Henderson J
IN THE GRAND COURT OF THE CAYMAN ISLANDS
HOLDEN AT GEORGE TOWN, GRAND CAYMAN
CAUSE NO. FSD 12 OF 2010
IN THE MATTER OF SECTION 46 OF THE COMPANIES LAW (2007 REVISION)
AND IN THE MATTER OF THE GRAND COURT RULES 1995, ORDER 102(2)(1)(b)
BETWEEN:
ZHANZOU INC.
AND:
EYOU INC.
SEQUOIA CAPITAL CHINA I, L.P.
SEQUOIA CAPITAL CHINA PARTNERS FUND I, L.P.
SEQUOIA CAPITAL CHINA PRINCIPALS FUND I, L.P.
MORNINGSIDE TECHNOLOGY INVESTMENTS LIMITED
Appearances: Ms. Tina Asgarian of Ogier for the Plaintiff
Ms. Sandie Corbett & Mr. Vahid Chittleborough of Walkers for the 1st Defendant
Mr. John Epp of Conyers Dill & Pearman for the 2nd Defendant to 5th Defendants
Before: Hon. Justice Henderson
April 15, 2010
Defendants
RULING
18 1. The Plaintiff Applicant seeks a declaration that the First Defendant is in breach of an injunction granted by Quin J. of this Court on October 20, 2008.
19 That injunction reads, in its material part, that:
21 Until further Order, the ... Defendant must not-:
22 "Use its shareholding in Beijing Yiyou Liandong Ltd (or any other entity in which it holds shares) to cause any changes to the structure of that Company (including, but not limited to, its corporate office holders and management) or the core business in which it engages, and must not seek to, or assist in, dealing with Beijing Yiyou Liandong Ltd.'s assets, in the manner provided for in sub paragraph 1(a) above;
30 save in the ordinary course of business...."
32 2. Paragraph 1(a) was a proscription on selling, transferring, assigning, encumbering, disposing of or otherwise dealing with any asset.
35 3. The underlying action is a dispute between shareholders concerning the majority ownership in the First Defendant, Eyou. It is the subject of
arbitration proceedings in Hong Kong. Eyou owns one hundred per cent of the shares in Beijing Yiyou, a company incorporated in the People's Republic of China.
Beijing Yiyou, as a wholly owned subsidiary of a foreign corporation, is required by PRC law to have a legal representative. That person's identity is registered in a public register in China. He or she is the only person who can bind the company legally without some other affirmative act by the company's management. It is conceded that the legal representative is an office holder within the terms of paragraph 1(c) of the injunction which I have quoted above.
On July 11, 2008, well before the injunction was issued or requested, Beijing Yiyou's shareholder passed a resolution terminating the authority of the existing legal representative and appointing a new one, Ms. Wang Qiong, instead. That appointment was the first step in a process which would have to be followed to its conclusion for the new legal representative's role to be fully effectual. It was necessary to register the new legal representative in place of the old in the publicly accessible government registry. For that purpose, a number of documents needed to be executed and submitted.
The injunction was brought to the notice of Eyou on October 21, 2008, and served upon it informally on October 24, 2008. At that time, the appointment
of Wang Qiong as the new legal representative was not yet registered in the required manner. Ms. Xie Na is, and was, the holder of a power of attorney from Eyou which permitted her to execute documents connected with the registration process on behalf of the subsidiary Beijing Yiyou. That power reads:
We, the directors of Eyou Inc. ("Company"), hereby authorise Ms. Xie Na, ID No. 1101011197609288404X, a director of the company, with full power and authority to execute and deliver any and all such documents she may deem necessary or appropriate in order to amend the registrations and filings of Beijing Yiyou Liandong Information Technology Company Ltd, a wholly foreign owned enterprise one hundred per cent owned by the company, with Beijing Municipal Bureau of Commerce ...
On November 1, 2008, at a time when Eyou knew of the injunction, Ms. Xie Na executed a letter of authorisation which was needed to complete the registration process. That letter appoints Tang Jingcao as the company's agent for the purpose of registering "procedures" on its behalf at the Beijing Administration for Industry and Commerce. It limited the authority of that agent by asserting expressly that the agent was not allowed to change any content in a declaration document and not permitted to make corrections which might appear to him to have been necessary to the documentation. The letter of authorisation was signed by the proposed new legal representative, Wang Qiong, and by Xie Na.
In accordance with the authorisation, Tang Jingcao completed the registration of the new legal representative on December 16, 2008. It is the execution of
the letter of authority by Xie Na on November 1, 2008, which is said to
constitute a breach of this injunction.
The first question is whether the completion of the registration process was a step taken by Yiyou in the ordinary course of business. If so, it would not be caught by the terms of the injunction. This point was not pressed in argument.
The answer, I am confident, is no. The appointment of a legal representative is an important but relatively infrequent event which assists a corporate entity in acquiring business, but it is not a routine or typical commercial transaction.
It is not something a business would do in the ordinary course of its trade or commerce.
The respondent argues that the act of substance was the resolution of July 11, 2008. Completion of the registration process was largely a formality needed only to ensure that the decision already taken was given its full effect. There is substantial truth in this assertion, but it is not an effective answer to the summons. Mr. Justice Quin's injunction prohibits Yiyou from doing anything at all to cause a change in the structure of Beijing Yiyou. Even the seemingly routine act of authorising an agent to proceed with the registration of the legal representative is an act which this injunction forbids.
It is unclear whether in signing the letter Xie Na was acting on behalf of the parent or the subsidiary. The power of attorney is granted by Eyou (the
parent), but it authorises her to act with respect to filings by the subsidiary and, presumably, on the subsidiary's behalf.
The legal requirement is spelled out in the Provisions on Registration, Administration of Legal Representatives of Legal Persons, amended in 1999 and promulgated by the State Council of the People's Republic of China.
Article 6 of those provisions requires that when applying for a change in the registration of the legal representative, "the legal person" -- that is to say, the company or legal entity, shall submit the following documents to its registration authority. There follows a list of three classes of documents:
first, documentation with respect to the removal of the old legal representative; second, documentation with respect to the appointment of the newly designated legal representative; and third, an application form for alteration of the registration "signed by the original or the newly designated legal representatives". There does not appear to be a legal requirement for a signature on behalf of either the parent or the subsidiary beyond the need for one of the two legal representatives to sign.
Thus, it would seem that Wang Qiong's signature, which also appears on the letter of authorisation of November 1, 2008, may have been the only signature which was necessary. The act now complained of, the signing by Xie Na, may have been superfluous. That, in my view, is a circumstance which can be material only to penalty. The terms of the injunction properly construed
1 prohibit any active step intended to assist in bringing about a change in the
2 structure of Beijing Yiyou. Xie Na's signature was affixed with just such an
3 intention.
4
5 14. Finally, the respondent points out that Beijing Yiyou would have been liable
6 to a fine if it did not act promptly to register the change of legal
7 representative. In fact, the company missed the prescribed filing deadline and
8 could have been, but was not, fined in December 2008. The fact that Beijing
9 Yiyou had a positive obligation to complete the registration process should
10 have caused Eyou to appear before Quin J. and seek a relaxation of the
11 injunction. Eyou should not have allowed Xie Na to sign the letter, whether
12 she was obligated to do that or not.
13
14 15. In the result, I find that Eyou has breached clause 1(c) of the injunction by
15 permitting its attorney, Xie Na, to sign the letter of authorisation of November
16 1, 2008. I grant a declaration to that effect.
17
18 16. I also grant to the plaintiff an order that the First Defendant disclose, within a
19 certain time, in writing to the plaintiff, each and every change it has sought to
20 make or has made to the structure of Beijing Yiyou Liandong Ltd or any other
21 entity in which the First Defendant holds shares, or to the core business in
22 which Beijing Yiyou Liandong Ltd engages, together with particulars of any
23 action in the nature of dealing with Beijing Yiyou Liandong Ltd's assets.
2 17. I will hear from counsel as to the appropriate time period, as I entertain
3 concerns that the requested three-day deadline is too short.
4 Dated this 15th day of April, 2010
5
6 Henderson, J.
7 Henderson, J.
8 Judge of the Grand Court