EFFISCIENT LTD v. EDWARD EUGENE LEHMAN

CACV 177/2012

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 177 OF 2012

(ON APPEAL FROM HCMP NO. 2524 OF 2011)

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D E C I S I O N

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1.  This is an application for security for costs on appeal. The appeal is against an order of committal made by Harris J on 12 July 2012 in HCMP 2524/2011 and a costs order in the same proceedings on the following day. The appellant, Edward Eugene Lehman (“Mr Lehman”), was found guilty of contempt of court by reason of his deliberate breach of an interlocutory injunction order of To J made on 23 July 2010 in HCA 959/2010. The appeal is to be heard on 22 March 2013 with one day estimated.

2.  Mr Lehman is an American lawyer based in Beijing.  The respondent in the appeal, Effiscient Limited (“Effiscient”), made this application on the basis that “special circumstances” are made out under Order 59 rule 10(5) of the Rules of the High Court for security to be ordered in that Mr Lehman is resident out of the jurisdiction and it would encounter difficulty and expense to enforce a costs order against him given that he does not appear to have substantial assets in Hong Kong.

3.  I do not propose to set out the relevant principles regarding an application of this nature.  They are well established and have been stated in Chung Kau v Hong Kong Housing Authority & Ors [2004] 2 HKLRD 650 at para 14 and Hung Fung Enterprises Holdings Ltd v Agricultural Bank of China, CACV 235/2010, 28 September 2011, paras 12 to 15.

4.  I am satisfied that special circumstances are made out by Effiscient.  My reasons are as follows.

5.  Mr Lehman has merely asserted through his solicitors that he does have assets.  He said he was not prepared to reveal his assets to the other side.  He asked the court to find there is no cause for Effiscient’s fear that he would not be able to pay costs as he has paid all the costs he was ordered to pay as and when those costs were assessed or agreed and he has made payments into court when ordered to do so.

6.  I do not think these assertions are sufficient.  Mr Lehman has chosen not to reveal whether his assets are in Hong Kong or in the Mainland, or whether those assets are owned by him personally in his own name.  From the evidence filed by Effiscient’s solicitor, it would appear to be the case that he does not have valuable assets in Hong Kong, as he had requested for time to return to Beijing to liquidate his assets on three occasions to meet various payments ordered by the court: a month to pay a fine of $200,000 and costs of $400,000 in the first set of contempt proceedings before To J in April 2011 (HCMP 2204/2010); 28 days to pay costs of $800,000 in the second set of contempt proceedings before Harris J in July 2012 (HCMP 2524/2011); and 42 days to pay $300,000 as security for costs on appeal in August 2012 in his appeal in HCA 959/2010 (CACV 119/2012).

7.  There is also evidence based on information of Russell Brown (“Mr Brown”) of Effiscient and the own involvement of Effiscient’s solicitor in the trial of the consolidated action (HCCW 377/2010 and 383/2010) that it is Mr Lehman’s usual practice for assets to be held by his wife or in the name of BVI companies, rather than in his own name.

8.  Although Mr Lehman has by and large satisfied the costs orders which have been assessed or agreed so far and has made payment into court as and when he was ordered to do so, he has incurred very substantial liability in damages and costs to Effiscient in a number of related actions, which have yet to be assessed or taxed.  It is correct that the paying party in some of these actions is not Mr Lehman personally but a BVI company, Lehman & Co Management Limited, but this BVI company is owned by Mr Lehman’s wife and Mr Lehman would appear to have exercised de facto control over its affairs, as found by Harris J in the consolidated action.  There is justification for Effiscient to be concerned about the availability of liquid assets to pay its costs in this appeal and the costs already awarded to it in other related actions.  I note also from recent correspondence that Lehman & Co Management Limited has failed to comply with an order in the consolidated action to pay 50% of the court expert’s fees by 10 January 2013.

9.  It seems to me Effiscient is likely to encounter undue delay and expense to enforce a costs order against Mr Lehman out of the jurisdiction.

10.  I turn to consider if there are sufficient countervailing factors that would militate against the discretion to order security.  Mr Barlow, SC accepted that the onus is on Mr Lehman to demonstrate countervailing factors.  He submitted that the merits of the appeal are so strong that this should be a sufficient countervailing factor.

11.  I have considered the grounds of appeal in the Notice of Appeal settled by Mr Barlow, who did not appear below, and read the transcript of Mr Lehman’s application for stay pending appeal before Harris J on 15 August 2012.  The grounds of appeal consist of arguments rejected by the judge and new arguments not raised before him.  One of the new arguments is that Effiscient lacked the requisite locus standi to bring contempt proceedings against Mr Lehman in that the emails that contained defamatory statements and constituted a deliberate breach of the injunction order of To J concerned Mr Brown and not Effiscient.  It is argued that only Mr Brown could have applied to have Mr Lehman committed for contempt but Mr Brown was not an applicant in the proceedings.

12.  Contrary to the account of Mr Lehman’s solicitors, at the hearing of Mr Lehman’s application for stay pending appeal, Harris J did not express the view that the “locus standi” argument was “obviously strong” or that it was “highly likely that the Court of Appeal would overturn” his judgment.  What the judge had decided was that “at first blush” “there may be reason to argue that there are very goods of appeal” and as the “locus standi” argument was not advanced at the hearing of the committal proceedings, the judge adjourned the summons for stay pending appeal for argument on that point.  That summons was withdrawn by consent on 17 January 2013 so the “locus standi” argument was not argued before the judge and this court does not have the benefit of the judge’s decision.

13.  For the purpose of the present application, what is required is merely a preliminary view if the appeal is highly likely to be successful.  If the appeal could go either way, the merits of the appeal would not be sufficient to tilt the balance in favour of Mr Lehman where special circumstances have been made out by the other side.

14.  Assuming for the time being and without expressing a view on the likelihood that the committal order is to be set aside on appeal, it does not necessarily follow that Mr Lehman would succeed in his appeal against the costs order below or that he would be awarded the costs of the appeal.  It is not necessary to go into the detailed arguments on costs at this stage.  It would be sufficient to point out that Harris J has observed in the stay application that the costs are “slightly more complicated than normal” and that in the judgment of 12 July 2012, it was recorded that it is not disputed the relevant emails had breached the terms of the interlocutory injunction order of To J if it was in force at the time.

15.  As for the other main ground of appeal, namely that the interlocutory injunction order of To J has lapsed, this is an argument that was dealt with by Harris J and I am inclined to think that the prospects of success on appeal are arguable, not strong.

16.  On a preliminary assessment, I am not persuaded that the merits of the entire appeal are so strong that would militate against the discretion to order security.

17.  Effiscient seeks security in the sum of $520,600.  I have taken into account Mr Barlow’s criticism on the level of fees of solicitors and counsel in the appeal, which he said is straightforward and involves short points of law.  In my view, an appropriate amount to be ordered as security is $350,000, which is less than the amount of $400,000 in the open offer made by Effiscient’s solicitors.

18.  I make the following orders:

(1)  Mr Lehman is to provide security for Effiscient’s costs of the appeal in the sum of $350,000 within 21 days hereof by making lodgement in court of the said sum in cash; and until such lodgement be made and notice thereof given to the Registrar and to the solicitors for Effiscient (such notice to be given on the same day as the lodgement is made) all proceedings in the said appeal are to be stayed;

(2)  in default of Mr Lehman making such lodgement as aforesaid within the time specified, the said appeal do (upon the solicitors for Effiscient certifying such default to the Registrar) stand dismissed out of this court without further order;

(3)  in the event that the appeal is dismissed in the circumstances provided for above, Mr Lehman do pay Effiscient its costs occasioned by the said appeal, such costs to be taxed if not agreed; and

(4)  the costs of this application be costs in the appeal.