Re Qunar Cayman Islands Ltd

• Jurisdiction: Cayman Islands
• Judge: (Goldring, P., Rix and Field, JJ.A.)
• Judgment Date: 10 April 2018
• Court: Court of Appeal (Cayman Islands)
• Date: 10 April 2018

Court of Appeal (Cayman Islands)

(Goldring, P., Rix and Field, JJ.A.)

IN THE MATTER OF QUNAR CAYMAN ISLANDS LIMITED

QUNAR CAYMAN ISLANDS LIMITED

and

ATHOS ASIA EVENT DRIVEN MASTER FUND and SEVEN OTHERS

T. Lowe, Q.C., P. Madden and L. Greig for the petitioner/appellant;

P. Girolami, Q.C. and A. Jackson for the first, second and fifth respondents;

R. Levy, Q.C., R. Cecere and J. Bush for the third and fourth respondents;

N. Meeson, Q.C. and E. Bodden for the sixth, seventh and eighth respondents.

Cases cited:

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

(2)Cyprus Anvil Mining Corp. v. Dickson (1986), 33 D.L.R. (4th) 641; 8 B.C.L.R. (2nd) 145, referred to.

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

(4)Homeinns Hotel Group v. Maso Capital Invs. Ltd., 2017 (1) CILR 206, not followed.

(5)Integra Group, In re, 2016 (1) CILR 192, considered.

(6)Qihoo 360 Technology Co. Ltd., In re, 2017 (2) CILR 585, considered.

(7)Shanda Games Ltd., In re, Grand Ct., Cause No. FSD No. 14 of 2016, April 25th, 2017, unreported, referred to.

(8)Trina Solar Ltd., In re, Grand Ct., Cause No. FSD 138 of 2017, unreported, referred to.

Legislation construed:

Companies Law (2016 Revision), s.238: The relevant terms of this section are set out in para. 8.

Grand Court Rules 1995 (Revised), O.24, r.3(1):

“. . . [T]he Court may order any party to a cause or matter (whether begun by writ, originating summons or otherwise) 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, and may at the same time or subsequently also order him to make and file an affidavit verifying such a list and to serve a copy thereof on the other party.”

O.24, r.14(1): “No order for the production of any documents for inspection or to the Court or for the supply of a copy of any document shall be made under any of the foregoing rules unless the Court is of opinion that the order is necessary either for disposing fairly of the cause or matter or for saving costs.”

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, no rule that dissenting shareholders only ordered to give discovery in exceptional circumstances — disclosure is mutual obligation — dissenting shareholders to disclose documents in their possession relating to value of company

The company applied in the Grand Court 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 by a special resolution of its shareholders in February 2017. The company sought the determination of the fair value of its shares pursuant to the dissenting shareholders’ action under s.238 of the Companies Law (2016 Revision).

Both the company and the dissenting shareholders appointed experts. There were disputes between the parties concerning the scope of the company’s discovery obligations and whether the dissenting shareholders should be ordered to give discovery. The parties agreed a schedule of documents to be disclosed by the company (Schedule A). The company sought documents and information from the dissenting shareholders (as set out in Schedule B). The dissenting shareholders did not consider that any documents in their possession were relevant to the determination of the fair value of their shares in the company. Their expert sought the widest possible disclosure from the company while asserting the irrelevance of the dissenting shareholders’ documents relating to their investment in the company.

At the directions hearing, the Grand Court (Parker, J.) ordered the company to upload to the data room (a) all documents set out in Schedule A (para. 5 of the order); (b) in addition, any additional documents,communications and other materials in its possession, custody or power which were relevant to the determination of the fair value of the company’s shares (para. 6 of the order); and (c) any additional documents, materials, communications or information requested by either of the parties’ experts for the purpose of preparing his or her opinion (para. 11 of the order). The judge also decided that it was not appropriate for the dissenting shareholders to be ordered to provide discovery. He considered that on a s.238 petition it would not be appropriate for dissenting shareholders to be ordered to give discovery in the usual way and that discovery of specific 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. 11, submitting that there was no need for such further disclosure and that the process contemplated by that part of the order was outside GCR O.24; and (c) submitting that the judge had been wrong to rule that disclosure from the dissenting shareholders was irrelevant and to have declined to order it on that basis.

The dissenting shareholders submitted in reply that paras. 6 and 11 of the Grand Court’s order had been agreed between the parties before the directions hearing. The dissenting shareholders supported the judge’s refusal to order them to make any disclosure, which was a matter of precedent in the Cayman Islands where in all previous s.238 cases disclosure had been a one-way process.

Held, ruling as follows:

(1) The company’s appeal against para. 6 of the order, which required it to upload any additional documents and other materials which were relevant to a determination of the fair value of the shares, would be dismissed. The company’s appeal on this ground was wholly undermined by clear evidence that it had conceded the catch-all provision of para. 6. Such agreement was not altogether surprising in the light of previous orders possibly agreed but in any event sanctioned in earlier cases involving s.238 of the Companies Law. Furthermore, it was clear that GCR O.24, r.3 applied in any proceedings (“whether begun by writ, originating summons or otherwise”) and allowed the court to make an order for general discovery. It was unlike r.7, which was concerned with discovery of particular documents. Whereas r.7 required an affidavit from the requesting party, r.3 did not. Although it was true that production went beyond discovery and inspection, and would only be ordered where necessary, it was likely to be an unusual case where the documents discovered as being relevant went beyond what was necessary for production. Because of discovery by list, it would be open to the parties to anticipate how much actual production would be necessary. If there was a dispute, r.14 made it clear that the burden was on the party seeking production. In the present case, however, it was agreed that the relevantdocuments, whether under para. 5 of the order (Schedule A) or under para. 6 (the catch-all provision) were not merely to be discovered by list but also uploaded, i.e. produced. In s.238 fair value proceedings, such an attitude to the company’s disclosure obligations was entirely understandable. It was the company itself which had put forward a price for the merger buy-out of its shares, and it had done so on the basis of its own internal assessment of its business and prospects. It therefore knew better than anyone else the documentary material that was relevant to its assessment (paras. 41–46).

(2) The appeal against para. 11 of the order, which required the company to provide such further disclosure and/or information as the experts might require, would also be dismissed. The company had effectively withdrawn its appeal against para. 11 during the course of submissions. In any event, the company could not successfully appeal against the concept of expert engagement in the process of disclosure which had been sanctioned by the parties and the court not only in para. 11 of the order but also in paras. 6 and 12 (paras. 51–52).

(3) The company’s appeal concerning disclosure by the dissenting shareholders would be allowed. The court approached this issue from the starting point that one-sided disclosure on the central issue of a case was anomalous, unprecedented in the Cayman Islands outside s.238 cases, and prima facie counterintuitive. Both experts in the present case were agreed that third party valuations were relevant and helpful and should be disclosed if in the company’s possession. If third party valuations in the company’s possession were relevant, so were third party valuations in the possession of the dissenting shareholders. The question of fair value was closely related to the question of what a willing buyer and a willing seller would exchange for the shares of the company (or for the company as a whole), and that question was closely related to valuations conducted within the market generally. The company’s own documents, however important to the issue of fair value (as to which there was no doubt), must be exposed to the arguments that could flow from the findings, analyses, evaluations and factual selections which other sophisticated entrepreneurs, investors and analysts in the market had made or performed. It must also be remembered that the documents of investors prior to litigation were not driven by the litigation itself but by their willingness to invest based on the findings and evaluations. The court considered that previous decisions in the Cayman Islands in which dissenting shareholders were not ordered to provide discovery were of very little assistance. The value of a company...