PRC arbitration injunction

In Leed Education Holding Ltd and others v Minsheng Vocational Education Company Ltd (3 August 2023), the plaintiffs sought interim injunctive relief from the Cayman Islands court pursuant to section 11A of the Grand Court Act (GCA, 2015 Revision) and section 54 of the AA.

The purpose was to prevent the defendant from enforcing a security they granted over a certain number of its shares (charges) pending the determination of two arbitrations, one in Hong Kong and the other in Beijing (the PRC arbitration). The core dispute was whether certain loans had been discharged, an issue closely linked to the dispute over the enforcement of the charges: If the loans were discharged, there would be no secured liabilities and, accordingly, no security interest over the charged property.

Dealing first with the jurisdictional basis to grant interim relief, Judge Segal noted that section 11A of the GCA was not enacted at the time section 54 of the AA was introduced, so the latter could not be read as cross-referring to the former.

Instead, section 54 should be understood as confirming the court’s independent power to grant interim relief in support of foreign arbitrations without a direct need to satisfy and have regard to a separate statutory code dealing with interim relief in aid of foreign court proceedings.

While there is an overlap between the matters to be taken into account under both provisions, section 54 in substance imposes the additional requirement to respect and gives effect to the rules regarding and limiting court intervention in international arbitrations.

Section 54 refers to interim remedies “in relation to the arbitration proceedings”. To invoke, a sufficient connection between the interim measures sought and the foreign arbitration is required, and the assessment is two-fold:

• First, whether the plaintiffs have shown it is reasonably arguable (or that there is a serious case to be tried) that the dispute falls within the scope of arbitration and therefore was properly referred to the PRC arbitration; and
• Second, if the court is satisfied on the first point, whether interim relief is needed and properly sought to protect the right and remedy sought in the PRC arbitration.

The court found that the plaintiffs satisfied both requirements.

However, in determining whether the court should exercise its discretion to grant interim relief, the judge stressed the importance of adhering to the principle of limited curial intervention in international arbitration, where the role of the court should be limited to reinforcing reference to arbitration and rendering an award effective.

Judge Segal noted that section 54 of the AA did not impose any particular preconditions on the jurisdiction or a party’s right to apply to the court.

Nevertheless, the court stressed the need to be “cautious” in light of the policy of “arbitration first”, and that parties should not be allowed to bypass seeking interim measures from the arbitral tribunal simply because curial assistance was available.

Instead, help from the court should be sought “only when relief from the arbitral tribunal is inappropriate, ineffective or incapable of securing the particular form of relief [being] sought”.

On its facts, the plaintiffs did not first apply for interim relief in the PRC arbitration, and did not put proper evidence before the court for why it was not (and still is not) possible for the plaintiffs to do so on account of the arbitral tribunal not having been constituted at the relevant time.

Judge Segal considered whether he should decline the plaintiffs’ application on this basis alone. However, the defendants did not challenge the plaintiffs’ assertion. The court found that in such exceptional circumstances, where it was not possible to apply for interim relief in the PRC arbitration, it would exercise its discretion to grant interim relief in aid of foreign proceedings with a caveat – the plaintiffs had to undertake to promptly apply to the arbitral tribunal for permission to continue to rely on the relief granted, and the injunction would cease to have effect if such permission was not obtained.

Foreign interim awards

In the matter of Al – Haidar v Rao et al (3 February 2023), Judge Kawaley confirmed that foreign interim arbitration awards were enforceable under Cayman Islands law, regardless of the jurisdictional basis on which enforcement was sought – be it the Foreign Arbitral Awards Enforcement Act (1997 Revision) (FAAEA) or the AA.

In coming to this conclusion, the judge noted commentary in International Commercial Arbitration (3rd edition, 2021), inter alia, that:

• Provisional measures (distinct from interlocutory arbitral decisions) disposed of a request for relief pending the conclusion of the arbitration, thereby justifying treating them as “awards”; and
• It is important for these measures to be enforceable as, otherwise, parties will be more willing to refuse compliance with them, resulting in the very harm the provisional measures were seeking to address.

Additionally, the judge considered the interaction between section 5 of the FAAEA and section 52 of the AA. The former expressly provides that foreign New York Convention awards will be enforced in the same manner as domestic awards, subject to the other provisions of the FAAEA, but does not explicitly deal with provisional or interim awards.

In contrast, the latter expressly provides for the enforcement of provisional or interim awards. Sections 72(4)-(5) of the AA also makes clear that the provisions of the FAAEA take precedence.

Judge Kawaley said that section 52 of the AA sets out “freestanding special enforcement provisions” applicable to interim measures on a separate basis to “awards”, “irrespective of the jurisdiction in which it was issued”, and held there was no inconsistency between that provision and the FAAEA as the latter did not explicitly deal with interim measures or awards.

Two possibilities of interpreting how the AA’s provisions interfaced with those in the FAAEA arose: either they were intended to extend the pre-existing foreign award enforcement regime under section 5 of the FAAEA to “interim measures”; or, alternatively, created an entirely separate enforcement regime for foreign interim “measures” under the AA, leaving section 5 of the FAAEA to deal with final awards only.

Judge Kawaley adopted a “rough and ready” approach, and expressed a preference for the former, noting that once the AA introduced a regime for enforcing foreign interim remedies via section 52, the scope of section 5 of the FAAEA (including the meaning of the term “award”) was implicitly expanded to incorporate not just the final award enforcement provisions of the AA but the interim measure enforcement provisions as well.

This approach preserved the “traditional view of the FAAEA as the umbrella statute governing the enforcement of foreign arbitration awards, which incorporates to the extent necessary the substantive enforcement provisions found in the general Arbitration Act”.

The judge, therefore, granted the application on the jurisdictional basis of section 5 of the FAAEA, but expressed hesitation on whether the alternative jurisdictional basis under the AA should have been included in the order.

The judge opined that even if his analysis was wrong, the practical legal conclusion would be no different; namely, that foreign interim awards or measures are enforceable under Cayman Islands law.

While the decision signals the pro-arbitration approach adopted by the Cayman Islands courts, it was obtained on an ex parte basis. It remains to be seen if a similar outcome is reached at an inter partes hearing, with full arguments made before the court.

Conclusions

These two decisions reinforce the jurisdiction’s pro-arbitration stance and its commitment to the policy of “arbitration first”.

They helpfully clarify the current scope and breadth of the assistance the Cayman Islands courts are prepared to give to foreign arbitrations.

They are valuable items in the toolkit for participants in arbitrations here in Asia. The authors anticipate that there will be a significant number of further cases seeking to deploy the same tools.

An original version of this article was first published in Asia Business Law Journal, February 2024.