Section 238 of the Companies Law (2016 Revision) and Nord Anglia Education, Inc.

• Jurisdiction: Cayman Islands
• Judge: Kawaley
• Judgment Date: 05 August 2019
• Court: Grand Court (Cayman Islands)
• Docket Number: CAUSE NO. FSD 235 OF 2017 (IKJ)
• Date: 05 August 2019

In the Matter of Section 238 of the Companies Law (2016 Revision)

and

In the Matter of Nord Anglia Education, Inc

Before:

The Hon. Justice Kawaley

CAUSE NO. FSD 235 OF 2017 (IKJ)

IN THE GRAND COURT OF THE CAYMAN ISLANDS

FINANCIAL SERVICES DIVISION

HEADNOTE

Section 238 of the Companies Law—dissenter discovery-legal advice privilege-litigation privilege-validity of privilege claims in relation to valuations-need for privilege claimant to particularise the relevant documents so that the validity of the claim can be assessed

Appearances:

Mr Mac Imrie and Mr Lukas Schroeter, Maples and Calder, on behalf of Nord Anglia Education, Inc. (“the Company”)

Mr Andrew Jackson and Ms Heather Froude, Appleby, on behalf of the Appleby Dissenters

In attendance: Mr Gary Hendrikse, Campbells, on behalf of the Campbells Dissenters

Mr Harry Rasmussen, Mourant, for the Mourant Dissenters

IN CHAMBERS

RULING

Introductory

1 By Order dated August 15, 2018 (the “Dissenter Discovery Order”), the Dissenters were ordered to upload to the Data Room:

“ 1.1 a schedule detailing the history of its trading in the Company's shares (the ‘ Shares’) between 13 January 2017 and 21 August 2017 (the “ Valuation Date”) (including the number of Shares purchased, the date(s) on which the Shares were purchased, and the price(s) for which the Shares were purchased); and

1.2 All documents (of whatsoever description, whether electronic, hard copy or in any other format) and communications (whether by email or otherwise) (“ Documents”) which exist and are within its possession, custody or power relating to its decision to purchase the Shares, insofar as such purchases took place between 13 January 2017 and the Valuation Date, and provided that such documents need only be produced if the Company's expert seeks supporting documentation in relation to one or more of the specific transactions set out in the Schedule referred to in paragraph 1.1 above, and

1.3 Any internal or external valuation analyses, calculations and/or estimates of the value of the Shares, including any supporting models and documentation relied upon in deriving such analyses, calculations and/or estimates, created between 21 August 2016 and the Valuation Date but excluding any such supporting models and documentation relied upon in deriving such analyses, calculations and/or estimates in respect of which it asserts proprietary rights (without prejudice to the right of the Company to bring an application for specific discovery in respect of such supporting models and/or documentation).”

2 By letter dated May 13, 2019, Compass Lexecon (on behalf of the Company's Expert, Professor Fischel, and renewing earlier similar requests) requested Appleby to provide supporting documentation for items listed in their clients' Schedules of Trades, previously disclosed on behalf of the Appleby Dissenters, This request was not complied with on the grounds of privilege. On the same date, the Company issued a Summons against the largest sub-set of Appleby's dissenting clients (the “Stockbridge Dissenters”) requesting them to, inter alia, produce documents responsive to its Expert's requests.

3 By Summons dated June 19, 2019, the Company sought an Order compelling Appleby's other clients (the “Appleby Dissenters”) to produce the documentation requested by Compass Lexecon. By paragraph 1 of a Consent Order dated June 11, 2019 1 (the “Consent Order”), it had already been agreed that they would provide further particulars of the privilege claim to allow the dispute to be adjudicated at the present hearing.

4 Paragraph 3 of the Consent Order made similar provision as regards the Stockbridge Dissenters (the single largest group of Dissenters represented by Appleby), who were subject to a discovery Summons dated May 13, 2019. The other Appleby clients herein (the “Appleby Dissenters”) were served a separate discovery Summons dated June 19, 2019. The present Ruling focusses on the Summons relating to the Appleby Dissenters because they were in the final analysis the primary parties against whom the Company vigorously sought relief at the June 21, 2019 hearing.

5 Near the end of the present hearing, during Mr Imrie's reply, I expressed the provisional view that it appeared that the Stockbridge Dissenters had complied with their discovery obligations by satisfactorily explaining why they had asserted privilege in respect of some documents which were responsive to the Compass Lexecon requests.

6 The Company's June 19, 2019 Summons sought production of documents which were responsive to Professor Fischel's requests which had been withheld on the grounds of legal advice privilege (paragraph 1) and litigation privilege (paragraph 2). The present Ruling engages with a somewhat novel factual and legal matrix in the wake of the Court of Appeal's relatively recent decision 2 that dissenter discovery must be given in proceedings under section 238 of the Companies Law (2018 Revision) (the “Law”).

7 How does the doctrine of privilege apply in relation to documents relevant to dissenters' trading in the Company's shares immediately before and after the proposed merger has been announced?

Factual Matrix

Background to dispute

8 The Company's shares (“Shares”) were listed on the New York Stock Exchange between March 26, 2014 and September 26, 2017. The Merger Agreement was announced on April 25, 2017. The Extraordinary General Meeting (“EGM”) to approve the Merger was convened for August 21, 2017. Between August 14 and August 17, 2017, the Dissenters submitted objections. The Merger was duly approved. The Company made its written offer to Dissenters pursuant to section 238 (8) of the Law on October 9, 2017. The Petition was presented by the Company on November 9, 2017 seeking the Court's determination of the fair value of the Shares pursuant to section 238(9) of the Law.

9 The Order dated August 15, 2018, required the Dissenters to upload their disclosed documents within 8 weeks of the Order being filed. Compass Lexecon on behalf of Professor Fischel sent five letters to Appleby dated November 27, 2018, each in respect of one or more Appleby Dissenter, requesting “ supporting documentation for the Schedule of Trades”.

10 By a letter dated December 4, 2018, Maples on behalf of the Company complained that the discovery provided was inadequate. The documents expected to be disclosed were itemised in paragraph 3 and included valuation memos, valuation appraisals and communications with third party advisors in relation to the valuation analysis. It was asserted:

“9 It must be the case that the documents outlined at paragraph 3 above exist or have existed and are/were in the possession, custody or power of the Appleby Dissenters between 21 August 2016 and the Valuation Date (as defined in the Dissenter Discovery Order)….”

11 Appleby responded by letter dated December 21, 2018 addressed solely to Maples to both the Compass Lexecon correspondence and the Maples December 4, 2018 letter. The respective responses may be summarised as follows:

• (a) it was asserted, by reference to the May 28, 2018 Ruling on Dissenter Discovery, that the Company's Expert was entitled to no further documentation unless specific transactions were being challenged;

• (b) that the Dissenter Discovery Order “did not require a Dissenter to upload any document over which it claims privilege”. As the requests made by Maples appeared to be “tantamount to a request that each of the Appleby Dissenters make a serve a list of documents”, lists would be prepared in a “spirit of cooperation and furthering the Overriding Objective”.

12 Lists of Documents dated January 11, 2019 were served in respect of various subsets of the Appleby Dissenters group. Part 2A of each List described documents which the Dissenters objected to produce on the grounds of legal advice and litigation privilege. Part 2B described documents which the Dissenters objected to produce on the grounds that they contained proprietary information relating to “internal methods of analysing, calculating and/or estimating the value of Shares”.

The disputed discovery requests

13 Compass Lexecon, in the letter to Appleby dated May 13, 2019 referred to above, made the following renewed request on behalf of the Company's Expert:

“In your letter of 21 December 2018 you refused our request for supporting materials under paragraph 1.2 of the Dissenter Discovery Order on the basis that no specific transactions were challenged, no reasons for any challenge were provided and no categories of supporting documents were suggested. We understand that the Company's position is that these preconditions are not in fact required for a valid request under paragraph 1.2 of the Dissenter Discovery Order.

Accordingly, please provide the supporting documentation from the Schedule of Trades provided in document ATHOS000000001 disclosing transactions in Nord shares by Athos Asia Event Driven Master Fund and FMAP ACL Limited, between 13 January and 21 August, including any document not already produced that discusses the reasons for the transactions shown on the Schedule of Trades.

In particular, please provide the following documents:

• 1. The last model prepared/modified before the first Nord share purchase by each of Athos Asia Event Driven Master Fund and FMAP ACL Limited post-merger announcement (regardless of when such model was first created); and

• 2. The last model prepared/modified before the last Nord share purchase by each of Athos Asia Event Driven Master Fund and FMAP ACL Limited post-merger announcement (regardless of when such model was first created).”

14 Substantially the same request was made in relation to four other sets of Appleby Dissenters, namely Pembroke Way LLC and Standish Road LLC, Quadre Investments, L.P., Senrigan Master Fund and the Stockbridge Dissenters, in letters of the same date. Also on the...