Deputy Registrar Liu Zeming:
An adjudication determination made under the Building and Construction Industry Security of Payment Act 2004 (2020 Rev Ed) (“SOPA”) is unique in that while it is interim in nature, the successful claimant is entitled to enforce the determination with expediency. But what if the respondent eventually secures victory? To protect the respondent’s interest, the court has the discretion to stay enforcement of the adjudication determination where it is sufficiently clear that the monies paid over would not be ultimately recoverable. The reality, however, is that the possibility of non-recovery can hardly ever be ruled out. Deciding where the balance is to be struck is as much a legal question as it is one of policy, considering the purpose of SOPA.
The present application in Summons No 3467 of 2021 (“Application”) concerned an attempt by Elmeader Pte Ltd (“Elmeader”) to stay the enforcement of an adjudication determination obtained by LJH Construction & Engineering Co Pte Ltd (“LJH”).
After hearing parties, I dismissed Elmeader’s Application. In my view, it was clear that LJH was not in actual insolvency. As to the wider ground premised on the payments being unrecoverable in future, I was of the view that the party resisting enforcement could not simply point to some possibility of non-recovery. It was not even sufficient to prove this to a “prima facie” or “good arguable case” standard. The court had to be satisfied that it was more likely than not that there would be no recovery in the future, and Elmeader had failed to discharge this burden.
I set out the detailed grounds of my decision below.
Factual and Procedural Background
Elmeader was the owner of a two-storey conservation building at 28 and 29 Mohamed Sultan Road (the “Properties”) and had appointed LJH as the main contractor for construction works at the Properties.
Various disputes ensued in respect of these construction works. On 30 June 2021, LJH filed adjudication application SOP/AA 140/2021 (“SOP 140”) against Elmeader. On 1 July 2021, the adjudicator issued a determination (which was subsequently revised on 6 July 2021) (collectively, the “Adjudication Determination”), ordering Elmeader to pay LJH the sum of S$195,802.51 (inclusive of GST) and costs of S$2,816.78 (collectively, the “Adjudication Amount”). On 3 August 2021, LJH filed DC/OSS 137/2021 for leave to enforce the Adjudication Determination pursuant to Section 27 of SOPA. A Deputy Registrar heard the application and judgment was entered on terms of the Adjudication Determination on 10 August 2021 (the “AD Judgment”). On 1 September 2021, Elmeader filed the present Application to the stay the enforcement of the AD Judgment.
In the meantime, between June and September 2021, Elmeader commenced proceedings in High Court against LJH for damages in respect of alleged breaches in connection with the construction project. To be clear, Elmeader did not apply to set aside the Adjudication Determination or the AD Judgment. Elmeader’s claims in the High Court proceedings related to cross-claims in respect of the same construction project for the Properties.
The High Court proceedings were subsequently stayed in favour of arbitration. At the time this Application came up for hearing before me in October 2021, no arbitration proceedings had yet been commenced.
Issue and Parties’ Positions
The only issue in the Application was whether the enforcement of the AD Judgment should be stayed pending the final decision in the prospective arbitration in respect of Elmeader’s cross-claims.
Elmeader submitted that a stay should be granted because LJH was insolvent and “there is a real and significant risk” that monies paid to LJH pursuant to the AD Judgment would not ultimately be recovered. In support of this contention, Elmeader referred to a myriad of circumstances such as LJH’s case-flow issues in end-2016 and early-2017, the late filing of LJH’s annual returns, the unfortunate demise of LJH’s former director, the fact that LJH no longer held a “builder’s licence” issued by the Building and Construction Authority (“BCA”), questions on LJH’s management accounts and on-going projects and allegedly “evasive” conduct on the part of LJH. I would consider these specific allegations in the course of my decision below. In addition, Elmeader submitted that there was no reason why a stay should not be granted, since LJH’s “financial distress” was not caused by Elmeader and LJH was not in a similar financial weakness when parties first entered into the construction agreement in mid-2016.
LJH responded by submitting that it was clearly not in actual and present insolvency. As for the alternative argument that monies paid to LJH would not ultimately be recovered, LJH submitted that the threshold for this was high, and that in any event, the evidence showed that LJH was in a healthy financial position with ongoing business. In support, LJH disclosed its management account for the period of January to September 2021, redacted bank statements for June to September 2021 showing a cash balance of $148,891.71 as at 21 Sept 2021, as well as an extract of a letter of award issued to LJH by one Sun Global Traders Pte Ltd (“Sun Global”) for an on-going project for a de-salination plant on Jurong Island, together with payment claims and payment certificates associated with the said project.
My Decision
The Law
It is trite that the court has the power to stay enforcement of an adjudication determination where justice requires it. This follows from the provisional nature of an adjudication determination. The leading authority on this is W Y Steel Construction Pte Ltd v Osko Pte Ltd [2013] 3 SLR 380 (“W Y Steel”), where the Court of Appeal held that a stay of an adjudication determination may ordinarily be justified where (at [70]): there is clear and objective evidence of the successful claimant’s actual present insolvency (“1st Limb”); or the court is satisfied on a balance of probabilities that if the stay were not granted, the money paid to the claimant would not ultimately be recovered if the dispute between the parties were finally resolved in the respondent’s favour by a court or tribunal or some other dispute resolution body (“2nd Limb”).
In addition, a court could also consider whether the claimant’s financial distress was caused by the respondent’s failure to pay the adjudicated amount and whether the claimant was already in a similar state of financial strength or weakness at the time the parties entered into their contract: see W Y Steel at [70]. The threshold is a high one and a stay “will not readily be granted having regard to the overall purpose of the [SOPA], which is precisely to avoid and guard against pushing building and construction companies over the financial precipice”: see W Y Steel at [71] and [72].
The test laid down in W Y Steel has been consistently applied: see, for example, Aik Heng Contracts and Services Pte Ltd v Deshin Engineering & Construction Pte Ltd [2015] SGHC 293 (“Aik Heng”); Kingsford Construction Pte Ltd v Deli Construction Pte Ltd [2017] SGHC 174; Dongah Geological Engineering Co Ltd v Jungwoo E&C Pte Ltd [2021] SGHC 239.
In CEQ v CER [2020] SGHC 192 (“CEQ”), the High Court clarified that the 1st Limb and 2nd Limb are disjunctive, and “the inquiry under the [2nd Limb] is broader in nature” which “ought to be more properly recognised as a guiding principle that is to be applied in every case”: see CEQ at [10] and [11]. There is no closed category of cases falling under the 2nd Limb, but examples include where there is a “real risk of dissipation of the disputed funds” and where there is “prima facie evidence or suspicion that the claimant had been using its claim as an abuse of process”: see CEQ at [11].
With these principles in mind, I turn to consider whether Elmeader made out its case for a stay under either the 1st or the 2nd Limb.
1st Limb – Was LJH insolvent?
In seeking to make out a case under the 1st Limb, Elmeader relied on evidence of financial difficulties which LJH countered in the course of carrying out the constructions works on the Properties in 2016 and 2017. During this period, LJH had on various occasions requested that Elmeader make direct payments to LJH’s sub-contractors and consultants involved in the construction project because of cash-flow issues which LJH faced then.
LJH accepted that it did encounter “temporary cash flow issues” in 2017. However, LJH submitted that these past cash flow issues did not constitute “clear evidence” of LJH’s present insolvency.
I agreed with LJH’s submission. As a matter of law, what was relevant was LJH’s financial status as at the time of the Application, and not four years ago in 2017: see Aik Heng at [38]. At best, past financial impecuniosity may give rise to an inference of present insolvency, but, without more, that could only be a very weak inference, if any at all.
Perhaps recognising this, Elmeader submitted further that there was no reason to believe that LJH’s finances would have improved since 2017, since LJH had not been actively carrying on business and was, by 2021, a “dormant” company. Elmeader relied on the following circumstances to show that LJH was a “dormant” company: One of LJH’s former director, one Mr. Lim, passed away in 2019. LJH was not listed as a licensed “builder” in the BCA directory. LJH’s records with the Accounting and Corporate Regulatory Authority (“ACRA”) showed that it last filed its annual returns in 2015 and was not GST registered since 2017. LJH did not appear to be maintaining any office premises.
Passing of LJH’s director
On the first point, I agreed with LJH that the passing of one of its directors could not show that LJH was insolvent. The correlation was not apparent and not explained by Elmeader.
Lack of a builder’s licence
As for LJH not...
