LEHMAN & CO MANAGEMENT LTD v. EFFISCIENT LTD AND ANOTHER

CACV 272/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 272 OF 2011

(ON APPEAL FROM HCCW NOS. 377 AND 383 OF 2010)

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HCCW 377/2010

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) NO. 377 OF 2010

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AND

HCCW 383/2010

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) NO. 383 OF 2010

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J U D G M E N T

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Hon Kwan JA (giving the Judgment of the Court):

1. On 13 March 2013, this court gave judgment in the appeal brought by Lehman & Co Management Ltd (“Lehman Management”) against the Liability Judgment and the Remedies Judgment of Harris J in respect of two petitions brought by Lehman Management and Effiscient Ltd (“Efficient”) respectively under section 168A of the Companies Ordinance, Cap 32.  We allowed Lehman Management’s appeal to a limited extent.

2. Lehman Management now seeks leave to appeal to the Court of Final Appeal, on the bases that the appeal is as of right and that there are questions of great, general or public importance.

3. I will first deal with the “as of right” ground.

4. In the Notice of Motion, the only ground of application in respect of the “as of right” ground is that “the matter in dispute on the appeal amounts to or is of a value in excess of HK$1 million”.  This refers to the first limb of section 22(1)(a) of the Hong Kong Court of Final Appeal Ordinance, Cap 484, which applies to the situation “where the matter in dispute on the appeal amounts to or is of the value of $1,000,000 or more”.  The first limb applies only to liquidated claims, so it would have no application to this situation (China Field Ltd v Appeal Tribunal (Buildings) (No 1) (2009) 12 HKCFAR 68, §18).

5. In his written submission, Mr Barlow, SC submitted that the application is within the “as of right” ground in that the appeal “directly or indirectly involves … questions respecting property, namely [Lehman Management’s] 50% shareholding in the Company, of a value in excess of HK$1 million”.  This would be a reference to the second limb of section 22(1)(a), which relates to the situation where “the appeal involves, directly or indirectly, some claim or question to or respecting property … amounting to or of the value of $1,000,000 or more”.  Mr Barlow argued that the appeal concerns the judge’s order requiring Lehman Management to transfer its shareholding in the Company to Effiscient, and this is a form of final mandatory injunction of the same nature as an order for specific performance, so would fall within the second limb as involving an indirect claim to the relevant property that is over the threshold value, praying in aid China Field Ltd, §25.

6. I do not accept his submissions.  The second limb should be consistently interpreted and must not undermine the established construction of the first limb (Chinachem Charitable Foundation Ltd v Chan Chun Chuen & Anr (2011) 14 HKCFAR 798, §20(ii)).  An unliquidated monetary claim falls not merely outside the first limb, but outside section 22(1)(a) altogether.  The order which the court would make in disposing of the proposed appeal must have the immediate effect of conferring or imposing on the relevant parties a financial benefit or detriment in the quantified amount, without need for any further adjudicatory process to determine any question of fact or law, including any process of assessment, quantification or apportionment (China Field Ltd, §24; Chinachem Charitable Foundation Ltd, §§20(iii), (vi) to (viii) and 31).  This requirement is plainly not satisfied here.

7. I turn to the discretionary ground in section 22(1)(b).  Three questions are set out in the Notice of Motion and they are as follows:

“(A) Whenever the Companies Court orders a compulsory share sale pursuant to s 168A(2)(a)(iv) of the Companies Ordinance (Cap 32) at a valuation to be undertaken by the Court, is the valuation process to be governed by the principles identified by Lord Millett in CVC/Opportunity Equity Partners Ltd v Demarco Almeida [2002] 2 BCLC 108 and our Court of Appeal in Koy Holdings Corp v Spider Knitters Ltd [1998] 1 HKLRD 788 or by the Court of Appeal in paras 69 and 74-86 of the Judgment?

(B) Is relief ordered pursuant to s 168A(2)(a)(iv) equitable relief and, if so, should the grant of such relief be conditional upon the recipient’s conscionable conduct, including the requirement that the recipient not approbate and reprobate, by adducing evidence in another subsisting Court Action that the value of a half share of the Company is US$6.65 million, while advancing the case in the s 168A proceedings below that the value of a half share of the Company is US$1.4 million (i.e. less than half of the liquidation value of the Company’s assets)?

(C) Does s 168A, correctly construed, permit a Court to conclude that, where, within the management of the affairs of a 2-shareholder quasi-partnership company, operating pursuant to an antecedent shareholders agreement whereunder each shareholder is to be represented on the company’s 2-director Board of Directors, but only one shareholder is to manage the business of the company, the managing shareholder’s exclusion of the other shareholders from Board participation and the managing shareholder’s aggregation of both directorships to himself – does not constitute unfair prejudice to the interests of the other shareholder?”

8. I do not think it appropriate to grant leave to appeal on any of the three questions.

9. Question (A) was an argument Mr Barlow raised before us dealt with in our judgment at §§74 to 86 under the headings of “The Valuation Distortion argument” and “Other attacks on the valuation”.  For the reasons given in our judgment, I do not think the arguments he advanced are reasonably arguable. In any event, as pointed out by Mr Manzoni, SC, there is no general rule as to the correct manner of valuation and it is a question to be determined on the facts of each case.

10. Question (B) relates to a complaint of Mr Barlow which we addressed in §§70 and 71 of our judgment.  For the reasons given, we held that Effiscient was not “approbating and reprobating” from the valuation of the Company’s business and that the judge had not refused to exercise his jurisdiction under section 168A in an equitable manner.  Quite apart from its fact specific nature, the arguments to be advanced under this question do not appear to be reasonably arguable.

11. Question (C) relates to the contention that the judge should have held on the facts of this case that unfair prejudice was established, an argument which we rejected for the reasons given in §§13 to 27 of our judgment.  No question of great general or public importance arises out of the application of well settled law to the facts of this case.

12. For the above reasons, leave to appeal would be refused with costs to Effiscient.