that while the validity or correctness of an appeal is generally irrelevant to whether there are special circumstances justifying the grant of a stay, the fact that an appeal has little merit can be a relevant circumstance (at [10]) (see also the other authorities cited by PT Sariwiguna at [9]).

In my respectful view, I have some doubts as to whether the merits of an appeal, even if lacking, should matter at all when a court is deciding whether to grant a stay. To begin with, I find the rationale for a lack of merits constituting a relevant circumstance to be unclear. I also find the apparent inconsistency to be difficult to explain: while the lack of merits may be a relevant factor, the presence of merits is not. However, the relevance of merits should be consistent, whether there are merits or not. Finally, as a practical matter, keeping out any consideration of merits prevents parties from having to re-argue their cases on appeal before the lower court, as Axis has arguably done.

In any event, even if I accepted that the merits could matter in situations where it was “easily gleaned, without a minute examination of the merits, that the appeal will be likely to fail or succeed” (per NK Mulsan), I found that this was not the case here. To be clear, I was conscious that I was evaluating my own decision, and I also accepted, as with any case, that my decision could be wrong and liable to be reversed on appeal. However, I did not think that I was so plainly wrong that it could be easily gleaned that the appeal would be likely to succeed, without a minute examination of the merits.

For example, Axis argued that my decision was wrong for failing to accord sufficient weight to various factual matters, such as (a) that FEM needed the Transaction to proceed expeditiously, and (b) that Mr Lee was merely a translator and messenger to Datuk Lim, rather than being Datuk Lim’s representative or lawyer. Given that these were questions concerning the evidence and the factual inferences to be drawn therefrom, and I had examined the merits in at least some level of detail, I do not think it could be said that my decision was plainly wrong. Indeed, for all of Axis’s submissions that its appeal was not devoid of merit, they did not appear to have made the argument that my decision was plainly wrong.

As such, without needing to go through each of Axis’s points about my decision in any further detail, I did not think a stay was warranted based on its appeal not being devoid of merit. To be fair to Mr Daniel Koh, who appeared as instructed counsel for Axis, he did not advance arguments premised on the merits of the appeal before me.

It was appropriate for Axis to pay the damages and costs to FEM’s solicitors as stakeholder

Conclusion