Between Minsheng Vocational Education Company Ltd Appellant v (1) Leed Education Holding Ltd (2) National Education Holding Ltd (3) Hyde Education Holding Ltd Respondents
| Jurisdiction | Cayman Islands |
| Judge | Smellie JA,Birt JA,Goldring P |
| Judgment Date | 28 March 2024 |
| Docket Number | CICA (CIVIL) APPEAL No. 0019 of 2023 |
| Court | Court of Appeal (Cayman Islands) |
The Rt Hon Sir John Goldring, President
The Hon Sir Michael Birt, Justice of Appeal
The Hon Sir Anthony Smellie, Justice of Appeal
CICA (CIVIL) APPEAL No. 0019 of 2023
(Formerly FSD 0130 of 2023)
IN THE CAYMAN ISLANDS COURT OF APPEAL
ON APPEAL FROM THE GRAND COURT OF THE CAYMAN ISLANDS
CIVIL DIVISION
Mr. Tom Lowe KC instructed by Mr Erik Bodden and Mr Jordan McErlean of Conyers Dill & Pearman LLP appearing on behalf of the Appellant
Mr Stephen Moverley Smith KC instructed by Mr Nicholas Dunne and Ms Rebecca Moseley of Walkers (Cayman) LLP appearing on behalf of the Respondents
. The Appellant (hereinafter “ Minsheng”) appeals against an Order made by Mr Justice Segal (the “ Judge”) on 29 August 2023 in this action (the “ Order”). By the Order the Judge granted the Respondents' application for an injunction pursuant to Section 54 of the Arbitration Act 2012 (the “ Act”) restraining Minsheng from taking any steps to enforce a series of share charges granted by the Respondents over 49% of the issued share capital in Leed International Education Group Inc, a Cayman Islands company (the “ Share Charges” and “ LIEG”, respectively), pending the outcome of arbitration proceedings commenced between the parties in the People's Republic of China (the “ PRC”). The seat of the arbitration being agreed to be the PRC, the proceedings were commenced at and pursuant to the rules of the China International Economic and Trade Arbitration Commission located in Beijing (the “ CIETAC Arbitration”).
. The Judge's reasons for the grant of the Order were set out in a detailed judgment of 3 August 2023 (the “ Judgment”).
. The injunction was granted subject to two conditions which were set out in the Schedule to the Order. First, the Respondents were required to file an affirmation confirming, with supporting evidence, the claim made in submissions on their behalf that they were unable to apply for interim injunctive remedies in the CIETAC Arbitration despite and after the filing of their request there for arbitration (the “ Affirmation Condition”). Secondly, the Respondents were required to apply to the CIETAC Arbitral Tribunal for permission to continue to rely on the Order within 5 business days after its constitution in accordance with the CIETAC Arbitration Rules (the “ Application Condition”).
. Subject to those conditions, the Judge concluded essentially that the risk of grave and irreparable harm to the Respondents if Minsheng were not restrained from enforcing the Share Charges pending the outcome of the CIETAC Arbitration, outweighed any risk of prejudice to Minsheng as might arise from the grant of the injunction restraining its enforcement of the Share Charges in the meantime. In effect, as appears from [131] to [134] of the Judgment, the application was framed and granted not as an ordinary injunction but as one needed urgently to preserve the Respondents' interests, to protect the integrity of the CIETAC Arbitration, and to assist the arbitral process to operate effectively as contemplated by Section 54 of the Act, in circumstances where the Arbitral Tribunal had not yet been properly constituted.
. Minsheng pursues a number of grounds of appeal under four main heads as follows 1:
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(i) There was no sufficient basis for exercising the jurisdiction under Section 54 of the Act because the Respondents failed to establish that there was a need for the Order without having first sought an injunction from either the CIETAC Tribunal or the Tribunal in related proceedings also under way between the parties in the Hong Kong International Arbitration Center (the “ HKIAC Arbitration”). Since Minsheng was a party to both those proceedings and therefore amenable to orders from the Arbitral Tribunals or the relevant supervisory courts, the Respondents ought to have first sought such orders which would have been directly enforced if made or otherwise provided evidence to show that it was impractical to make any such prior applications.
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(ii) Relief under Section 54 of the Act was unavailable in the circumstances of this case. This is said to be because the Share Charges, which are governed by Cayman law, are issued by LIEG, a Cayman company, and covered by a competing dispute resolution clause (Clause 18 of the respective Share Charges) to that covered by either the CIETAC or HKIAC Arbitrations and which requires the parties to the Share Charges to submit any dispute to the non-exclusive jurisdiction of the Cayman Islands Courts. The Appellant's right to enforce the Share Charges was thus a matter which was subject to the non-exclusive
jurisdiction of the Cayman Courts and outside any relief that could be given in the foreign arbitrations. Accordingly, the injunction purportedly in aid of the CIETAC Arbitration was misconceived and should not have been granted. -
(iii) No injunction could properly otherwise have been made in the case because the Respondents, who have no proprietary interest in the Share Charges, were not otherwise entitled to one and so the Judge should not have invoked the Section 54 power in the circumstances of the case. This is said to be supported by the fact that the Judge had accepted that the Respondents were able to make a proprietary claim but only contingently in the future if (a) Minsheng refused or failed to comply with an order for specific performance that the HKIAC Tribunal might make in the future and (b) the Respondents then chose to treat that as a repudiation of a put option which they claim to hold (to be explained below) and thus reclaim the shares which are the subject of the Share Charges.
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(iv) The Court should not, in any event, have granted an injunction restraining the enforcement of Minsheng's security interest. No injunction was properly available either under Section 54 or otherwise, to restrain the enforcement by Minsheng as a creditor of security held in respect of a debt – here said to be the interest-bearing loans provided by Minsheng (through an affiliate entity) to the Respondents, in respect of which the Share Charges were given to Minsheng by way of security. The Court had erroneously held at [125] of the Judgment, that the principle preventing a Court from enjoining enforcement of a security did not apply when the debtor argued that the secured debt had been contractually eliminated or reduced even if the secured creditor disputed that the debt had been so eliminated or reduced. But the principle preventing a Court from enjoining enforcement of a security when properly understood applied (a) so long as the secured creditor disputed the elimination or reduction of the loan as having been a sufficient payment of the loan unless or until the account given by the debtor was agreed or established by proceedings; or (b) whenever the debtor claimed by a different transaction to have repaid the loan of the secured creditor to which a charge related, such as by the alleged put option upon which the Respondents relied (and to be further discussed below).
. The Injunction, although interim in nature and effect, was in final form and expressed to expire on the delivery of a final award on the merits in respect of the CIETAC Arbitration (or until the CIETAC Arbitral Tribunal otherwise directed). A further complaint of Minsheng is that there was no undertaking in damages given by the Respondents, contingent upon that outcome, and the Judge refused a request to require such an undertaking when the Order was made. However, as the Respondents pointed out during the hearing, such an undertaking was indeed required and given by them, as set out at [4] to the Schedule to the Order. To the extent that an undertaking in damages could be relevant to the outcome, it appears therefore that this argument falls away.
. The inquiry in the action touches upon the Share Charges as well as upon three other sets of interrelated agreements – a share purchase agreement between Minsheng (as purchaser) and each of the Respondents (as sellers) to purchase shares in LIEG and two loan agreements entered into to facilitate the acquisition of the shares. The factual contexts of these Agreements, along with that of a further ancillary agreement — the Equity Entrustment Agreement — will be more fully explained below, in terms largely as taken from the Statements of Facts prepared by the parties for the appeal, as well as from the Judgment itself.
. Some understanding of the various Agreements is needed in order to assess whether the Respondents' case met the requirements for protection by way of interim proprietary injunctive relief and so for a proper assessment of the Judge's exercise of jurisdiction and discretion in granting the Order in the circumstances of the case.
. The Respondents are companies incorporated in the British Virgin Islands. They are each investment holding companies, with investments in education-related projects primarily in the PRC, where they operate schools and universities.
. LIEG was incorporated in the Cayman Islands on 15 April 2008 and is the sole shareholder of Leed International Education Group (China) Limited, which in turn, is the sole shareholder of a group of entities operating in the PRC.
. The Respondents were the initial shareholders of LIEG.
. Minsheng is a Cayman Islands company and is part of a group of companies (the “ Minsheng Group”) ultimately held by Minsheng Education Group Company Limited (“ Minsheng Parent”), a company listed on the Hong Kong Stock Exchange (“ HKSE”).
. By a Share Purchase Agreement dated 20 August 2018 (the “ SPA”), the Respondents agreed to sell and Minsheng agreed to purchase the Respondents' interest...
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