Between (1) Ren Ci (2) Daoyi Holding Ltd Plaintiffs v (1) Nebula (Cayman) Ltd (2) Chang Shuai (3) Wangyanzhi (4) Zhang Fan (5) Huhao (6) Jiang Yanmeng (7) Man Ho Kee Harry (8) Lcaninjapteltd (9) Matrix Partners China Vi Hong Kong Ltd (10) Alpha Startup Fund LP Defendants
| Jurisdiction | Cayman Islands |
| Judge | Justice David Doyle |
| Judgment Date | 16 February 2023 |
| Docket Number | CAUSE NO. FSD 210 OF 2022 (DDJ) |
| Court | Grand Court (Cayman Islands) |
The Hon. Justice David Doyle
CAUSE NO. FSD 210 OF 2022 (DDJ)
IN THE GRAND COURT OF THE CAYMAN ISLANDS
FINANCIAL SERVICES DIVISION
Determination of an application pursuant to section 4 of the Foreign Arbitral Awards Enforcement Act for a stay of legal proceedings; consideration of relevant law; consideration of scope of the foreign arbitration clauses; consideration of issues in dispute and whether they were in respect of any matter agreed to be referred to arbitration; consideration of whether there had been a step in the proceedings preventing the granting of a stay; consideration as to whether a claim for rectification of the registers of directors and members prevents the matters proceeding by way of arbitration and subsequent relief where necessary, being granted by the courts on the basis of the arbitral determinations
Mr Jalil Asif KC and Ms Ilona Groark of Kobre & Kim (Cayman) for Ren Ci and Daoyi Holding Limited (the Plaintiffs)
Mr David Quest KC, Mr Paul Smith and Ms Caitlin Murdock of Harneys for Nebula (Cayman) Limited (the First Defendant)
| Summary | 4 |
| Background | 4–5 |
| The Share Purchase Agreement (SPA) | 5–6 |
| The Shareholders Agreement (SHA) | 6–9 |
| The Share Restriction Agreement (SRA) | 9–11 |
| The fall out and the nature of the disputes | 11–13 |
| The proceedings in the Cayman Islands | 13–16 |
| The Reference to Arbitration | 16–17 |
| The relevant law | 17 |
| Section 4 | 17 |
| The sanctity of arbitration agreements | 18–19 |
| McAlpine — construction of arbitration agreements | 19–21 |
| Fiona Trust | 21–23 |
| Republic of Mozambique — the two stages | 23 – 25 |
| Capital Trust — a step in the proceedings? | 26–30 |
| The Determinations | 31 |
| The two main issues | 31 |
| The Scope Issue | 32–37 |
| The Waiver Issue | 38–41 |
| Rectification | 41 – 42 |
| Conclusion | 42 – 43 |
In this judgment I have held that the relevant matters agreed to be referred to arbitration encompass the issues arising or likely to arise in the legal proceedings presently before the court and are accordingly within the scope of the foreign arbitration clauses agreed by the relevant parties.
I have further held that filing an application for interlocutory injunctive relief, after it had filed an application for a stay of these legal proceedings, was not a step in the proceedings so as to prevent Nebula (Cayman) Limited (the “Company” or “D1”) from obtaining a stay of these legal proceedings. I have also held that the inclusion of a claim for rectification of the registers of directors and members does not prevent the matters proceeding by way of arbitration, and subsequent relief, where necessary, being granted by the courts on the basis of the arbitral determinations.
I have granted a stay of these legal proceedings pursuant to section 4 of the Foreign Arbitral Awards Enforcement Act.
My reasons for doing so are set out below.
D1 was incorporated in the Cayman Islands on 23 March 2021 and was in effect the product of a joint venture between Ren Ci (P1) and Wang Yanzhi (D3) with subsequent further outside investment. P1 and D3 founded D1 and each held shares through their respective corporate vehicles. P1's corporate vehicle was P2 and D3's corporate vehicle was Yanzee Holdings Limited.
It is common ground that P1 and P2 and D1 are some of the parties to agreements that contain arbitration clauses (paragraph 23 of the Plaintiffs' skeleton argument dated 20 January 2023).
On 7 June 2022 the relevant parties entered into a Series B2 Preferred Share Purchase Agreement (the “SPA”). Under clause 1.3 of the SPA it was stated in effect that D1's Restated Memorandum & Articles of Association (the “Restated M&A”) and the Shareholders Agreement were part of the SPA and were deemed to be incorporated by reference. Under clause 5.5 one of the conditions to be satisfied at closing was that the Restated M&A shall have been duly amended. Under clause 10.1 of the SPA it was provided that the SPA shall be governed in all respects by the laws of Hong Kong without regard to conflict of law principles. Clause 10.4 of the SPA provided:
“ Entire Agreement. This Agreement, the Shareholders Agreement, and any other Transaction Documents together with all the schedules and exhibits hereto and thereto, which are hereby expressly incorporated herein by this reference, constitute the entire understanding and agreement between the Parties with regard to the subjects hereof and thereof; provided, however, that nothing in this Agreement or related agreements shall be deemed to terminate or supersede the provisions of any confidentiality and non-disclosure agreements executed by the Parties hereto prior to the date of this Agreement, all of which agreements shall continue in full force and effect until terminated in accordance with their respective terms.”
The definition of Transaction Documents at clause 1.1 included the SPA, the Shareholders Agreement and the Restated M&A.
Clause 10.14 of the SPA provided:
“ Dispute Resolution. Any dispute, controversy, difference or claim arising out of or relating to this Agreement, including the existence, validity, interpretation, performance, breach or termination hereof or any dispute regarding non-contractual obligations arising out of or relating to it shall be referred to and finally resolved by arbitration administered by the Hong Kong International Arbitration Centre (“HKIAC”) under the HKIAC Administered Arbitration Rules (the “Arbitration Rules”) in force when the notice of arbitration is submitted. The law of this arbitration clause shall be Hong Kong law. The seat of arbitration shall be Hong Kong. The number of arbitrators shall be three (3), and shall be selected and determined in accordance with the Arbitration Rules. The arbitration proceedings shall be conducted in English. The award of the arbitral tribunal shall be final and binding upon the parties thereto, and the prevailing party may apply to a court of competent jurisdiction for enforcement of such award. During the course of the arbitral tribunal's adjudication of the dispute, this Agreement shall continue to be performed except with respect to the part in dispute and under adjudication. Arbitration costs shall be borne or shared by the party or parties as determined in the arbitral award.”
The SPA included the Restated M&A.
On 8 June 2022 the relevant parties entered into a Second Amended and Restated Shareholders Agreement (the “SHA”).
The recitals included the following:
“WHEREAS, in connection with the consummation of the transactions contemplated by the Share Purchase Agreements, the Parties hereto desire to enter into this Agreement for the governance, management and operations of the Group Companies and for the rights and obligations between and amongst the Shareholders and the Company.”
The Company was D1. The Group Companies included D1. The Shareholders included the Ordinary and Preferred Shareholders. The Founder Parties were stated to be P1 and D3.
Clause 7 of the SHA contained what were described as protective provisions and clause 8 concerned board representation, committee and senior management and included specific provisions in respect of board quorum and meetings. Clause 12.1 of the SHA provided that the SHA shall be governed in all respects by the laws of Hong Kong without regard to conflicts of law principles.
Clause 12.4 provided:
“12.4 Entire Agreement. This Agreement, the Share Purchase Agreements and any other Transaction Document, together with all the schedules and exhibits hereto and thereto, which are hereby expressly incorporated herein by this reference, constitute the entire understanding and agreement between the parties with regard to the subjects hereof and thereof and supersede all prior agreements and undertakings, both written and oral, among the Parties with respect to the subject matter hereof and thereof; provided, however, that nothing in this Agreement or related agreements shall be deemed to terminate or supersede the provisions of any confidentiality and nondisclosure agreements executed by the parties hereto prior to the date of this Agreement, all of which agreements shall continue in full force and effect until terminated in accordance with their respective terms. Without limiting the generality of the foregoing, this Agreement supersedes all provisions of (i) the shareholders agreement entered into by and among REN Ci… Affiliates of the Series Angel Investors and certain other parties therein dated May 17, 2019, (ii) the shareholders agreement entered into by and among the Group Companies, the Founder Parties, the Series A Investor and certain other parties therein dated June 23, 2021, and (iii) the amended and restated shareholders agreement entered into by and among the Company, the Founder Parties, the Series A Investor, the Series B1 Investors and certain other parties therein dated November 30, 2021, which shall be terminated and replaced by this Agreement in its entirety as of the date herein and any and all rights the Parties (as applicable) may have thereunder shall be waived in exchange for their rights hereunder.”
The Transaction Documents include the SHA, the Share Purchase Agreements and the Restated M&A.
Clause 12.17 of the SHA provides:
“ Dispute Resolution, Any dispute, controversy, difference or claim arising out of or relating to this Agreement, including the existence, validity, interpretation, performance, breach or termination hereof or any dispute regarding...
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