Nord Anglia Education, Incorporated

• Jurisdiction: Cayman Islands
• Judge: (Kawaley, J.)
• Judgment Date: 19 March 2018
• Court: Grand Court (Cayman Islands)
• Date: 19 March 2018

Grand Court, Financial Services Division (Cayman Islands)

(Kawaley, J.)

IN THE MATTER OF NORD ANGLIA EDUCATION, INCORPORATED

Lord Grabiner, Q.C., R. Boulton, Q.C. and J. Eldridge for the company;

A. Steinfield, Q.C. and R. Cecere for the Mourant dissenting shareholders;

B. Isaacs, Q.C. and G. Manning for the Campbells dissenting shareholders;

J. Adkin, Q.C. and A. Jackson for the Appleby dissenting shareholders.

Cases cited:

(1)E-Commerce China Dangdang Inc, Cause No. FSD 197 of 2016, considered.

(2)E-House China (Holdings) Ltd., In re, Grand Ct., Cause No. FSD 170 of 2016, November 3rd, 2017, unreported, considered.

(3)Goodale v. Justice Min., [2009] EWHC B40 (QB), followed.

(4)KongZhong Corp., In re, Grand Ct., Cause No. FSD 112 of 2017, February 2nd, 2018, unreported, followed.

(5)Phoenix Meridian Equity Ltd. v. Lyxor Asset Management S.A., 2009 CILR 153, applied.

(6)Qihoo 360 Technology Co. Ltd., In re, 2017 (2) CILR 585, dicta of Martin, J.A. applied.

(7)Qunar Cayman Islands Ltd., In re, 2017 (2) CILR 24, applied.

(8)Shanda Games Ltd., In re, Grand Ct., Cause No. FSD No. 14 of 2016, unreported, considered.

(9)Trina Solar Ltd., In re, Grand Ct., Cause No. FSD 138 of 2017, unreported, considered.

Legislation construed:

Companies Law (2016 Revision), s.238:

“(1) A member of a constituent company incorporated under this Law shall be entitled to payment of the fair value of his shares upon dissenting from a merger or consolidation.”

Grand Court Rules 1995 (Revised), Preamble, para. 1.1: The relevant terms of this paragraph are set out at para. 7.

Companies — arrangements and reconstructions — dissenting shareholders — fair value of shares — company to disclose all documents relevant to determination of fair value of dissenters’ shares created in 5-year period before valuation date — electronic keyword searches may be used to identify relevant documents

A company applied to determine the fair value of dissenting shareholders’ shares pursuant to s.238 of the Companies Law (2016 Revision).

The company’s majority shareholder had voted in favour of a merger agreement the effect of which would be to privatize the company and to acquire the shares of the minority for a price of $32.50 per share. That was subject to the right of dissenters to have the fair value of their shares determined by the court under s.238 of the Companies Law (2016 Revision). The company subsequently presented a petition seeking the determination of the fair value of the dissenting shares.

The company issued a summons for directions. (a) It proposed to deal with discovery of the “transaction due diligence documents” by uploading an index only of those documents to the electronic data room, and requiring the dissenters’ expert to identify which they wanted to inspect.There was a massive number of documents and the company was concerned to limit upfront data room storage costs and to avoid wasted inspection costs. (b) It sought to identify relevant documents by electronic keyword searches. (c) It was concerned about the general commercial desirability of protecting confidentiality of valuable proprietary research and personal information. It wanted to classify certain documents as “highly sensitive documents,” and to determine whether such documents should be redacted or excluded from the data room altogether. (d) It invited the court to direct that information requests should, unless otherwise agreed or directed, be made periodically in batches of no more than 50 questions, with an interval of 14 days between requests, and to be made within a 12-week timeframe starting on the date it uploaded the documents to the data room. (e) Management meetings should be “without prejudice” and based on previously notified questions or topics designed to assist the dissenters’ expert to find out informally about inspected documents. (f) Only experts and local lawyers should attend management meetings. (g) Leave to cross-examine should only be granted after any factual evidence was filed in affidavit form.

The dissenting shareholders contended inter alia that (a) all of the “transaction due diligence documents” should be uploaded; (b) the company’s proposed protective regime to protect the confidentiality of its documents was draconian; (c) it would be inappropriate to assume that their joint expert would act unreasonably, and any limit on the number of expert information requests would be arbitrary; (d) management meetings should be open with no rigid requirement for prior notice of questions, and the company was to prepare a transcript; (e) it would be appropriate for dissenters to attend management meetings to give instructions; and (f) they sought leave for cross-examination.

Held, ruling as follows:

(1) The court’s approach to the summons for directions would be guided by the objectives of justice, expedition and economy, taking congnizance of the fact that s.238 of the Companies Law was designed to accord substantive commercial justice to merger companies and dissenter shareholders alike. These increasingly common petitions should be judicially managed in a way that would, so far as reasonably practicable, promote confidence in the processes of the court for all key stakeholders. Where, as in the present case, the parties had achieved substantial agreement on the proposed directions but found certain issues to be intractable, the court must do its best to adopt a balanced approach to the opposing contentions; an approach that would encourage the parties to cooperate in the ensuing phases of the proceedings, and in future similar cases. Of particular importance would be the need, so far as it was consistent with the facts of the case, to strive for a consistent approach to similar issues on the part of the various judges of this court. The starting assumption must be that the approach adopted in previous s.238 cases would be of considerable assistance in the present case. The fact that thepresent case was of higher value and might involve more documents than previous cases did not undermine this starting assumption (paras. 5–11).

(2) The company’s basic obligation was to upload to the data room all documents (of whatever description) that were relevant to the question of fair value created in the five-year period ending on the valuation date and, without limiting the generality of this obligation, it must include the categories of documents set out in Appendix 2 of the dissenters’ order, subject to the overarching limits of relevance to the fair value question. There was no convincing reason to depart from the usual direction that all transaction due diligence documents were to be uploaded. The company’s proposal that it upload an index of those documents and require the dissenters’ expert team to identify those that they wished to inspect could result in unnecessary costs and loss of staff time (paras. 12–15).

(3) The use by the company of keyword searches to identify relevant documents was clearly consistent with the overriding objective in the Grand Court Rules and other authorities. There was no meaningful dispute that the company was entitled to identify electronic documents to be discovered using keyword searches. This tool was not intended to be a substitute for the company’s overarching obligation to identify all documents relevant to the valuation question. Such searches would no doubt utilize terms that had, so far as possible, been agreed between the parties (paras. 16–17).

(4) If the company was responsible for the upfront costs of hosting the data room, it would be appropriate for it to charge the dissenters an access fee on terms to be agreed or subject to further direction of the court. This was on the basis that, subject to the need for special treatment for highly sensitive documents, the dissenters themselves and not just the experts might play a role in the inspection process (para. 18).

(5) In relation to the company’s concern to protect highly sensitive documents, the key guidelines for deciding appropriate further protections were (i) flexibility; (ii) balancing the proprietary interests of the company with those of the dissenters; and (iii) deciding what was appropriate in the particular case. The company would be permitted to designate documents as highly sensitive in the general manner it proposed but would not be permitted to decide unilaterally that some such documents should not be posted in the data room at all. All highly sensitive documents should be placed in the data room in redacted and unredacted form, with access to unredacted versions limited to experts and counsel in the first instance. Each expert should provide the company with a list of his or her team members who would be given access to highly sensitive documents. Where the dissenters’ expert wished to refer to highly sensitive documents or extracts therefrom in a memorandum or draft report to be shared with clients, only the redacted versions of the relevant document could be mentioned or referred to and best efforts should be made to protect the confidentiality of information that was not central to the valuationanalysis. Where the document on which the dissenters’ expert wished to rely had been redacted in whole or in part, the dissenters’ counsel should seek to agree the terms of such reliance with the company’s counsel with liberty to apply to the court as a last resort. The parties should use their best endeavours to agree the final wording of the proposed non-disclosure agreements and any matters not expressly addressed in this ruling (paras. 23–26).

(6) The discovery and trial preparation processes were to be carried out in a proportionate manner. There was an obvious risk in a case on the present scale, with three separately represented teams of dissenters, that the number of information requests might reach oppressive levels. On the other hand, the efficiency of the trial preparation process would potentially be impeded if the court were...