LEHMAN & CO MANAGEMENT LTD v. EFFISCIENT LTD AND ANOTHER

CACV 180/2015

[2021] HKCA 1657

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 180 OF 2015

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

________________________

(ON APPEAL FROM HCCW NO 377 OF 2010)

________________________

	IN THE MATTER of Section 168A of the Companies Ordinance (Cap 32)
	and
	IN THE MATTER of Lehmanbrown Limited

________________________

BETWEEN

	LEHMAN & CO MANAGEMENT LIMITED	Petitioner
	and
	EFFISCIENT LIMITED	1st Respondent (“Cross-Petitioner”)
	LEHMANBROWN LIMITED	2nd Respondent

________________________

AND

(ON APPEAL FROM HCCW NO 383 OF 2010)

________________________

	IN THE MATTER of Section 168A of the Companies Ordinance (Cap 32)
	and
	IN THE MATTER of Lehmanbrown Limited

________________________

BETWEEN

	EFFISCIENT LIMITED	Petitioner (“Cross-Petitioner”)
	and
	LEHMANBROWN LIMITED	1st Respondent
	LEHMAN & CO MANAGEMENT LIMITED	2nd Respondent (“Petitioner”)

________________________

(Actions consolidated pursuant to the order of the Honourable Mr. Justice Harris dated 17 January 2011)

Before:  Hon Cheung JA and Barma JA in Court

Date of Decision:  8 November 2021

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D E C I S I O N

________________________

Hon Barma JA (giving the Decision of the Court):

The application

1.  This application for payment out by Lehman & Co Management Ltd (“Lehman Management”)  by summons (“the Summons”)  dated 16 May 2018 arose out as follows:

(1)  By an order[1] (“the Buyout Order”)  of Harris J dated 15 November 2011, Effiscient Ltd (“Effiscient”)  was ordered to buy out the 50% shareholding in LehmanBrown Ltd (“the Company”)  owned by Lehman Management.  The other 50% shareholding in the Company was owned by Effiscient.  Relevantly, a subsequent order of Harris J dated 16 January 2015 provided for a schedule (“the Schedule”)  pursuant to which Effiscient was to pay the purchase price by 12 quarterly instalments beginning on 31 January 2015. 

(2)  By a further order of Harris J dated 9 June 2015, execution of the Buyout Order (and hence payment under the Schedule)  was stayed until the resolution of proceedings (HCMP 775/2012 and HCA 6/2015)  brought by the Company against Mr Edward Lehman (“Mr Lehman”)  and alleged associates of his.

(3)  Lehman Management appealed against Harris J’s decision to grant a stay. By a judgment dated 7 March 2018 (“the Judgment”), this court upheld Harris J’s decision, but imposed a condition (“the Condition”)  that the total amount of the outstanding instalments as of the date of the Judgment, together with interest accrued thereon, should be paid into court within 42 days (i.e. by 18 April 2018), and that thereafter, any other remaining instalments should be paid into court, with accrued interest, on their due dates.

(4)  On 19 April 2018, Effiscient paid the sum (“the Sum”)  of US$52,644.50 into court.

2.  Lehman Management complained that the Sum was paid one day later than the prescribed deadline and, more importantly, that it fell considerably short of the amount that ought to have been paid into court, which was US$644,220.50 by Lehman Management’s calculation. Its solicitors sent two letters (dated 24 and 27 April 2018)  to Effiscient’s solicitors requesting full payment but to no avail. This led to Lehman Management taking out the Summons applying for:

(1)  release of the Sum to it together with interest;

(2)  lifting of the stay and leave to enforce Harris J’s order dated 16 January 2015; and

(3)  payment of the outstanding sum of US$425,456.00 together with interest by Effiscient to Lehman Management.

Effiscient’s explanation

3.  Effiscient filed an Affirmation of Zhou Han Brown on 8 June 2018, in which it explained that it had assumed that the instalments under the Schedule, which should have ended by 31 October 2017, had been suspended by virtue of the stay and that the obligation to make payments only revived (and time only started running again for making payments pursuant to the Schedule)  on 7 March 2018 (ie the date of the Judgment), so that all dates in the Schedule should be put back to reflect this (so that the due dates for payment would be varied accordingly). Because of this, Effiscient only paid the Sum into court on 19 April 2018, believing that this was in compliance with the Condition.

4.  This explanation is unsatisfactory. The Condition is clearly worded, and its effect was also apparent from in the court’s exchange with counsel at the hearing, which was reflected in the Judgment:

(1)  Thus, [7] of the Judgment noted:

“Mr Bleach, for Effiscient, indicated that his client would be prepared to pay the balance of the purchase price due, together with accrued interest, into court in accordance with the schedule contained in the order in the petition proceedings”.

(2)  Further, in [17] of the Judgment, the sentence immediately preceding the imposition of the Condition reads:

“Although Mr Barlow submitted that the full purchase price should be paid into court at once, I see no reason to depart fromthe schedule laid down in the order.” (Emphasis added in both extracts.)

5.  There can thus be no doubt that “total amount of the outstanding instalments to date” meant the total amount of outstanding instalments calculated in accordance with the Schedule in its original form.

6.  Effiscient was at all times legally represented and should have sought clarification (from the court, if necessary)  had there been any genuine confusion on its part as to the terms of the Condition. It has also not provided any explanation for its failure to respond to Lehman Management’s letters dated 24 and 27 April 2018.

Analysis & disposition

7.  The principles governing the court’s powers under O.22A are well-established:

(1)  The court has wide powers and an unfettered discretion over money paid into court to achieve justice between the parties on the facts and in the circumstances of the case.

(2)  It is always necessary to consider the purpose of the initial payment into court, and where the applicant for release of the payment is in principle entitled to the money, then the respondent must demonstrate good reasons to justify why the court should retain the money instead of releasing it.

(See Hong Kong Civil Procedure 2021, Vol.1, §22A/1/1, MGA Entertainment Inc v Toy and Trends (HK)  Ltd, unreported, HCA 2152/2002, 8 July 2014 at §§16-18, Ng Chi Kwan Danny Summer v Yeung Yiu Kwai, unreported, HCPI 633/2011, 28 November 2014)

8.  As set out at [8] to [16] of the Judgment, the stay was granted in the circumstances that:

(1)  There was some ultimate common ownership interest on both sides of the “equation”.

(2)  The ultimate beneficiary of Effiscient’s payment of the purchase price for Lehman Management’s shareholding in the Company was likely to be Mr Lehman, while the Company (which had brought claims against Mr Lehman)  would (as a result of the buyout)  be ultimately owned by the ultimate owners of Effiscient (ie the Browns).

(3)  The Company has a sufficiently arguable claim against Mr Lehman which may be relied upon to offset the purchase price payable by Effiscient.

9.  The Condition was imposed in these circumstances as security for the purchase price of Lehman Management’s share in the Company, pending the resolution and/or crystallisation of the other claims brought by the Company against Mr Lehman. It also had the effect of mitigating the prejudice to Lehman Management should the Company fail to proceed with its claims against Mr Lehman reasonably expeditiously (see [17] of the Judgment).

10.  In the circumstances of this case, we consider the following matters to be pertinent to the court’s exercise of discretion.

11.  First, the imposition of the payment in condition was to provide a measure of protection for both sides.  It would ensure that the purchase price to be paid by Effiscient for Lehman Management’s share in the Company was in fact paid, so that Lehman Management would be assured of receiving payment at the end of the day (should it be entitled to any after the Company’s claims against Mr Lehman had been determined)  It would thus serve to mitigate the prejudice to Lehman Management of being kept waiting for payment pending the resolution of those claims. In this regard, it may be noted that although Effiscient has been granted an irrevocable (save with leave of the court)  proxy to exercise all voting rights attached to the share, the share remains registered in the name of Lehman Management pending satisfaction of the purchase price.

12.  Second, the payment in also serves to provide a measure of protection to Effiscient, by ensuring that the funds are retained in court and not released to Lehman Management pending the Company’s claims against Mr Lehman being determined, so that if any set off arises, it will still be effective. As Barma JA observed at [16] of the Judgment, Effiscient has established that the Company has a sufficiently arguable claim against Mr Lehman to justify the granting of a stay.

13.  Based on the evidence available, the Company’s claims against Mr Lehman have remain unresolved. Lehman Management’s solicitors alleged in their letter dated 30 May 2018 that Effiscient had not taken any steps in the previous two years to cause the Company to pursue the claims, an allegation which is denied by Effiscient. Other than that, there is no evidence from which this court can come to a view as to whether or not Effiscient and the Company have failed to proceed with the other claims against Mr Lehman expeditiously. However, based on counsel’s submissions, it does not seem that Lehman Management places any real reliance on this ground in support of the Summons.

14.  Third, although Effiscient has not put forward any good explanation for its failure to comply with the Condition, this is mitigated by the fact that Efficsient has indicated (through its solicitors)  that it is willing to pay the balance within 14 days of any direction or order made by this court. Lehman Management has not identified any prejudice or loss that it will suffer as a result of the delay in payment.

15.  Taking account of all the relevant circumstances and balancing the interests of the parties, we think that the appropriate order to make would be to order that Effiscient should pay the outstanding sum of US$425,456.00, together with interest calculated by reference to Harris J’s order of 16 January 2015)  into court within 14 days, and that in default of such payment, the stay shall be lifted and the Sum (together with any interest accrued on it)  shall be released to Lehman Management forthwith.

16.  In our view, if Effiscient fails to make such payment, there can be nothing unfair in permitting Lehman Management to receive the Sum, particularly as Effiscient has enjoyed the benefit of exercising the voting rights attached to the share in the interim.

17.  We would also make it clear that even if Effiscient makes the payment of the outstanding US$425,456 plus interest within the time indicated, it will remain open to Lehman Management to apply to lift the stay and seek payment out should the Company fail to proceed with its claims against Mr Lehman reasonably expeditiously.

Costs

18.  As far as costs are concerned, as this application was necessitated by Effiscient’s failure to comply with the Condition, we make a costs order nisi that Effiscient should pay the costs of and occasioned by the Summons to Lehman Management, to be taxed on the party and party basis if not agreed.

(Peter Cheung)	(Aarif Barma)
Justice of Appeal	Justice of Appeal

Mr Sunny Chan, instructed by David Ravenscroft & Co, for the petitioner

ONC Lawyers, for the 1^st respondent (cross-petitioner)

CACV 180/2015

[2018] HKCA 127

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 180 OF 2015

(ON APPEAL FROM HCCW 377 OF 2010)

---------------------------

	IN THE MATTER of Section 168A of the Companies Ordinance (Cap 32)
	and
	IN THE MATTER of Lehmanbrown Limited

---------------------------

BETWEEN
	LEHMAN & CO MANAGEMENT LIMITED	Appellant / Petitioner
	and
	EFFISCIENT LIMITED	1st Respondent (Cross-Petitioner)
	LEHMANBROWN LIMITED	2nd Respondent

---------------------------

                 AND

(ON APPEAL FROM HCCW 383 OF 2010)

---------------------------

	IN THE MATTER of Section 168A of the Companies Ordinance (Cap 32)
	and
	IN THE MATTER of Lehmanbrown Limited

---------------------------

BETWEEN
	EFFISCIENT LIMITED	Petitioner (Cross-Petitioner)
	and
	LEHMANBROWN LIMITED	1st Respondent
	LEHMAN & CO MANAGEMENT LIMITED	2nd Respondent

---------------------------

(Consolidated pursuant to the order of Hon Harris J dated 17 January 2011)

Before : Hon Cheung JA and Barma JA in Court

Date of Hearing : 3 December 2015

Date of Handing Down Judgment : 7 March 2018

__________________

J U D G M E N T

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Hon Cheung JA:

1.  I agree with the judgment of Barma JA.

Hon Barma JA:

2.  This was an appeal by Lehman & Co Management Ltd (“Lehman Management”) against the order of Harris J dated 9 June 2015, by which he stayed execution of part of his earlier order of 15 November 2011, by which Effiscient Ltd (“Effiscient”) was required to pay to Lehman Management the balance of the purchase price for the court ordered buyout by Effiscient of Lehman Management’s 50% shareholding in LehmanBrown Ltd (“the Company”) by quarterly instalments over a three year period.  As at the date of the order appealed against, there was an outstanding principal balance of US$425,456.04 due from Effiscient.  Execution was stayed until the resolution of proceedings (HCMP 775/2012 and HCA 6/2015) brought by the Company against Mr Edward Lehman and alleged associates of his.

3.  The background to this appeal is somewhat complicated, but can be summarised as follows:

(1)   The Company was incorporated in Hong Kong but carries on business in the Mainland where it provides audit and corporate advisory services.  It had two shareholders, Effiscient and Lehman Management, each holding 50% of its shares.  Effiscient is owned by Mr Russell Brown and his wife.  Lehman Management is owned by Mrs Karolina Lehman, the wife of Mr Edward Lehman, although its affairs, particularly in relation to the Company were controlled by Mr Lehman.

(2)   Disputes between the two shareholders in the Company (and the Lehmans and the Browns) gave rise to several pieces of litigation.  The main litigation (the proceedings out of which this appeal arises) involved cross-petitions by Lehman Management and Effiscient in which each sought to buy out the other’s shares in the Company, or alternatively sought orders for the winding up of the Company on the just and equitable ground.

(3)   The issue of liability arising from the cross-petitions was determined by the judge in his judgment of 15 November 2011.  He dismissed Lehman Management’s petition, and made the buyout order on Effiscient’s cross-petition.  He stood over questions of remedies (relating to the valuation of the Company and the price at which Effiscient should buy out Lehman Management, and a claim for damages brought by Effiscient against Lehman Management under the petition) for later determination.  By paragraph 11 of his order, the judge directed that Effiscient should be entitled to set off against the purchase price any damages it was awarded for unfairly prejudicial conduct, damages that Effiscient might be awarded against Mr Lehman in separate defamation proceedings, and the costs of the petition proceedings; and by paragraph 12 of the order, the judge ordered that that balance should be paid in quarterly instalments over a period of three years.

(4)   After a hearing to deal with the quantum issues, by a further judgment dated 28 November 2012, the judge assessed the value of Lehman Management’s share in the Company at US$1,400,000, and awarded damages of US$716,055 to Effiscient.

(5)   Lehman Management appealed against both the liability and quantum decisions.  By a judgment dated 13 March 2013 this court (differently constituted) upheld the judgment on liability, but varied the remedies judgment, essentially by reversing the order for damages in favour of Effiscient, on the ground that the loss, so far as Effiscient was concerned, was reflective of the Company’s loss, and hence not recoverable by Effiscient, but by the Company.  The set off in respect of the defamation damages was also disallowed.  Finally, interest was awarded to Lehman Management on the net amount payable to it, at judgment rate from the date of the liability judgment.

(6)   On 16 January 2015, the judge made an order by which Effiscient’s costs of the petition and cross-petition were fixed, for the purposes of the set off with the purchase price of Lehman Management’s share in the Company, at US$889,452.76, leaving a balance payable to Lehman Management of US$510,547.24, and requiring that balance to be paid by 12 equal instalments plus interest commencing on 31 January 2015.

(7)   Meanwhile, the Company having in 2012 commenced trade mark proceedings (HCA 775/2012) against Mr Lehman, Mrs Lehman and two companies associated with them, on 2 January 2015, it commenced an action against Mr Lehman (HCA 6/2015) for breach of his duties as its director.  Also on 2 January 2015, Effiscient applied by summons for a stay of execution of its obligation to pay the balance of the purchase price under the buyout order, pending the resolution of these two actions.  The judge acceded to the application by making the order now under appeal.

4.  Effiscient’s argument was that it had a prima facie claim for damages against Mr Lehman in the recently issued proceedings, which, having regard to the judge’s assessment of essentially the same damages in the petition proceedings (which was overturned on the basis that it was reflective loss which was properly claimable by the Company rather than Effiscient) was likely to exceed the remaining balance of the purchase price payable to Lehman Management.  The trademark claim would only add to such damages.  Thus, said Effiscient, it would be just to stay execution so that it did not have to pay the balance of the purchase price until these other claims were dealt with, at which time all the payments in both directions could be settled against each other.

5.  The judge accepted that where (as here) the parties to the proceedings were not the same (the price for the share in the Company was payable to Lehman Management, whereas the damages claim in the recent action was against Mr Lehman, and in the trademark action against Mr Lehman, Mrs Lehman and two companies owned by her), the authorities established that for a stay to be ordered, it had to be demonstrated that there was ultimate common ownership of the entities involved, on each side.  However, the judge pointed out that Mr Lehman had said in his evidence in the liability part of the trial in the petition proceedings that he regarded himself as the owner of the Company, so that Lehman Management was his nominee, a position which the judge regarded as being the reality of the situation.  The judge therefore considered that it was open to him to grant the stay sought, provided that it would otherwise be appropriate to do so.  Having considered the claims being brought against Mr Lehman, having noted that his assessment of the likely losses from Mr Lehman’s alleged breaches of fiduciary duty was not adversely commented on (so far as their quantum was concerned) in the Court of Appeal’s earlier judgment, and having regard to the fact that Mr Lehman and Lehman Management were both based outside Hong Kong, the judge concluded that it would, in the circumstances, be appropriate to grant the stay.

6.  Lehman Management now appeal against the order granting the stay.  Mr Barlow SC, who did not appear for Lehman Management below, submitted that the judge had erred in three main respects, any one of which would call for his decision to be reversed.  Mr Barlow’s arguments were:

(1)   The judge had no jurisdiction to grant a stay, as the order which it was sought to stay was an order, not of the judge, but of the Court of Appeal.  The argument here was that as the Court of Appeal had by its earlier judgment varied the judge’s order, the whole of that order, as varied, should be regarded as an order of the Court of Appeal, in respect of which only the Court of Appeal could grant a stay.  In other words, the judge had no power to order a stay of what was no longer his order, but that of the Court of Appeal.

(2)   The authorities established that where the parties were not the same, a stay should only be granted where the parties on each side were under common beneficial ownership, which was not the case here.  While the petition proceedings were between Effiscient and Lehman Management, which had been found to be beneficially owned by Mrs Lehman, the trademark and fiduciary duty claims relied upon as providing the basis for a set off in respect of the outstanding purchase price were between the Company and Mr Lehman.  While Effiscient and the Company might be ultimately commonly owned, Lehman Management was not ultimately owned by Mr Lehman, but by his wife.

(3)   Finally, it was suggested that in any event, Effiscient had not demonstrated to the necessary standard that it had good claims against Mr Lehman, or that the quantum of those claims would be sufficient to overtop the outstanding balance of the purchase price for the shares in the Company.

7.  At the outset of the appeal, we indicated to the parties that even if a stay were in principle to be granted, we would be likely to vary the order at least to the extent of imposing conditions on the grant of the stay, which would include some form of payment into court and an obligation to proceed reasonably promptly with the trademark and fiduciary duty proceedings.  We invited the parties to take instructions on whether this approach might be one on which they could agree.  Mr Bleach, for Effiscient, indicated that his client would be prepared to pay the balance of the purchase price due, together with accrued interest, into court in accordance with the schedule contained in the order in the petition proceedings.  Mr Barlow and those instructing him were unable to contact their client in the time available, and so were unable to agree.  We therefore proceeded to hear argument on the appeal.

8.  Having heard the parties, I am satisfied that the judge was right to grant the stay applied for, although I would vary his order in the manner I indicate below to provide for payment into court of the sums due (with accrued interest) in accordance with the schedule contained in the order.  I would also grant liberty to Lehman Management to apply for payment out of those sums in the event that the trademark and fiduciary duty claims are not proceeded with reasonably expeditiously.  I explain below my reasons for coming to this conclusion, and rejecting the arguments of Mr Barlow against the grant of the stay.

9.  As to Mr Barlow’s first argument, I think that it was open to Effiscient to make its application in the first instance to the judge, rather than to this court. Although this court varied the judge’s order made after the trial, it did not touch upon that part of the order that provided for the payment of the purchase price for Lehman Management’s share in the Company.  All that the Court of Appeal judgment did was to set aside parts of the judge’s order in the court below, leaving the rest of it intact.  In those circumstances, it seems to me that it was both sensible and appropriate for the application for a stay to be made initially to the judge.  I do not think that there was any jurisdictional impediment to the judge hearing and determining the application in the first place, and no authority was cited by Mr Barlow suggesting that there was.

10.  As to Mr Barlow’s second point, I would agree with Mr Barlow (as did the judge with his predecessor) that in order for a stay to be granted where there is no identity of parties, there should be some ultimate common ownership interest on both sides of the “equation”.  This was the position in the cases cited to us in which such a stay was granted, including Inveresk plc v Tullis Russell Papermakers Ltd (2010) SC (UKSC) 106, Canada Enterprises Corporation Ltd v MacNab Distilleries Ltd [1987] 1 WLR 813 and Dao Heng Bank Ltd v BIS Consultant Services Ltd [1989] 1 HKC 87.  In each case, the relationship was either that of parent and subsidiary company, or shareholder and company. Here, Mr Barlow says, there is no such common ownership situation, as Lehman Management, to whom the purchase price is owed, is beneficially owned by Mrs Lehman, whereas any liability that might be owed to the Company under the pending proceedings would be owed by Mr Lehman, her husband.

11.  Mr Bleach submitted that the test was one that need not involve ownership and economic interests, contending that the language used in the authorities was much more general, with the emphasis being on the nature of the relationship between the parties rather than ownership as such. With respect, this does not take matters very far.  It would still be necessary to consider what sort of relationship might justify the imposition of a stay where there is a cross-claim by a different party, related in some way to the party under the liability sought to be stayed.  Mr Bleach’s fall-back position was that the relevant relationship was control rather than ownership, relying on the reference to “control” in some of the cases.

12.  In my view, the relevant relationship is one that involves some form of common ownership. I take this view because at the end of the day, when one is considering the imposition of a stay where the parties on one side of the relationship are not the same, what one contemplates is some form of ultimate multipartite “set-off”.  In order for such a “set-off” to be justified, it seems to me that it would be necessary for some common ownership interest to be involved.  In the case of a parent and wholly owned subsidiary company, or a company and its sole beneficial shareholder, although the two entities are separate legal persons, they may be regarded as economically aligned, or in the same ultimate ownership.  The ultimate “set off” would then involve a situation where one was considering amounts due to and from the same ultimate owners.  The position might well be different where a parent and subsidiary company had differently constituted shareholders.  In the latter case, the courts would, I think, be much more cautious, as the economic interest in the competing claims would lie with different persons (or a different combination of persons).  To my mind, mere control without this element of common economic ownership would not suffice to justify the exercise of the power to stay execution of a judgment in this way.

13.  In the present case, it does not seem to have been seriously disputed that Lehman Management is beneficially owned by Mrs Lehman, whereas the claims that the Company advances in the trademark and fiduciary duty actions are against Mr Lehman.  In saying this, I have not overlooked the fact that Mrs Lehman and two other of her companies are also defendants to the trademark action.  However, there is relatively little information as to their involvement in those claims, and also a lack of available material as to the likely value of those claims against them.  The damages assessed by the judge in the Quantum Judgment in respect of breaches of fiduciary duty by Mr Lehman did not identify any particular aspects as being referable to issues relating to the trademarks.  In those circumstances, the trademark action should, I think, be given relatively little weight in considering whether or not a stay of the payment obligation in respect of the Company’s shares should be ordered.

14.  However, as the judge observed, in the course of the trial, Mr Lehman, who is legally qualified, did give evidence to the effect that he regarded himself as the beneficial owner of Lehman Management’s share in the Company – that evidence is summarised at paragraphs 60 and 61 of the Court of Appeal’s judgment.  In the light of this evidence, I think it was open to the judge to take the view that this represented the reality of the situation.  In other words, although Lehman Management was owned by Mrs Lehman, it held its share in the Company as nominee for Mr Lehman, who (as the evidence at the trial showed) exercised control over Lehman Management in relation to that share, how it was dealt with, and how the shareholder rights in the Company represented by it were exercised.  In such circumstances, it is well arguable that the share for which the purchase price was to be paid was actually beneficially owned by Mr Lehman, and the purchase price, when paid, would similarly belong beneficially to Mr Lehman. Although this is a slightly different scenario to that which has arisen in the authorities (where the relationship lies in the ownership structure of the relevant parties), it seems to me that it is relevantly the same in principle, in that the ultimate beneficiary of the payment of the purchase price is likely to be Mr Lehman, against whom the cross-claims are brought.

15.  It therefore seems to me that it was open to the judge to grant a stay of execution notwithstanding that Effiscient has been ordered to pay the price of the share in the Company to Lehman Management, and the claim relied upon to offset that is a claim of the Company against Mr Lehman.

16.  Turning to Mr Barlow’s third point, this can be disposed of briefly.  While, as I have said, I would not place much weight on the trademark action for the purposes of the stay application, it does seem to me that in the light of the judge’s findings as to the alleged breaches of fiduciary duty by Mr Lehman, and the quantification of those damages, in the Liability and Quantum Judgments respectively (neither of which were criticised by the Court of Appeal, which allowed the appeal on the basis that any loss suffered by Effiscient was reflective of the Company’s losses, and as such should be claimed by the Company itself), it cannot be said that the judge erred in the exercise of his discretion to grant a stay by doing so.  I do not think that, in coming to that conclusion, the judge erred in principle, or exercised his discretion in a plainly wrong manner.  On the contrary, I consider that Effiscient has established that the Company has a sufficiently arguable claim against Mr Lehman to justify the granting of a stay of its obligation to pay Lehman Management the purchase price of the share in the Company.

17.  I would therefore uphold the judge’s decision to grant a stay.  However, as I have indicated, this should be subject to a condition that the purchase price be paid into court (although in fairness to the judge, who did not impose such a condition, this was not a suggestion that appears to have been made to him). Although Mr Barlow submitted that the full purchase price should be paid into court at once, I see no reason to depart from the schedule laid down in the order. In the light of the lapse of time since the hearing due to the delay in handing down this judgment, which is very much regretted, I would direct that total amount of the outstanding instalments to date, together with interest accrued thereon, should be paid into court within 42 days, and that thereafter, any other remaining instalments should be paid into court, with accrued interest, on their due dates, as a condition of the stay.  Further, I would afford Lehman Management liberty to apply to lift the stay in the event that the other claims against Mr Lehman are not proceeded with reasonably expeditiously.  Any such application should be made to this court.

18.  For the foregoing reasons, I would vary the judge’s order to the extent indicated in the previous paragraph.  So far as the costs of the appeal are concerned, although the order below has been varied to a limited extent, the variations arose out of this court’s observations, and the substantive arguments by Lehman Management in support of the appeal have all been rejected.  In the circumstances, it seems to me that a reasonable order as to costs would be for Lehman Management to pay Effiscient two thirds of its costs of this appeal, to be taxed on the party and party basis if not agreed, and I would make such a costs order nisi.

 

 

(Peter Cheung)	(Aarif Barma)
Justice of Appeal	Justice of Appeal

  

Mr Barrie Barlow SC, instructed by David Ravenscroft & Co, for the appellant / petitioner

Mr John Bleach SC and Mr Wilson Leung, instructed by ONC Lawyers, for the respondent / cross-petitioner