FGL Holdings v Kingstown Partners Master Ltd
| Jurisdiction | Cayman Islands |
| Judge | Parker |
| Judgment Date | 18 December 2020 |
| Court | Grand Court (Cayman Islands) |
| Docket Number | CAUSE NO. FSD 184 OF 2020 (RPJ) |
In the Matter of Section 238 of the Companies Act (2020 Revision)
And in the Matter of FGL Holdings
The Hon. Justice Parker
CAUSE NO. FSD 184 OF 2020 (RPJ)
IN THE GRAND COURT OF THE CAYMAN ISLANDS
FINANCIAL SERVICES DIVISION
Section 238 Companies Act-company disclosure-dissenter disclosure-Information requests of dissenters-Management Meeting transcripts .
Mr Mac Imrie, Mr Malachi Sweetman, Mr Lukas Schroeter of Maples for the Petitioner
Mr Simon Salzedo QC of Brick Court Chambers and Mr Simons Dickson, Ms Jessica Vickers and Mr Adam Barrie of Mourant for the Dissenting Shareholders
FGL Holdings (the company) applies by way of petition dated 17 August 2020 under section 238 of the Companies Act for a determination by the court of the fair value of shares held in the company. The company provides life insurance and annuities products in the USA.
Prior to 1 June 2020, the company's common stock was listed on the New York Stock Exchange. By a series of mergers on that date, pursuant to a merger agreement dated 7 February 2020, the company was taken private and became a subsidiary of Fidelity National Financial Inc (FNF) (the Merger).
FGL Holdings merged with Cayman Islands companies affiliated with FNF, another US listed company, which carried on business as a real estate title insurance company. As a consequence the petitioner company became a wholly-owned subsidiary of FNF, now known again as FGL Holdings. The merger was approved by special resolution of the shareholders on 29 May 2020 (the Valuation Date) and became effective on 1 June 2020. The total value of the Merger was approximately US$2.7 billion.
The dissenters are the investment funds of a US-based investment manager, Kingstown Capital Management, which each held shares in the company prior to the Merger. The dissenters were long-standing stakeholders in the company and its predecessor.
They have exercised their statutory right to dissent from the Merger and to receive the fair value of their shares as determined in accordance with section 238 of the Companies Act.
This judgment follows a summons for directions hearing. The parties have been proactively negotiating a detailed draft directions order which for the most part follows the directions that have emanated from recent s.238 cases. The court endorses this approach, which should generally be followed, unless there is a good reason to depart in any particular case. The court also notes that most of the relevant matters have been agreed.
Mr Mac Imrie and Mr Lukas Schroeter appeared for the company. Mr Simon Salzedo QC appeared for the dissenters.
The main outstanding issues concern disclosure. They are essentially whether the company's discovery which, in keeping with other s238 cases is a huge exercise, should be restricted in two disputed areas and whether the dissenters' discovery, which they have agreed to give, should be expanded.
The company also seeks a provision for the experts to ask Information Requests of the dissenters.
There are then some miscellaneous disagreements as to conditions to be applied to the company's liberty to apply for enhanced confidentiality protections for documents it may disclose, some disputes as to timetabling, and the approach to be taken in finalising Management Meeting transcripts.
It is convenient to deal with the issues in turn, whilst at the same time recording my decision and reasons.
It is well settled that extensive discovery of documents within their possession, custody or power of petitioner companies is essential in section 238 proceedings. This is because the company is the object of the valuation exercise and will have a large amount of information and material of critical relevance to that exercise 1. This ‘information gap’ has been emphasized in numerous decisions of this court and the Court of Appeal.
It is acknowledged that this is an onerous and expensive burden on the company, but it is essential for the fair determination of the matter. The dissenters as ‘outsiders’ are entitled to it. Moreover the court relies on relevant material to be produced to the valuation experts upon which they can base their opinions in order to assist the court to arrive at its conclusions.
There are only two items which remain disputed in relation to the company's disclosure. The dissenters have served evidence that the discovery resisted by the company is likely to be relevant to fair value and would assist the valuation experts 2. The company has not countered this evidence on relevance, but does so essentially in relation to the onerous practicality of complying with such broad requests, through the affidavit evidence of Jodi Hyde (the company's General Counsel) 3. The company
I accept that the company's approach in this case has been reasonable and proactive in agreeing a regime to provide an efficient and sensible way for discovery to be provided. This is demonstrated by the fact that 39 out of the 42 categories of information were agreed prior to this first case management conference and one was agreed at the hearing.
Of course the point cuts both ways and I also accept that there have been compromises on the dissenters' side, but as I say the burden is on the company and it has approached the matter in an appropriate way. The resourcing requirements for the exercise are significant and if the universe of documents that needs to be reviewed for relevance, privilege, and confidentiality is unnecessarily broad that requires even greater resources, and would be disproportionate.
In relation to the two categories that remain in dispute the company is not refusing disclosure but suggesting a different way of dealing with the disclosure of documents, due it says to the breadth of the drafting of the dissenters' requests.
The company is also seeking to shift the burden of disclosure to the Information Request phase where the experts, if they identify material relevant to their task, can ask further questions about it and call for further documents which will refine further the particular scope. To that extent a question of not only proportionality but also principle arises.
The company's discovery obligations are usually addressed by the established practice for categories to be identified of the documents that the company possesses that are likely to contain relevant material. That is what has happened in this case as well.
This practice should not in principle be put over to the Information Request process, which is designed to elicit specific information and answers based upon the experts' prior and ongoing review of the relevant discovery.
The two categories the dissenters press for are supported by the affidavit evidence of Mr Hopkins in relation to relevance to the expert process and involve significant transactions. Mr Hopkins is the managing director of Perun Consultants based in Hong Kong.
This concerns a restricted category of agreements and contractual arrangements with the Merged Company's business partners or investors with an annual value of US$25 million or more. It is to be noted in this regard that there are, according to Ms Hyde, only two specific agreements and one category of agreements which the company has above the value cut-off.
The company objects to being obliged to disclose ‘related communications’ concerning these agreements because it says that it would be unreasonably burdensome to search for such a broad range of documents 4. It is said that this would significantly increase the time required to complete disclosure and would require the search for and production of potentially many thousands of irrelevant communications. It would involve broadening the custodians whose mailboxes are collected and adopting broad search terms that would result in a material number of false-positive documents. 5 The company suggests that if the experts wish to ask about the contracts and want to see more detailed information they can do so during the Information Request process.
I appreciate that it would not be proportionate for the company to have to have to search through thousands of emails of an administrative nature (having first produced sensible search terms) and to then review them unnecessarily.
However to mitigate this, in my judgement the dissenters have put forward a sensible form of narrower wording:
“ Agreements or other contractual arrangements ( or any amendments thereto), including investment management agreements, with the Merged Company's business partners with an annual value of US$25million or more; documents and communications relating to the negotiation or renegotiation of those agreements, including drafts; documents and communications containing or evidencing requests for payment pursuant to any such agreements and records of payments made; reports, presentations or analyses provided to the Company by the counterparties to any such agreements, and minutes of meetings with those counterparties, in relation to their subject matter”. (my emphasis).
I accept the reasons put forward by Mr Hopkins as to why that material would assist the valuation experts 6. They may contain information relating to the company's business which will help them understand better it as well as the contracts themselves.
Communications concerning high value contracts may contain an insight into...
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