Section 238 of The Companies Law (2016 Revision) and Nord Anglia Education, Inc.
| Jurisdiction | Cayman Islands |
| Judge | Justice Kawaley |
| Judgment Date | 18 April 2019 |
| Court | Grand Court (Cayman Islands) |
| Docket Number | CAUSE NO. FSD 235 OF 2017 (IKJ) |
The Hon. Justice Kawaley
CAUSE NO. FSD 235 OF 2017 (IKJ)
IN THE GRAND COURT OF THE CAYMAN ISLANDS
FINANCIAL SERVICES DIVISION
Costs of Dissenters Summonses for Directions-section 238 of the Companies Law-whether costs should follow the event-whether successful party acted unreasonably-need for timetable fixed by Grand Court to address the filing of section 1782 applications before the US courts
Mr Malachi Sweetman, Maples And Calder, On Behalf Of Nord Anglia Education, Inc. (“the Company”)
Mr Christopher Harlowe, Mourant Ozannes, on behalf of the Mourant Dissenters
On December 6, 2018, 1 heard the Mourant Dissenters' Data Room Summons dated October 25, 2018 and the Company's Notice seeking general case management directions. My Ruling on the issues raised was delivered on December 21, 2018.
My provisional views on costs were set out as follows:
“28. The Mourant Dissenters have achieved substantial success on their firmly contested Summons, but exploited the fortuitous functionality problems thrown up by the Company's improvisational approach to e-discovery to obtain tactical benefits through extending the duration of the inspection process. I do not think the Dissenters should be awarded their costs in any event.
29. The option of accepting the offer to provide experts only with access to native format could have been accepted without prejudice to the pursuit of the present application as a matter of principle. Not only would the trial preparations have been further advanced (it is, after all, primarily for the Experts to carry out the inspection process). The scope of argument could have been narrowed so as to focus not on the functionality issues, but on the principles and practice governing e-discovery. Unless any party applies within 28 days by letter to the Registrar to be heard as to costs, the costs of this Summons shall be the Dissenters' costs in the cause.
30. The separate costs relating to those portions of the Company's Notice which did not relate to the inspection controversy are probably de minimis. Some of the relief was agreed (the timetable), some of the relief was refused (the section [1782] applications) and some relief was substantially granted (fixing a trial date) However those were quintessentially pre-trial general case management issues. Unless any party applies within 28 days by letter to the Registrar to be heard as to those costs, those costs shall be in the cause.”
On January 30, 2019, Mourant filed written submissions and authorities in support of the Mourant Dissenters' application for costs in relation to the Mourant Dissenters' Data Room Summons. There was some delay in serving these documents on the Company's attorneys. On March 7, 2019 Maples forwarded its written submissions under cover of a letter which requested that the costs application should be dealt with on the papers. By an email dated March 11, 2019, Mourant confirmed that they were also content for the matter to be dealt with on the papers.
The Appleby Dissenters and the Campbells Dissenters did not formally seek to persuade me to depart from the provisional views I expressed as to costs, which was (a) Dissenters' costs in the cause (Mourant Dissenters' Data Room Summons), (b) costs in the cause (Company Notice in relation to general pre-trial case management issues). However, that view assumed equality of treatment for all participating Dissenters, so in principle any more generous award secured by the Mourant Dissenters should logically accrue to the benefit of their comrades in arms as well. This principle must have regard to the context on which the present costs application was made, however. As the Company's position was that my provisional view should be sustained and the other Dissenters raised no challenge to that provisional view, the appropriate costs outcome was implicitly agreed between them.
The central complaints were that (a) the Company had adopted a form of watermarking for non-HSD documents without express Court approval or Dissenter consent, and that (b) as a result the documents could not be properly inspected. The following findings were made on this issue:
“20. In my judgment it is clear that there is a startingpresumption in favour of the provision of documents in their native format and, in the present section 238 context, it was incumbent on the Company to justify a departure from this general rule. It is important for the governing principles not to be clouded by the peculiar circumstances of the present case. The Company, vexed by an apparently unusually large number of potential Data Room Users and (in my view) genuinely anxious about confidentiality concerns, sought to introduce additional security protections for non-HSDs which it considered would be uncontroversial. Having created a ‘bespoke’ e-discovery system, the Company's central preoccupation by the time the present application was heard had in my judgment by default become an essentially defensive one. The Company sought to justify its system by reference to logistical arguments untethered to any discernible legal principle.
21. I find the Company has failed to make out a case for providing only the. limited class of Users entitled to view unredacted versions of HSDs with native format documents, because providing documents in such a format forms part of the Company's basic discovery obligations. It was not for the Dissenters to demonstrate any practical need for production in this form.
22. The Company has, nonetheless, established that the watermarking of native format non-HSDs (as described in the First Hanna Affidavit at paragraph 31), is justified in the unique circumstances of the present case. Although the matter should ideally have been addressed at the hearing of the Summons for Directions, the Dissenters cannot (and did not in correspondence before the present Summons was issued) object to the principle of watermarking. This assumes that ‘watermarking’ takes the form of an unobtrusive added layer of protection which will help to prevent accidental or intentional breaches of confidence. Indeed, the evidence of the Dissenters' own ‘expert’ in my judgment supports the view that static watermarking by way of Bates number is standard e-discovery practice, and that the word ‘confidential’ has also been added under direction of the courts”
The Data Room Summons clearly resulted in the Mourant Dissenters (supported by the other Dissenters) achieving substantial success thus triggering a prima facie entitlement to their costs applying the usual costs follow the event rule.
The only question is whether my provisional view, that the Dissenters' conduct in declining an offer from the Company which would have advanced the trial preparation process combined with the overseas discovery applications was unreasonable, is sustainable in light of the contrary arguments advanced by the Mourant Dissenters in the present application for their costs.
The Mourant Dissenters' submissions may be summarised as follows:
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(a) where a party provides deficient e-discovery, the Court can and should compensate the party who wastes costs in dealing with the defective discovery: Wheater & Raffin ‘Electronic Discovery’, 1 st edition (paragraphs 1.82(9), 4–179–180), West African Gas Pipeline Co Ltd.-v — Willbros Global Holdings Inc [2012] EWHC 396 (TCC), (Ramsay J, at paragraphs 50, 65, 68, 70, 71, 92, 93), Vector Investments-v-Williams [2009] EWHC 3601 (TCC) (Ramsay J, paragraphs 15, 22, 84ff, 92–95), Earles-v-Barclays Bank Plc [2009] EWHC 2500 (QB) (Simon Brown J, paragraphs [71], [75], [77];
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(b) the usual rule should apply as regards the costs of the Summons: Merck KGaA-v-Merck Sharp & Dohme Corp and Others [2014] EWHC 3290 (Ch) (Nugee J, at paragraph 6), Sagicor General Insurance (Cayman) Limited-v-Crawford Adjusters (Cayman) Limited [2011] (2) CILR 471 (Henderson J, at [29]), Re Wimbledon Fund SPC, FSD 111 of 2017 (RPJ), Judgment dated November 19, 2018 (unreported) (Parker J at paragraphs 5–6);
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(c) the Dissenters' commercial motives or purpose in buying their shares is irrelevant: Re Zhaopin Limited FSD 260 of 2017 (RMJ), Judgment dated June 22, 2018 (unreported), (McMillan J at [48]), RFG Private Equity Limited Partnership No IB-v — Value Creation Inc, 2016 ABQB 391 (Romaine J, paragraph [279]), Solomon Bros Inc.-v-Interstate Bakeries Corp 576A. 2d 650 (Dei. Ch. 1989) 652–653;
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(d) there was no need for this Court to pre-approve the US section 1782 applications so the Court's provisional view that the Dissenters had acted unreasonably in not seeking prior approval was unwarranted: Lyxor Asset Management S.A.-v — Phoenix Meridien Equity Limited [2009] CILR 553 (C1CA), (Chadwick P,...
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