The Application for Interim Relief Under Section 11A of the Grand Court Act (2015 Revision) and Section 54 of the Arbtiration Act, 2012 Between (1) Leed Education Holding Ltd (2) National Education Holding Ltd (3) Hyde Education Holding Ltd Plaintiffs v Minsheng Vocational Education Company Ltd Defendant

• Jurisdiction: Cayman Islands
• Judge: Mr. Justice Segal
• Judgment Date: 03 August 2023
• Docket Number: CAUSE NO: FSD 130 OF 2023 (NSJ)
• Court: Grand Court (Cayman Islands)

In the Matter of the Application for Interim Relief Under Section 11A of the Grand Court Act (2015 Revision) and Section 54 of the Arbtiration Act, 2012

Between

(1) Leed Education Holding Limited

(2) National Education Holding Limited

(3) Hyde Education Holding Limited

Plaintiffs

and

Minsheng Vocational Education Company Limited

Defendant

Before:

The Hon. Mr. Justice Segal

CAUSE NO: FSD 130 OF 2023 (NSJ)

IN THE GRAND COURT OF THE CAYMAN ISLANDS

FINANCIAL SERVICES DIVISION

Appearances:

Mr Stephen Moverley Smith KC instructed by Nicholas Dunne and Rebecca Moseley of Walkers appeared for the Plaintiffs

Mr Tom Lowe KC instructed by Erik Bodden and Jordan McErlean of Conyers Dill and Pearman LLP appeared for the Defendant

Introduction

1 I have before me an originating summons (the Originating Summons) filed on 19 May 2023 by the Plaintiffs in which they apply for an interim injunction (the Interim Injunction) pursuant to section 11A of the Grand Court Act (2015 Revision) ( Section 11A) and to section 54 of the Arbitration Act 2012 ( Section 54). The Plaintiffs seek to prevent the Defendant (also referred to as Minsheng), a company incorporated in the Cayman Islands, from taking any steps to enforce a series of share charges (the Charges) granted to Minsheng by the Plaintiffs over 49% of the issued share capital of Leed International Education Group Inc. (the Company), a company also incorporated in the Cayman Islands, pending the determination of two arbitrations commenced at the Hong Kong International Arbitration Centre (the Hong Kong Arbitration) in Hong Kong and at the China International Economic and Trade Arbitration Commission ( CIETAC) in Beijing, the People's Republic of China (the PRC Arbitration, together with the Hong Kong Arbitration, the Arbitrations).

2 The Plaintiffs filed evidence in support of their application. This was the First Affirmation ( Li 1) and the Second Affirmation ( Li 2) of Li Hongtao ( Mr Li), the Second Affirmation of Chung Him Ng ( Mr Ng) and the First Affirmation ( Li D 1) and the Second Affirmation ( Li D 2) of Ms Li Dongxia ( Ms Li Dongxia). Mr Li is the sole shareholder and sole director of the Second Plaintiff and the chairman, general manager and legal representative of Leed National Education Technology (Beijing) Limited ( Leed Beijing). Mr Ng is the senior counsel in the Hong Kong office of Wilson Sonsini Goodrich & Rosati ( WSGR), the Plaintiffs' Hong Kong solicitors. Ms Li Dongxia is a certified PRC lawyer with Gaopeng & Partners Law Firm, a PRC law firm. The Originating Summons was served on the Defendant who has filed evidence in answer. The evidence filed by the Defendant was the First Affirmation ( Lam 1), the Second Affirmation ( Lam 2) and the Third Affirmation ( Lam 3) of Lam Ngai Lung ( Mr Lam). Mr Lam is a director of Minsheng.

3 The Originating Summons was heard on 19 July 2023. Mr Stephen Moverley Smith KC appeared on behalf of the Plaintiffs and Mr Tom Lowe KC appeared on behalf of the Defendant.

4 The Originating Summons refers both to Section 11A and Section 54 (Section 54 is quoted in this judgment and I set out Section 11A in the appendix) although during the hearing it became apparent that the Plaintiffs' claim to injunctive relief is based wholly on Section 54 although there was some debate at the hearing as to the relationship between the two sections. During the hearing I asked whether any relevant material to which the Court could properly refer was available which explained the purpose and intended scope of Section 54 but counsel said that they believed there was none. Immediately following the hearing I undertook some research of my own and it became clear that there were relevant materials both in the form of Hansard reports of the second reading of the Arbitration Bill 2012 and the reports of the Cayman Islands Law Reform Commission (available on the Commission's website) which include the results of the Commission's consultation on the draft Arbitration Bill 2011. I informed the parties of what I had located (including similar language to Section 54 in provisions in the Singapore International Arbitration Act) and invited (but did not require) them to file (by noon on 24 July 2023) any further submissions they wished to make on the interpretation of Section 54 by reference to these or other relevant materials. The Plaintiffs filed their Supplemental Submissions on 24 July 2023 and Minsheng filed its Note Subsequent to Hearing on 25 July 2023. Both the Plaintiffs and Minsheng confirmed that in their view Section 54 was modelled on article 17J of the UNCITRAL Model Law on International Commercial Arbitration 1985 (the Model Law).

5 I have decided, for the reasons set out below, that it is appropriate to grant the Plaintiffs' application for an injunction but to do so subject to certain qualifications and conditions. I have concluded that the injunction should continue until the conclusion of the PRC Arbitration (although Minsheng under the liberty to apply provision in the order will be able to apply before then for the injunction to be discharged with permission from the CIETAC arbitral tribunal, if that tribunal decides that it has jurisdiction to hear and deal with such an application, for example in the event that Minsheng is successful in the Hong Kong Arbitration) and that the Plaintiffs should, as a condition to the grant of the injunction, undertake promptly (within a time period to be agreed between the parties or as ordered by me following receipt of submissions as to what is a reasonable time for making the application) to apply to the CIETAC arbitral tribunal for permission to continue to rely on the injunction (provided of course that such an application can now or shortly be made within the PRC Arbitration and that the CIETAC arbitral tribunal decides that it has jurisdiction to hear and deal with such an application) and that the injunction should contain a statement that it will cease to have effect (and the Plaintiffs must apply for it to be discharged) if the CIETAC arbitral tribunal having decided that it has jurisdiction to hear and deal with such an application refuses to grant such permission. Furthermore, I shall require the Plaintiffs to file a further affirmation confirming and putting in evidence the claim made in submissions that they were unable (at the time they filed the Originating Summons) to apply for interim remedies in the PRC Arbitration despite and after the filing of the request for arbitration.

6 I shall invite the parties to seek to agree the form of order to be made to give effect to this judgment (and any relevant consequential matters). If they are unable to do so by 4pm on 2 August 2023 they should file with the Court copies of the forms of order they seek with brief written submissions setting out the reasons in support.

The background

7 The Arbitrations arise in connection with an agreement dated 20 August 2018 made between Minsheng (as purchaser) and each of the Plaintiffs (as sellers) to purchase shares in the Company (the SPA). The SPA is written in Chinese (as the governing text) and governed by Hong Kong law. It contains an arbitration clause providing for arbitration in Hong Kong under the rules of the Hong Kong International Arbitration Centre in the following terms:

“22.2 Any dispute arising out of or in connection with the execution, performance or interpretation of this Agreement shall be resolved through friendly negotiation by the Parties; in case of failure to do so, the dispute shall be filed to the Hong Kong International Arbitration Centre for arbitration in Hong Kong under the Administered Arbitration Rules of Hong Kong International Arbitration Centre. The arbitral tribunal shall consist of three (3) arbitrators. Party A and the Sellers shall nominate an arbitrator respectively, and the third arbitrator shall be nominated by the Arbitration [Centre] and act as the chairman of the arbitral tribunal. The arbitral award shall be final and binding on all Parties, and each Party agrees to be bound by and act in accordance with the award.”

8 Minsheng is a member of a group of companies whose ultimate parent is Minsheng Education Group Company Limited ( Minsheng Parent), a company also incorporated in the Cayman Islands, which is listed on the Hong Kong Stock Exchange. The Company is the holding company of Leed International Education Group (China) Limited, which carries on a substantial business owning and operating a number of schools and colleges in the PRC (the Business).

9 The Plaintiffs say that the SPA was the primary transaction document of a series of interlocking agreements that contemplated the purchase by and sale to Minsheng of the entirety of the share capital of the Company in two stages. Stage one, in August 2018, was an acquisition of 51% (the First Tranche). Stage two was to be the acquisition of the remaining 49%, (the Second Tranche), which was to occur between the fourth and fifth years later (the Option Period). In the interim Minsheng would be entrusted with the Second Tranche, entitling it to all the profits generated by the Company's underlying business, following what, the Plaintiffs claim, was in essence a down payment of the purchase price for the Second Tranche.

10 The Plaintiffs also assert that while the SPA contemplated a sale of both Tranches, the final decision as to the sale of the Second Tranche lay with the Plaintiffs. In consequence, the sale of that Tranche was couched in terms of a put option granted to the Plaintiffs (the Put Option), exercisable during the Option Period at the Plaintiffs' discretion; while the down payment of the purchase price took the form of interest-bearing loans, the amount outstanding to be applied in part payment of the purchase price, following the exercise of the option. Given that if the Plaintiffs chose not to exercise the option the loans would no...