Maso Capital Investments Ltd v Trina Solar Ltd

• Jurisdiction: Cayman Islands
• Judge: Martin JA
• Judgment Date: 09 February 2018
• Court: Court of Appeal (Cayman Islands)
• Docket Number: C.I.C.A NO 26 OF 2017 (FSD 92 OF 2017 (NSJ))
• Date: 09 February 2018

In the Matter of the Companies Law (2016 Revision)

And in the Matter of Trina Solar Limited

Between:

(1) Maso Capital Investments Limited

(2) Blackwell Partners LLC — Series A

Appellants

and

Trina Solar Limited

Respondent

Before

The Hon John Martin QC, Justice of Appeal

The Hon Sir George Newman, Justice of Appeal

The Rt. Hon Sir Alan Moses, Justice of Appeal

C.I.C.A NO 26 OF 2017

ON APPEAL FROM CAUSE NO FSD 92 OF 2017 (NSJ)

(FSD 92 OF 2017 (NSJ))

IN THE COURT OF APPEAL OF THE CAYMAN ISLANDS

ON APPEAL FROM THE GRAND COURT OF THE CAYMAN ISLANDS

Appearances:

Mr. Paul McGrath QC instructed by Mr. Rupert Bell and Mr. Patrick McConvey of Walkers for the Appellants

Ms. Catherine Newman QC instructed by Mr. Nick Hoffman and Ms. Katie Pearson of Harneys for the Respondents

CERTIFICATE OF ORDER OF THE COURT

UPON hearing Leading Counsel for the Appellants and Leading Counsel for the Respondent on the Appellant's appeal dated 10 November 2017 from an order made by the Honourable Mr. Justice Segal dated 6 November 2017 (Appeal)

AND UPON reading the evidence filed in support of the Appeal

AND UPON reading the skeleton arguments filed on behalf of the Appellants and the Respondent

I HEREBY CERTIFY that an Order was made on the 18 ^th day of December 2017 as follows:

• 1. The Appeal is dismissed.

• 2. The Respondent's costs of and occasioned by the Appeal shall be paid by the Appellants to be taxed on the standard basis if not agreed.

Given under my hand and the Seal of the Court this 9 ^th day of February 2018

REGISTRAR OF THE COURT OF APPEAL

REASONS FOR DECISION TO DISMISS APPEAL

Martin JA

1 On 18 December 2017 we heard an appeal by Maso Capital Investments Ltd and Blackwell Partners LLC — Series A (“the Dissenting Shareholders”) against an order dated 6 November 2017 by which Segal J. dismissed their application for a worldwide freezing injunction over the assets of Trina Solar Limited (“the Company”) and its subsidiaries up to a value of US$ 184,829,568. At the end of the hearing, we announced that we dismissed the appeal for reasons to be given later. These are my reasons.

2 The order was made in proceedings brought by the Company by way of petition seeking determination by the Court under section 238 of the Companies Law of the fair value of the Dissenting Shareholders' shares. Section 238 provides a mechanism for such a determination where shareholders have elected to dissent, as the Dissenting Shareholders have done, from a merger or consolidation of Cayman registered companies.

3 The application for a freezing injunction was made by summons dated 19 September 2017. It claimed also the appointment of receivers, and a disclosure order. The financial limit to be included in the freezing injunction was the difference between (a) the figure the Dissenting Shareholders said was the upper limit of the range suggested by their expert, Ms Rose Kehoe, as being the fair value of their shares (US$204,990,160) and (b) interim payments already made by the Company to the Dissenting Shareholders (US$20,150,592).

4 The interim payments, which represent the value of the Dissenting Shareholders' shares at the merger price, were paid only after other interlocutory hearings. The Company initially consented to making interim payments, but failed to do so in due time. Two days after payment should have been made, the Company applied to set aside the consent order and the Dissenting Shareholders presented a winding-up petition based on the failure to pay. The Company then applied to strike out the winding-up petition. The application to set aside the consent order was dismissed by Segal J.; and he subsequently struck out the winding-up petition after the Company had made the interim payments, awarding costs to the Dissenting Shareholders.

5 The Dissenting Shareholders' injunction application was based on the contention that the Company had entered into post-merger transactions which had had the effect of transferring away all its valuable assets, and that it intended to dispose of the proceeds of the transactions, with the result that the Company would be left with insufficient assets to satisfy the judgment that the Dissenting Shareholders were likely to obtain when the fair value of their shares was determined. The transfers were said to have been to related parties and to have been inconsistent with public statements made at the time of the merger. It was claimed that no adequate explanation had been given of the terms on which the transfers were made, so that the Court should draw the inference that they were not for full value. It was also contended that the failure to give an adequate explanation, and the interlocutory history, showed that the Company was attempting to avoid paying sums that were or would be properly due to the Dissenting Shareholders.

6 These contentions were summarised by the judge in paragraphs 27 to 31 of his judgment. In paragraph 32 and 33 he summarised the Company's response, which was in essence that it was engaging in a post-merger restructuring with a view to obtaining a listing in the People's Republic of China (“the PRC”) and that it would make a proper retention against the Dissenting Shareholders' claims. Reference should be made to these paragraphs for further detail.

7 In paragraph 34 of his judgment, the judge set out the principles governing the grant of a freezing order by reference to Classroom Investments Inc v China Hospitals Inc and China Healthcare Inc [2015] (1) CILR 451. The Court had to be satisfied that the applicant had a good arguable case for damages, that there was a real risk of dissipation of assets, and that there was reason to believe that the defendant's assets within the jurisdiction might be insufficient to meet the applicant's claims. He then, at paragraph 37, identified the following three issues: (a) had the Dissenting Shareholders demonstrated that they had a good arguable case that the fair value of their shares was above the merger price, and also (in order to justify the financial limit claimed) that the value was at the upper limit of their expert's valuation range? (b) had they demonstrated that there was a real risk of dissipation? and (c) had they demonstrated that it was just and convenient to grant the freezing injunction?

8 The judge's conclusions on those issues, as expressed in paragraph 38 of his judgment, were (a) that the Dissenting Shareholders had established a good arguable case that the fair value of their shares was above the merger price, but (b) had not established that there was a real risk of dissipation and unjustified conduct. If a real risk of dissipation had been established, then (c) the judge would have been prepared to grant a freezing injunction but not in an amount equal to the upper limit of the expert's valuation range. However, in all the circumstances it was not just and convenient or proportionate to grant the freezing injunction or the other relief sought by the Dissenting Shareholders. These conclusions were elaborated in subsequent paragraphs of the judgment, and I shall refer to them as necessary below.

9 The judge's main reason for refusing the injunction was, as I have indicated, that the Dissenting Shareholders had failed to discharge the burden that was on them of proving a real risk of dissipation. He dealt with this in paragraphs 51 to 67 of his judgment. He pointed out that the purpose of a freezing order was not to provide security for satisfaction of a judgment, but was to restrain disposals of assets that would have the effect of defeating or hindering enforcement of it and were unjustifiable as being otherwise than for normal and proper commercial purposes. He identified the Dissenting Shareholders' concerns arising out of transactions entered into by the Company for the purpose of facilitating and preparing for relisting in the PRC of a new PRC-incorporated entity owned and managed by the PRC members of the Buyer Group, in particular (a) that transfers to insiders, and adjustments to the Company's relationship with its subsidiaries, had been or would be made otherwise than for proper value, to the prejudice of the Company; and (b) that the funds received by the Company in respect of the transactions would be distributed to its shareholders and related parties without retaining assets to satisfy a judgment obtained by the Dissenting Shareholders in the section 238 proceedings. He took the Dissenting Shareholders to be arguing that a failure to make at least a conservative provision and retention, perhaps in the full amount or a substantial proportion of the sum claimed, would be unjustifiable and improper conduct satisfying the real risk of dissipation test.

10 The judge noted that it was not until service of the Company's evidence after the end of the hearing that more than limited information had been provided about the transactions, the consideration payable under them and what the Company intended to do with the proceeds. The Dissenting Shareholders had invited the Court to draw adverse inferences from the failure to provide proper information, and to conclude that the transactions would be prejudicial to the Dissenting Shareholders. The judge categorised the Company's responses as unnecessarily cryptic and unhelpful, and said that the Company could and should have sought to allay the legitimate concerns raised by the Dissenting Shareholders. However, the Company had belatedly provided a proper response and the case had to be decided on the basis and in the light of the late evidence. The judge's ultimate conclusion, on the basis of that evidence, was that completing the post-merger restructuring would be justifiable if the Company received the proceeds, and that distribution of those proceeds would not be objectionable provided that proper provision was made against the Dissenting Shareholders' claims. On balance, the Company's late...