LEHMAN & CO MANAGEMENT LTD v. EFFISCIENT LTD AND ANOTHER

HCCW377/2010

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

HCCW383/2010

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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(Actions consolidated pursuant to the order of Hon Harris J
dated 17.1.2011)

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D E C I S I O N

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1.  I have before me a summons issued on 2 January 2015 for an order that execution of an order of mine dated 15 November 2011 be stayed, pending determination of cross claims by Lehman Brown Limited against Mr. Edward Lehman (“Mr. Lehman”). The order of 15 November 2011 was a judgment on liability given after trial of a petition and cross petition between Effiscient Limited (“Effiscient”) and Lehman & Co. Management Limited (“Lehman Management”).

2.  Effiscient obtained a judgment in their favour. This judgment required that Lehman Management sell to Effiscient its shares in the Company.  The judgment also provided that the purchase price be paid by Effiscient for the shares and the assessment of damages claimed by them, which it was intended be set off against that purchase price, be tried separately.  Pending the determination of price Lehman Management was to give Effiscient a proxy in respect of its voting rights.

3.  A judgment on quantum was delivered by me on 28 November 2012.  I determined that the purchase price of the shares was US$1.4 million and the damages which would be set off against that was US$716,000.  I understand that taking into account various cost assessments and certain instalments of the purchase price that have been paid (but excluding interest), the amount currently due is US$425,456.04.  This sum, however, does not include damages.  The reason for that is that the Court of Appeal overturned part of the judgment on quantum because it took the view that it was caught by the reflective loss principle. 

4.  The Court of Appeal’s judgment is dated the 30 March 2013.  During the course of 2014 taxation of Effiscient’s costs took place and by the end of 2014 the amount of interest payable had been agreed.  It was at that stage that Effiscient began to consider seeking a stay.  On 2 January 2015 the Company, which, as I have already explained is controlled by Effiscient, issued proceedings against Mr. Lehman (HCA 6/2015).  As I understand it that claim is intended to pursue the claims which were determined in Effiscient’s favour before me and other claims for damages relating to infringement of trademarks.

5.  In short it is Effiscient’s case that as a result of the judgment that I gave quite clearly Effiscient has a prima facie case for a damages claim against Mr. Lehman, which will, if it is assessed in anything like the figure that I assessed it, result in the extinguishment of the amount currently due representing the balance of the purchase price for the shares in the Company.

6.  In addition there is another set of proceedings HCMP 775/2012 in which other trademark actions are pursued.  Unfortunately those proceedings have progressed rather slowly, but Effiscient points to them as supporting its contention that the reality is that it is unlikely that anything will in fact be payable to Lehman Management.  As a result they say it is appropriate that the stay is granted.

7.  Lehman Management contests the application for a stay.  Its principal reason for doing so is that the various claims that I have referred to are advanced against Mr. Lehman personally.  However, the shareholder in the Company whose shares have been transferred is owned by Mrs. Lehman.  Lehman Management accepts that it is now settled that where a cross claim has been raised by judgment debtor even where the strict requirements of set off have not been fulfilled e.g. because there is not requisite identity of parties, the court may prevent injustice by granting a state of execution of the judgment on the claim until resolution of the cross claim[1].

8.  However, Mr. Pat Lun Chan, who appeared for Lehman Management, says that it is apparent from a consideration of those cases that the principle applies where it can be demonstrated that there is ultimate common ownership of the entity involved and that is not so in the present case.  I agree with Mr. Chan’s submission. However, the position in the present case is not as straight forward as it might at first appear.  It is apparent from my judgment and in particular paragraphs 60 and 61 of the Court of Appeal’s judgment dated 13 March 2013 that during the trial Mr. Lehman characterised himself as the owner of the Company.  Mr. Lehman’s wife also gave evidence at the trial and no evidence, at least, so far as I recall, was given by her contradicting her husband’s view of the reality of the situation, which I have little doubt, was correct.  It, therefore, seems to me that it is appropriate to approach this case on the basis that Mr. Lehman was, and is, in reality the beneficial owner of Lehman Management, and therefore the principle I have referred to above applies. 

9.  Mr. Chan also argues that it is apparent from authorities such as Burnet v Francis Industries Plc [2]and Inveresk Plc v Tullis Russell Papermakers Ltd [3] that it requires special circumstances before the Court will stay enforcement of a judgment for a liquidated sum.  The correct approach to determining an application of this sort is described by Bingham LJ at 811D-H of his judgment:

“In deciding in any case whether such special circumstances exist, a number of matters will call for consideration by the judge. A number of these factors may deserve mention, although I emphasise that the list which I shall give is not intended to be exhaustive and that the relative significance of these factors among themselves will vary enormously from case to case. First, it is relevant to consider the nature of A’s claim. Suppose, for example, that it were based on a dishonoured bill of exchange. According to ordinary principles, it would follow that rarely, if ever, would B’s application for a stay succeed in such circumstances. Second, it is relevant to consider the extent of the identity between C and B. The more closely they are identified, the more like a true counterclaim C’s independent claim against A becomes. Third, it is relevant to consider the inter-relationship of the respective claims by A against B and by C against A, for the same reason. Fourth, it is relevant to consider the strength of C’s claim. The more obvious it appears that A will have to pay C eventually, the less likely it is that he will be prejudiced by a denial of the fruits of his judgment against B in the short term. Fifth, it is relevant to consider the size of C’s claim relative to A’s. That will rarely, if ever, be decisive, but it is I think a matter worthy of consideration. Sixth, it is relevant to consider the likely delay before the merits of C’s claim against A will be the subject of adjudication. Seventh (and including a various factors that I have already mentioned), it is relevant to consider the extent of the prejudice to A if he is denied the fruits of his judgement until C’s claim is determined. Lastly, it is relevant to consider the risk of prejudice to C if B makes payment to A under the judgment. That will be particularly relevant if it is shown that there is a risk of the fruits of the judgment being removed from the jurisdiction, or dissipated within the jurisdiction. It is of obvious relevance if A is a British resident with ample means to satisfy any judgment C may recover against him. It may also be relevant to consider the number and worth of any co-defendants to C’s claim.”

10.  Mr. Chan points out that as matters stand currently whatever the position may have been at the end of the trial on quantum before me, which resulted in the damages claimed by Effiscient being liquidated, there is currently no liquidated sum which is being claimed.  He points to the writ in HCA 6/2015 and the miscellaneous proceedings.  As far as it goes that is correct.  However, this case is unusual.  There has already been an assessment by the Court of the amount of damages that are payable for at least some of the claims that Effiscient has sought to advance against Mr. Lehman.

11.  The quantification of the claims themselves were not interfered with by the Court of Appeal, there is therefore good reason to think that sufficient will be found payable in the High Court Action in which Effiscient is the plaintiff that in practice Effiscient are not going to be required to pay Mr. Lehman or Lehman Management any sum.  It may be that the final quantification will take another few years, particularly as Mr. Lehman has shown historically a propensity for contesting everything, but it seems to me highly unlikely that the position at the end of the various proceedings that he still faces will be anything other than him being ordered to pay more than the balance that is currently payable in respect of the purchase price.

12.  In the circumstances I will, therefore, grant an order staying the execution of the judgment of the order dated 15 November 2011. 

13.  I will make an order that the Petitioner’s costs of the amended summons be the Petitioner’s costs in HCA 6/2015.

[1] Inveresk Plc v Tullis Russell Papermakers Ltd (2010) SC (UKSC) 106 at §116 per Lord Collins; Canada Enterprises Corporation Ltd v MacNab Distilleries Ltd (Note) [1987] 1 WLR 813 at 816-817 per Cairns LJ (stay of execution where an action between the two corporate parties was matched by another action between the persons controlling them); Dao Heng Bank Ltd v BIS Consultant Services Ltd [1989] 1 HKC 87 at 91-92 per Hunter JA; Credit Lyonnais supra at 106-107 (§5) [1989] 1 HKC 87 at 91-92 per Ma CJHC. Such exercise is materially different from lifting the corporate veil: Dao Heng Bank supra at 91F & 92F-G per Hunter JA.

[2] [1987] 1 WLR 802

[3] (2010) SC (UKSC) 106