Re Fortuna Dev Corporation

JurisdictionCayman Islands
CourtCourt of Appeal (Cayman Islands)
Judge(Zacca, P., Taylor and Mottley, JJ.A.)
Judgment Date14 February 2008
Date14 February 2008
Court of Appeal

(Zacca, P., Taylor and Mottley, JJ.A.)


S. Phillips, Q.C., N.D. Robinson and G.A. Locke for the petitioner;

R. Hacker, Q.C., and G. Halkerston for the respondents.

Cases cited:

(1) Boswell & Co. (Steels) Ltd., ReUNK(1989), 5 BCC 145, followed.

(2) Gillies v. Pensions Secy., [2006] 1 W.L.R. 781; [2006] 1 All E.R. 731; 2006 S.C. (H.L.) 71; 2006 SLT 77; 2006 S.C.L.R. 276; [2006] ICR 267; (2006), 9 CCLR 404; [2006] UKHL 2, considered.

(3) Isaacs v. Belfield Furnishings Ltd., [2006] 2 BCLC 705; [2006] EWHC 183 (Ch.), followed.

(4) Marco v. Thompson (No. 3), [1997] 2 BCLC 36, dicta of Robert Walker J. applied.

(5) Nugent v. Benfield Grieg Group Plc, [2002] BCC 256; [2002] 1 BCLC 65; [2002] W.T.L.R. 769; [2001] EWCA Civ. 397, followed.

(6) O”Neill v. Phillips, [1999] 1 W.L.R. 1092; [1999] 2 All E.R. 961; [1999] 2 BCLC 1; (1999), 143 Sol. Jo. (L.B.) 155, applied.

(7) Porter v. Magill, [2002] 2 A.C. 357; [2002] 1 All E.R. 465; [2001] UKHL 67, distinguished.

Companies-minority shareholders-valuation of minority”s shares for sale to majority-minority shareholder bears burden of proof that valuer lacking in independence or impartiality-test whether facts shown that might persuade professional valuer to favour one side or other-to consider external factors compromising autonomy, e.g. close relationship to majority, and internal factors, e.g. earlier valuation conclusions from which valuer unable to depart

The petitioner sought the winding up by the Grand Court of Fortuna Development Corporation (‘Fortuna’).

The petitioner, Tempo Group Ltd., was a minority shareholder in Fortuna, a Cayman company established to further investment initiatives in Vietnam. It petitioned for the company to be wound up, alleging that the majority shareholders, Wynner Group Ltd. and New Frontier Devlopment Corp. (the respondents), had made improper transactions and engaged in unfair and oppressive behaviour. Inspectors were appointed and the Grand Court (Henderson, J.) ordered that the petition be stayed to allow the inspectors sufficient time to examine the company”s affairs. The respondents offered to buy the petitioner”s shares and agreed with the petitioner to appoint an independent valuer to establish the value of its minority shareholding. The agreement contemplated that the petition would be dismissed following the sale of the petitioner”s shares.

The parties appointed Ernst & Young (Vietnam) (‘EYV’) as valuer. After substantial valuation work had been done, however, the petitioner discovered evidence regarding the previous connections of two members of the valuation team to Fortuna, that it alleged was contrary to EYV”s claims of independence. The principal valuer, Ms. McConnell, had, from 1998 to 2000, been a director and Vice-President of Legal Affairs of the subsidiary of a company created for the purpose of negotiating a joint venture with Fortuna in Vietnam. It was hoped to raise investment for this venture in the United States and EYV was appointed its strategic adviser

in this respect. Ms. McConnell was involved in facilitating such investment but left the project in 2000, with the investment committee to which she belonged never having met and none of the investment road shows that she helped to organize having taken place and the project itself came to a fruitless end in 2002. During her work on that project, she had to consider Fortuna”s assets (but not value them) and also had to communicate with an employee of a Fortuna subsidiary, Mr. Driscoll, who later became Chairman of Fortuna. At that time Ms. McConnell personally invested in Vogue Associates Ltd. (‘VA’), a company with direct connections with Fortuna, founded by Mr. Driscoll himself.

There was also evidence that another member of EYV”s valuation team, Mr. Schellekens, was involved with Ernst & Young (New Zealand), which had also been involved with the joint venture project, which involved a valuation of Fortuna”s assets. He left the present valuation project in its very early stages, however, before expressing a valuation opinion.

In the light of this evidence, the petitioner applied for a declaration that EYV was not ‘independent,’ within the meaning of the agreement. The Grand Court (Henderson, J.) dismissed the application and held that EYV was an independent valuer within the meaning of the agreement. The test for independence was different from that for impartiality, which was purely one of fact; independence was as much about appearance as fact. The parties had intended to appoint an impartial expert who could be seen by both parties to be free of any prior dealings that would incline it to favour one side or the other and none of the principal valuer”s previous connections with Fortuna corrupted her independence and impartiality. The decision of the Grand Court is reported at 2007 CILR 349.

On appeal, the petitioner submitted that (a) the trial judge had erred by (i) applying the wrong test for independence; (ii) resolving conflicting evidence too readily; (iii) failing to take into account relevant evidence and drawing erroneous inferences; and (iv) limiting consideration of prior connections between EYV and Fortuna to the actual expression of valuation opinions, without considering the cumulative effect of all prior connections; and (b) EYV was not independent, contrary to the promotional literature presented by them in order to secure the contract, because its principal valuer (i) had previously been involved in a valuation of Fortuna”s assets, which were also the subject of the current valuation, as had another member of its valuation team; and (ii) had owned shares in a company founded by Fortuna”s Chairman (who was beholden to the respondents and with whom she had a continuing relationship) which had direct connections to Fortuna.

The respondents submitted in reply that (a) the principal valuer had not carried out any detailed due diligence in relation to the earlier joint venture project, nor had she been directly involved in evaluating any assets, between 1998 and 2000, that were the subject of the present valuation. Any information to which she had had access during that period had little relevance today due to changes in the economic climate and developments in Fortuna”s enterprise and any troublesome allegations in

this respect, made by EYV in its early exchanges with the parties, were mere exaggerations; (b) she had had no personal contact with Fortuna”s Chairman for at least two years before the beginning of the present valuation; (c) she was merely a passive investor in VA and her investment gave her no interest in the outcome of the present valuation or litigation; (d) the other team member had never expressed an opinion on the value of any assets and had left EYV soon after the present valuation started; and (e) the test for independence was not, as the trial judge had held, whether EYV could be held to favour one side or the other, but whether it was free from anything that would influence the outcome of its valuation; this question had to be answered based on the facts, and not upon appearance.

Held, dismissing the application:

(1) EYV was an independent valuer within the meaning of the agreement between the petitioner and the respondents. The basis of the parties” agreement was that the valuer had to be both independent and impartial and the onus of proof was on the petitioner to prove actual want of independence (and impartiality), rather than simply an appearance of it. That was a matter of objective fact to be established on the balance of probabilities and could be established without going as far as to establish a connection of a sort that would be bound to influence the valuation, but which merely might incline a professional valuer to favour one side or the other; that could occur as a result of either external factors, compromising the valuer”s autonomy, or internal factors, such as earlier conclusions from which the valuer might not be able to depart. Although the relationship of the valuer to the company and/or any potential future benefit that the valuer might gain from the valuation was not itself sufficient to establish a lack of independence, independence might be lost if this was combined with a close relationship to the majority shareholder and/or prior involvement in transactions that became the subject of the valuation (paras. 10–11; paras. 18–20; paras. 54–56).

(2) The petitioner”s evidence of the principal valuer”s involvement with an earlier valuation of Fortuna”s assets and her investment in a company controlled by the Chairman of Fortuna did not discharge the onus on it to prove actual want of independence; she had little involvement with, and never expressed a valuation opinion in respect of, the earlier valuation (or any transactions which became the subject of the present valuation), which took place 5–7 years earlier in a different economic climate and totally different financial circumstances, and there was nothing in any case to suggest that a valuer could not be independent if he/she had previously valued the same company. With regard to her investment in the company controlled by Fortuna”s Chairman, she was nothing more than a passive investor which gave her no interest in the outcome of the valuation (para. 21; paras. 49–50; para. 53).

(3) The purpose of the valuation process was the speedy and practical resolution of shareholder disputes and for that reason it was rough-edged.

Close scrutiny of evidence was therefore warranted in weighing evidence in support of allegations of want of independence, especially when such allegations were made late in the process and when there were no allegations that the valuer had acted either unfairly or partially during the process. The trial judge”s examination...

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3 cases
  • Re Fortuna Dev Corporation
    • Cayman Islands
    • Grand Court
    • 6 December 2010 the Court of Appeal (Zacca, P., Taylor and Mottley, JJ.A.), which affirmed the Grand Court”s decision (in proceedings reported at 2008 CILR 67). The valuation was subsequently delivered to the parties, and the respondents made an offer to purchase the petitioner”s shares at the valuation......
  • Re Fortuna Dev Corporation
    • Cayman Islands
    • Court of Appeal
    • 17 August 2010 the Court of Appeal (Zacca, P., Taylor and Mottley, JJ.A.), which affirmed the Grand Court”s decision (in proceedings reported at 2008 CILR 67). On the joint instructions of the parties” advocates, the valuation was delivered to the parties in October 2007. It gave an opinion as to the v......
  • Tempo Group v Fortuna Dev
    • Cayman Islands
    • Grand Court
    • 28 September 2011
    ...There followed a long-running dispute as to the independence of the chosen valuers (in proceedings reported at 2007 CILR 349 and 2008 CILR 67), culminating in the dismissal of the plaintiff”s appeal against the striking out of its petition for a winding-up order (reported at 2010 (2) CILR 8......

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