Effiscient Ltd v. Edward Eugene Lehman

HCMP 593/2012

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

MISCELLANEOUS PROCEEDINGS NO 593 OF 2012

(ON AN INTENDED APPEAL FROM HCMP NO 2524 OF 2011)

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REASONS FOR JUDGMENT

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Hon Tang Ag CJHC:

1.I agree with the judgment of Kwan JA.

Hon Kwan JA:

2.We have before us a summons issued by Edward Eugene Lehman (“Mr Lehman”) for leave to appeal the decision and order of Harris J of 24 February 2012 in HCMP 2524/2011, which are proceedings for contempt brought by Effiscient Limited (“Effiscient”) against Mr Lehman. By his order, the judge granted leave to Effiscient to issue and serve a Notice of Appointment to hear the originating summons in the contempt proceedings out of time within 7 days of his order. Leave to appeal the decision and order of 24 February was refused by the judge on 15 March.

3.For leave to appeal to be granted, we must be satisfied that the appeal has a reasonable prospect of success, or that there is some other reason in the interests of justice why the appeal should be heard (section 14AA(4) of the High Court Ordinance, Cap 4). Reasonable prospect of success involves the notion that the prospect of succeeding must be “reasonable” and therefore more than “fanciful”, without having to be “probable” (SMSE v KL [2009] 4 HKLRD 125 at para17).

The background

4.The matters giving rise to the decision in the intended appeal may be stated as follows.

5.On 28 November 2011, the judge granted leave to Effiscient under Order 52 rule 2 to commence contempt proceedings against Mr Lehman. Pursuant to the leave granted, Effiscient issued and served the originating summons in the proceedings on 8 December 2011. Order 52 rule 3(2) provides that:

“Unless within 14 days after such leave was granted the originating summons is entered for hearing the leave shall lapse.”

6.By that rule, the Notice of Appointment to hear the originating summons should have been issued by 12 December 2011. This was not done.

7.On 15 December, Mr Lehman acknowledged service of the originating summons stating his intention to contest the proceedings. On 4 January 2012, a Notice of Change of Solicitors was filed stating that Howse Williams Bowers (“HWB”) have been appointed to act for Effiscient in place of Reed Smith Richards Butler (“RSRB”). On 11 January Mr Lehman obtained leave from a Master for extension of time to file his evidence in opposition and he filed his affidavit on 8 February.

8.On 17 February, Effiscient filed a summons seeking leave to issue and serve a Notice of Appointment to hear the originating summons out of time. In the affidavit in support of its solicitor, Mr Bowers, he deposed that RSRB had overlooked the procedural step of setting down the originating summons for hearing within 14 days of the leave being granted. He stated that there was “acute activity” in the conduct of two other proceedings involving the same parties around that time. Additionally, the team of lawyers at RSRB handling these three sets of proceedings were in the process of leaving the firm and joining a new firm HWB, which opened for business on 1 January 2012. He was heavily engaged in administrative matters relating to the setting up of the new firm.

9.Mr Lehman filed an affidavit to oppose this application on 21 February. He explained that the steps taken by his solicitors in the proceedings before Effiscient issued its summons on 17 February were done in ignorance of “the lapse under Order 52 rule 3(2) of the leave granted by the Court on 28 November 2011.” He took issue with the claim in Mr Bowers’ affidavit that there was “acute activity” in other litigation or that no prejudice was caused to him by the late filing of the Notice of Appointment. He produced two letters from Effiscient’s solicitors to his solicitors marked “without prejudice save as to costs” dated 13 December 2011 and 13 January 2012.

10.At the hearing on 24 February, the judge gave him leave to refer to those letters. In the first letter, the solicitors set out the terms proposed for a global settlement of all the proceedings including the committal proceedings and one of the terms was discontinuance of the contempt proceedings with no order as to costs. Mr Lehman was asked to respond by 21 December 2011. It was stated that if a global settlement was not reached, the committal proceedings “will shortly pass the point of no return” and “the inevitable end result of the fresh Committal Proceedings against Edward Lehman is a prison sentence”. The second letter dated 13 January requested a response to the first letter by 20 January 2012.

11.Mr Lehman asserted in his affidavit that the above letters constituted “an unconscionable, and, impermissible threat” made by Mr Bowers in that the letters were sent with the aim of coercing him and his wife to accept the terms of the global settlement and were linked to the committal proceedings as a way of creating fear of the inevitability of a prison sentence in order to force a settlement.

The decision of Harris J

12.Harris J considered the letters aforesaid. He accepted that the language used is “heavy-handed”, but did not think it “sufficiently objectionable or in practice was likely to prove sufficiently oppressive”. He had presided over a case involving the parties in an eight-day trial, and in his judgment in that case, he had noted that Mr Lehman is a qualified lawyer in the United States and a founding partner in a Mainland law firm which, according to its website, is the third largest corporate and commercial law firm in the Mainland. The judge regarded the words complained of in the first letter as “the kind of puff that solicitors put in correspondence” and Mr Lehman would so understand as a lawyer.

13.On the evidence, the judge did not think there is sufficient evidence or any real basis for inferring that the failure to comply with Order 52 rule 3(2) was anything other than an unfortunate oversight. He rejected the contention that the failure to issue a Notice of Appointment within time was a conscious tactical decision. He therefore granted leave to Effiscient to issue and serve a Notice of Appointment out of time.

The grounds of appeal

14.The grounds of appeal in the draft notice of appeal placed before us are the same as those considered by the judge when he refused leave to appeal.

15.In addition, we have been provided with two written submissions of Mr Allman-Brown at the hearings below, an undated Statement of Reasons in the present application, and three written submissions dated 3 April 2012, 11 April 2012 and 31 May 2012. Mr Allman-Brown made further oral submissions at the hearing.

16.I do not propose to deal with each and every argument raised by Mr Allman-Brown on Mr Lehman’s behalf but focus on these two broad grounds:

(1)  the effect of Order 52 rule 3(2) by which leave granted “shall lapse” if the originating summons is not entered for hearing within time; and

(2)  if there is sufficient basis for inferring that the failure to issue a Notice of Appointment within time was not an oversight.

The effect of Order 52 rule 3(2)

17.The argument of Mr Allman-Brown regarding the effect of Order 52 rule 3(2) was along these lines.

18.As Effiscient has failed to enter the originating summons within 14 days after leave to commence proceedings was granted on 28 November 2011, such leave has lapsed by virtue of this provision. This means that the leave granted has become void or fallen away. Order 52 is a separate code different from other provisions in the Rules of the High Court. There is no built-in provision in Order 52 rule 3(2) for the court to exercise discretion to remedy the situation where leave has lapsed. Once leave has lapsed, any subsequent steps taken in the proceedings are unauthorised. Only the grant of new leave can replace the leave that has lapsed. So Effiscient must first apply for leave once again to commence contempt proceedings, instead of circumventing this by seeking an extension of time to set down the originating summons for hearing. The judge erred in failing to consider if the lapsed leave should be renewed. The question of lapsed leave was not dealt with in the application for extension of time. Order 2 rule 1(1) cannot be used to cure the situation where leave granted has lapsed as this is a “fundamental type of issue or irregularity”.

19.In his judgment refusing leave to appeal, the judge pointed out that the above arguments were not made at all by Mr Allman-Brown orally at the hearing on 24 February, or advanced clearly in his written submission for that hearing. Mr Allman-Brown drew our attention to a particular passage in his written submission placed before the judge for that hearing, in which he mentioned “there is the issue of the omission to seek the renewal of the leave to initiate the [originating summons], which, leave lapsed when notice of appointment was entered by 12.12.11” and submitted this raises the issue that Effiscient “is seeking to obtain renewed leave by a ‘back door’ application”. He also stated in that submission there was need for those issues to be heard at some length with applicable authorities considered.

20.Mr Allman-Brown explained before us that he had sought an adjournment before the judge as he was of the view that his submission on the above issues was not sufficiently prepared but the judge refused to adjourn the hearing.

21.I agree with the judge’s observation that the issue of lapsed leave was not clearly advanced in counsel’s written submission and it was not argued in his oral submissions on 24 February. Those arguments were only canvassed fully in his submissions on 15 March when the judge heard his application for leave to appeal.

22.Having heard counsel’s above contentions raised in the draft notice of appeal, the judge rejected them as there is nothing in the point that the court cannot extend time for issuing an application for the hearing of an originating summons for committal that has been served in accordance with the rules, and he did not think any of the cases cited by Mr Allman-Brown in this regard to be relevant. In any event, the judge made clear if it were necessary for Effiscient to make a new application for leave to issue contempt proceedings, he would have granted fresh leave.

23.I agree with the judge. Mr Allman-Brown’s arguments are sterile and wholly unattractive. The fact that leave has lapsed does not mean it may not be revived. Here it can be revived by the power of the court to extend time after the time for compliance has expired under Order 3 rules 5(1) and (2) or under the inherent jurisdiction of the court (Regina v Bloomsbury and Marylebone County Court, Ex parte Villerwest Ltd [1976] 1 WLR 362 at 365E to F, 366B and H). The case of Manyasha v Minister of Law and Order (1999) 2 SA 179, a decision of the Supreme Court of Appeal in South Africa cited by Mr Bell, SC is illustrative of the correct approach. The use of the word “lapse” in a statutory provision does not preclude the revival of lapsed proceedings through extension of the time limit where there is suitable provision to this effect.

24.I reject also Mr Allman-Brown’s contention that Order 2 rule 1(1) cannot be used to cure the situation where leave granted has lapsed. In Fabrique Ebel Societe Anonyme v MBO Far East (HK) Ltd [1985] 1 HKC 166, the applicants launched their application for committal without first obtaining leave of the court and later asked the court to regulate the proceedings by a necessary assuaging order under Order 2 rule 1, an order that would retrospectively give them leave and direct that the proceedings were to continue as if leave had initially been granted. Hunter J found there was no injustice in validating the proceedings and exercised his discretion to grant leave under Order 2 (at 168G to 170B).

25.I am satisfied that the judge has power to extend time in this situation and there is no basis for the appeal court to interfere with the exercise of his discretion to extend time. No delay has been caused to the progress of the proceedings, as noted by the judge. Mr Allman-Brown has accepted at the hearing on 24 February that no prejudice has been occasioned as a result of the extension of time. He also accepted before us that Mr Lehman had constructive knowledge through his solicitors of the irregularity that a Notice of Appointment was not issued within time when he took various steps in the proceedings between 15 December 2011 and 8 February 2012. Under Order 2 rule 2, proceedings will not be set aside for irregularity unless an application to do so is made within reasonable time, and before the applicant has taken any fresh steps after becoming aware of the irregularity. Constructive knowledge in this situation could constitute waiver of the irregularity (Fabrique Ebel Societe Anonyme, supra at 171E and H). Last but not least, the judge would have granted fresh leave to commence proceedings if this were required. His exercise of discretion to grant leave to issue a Notice of Appointment out of time is plainly correct.

If failure to issue a Notice of Appointment within time was an oversight

26.The arguments advanced here are to the effect that no satisfactory explanation was given by Mr Bowers in his supporting affidavit for the failure to comply with Order 52 rule 3(2), that the judge had failed to give proper weight to a similar mistake in the earlier committal proceedings against Mr Lehman in HCMP 2204/2010, and that the judge had erred in holding that the letter of 13 December 2011 did not contain an impermissible threat to Mr Lehman.

27.Notwithstanding Mr Allman-Brown’s further submissions, I see no basis to come to a different view on the evidence. The serious allegation against Mr Bowers that the failure to comply with Order 52 rule 3(2) was not an oversight but was deliberate is not made out. As for the alleged similar error in the previous contempt proceedings, I agree with the judge there is no basis to read into the alleged error that the failure to issue a Notice of Appointment in the subsequent proceedings was a conscious tactical decision. 

28.The threshold requirements to grant leave to appeal are not met. There are no reasonable prospects of success in any of the grounds advanced, nor is there any other reason why the appeal should be heard. We have therefore refused leave to appeal and ordered Mr Lehman to pay the costs of Effiscient in this application.

29.On a gross sum taxation, having considered the skeleton bill of Effiscient and the submissions made to us, the costs we would award to Effiscient in this application are $225,849.

Mr Adrian Bell, SC, instructed by Howse Williams Bowers, for the applicant (respondent)

Mr Andrew Allman-Brown, instructed by Miller Peart, for the respondent (applicant)