Effiscient Ltd v. Edward Eugene Lehman

HCMP 2524/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 2524 OF 2011

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Before: Hon Harris J in Court

Dates of Hearing: 11-12 July 2012

Date of Judgment: 12 July 2012

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J U D G M E N T

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1.On 28 November 2011 I gave the Applicant, Effiscient Limited, leave to apply for an order for committal against the Respondent, Mr Edward Lehman. On 8 December 2011 the Applicant issued an originating summons. The matter came on for trial before me yesterday, 11 July 2012. At the end of the Applicant’s case Mr McNamara, who appeared for Mr Lehman made a submission of no case to answer in respect of the 2 matters, which the Applicant contends constitute contempt of court. I accepted that submission in respect of one matter, but not the other. The trial proceeded this morning. I indicated that I think it desirable that I give judgment today in respect of the matter where I had found there was a case to answer. I will deal with my reasons for finding that there was no case to answer in respect of the other matter separately as in the time available I have not managed to deal with both.

2.The matter in respect of which I found a case to answer arises as follows.  Between 3 and 13 October 2011 I heard the trial of the action between the Applicant and a company, Lehman & Co Management Limited, controlled by Mr Lehman concerning a third company, Lehman Brown Ltd, of which they were the beneficial owners.  It was a shareholders dispute.  I gave judgment on 15 November 2011.  During the course of Mr Lehman’s evidence I gave him the normal directions at the adjournments not to discuss his evidence with anybody while he was giving evidence.  On 5 and 6 October 2011, which was during the course of his evidence, Mr Lehman sent a number of emails concerning matters arising in the case.  The matter in respect of which I found that there was no case to answer concerned whether or not these emails were in breach of my direction not to discuss his evidence.  However, the Applicant made a 2^nd complaint in respect of these emails, namely, that they were in breach of an injunction made by To J dated 23 July 2010 in HCA 959 of 2010 (“order”), which are defamation proceedings commenced by Mr Russell Brown and his Wife, Zhou Han Brown, who own the Applicant, and the Applicant, against the Respondent for publishing or causing to be published defamatory statements about them.  That order prohibited the continued publication of the alleged defamatory statements.  Mr McNamara accepted that if the order was in force in October 2011 that the emails contained statements that were in breach of it.  The argument before me on this issue concerned whether or not the order was in force in October, Mr McNamara submitting that it was not and therefore necessarily it could not have been breached.  Alternatively, if it was in force there was sufficient doubt about this to prevent a breach of it constituting contempt.  Before addressing these issues it is helpful if I explain the order, the progress of the proceedings in which it was made and the contents of the email in more detail.

3.The operative parts of the order read as follows:

(1) The Defendant be restrained from doing the following acts until after the trial of this action, or until further order:-

(a)  publishing / republishing, causing the publication / republication of and/or howsoever participating in the publication / republication (either orally, or in writing) of the defamatory statements referred to in the attached letter from Richards Butler to the Defendant dated 21 June 2010, or any similar defamatory words concerning any of the 1^st Plaintiff, the 2^nd Plaintiff, the 3^rd Plaintiff, LehmanBrown Limited (“the Company”), or any of the employees of the Company; and

(b)  making untrue slanderous statements referred to in the attached letter from Richards Butler to the Defendant dated 21 June 2010, or any similar slanderous words concerning any of the 1^st Plaintiff, the 2^nd Plaintiff, the 3^rd Plaintiff, the Company, or any of the employees of the Company to third parties.

(2)  The Defendant does within 7 days file and serve an affidavit disclosing a complete list of the identity of the recipients of the emails and letters referred to at paragraph 1(a) above, from 1 January 2010 until the date of this Order, including all addresses, email addresses and other contact details and of the identity of the individuals to whom the Defendant made the slanderous comments referred to at paragraph 1(b) above from 1 January 2010 until the date of this Order.

4.It will be seen that there are 2 parts to the order.  The first prohibits publication of defamatory statements referred to in a letter written by the Applicant’s solicitors dated 21 June 2010.  That letter identified 22 emails and web postings, which contained statements to the effect that Mr Brown had been guilty of dishonesty and professional misconduct in connection with the affairs of the LehmanBrown.  I was shown during the course of the trial a number of the emails and postings about which complaint is made, which quite clearly make very serious allegations of impropriety in intemperate language and also in at least one case an unrelated allegation of an offensive personal nature against Mr Brown.  The letter alleged that the emails and web postings letter in their natural and ordinary meaning carried various defamatory meanings:

“The Company:-

(1) is guilty of professional misconduct / malpractice;

(2) has misinformed clients;

(3) has knowingly and deliberately evaded paying taxes to the Inland Revenue Department since 2006; and

(4) has committed multiple offences under sections 80, 81 & 82 Inland Revenue Ordinance.

Russell Brown:-

(1) has acted in breach of the rules of professional conduct and/or the regulations of the UK accounting regulatory body, the Chartered Institute of Management Accountants (“CIMA”) as a consequence of his (a) refusal to produce documents (b) apparent falsification of an audit report for the Company’s 2007/2008 tax filings with the Inland Revenue Department and his (c) violation of professional ethics;

(2) has submitted what appears to be a falsified audit report for the Company’s 2007 tax filings with the Inland Revenue Department;

(3) has conspired with TMF Hong Kong Limited (“TMF”) to assist the Company in knowingly and deliberately evading paying taxes to the Inland Revenue Department since 2006;

(4) has embezzled money;

(5) has unilaterally increased his salary, purchased capital expenditures, employed Zhou Han Brown and paid himself a director’s fee without authorisation at the Company’s expense;

(6) has acted unethically / unprofessionally and is guilty of professional misconduct / malpractice in respect of his involvement with the Company and BBP Energy limited (“BBP Energy”);

(7) is guilty of wrong-doing and of making errors / omissions;

(8) has misappropriated funds from the Company and BBP Energy;

(9) has stolen millions of US dollars from the Company;

(10) has acted illegally, is guilty of deception and has committed blatant, outrageous bad acts;

(11) has deceived the Company’s clients and/or CIMA;

(12) has acted in breach of the Companies Ordinance (Cap 32);

(13) has acted in breach of his fiduciary duties as a shareholder in and a director of the Company;

(14) has committed a criminal offence by failing to report the status of the Company’s multi million US dollar reserves;

(15) has committed multiple offences under sections 80, 81 & 82 Inland Revenue Ordinance;

(16) is guilty of tax evasion in Hong Kong;

(17) has acted with complete disregard for the law and professional standards;

(18) has conspired with Zhou Han Brown and Dickson Leung to commit fraud, evade taxes and embezzle Company funds;

(19) has failed to act in the best interests of the Company and BBP Energy; and

(20)      is dishonest.”

5.The 2^nd paragraph of the order required Mr Lehman to disclose details of the recipients of all defamatory letters and emails that he had sent from 1 January 2010 to the date of the order.  This was in aid of the claim for damages for defamation. 

6.Mr Lehman failed to serve notice of intention to defend in the proceedings and a default judgment for damages to be assessed was entered on 3 December 2010.

7.Mr Lehman admits that he came to know of the contents of the order, although there is now some dispute as to whether or not it was properly served, and that subsequent to becoming aware of its contents caused to be published in breach of the order approximately 9,000 emails.  This led to contempt proceedings being brought against Mr Lehman.  These were heard by To J on 19 April 2011.  Mr Lehman admitted contempt.  He gave evidence in order to make an unreserved apology to the Court, which he did in the following terms:

“Yes. First, good morning, your Lordship. I would like to say I apologise unreservedly. What I had done was foolish and – and I apologise without question and unreservedly about anything that might have been against your wishes or this court’s wishes. I also would like to apologise unreservedly and without hesitation to the plaintiffs in this matter for anything that I might have done that would be considered not in alliance with this court.”

8.To J found that this was a “really serious case which justifies immediate imprisonment.  Had it not been for his withdrawing his application to set aside a default judgment, his prompt indication not to contest these proceedings after obtaining legal advice and his apology, I have no hesitation to impose a custodial term.”  The judge imposed a fine of HK$200,000 and ordered that Mr Lehman pay costs on an indemnity basis assessed at HK$400,000.

9.The emails to which I have referred came into the possession of Mr Brown, because Mr Lehman had sought information from a Ms Alison Clarke of a public relations company called Grayling.  As can be seen from the contents of the final email in the chain, which I set out below, unfortunately for Mr Lehman not only did Mr Clarke think the suggestions in Mr Lehman’s emails to, what is believed to be her secretary, Ms Anna Marie Savio, were ridiculous, but she was sufficiently friendly with Mr Brown that she forwarded the emails to him.  The emails in chronological order and without email address read as follows:

“(1) From: Edward E Lehman 雷曼美国法学博士

Date: Wed, 5 Oct 2011 12:53:11

Subject: Russell Brown Litigation-Hong Kong Lehman & Co Management

Dear Ms Clarke,

I spoke to Catherine Lugbauer and she suggested I contact you for help with my matter.

I am a lawyer who has been resident in mainland China for the past 25 years. I am in the very painful process of litigating against a UK subject by the name of Russell Brown for what I believe have been blatant dishonesty and malfeasance. In 2001 we co-established an accounting firm in Hong Kong and mainland China. In 2004 he essentially hijacked the company and I have not been paid a penny and been frozen out of the business since 2006.

The reason I write is he claims he was Shandwick International Global CFO from January 2000 to April 2001 reporting to you. But, according to what we know, he was tending bar at Dan Ryan’s restaurant/Bar in Hong Kong. This email is a “hail Mary” and I know you have no reason to help me, but could you possibly shed some light on this for me in a confidential manner? I do know he was dismissed from Shandwick and that later he filed a wrongful dismissal suit (this he told me years ago). My point is he has done this to me and I think he may have done this to others in the past. Is there anything you can pass on to me to point me to the right direction? Your assistance in this matter is highly appreciated as this means outcome so much to me and my family.

Kind regards,

-ed

Best regards,

E E Lehman

(2) From: Edward E Lehman雷曼美国法学博士

Sent: 05 October 2011 16:27

To: Anna-Marie Savio

Subject: Fw: Russell Brown Litigation-Hong Kong Lehman & Co Management

Dear Anna Marie, greetings from Hong Kong, this is the message we talked about I desperately need some help so I thank you in advance!

-ed

Best regards,

E E Lehman

(3) From: Edward E Lehman雷曼美国法学博士

Date: Thu, 6 Oct 2011 11:21:29

To:

Reply-To:

Subject: Re: Russell Brown Litigation-Hong Kong Lehman & Co Management

Did he work there and at what time? Was he fired? Confirmation he worked there and his official title? He reports he worked/reported to Alison in January 2000 to April 2001. Was he competent? Or was this just corporate reorganization? We understood/believe he left before April 2001 and was a bar tender at Dan Ryan’s he has abused my trust and “hijacked” the company, he has added his wife as director of the company, set his own salary, bonus, wife’s salary and has not revealed where he has put the company reserves.

I appreciate your help Anna Marie (and Ms Clarke’s) on this very important matter. It means so much to me. I will be forever indebted to both of you.

Best regards,

E E Lehman

(4) From: Edward E Lehman雷曼美国法学博士

Sent: 06 October 2011 12:23

To: Anna-Marie Savio

Subject: Re: Russell Brown Litigation-Hong Kong Lehman & Co Management

This is of course all off the record unless Ms Clarke would agree otherwise. If she would agree let me know and we can accommodate.

-ed

Best regards,

E E Lehman”

10.As I have already explained, it is not disputed that the 2 longer emails of 5 October and 6 October 2011 breach the terms of the order if it was in force at the time.

11.Mr McNamara advanced 2 different reasons why the order had lapsed by October 2011.  He argued during his submission of no case to answer that the order lapsed by virtue of the merger of the cause of the action in the defamation action into the default judgment entered on 3 December 2011.  I do not accept this.  For reasons which will become apparent in my consideration of Mr McNamara’s 2^nd argument that he advanced after I had dismissed the no case submission, this seems to me to confuse different things.  I note, however, that Mr Manzoni accepted that by entering the default judgment the Plaintiffs forwent the right to a permanent injunction, which could not be entered by default.

12.The order states that it remains “until after the trial of this action, or until further order”.  An order had not been made terminating or materially altering the order.  Mr McNamara submitted that the order lapsed as a consequence of a default judgment being entered.  He took me to a number of cases to support this submission.  The first is a decision of Robert Goff J in Stewart Chartering Ltd v C & O Managements SA [1980] 1 WLR 460.  In that case the plaintiff had obtained a mareva injunction freezing assets within the jurisdiction in order to prevent their removal thus preventing enforcement of a judgment.  The plaintiff included in the relief it sought a claim for a permanent injunction, which as I understand the judgment was sought by the plaintiff’s lawyers to be necessary in order to obtain the mareva injunction.  The Chief Clerk would not enter a default judgment because, I assume from the report, the judgment presented contained a permanent injunction that could not be obtained by default.  The Chief Clerk referred the matter to Robert Goff J, who recognized that it would be unsatisfactory if the protection granted by the mareva injunction would be lost if the plaintiff entered a default judgment.  He entered judgment for the liquidated claim and proceeded on the basis that he had jurisdiction to continue the interlocutory injunction in aid of execution and ordered that it continue in force.  The Court of Appeal in Jet West Ltd v Haddican [1992] 1 WLR487 accepted that the Judge’s analysis and decision was correct.  Mr McNamara has assumed, in my view incorrectly, that what these authorities establish, or demonstrate, is that entering final judgment would automatically have caused the mareva injunction to lapse.  This was not, however, the relevant issue.  In Stewart Chartering it seems to have been accepted that if judgment was entered in default without a permanent injunction being granted the plaintiff would cease to have the protection of the mareva injunction.  It is not clear why this was.  It may have been the wording of the mareva injunction itself which expressly provided that it lapsed on judgment being entered.  Be that as it may, I do not read the judgment as saying that regardless of how the mareva injunction was worded it lapsed by virtue of judgment being entered.  It is, however, clear from the case that an interlocutory judgment can be continued after a judgment has been entered.  This demonstrates that whilst a cause of action merges into a judgment the right to an interlocutory injunction is not automatically lost on judgment being entered. 

13.This is also illustrated by the 3^rd case on which Mr McNamara relied, namely, In the matter of Cantor Index Ltd v Alan John Lister [2002] CP Rep 25, a judgment of Neuberger J of 22 November 2001.  A freezing order (as a mareva injunction is now called in England) was granted “until further order” by Pumfrey J on 19 July 2001.  On 20 September 2001 Master Price entered final judgment by consent.  Amongst other issues Neuberger J was called upon to determine was whether the Freezing Order lapsed when judgment was obtained.  He said this:

“Did the Freezing Order lapse when judgment was obtained? A Freezing Order, like most interlocutory orders, is frequently made ‘until trial or further order’ or ‘until judgment or further order’. If that is how the order had been phrased in this case then the Freezing Order would have lapsed when final judgment was obtained on 20^th September in favour of the claimant. However, Pumfrey J’s Freezing Order is not expressed in that way. I do not think that the reference to ‘further order’ is an indication that the Freezing Order is to expire when final judgment is obtained. If it had that meaning, then it would be a reference to any order made in the proceedings, so an order, for instance, extending time for the service of a defence, would have the effect of causing the Freezing Order to lapse. It seems to me that the reference to ‘further order’ in the Freezing Order must be a reference to an order which expressly or (unusually, but possibly) impliedly discharges the Freezing Order.

It was not argued either by Mr Grant Crawford, who appears for the claimant, or by Mr Andrew Ayres, who appears for the defendant, that the Freezing Order lapsed when judgment was obtained, and in my view they were right.  There is a practical case for saying that it lapsed, because the Freezing Order was in respect of £200,000, whereas, even taking into account the costs order agreed on final judgment, £5,000, and the costs order of £11,000 made by Pumfrey J, £200,000 was an inappropriately high sum for the Freezing Order, but I do not think that is nearly enough to justify the conclusion that the Freezing Order lapsed when judgment was entered.”

14.What this demonstrates is that an interlocutory injunction such as the order granted by To J does not automatically lapse on a final judgment being entered.  Whether or not it does depends on the wording of the order.  In the present case the order was directed to 2 matters.  The first to preventing continued publication of defamatory statements.  The second to obtaining information for the purposes of assessing damage.  The order provided that it continued until “after the trial of this action, or until further order”. There has been no trial.  There has been no further order.  The order is still in force.

15.Mr McNamara argued that if I was against him, as I am, on the issue I have just addressed, the uncertainty as to the affect of the order after default judgment was entered prevents the Applicant proving beyond a reasonable doubt the alleged contempt because if there was confusion about the affect of the order the necessary mental element could not be present.  I do not accept this.  In AO Smith Holdings (Barbadoes) Srl v Zhang Dacheng unreported HCMP 1132/2011, judgment dated 1 June 2012, Au J summarized the principles by reference to which a court should assess alleged cases of contempt.  I agree with them and would adopt them:

“15. In committal for civil contempt, the following general legal principles apply.

16. Court orders are made to be obeyed and litigants who intentionally breach orders do so at the risk of being in contempt of Court: Hong Kong White Book 2012, paragraph 52/1/4; RACP Pharmaceutical Holdings Ltd v Li Xiaobo (unreported, HCA 490/2007, 14 April 2008, Deputy High Court Judge Gill) at paragraph 2.

17. In hearing a committal for contempt, it is necessary to (a) construe the Court’s orders to ascertain their meaning and operations; (b) determine whether the defendant has in fact complied with the orders, and (c) finally consider whether any failure to comply was accompanied with the state of mind necessary to establish punishable contempt: Kao Lee & Yip v Donald Koo Hoi Yan (2009) 12 HKCFAR 830 at paragraph 21 per Brennan NPJ.

18. The burden is on the plaintiff to prove the defendant’s contempt beyond reasonable doubt: Kao Lee & Yip, supra, paragraphs 6 and 30 per Brennan NPJ; RACP, supra, paragraph 3.

19. In order to establish the necessary state of mind, the plaintiff needs to prove that the act constituting breach was made intentionally, not casually, accidentally or unintentionally. However, it is not necessary to prove a deliberate intention to breach the order, although this is relevant to sentencing: Kao Lee & Yip, supra, paragraphs 45-46 per Brennan NPJ.

20.    Committal orders however are remedies of last resort. Whenever there is a reasonable alternative to committal proceedings available in aid of execution of a civil process, that alternative should be taken: G v S (2001) 4 HKCFAR 419 at 427F-G; Hong Kong White Book 2012, paragraph 52/1/8.”

16.As is apparent from paragraph 19 and from the judgment of Brennan NPJ in Kao Lee & Yip (2009) 12 HKCFAR 830 it is not necessary to prove a deliberate breach of the order to establish contempt, it is necessary to prove the act constituting breach was carried out deliberately.  It follows that if the order was in force during the trial, which I have found it was, the Applicant has to prove that the emails were sent intentionally in order to establish the necessary mental element of contempt.  There is no suggestion that the emails were sent by mistake.  Further Mr McNamara accepted that there is no evidence that in fact Mr Lehman thought at the time the order had ceased to have effect.  On the contrary the evidence suggests that he must have assumed that it was.  I say this because in his first affidavit sworn in these proceedings on 8 February 2012 he suggests that there was no basis for the finding of contempt by To J and none for the present complaint because he has been advised the order was not properly served.  There is no mention in the affidavit of the point relied on by Mr McNamara. Neither was it a matter mentioned at the trial at the stages at which I would have expected it to have been mentioned if it had been thought of and communicated to Mr Lehman by October 2011, which it is clear it had not been.

17.It follows that I am satisfied that by sending the emails referred to above Mr Lehman breached the order of To J dated 23 July 2012.  I will now hear Mr McNamara in mitigation.

(Mitigation)

18.Mr Lehman is a lawyer.  He holds himself out as being experienced and successful.  He has been found to be in contempt of court by breaching To J’s order previously.  That contempt was serious and in sentencing Mr Lehman To J made it clear that but for the matters referred to above the breach warranted immediate imprisonment.  Mr Lehman must be taken to have understood the seriousness of the matter and the court’s expectation that its orders are complied with strictly.  It is against this background that I consider what penalty to impose for the contempt that I have found Mr Lehman to have committed.

19.I accept that only 2 emails contain defamatory statements and that those statements are not as objectionable as many of the statements contained in documents that I was shown during the trial.  I accept Mr McNamara’s submission in mitigation that it is the breach caused by those 2 emails, and those 2 emails alone, in respect of which I am imposing a sanction and that I should take into account that of themselves they are not especially egregious and that their publication was limited.  All breaches of court orders are serious but I accept that viewed in isolation the 2 emails would not fall into the same category of seriousness as that To J was faced with.

20.That having been said Mr Lehman is a lawyer.  He has behaved in a way which shows a lack of regard for the integrity of the court process.  His conduct after being found guilty of contempt by To J has not been consistent with the remorse he expressed at the time and which To J took into account in deciding not to impose a custodial sentence.

21.In these circumstances a custodial sentence is necessary.  Mr McNamara submitted that if this was my view a suspended sentence of a magnitude calculated to signify the court’s view of the seriousness of the matter and give Mr Lehman reason to ensure that there were no further breaches of court orders, would be appropriate.  He suggested a term of 6 months suspended for 2 years.  I think that this probably achieves the required balance and I so order.

22.I also order that Mr Lehman pays the costs of the proceedings on an indemnity basis forthwith.

Mr Charles Manzoni SC, instructed by Howse Williams Bowers, for the applicant

Mr John McNamara, instructed by Miller Peart, for the respondent

Please refer to CACV177/2012 for the relevant appeal(s) to the Court of Appeal.