Qunar Cayman Islands Ltd v Maso Capital Investments Ltd and Seven Others

JurisdictionCayman Islands
Judge(Parker, J.)
Judgment Date20 July 2017
CourtGrand Court (Cayman Islands)
Date20 July 2017
Grand Court, Financial Services Division

(Parker, J.)

IN THE MATTER OF QUNAR CAYMAN ISLANDS LIMITED
QUNAR CAYMAN ISLANDS LIMITED
and
MASO CAPITAL INVESTMENTS LIMITED and SEVEN OTHERS

T. Mowschenson, Q.C. and L. Greig for the company;

N. Meeson, Q.C. and E. Bodden for the PAG dissenters;

P. Girolami, Q.C., T. Heaver-Wren and A. Jackson for the Athos dissenters;

R. Levy, Q.C. and R. Cecere for the Maso dissenters;

P. Girolami, Q.C. and S. Maloney for the Senrigan dissenters.

Cases cited:

(1) Bona Film Group Ltd., In re, Grand Ct., Cause No. FSD 215 of 2016, March 13th, 2017, unreported, referred to.

(2) China Shanshui Cement Group Ltd., In re, 2015 (2) CILR 255, referred to.

(3) Dole Food Co. Inc. (Appraisal), In re (2014), 114 A.3d 541, distinguished.

(4) Homeinns Hotel Group v. Maso Capital Invs. Ltd., 2017 (1) CILR 206, followed.

(5) Howard’s Will Trusts, In re, [1961] Ch. 507; [1961] 2 All E.R. 413, referred to.

(6) Integra Group, In re, 2016 (1) CILR 192, followed.

(7) Lornamead Acquis. Ltd. v. Kaupthing Bank HF, [2011] EWHC 2611 (Comm); [2013] 1 BCLC 73, referred to.

(8) Morelle Ltd. v. Wakeling, [1955] 2 Q.B. 379; [1955] 2 W.L.R. 672; [1955] 1 All E.R. 708, referred to.

(9) Qihoo 360 Technology Ltd., In re, Grand Ct., Cause No. FSD 129 of 2016, January 26th, 2017, unreported, referred to.

(10) Shanda Games Ltd., In re, Grand Ct., Cause No. FSD 14 of 2016, April 25th, 2017, unreported, dicta of Segal, J. 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.

. . .

(9) If the company and a dissenting member fail, within the period specified . . . to agree on the price to be paid for the shares owned by the member . . .

(a) the company shall (and any dissenting member may) file a petition with the Court for a determination of the fair value of the shares of all dissenting members . . .”

Grand Court Rules 1995 (Revised), Preamble, para. 1.1:

“The overriding objective of these Rules is to enable the Court to deal with every cause or matter in a just, expeditious and economical way.”

O.1, r.2: “(1) Subject to the following provisions of this rule, these Rules shall apply in relation to all proceedings in the Court.”

O.24, r.3: “(1) Subject to the provisions of this rule and of rules 4 and 8, the Court may order any party to a cause or matter . . . to make and serve on any other party a list of the documents which are or have been in his possession, custody or power relating to any matter in question in the cause or matter . . .

. . .

(3) An order under this rule may be limited to such documents or classes of documents only or to such only of the matters in question in the cause or matter, as may be specified in the order.”

O.24, r.8: “On the hearing of an application for an order under rule 3 or 7 the Court, if satisfied that discovery is not necessary, or not necessary at that stage of the cause or matter, may dismiss or, as the case may be, adjourn the application and shall in any case refuse to make such an order if and so far as it is of opinion that discovery is not necessary either for disposing fairly of the cause or matter or for saving costs.”

O.38, r.4: “The Court may, at or before the trial of any action, order that the number of medical or other expert witnesses who may be called at the trial shall be limited as specified by the order.”

Companies — arrangements and reconstructions — dissenting shareholders — fair value of shares — on application for determination of fair value of shares under Companies Law (2016 Revision), s.238, company has general and ongoing obligation to disclose relevant documents — experts best judges of relevance

A company applied for the determination of the fair value of its shares pursuant to s.238 of the Companies Law (2016 Revision).

The company was a Cayman Islands exempted limited company, the operations and business of which had been mainly conducted in China. Its merger with two other companies was approved at an EGM in February. There were eight dissenting shareholders forming four groups: the Maso dissenters, the Athos dissenters, the Senrigan dissenters and the PAG dissenters. The company sought the determination of the fair value of its shares pursuant to the dissenters’ action under s.238 of the Companies Law (2016 Revision).

There were disputes between the parties concerning the scope of the company’s discovery obligations and the way it should give discovery; whether the dissenters should be ordered to give discovery; and whether the dissenters should instruct one expert jointly or be given leave to instruct one expert each.

On behalf of the Maso dissenters it was submitted inter alia that the court should not limit in advance the types of documents that the experts should be entitled to see and that the company should be required to list all relevant documents at the outset. The Maso dissenters sought leave to instruct their own expert, rather than relying on an expert jointly instructed on behalf of the dissenting shareholders.

The company submitted that (a) it should give discovery of documents that were relevant to the court’s determination of fair value by reference to specific categories of documents in accordance with O.24, r.3 and there was no jurisdiction to order general discovery in actions begun by petition; (b) the categories of documents in Schedule A to its draft order had been agreed by the Maso dissenters’ expert and further documents would only be disclosed if requested by an expert; (c) it should be provided that a requesting expert should be required, if asked, to explain why requested documents were relevant, which was a matter of proportionality; (d) s.238 petitions were adversarial civil proceedings and O.24, r.3(1) provided that the court could order any party to give discovery; and (e) the court should order the dissenting shareholders to give discovery.

Held, ruling as follows:

(1) Dissenting shareholders were not required to accept a merger or consolidation agreement that had been approved by the requisite majority. They were instead entitled to dissent and demand payment for the fair value of their shares. The effect of having given notice of dissent was that they ceased to have any of the rights of shareholders except the right to be paid the fair value of their shares and the corresponding right to participate in the proceedings before the court for the determination of the fair value. The information contained in the company’s own books and records was highly relevant to any appraisal of its fair value as a going concern. In the context of establishing an electronic data room, all the relevant material to that issue should be uploaded and made available for inspection by the experts (and those instructing them), subject to giving appropriate confidentiality undertakings. The experts were the best judges of the information that was relevant for their purposes and a company should not control what information should be made available to them, based on its own assessment of relevance. Section 238 of the Companies Law did not dictate any particular valuation methodology. It was well established in both Canadian and Delaware jurisprudence that fair value should be proved by any techniques or methods that were generally considered acceptable in the financial community and were otherwise admissible in court. In determining fair value, the court was not itself an expert valuation tribunal and must be guided by the expert evidence from experienced valuers. Such experts typically required access to relevant historical data, documents and information relating to the company’s past trading and auditing, together with its forecasts (whether produced by internal management or others) in relation to future trading and not only those which have been publicly disclosed (paras. 17–18).

(2) The company should give discovery by uploading all documents relevant to determining the fair value of its shares, after having first uploaded to the data room the specific classes of documents which came into being in the “take private” process, which it should have readily available. This was the usual order and there was no good reason to depart from it in the present case. In a number of cases, orders for directions had been made which were consistent with regard to a company giving discovery on a “catch all” general basis, after it had given the specific discovery agreed. The court did not accept the company’s submission that there was no power under the GCR to order general discovery in actions begun by petition. It should be a general obligation of the company to search for and produce all documents relevant to fair value. The company would know the documents it possessed, whereas the dissenting shareholders would not. They were essentially outsiders and if the company were to be properly valued as a going concern they had to have access to its information, concerning both its existing business and future projections. Although the question of relevance was primarily for the experts, the company should have a general obligation to produce information and documents of relevance to value based upon which the experts could, if they deemed it necessary, request further specific information. It was not appropriate, therefore, to limit the company’s discovery to the documents listed in Schedule A to its draft order and then to rely on only searching for and producing further documents relevant to valuation on the basis that they were requested. In addition, the documents should be disclosed in the prescribed form, i.e. by way of a list (GCR Appendix 1, Form No. 16). As the company likely held all the relevant information for a determination of fair value, it was necessary not to limit in any way the company’s obligation to produce...

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2 cases
  • Re Qunar Cayman Islands Ltd
    • Cayman Islands
    • Court of Appeal (Cayman Islands)
    • 10 April 2018
    ...documents in the possession of dissenting shareholders would only be ordered in exceptional circumstances (that judgment is reported at 2017 (2) CILR 24). The company appealed (a) against para. 6 of the order, submitting that there was no case for such general disclosure; (b) against para. ......
  • Nord Anglia Education, Incorporated
    • Cayman Islands
    • Grand Court (Cayman Islands)
    • 19 March 2018
    ...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......

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