Section 238 of the Companies Act (2022 Revision) and New Frontier Health Corporation

• Jurisdiction: Cayman Islands
• Judge: Justice David Doyle
• Judgment Date: 17 August 2022
• Year: 2022
• Court: Grand Court (Cayman Islands)
• Docket Number: FSD CAUSE NO. 72 & 74 OF 2022 (DDJ)

In the Matter of Section 238 of the Companies Act (2022 Revision)

And in the Matter of New Frontier Health Corporation

Before:

The Hon. Justice David Doyle

FSD CAUSE NO. 72 & 74 OF 2022 (DDJ)

IN THE GRAND COURT OF THE CAYMAN ISLANDS

FINANCIAL SERVICES DIVISION

HEADNOTE

Directions in respect of petitions filed pursuant to section 238 of the Companies Act (2022 Revision)

Appearances:

Quentin Cregan and Adrian Davey of Maples and Calder (Cayman) LLP for the Company

Jeremy Goldring QC for the Dissenters, instructed by (i) Sam Keogh of Campbells, (ii) Nigel Smith and Mark Dowds of Carey Olsen, and (iii) Rocco Cecere, Zachary Hoskin and Dawn Major of Collas Crill

Introduction

1 In FSD 72 of 2022 (DDJ) Alpine Partners (BVI), L.P. presented a petition dated 28 March 2022 and in FSD 74 of 2022 (DDJ) New Frontier Health Corporation (the “Company”) presented a petition dated 28 March 2022 both seeking, pursuant to section 238 of the Companies Act (2022 Revision) (“Section 238”) this Court's determination of the fair value of the shares held in the Company together with a fair rate of interest, if any, on the amount payable by the Company to certain dissenters. The remaining dissenters are Blackwell Partners LLC — Series A, Maso Capital Investments Limited, Star V Partners LLC, Alpine Partners (BVI), L.P., Hildene Opportunities Master Fund II, Ltd., Invictus Special Situations Master I, L.P., and Oasis Investments II Master Fund Ltd., (the “Dissenters”).

2 The Company and the Dissenters have been negotiating the terms of a draft Directions Order (the “draft Order”). Certain issues have been agreed but some have not. The issues still in dispute are concerned, in the main, with the discovery process. Other disputed issues are as mundane as information requests, timings in respect of consideration of transcripts of management meetings, timings in respect of responsive factual evidence and terms of an indemnity. The duties of the parties and their attorneys to help the Court to further the overriding objective of dealing with cases justly and in particular the avoiding of disproportionate expense and the taking up of excessive Court time (which should be focused on determining substantive issues) require that they should sensibly cooperate with each other and make comprehensive and genuine attempts to agree directions in this well-trodden area of the law. I am grateful to the parties and the attorneys for the work they have undertaken in agreeing many issues but disappointed that so many remain in dispute.

3 I record that I have considered the hearing bundle. I note in particular the evidence of Carl Wu, the Company's Chief Executive Officer, and the evidence of Gwynn Hopkins, the managing director of Perun Consultants instructed on behalf of the Dissenters. I have considered the two skeleton arguments and the two bundles of authorities. I have also benefited from the helpful oral submissions of Quentin Cregan who appears for the Company and Jeremy Goldring QC who appears for the Dissenters.

The relevant law

4 I have considered the law relevant to the issues before the Court for determination, including section 238 and the numerous authorities referred to in the helpful skeleton arguments placed before the Court.

5 I note in particular:

• (1) Re Qihoo 360 Technology 2017 (2) CILR 585 (Cayman Islands Court of Appeal judgment 9 October 2017);

• (2) Re Homeinns Hotel Group 2017 (1) CILR 206 (FSD; Mangatal J judgment 7 February 2017);

• (3) Re NordAnglia 2018 (1) CILR 164 (FSD; Kawaley J judgment 19 March 2018);

• (4) Re Xiaodu Life Technology Ltd (Unreported; FSD; Kawaley J ruling 26 March 2018);

• (5) Re Qunar Cayman Islands Limited 2018 (1) CILR 199 (Cayman Islands Court of Appeal judgment 10 April 2018);

• (6) Re KongZhong Corporation (Unreported; FSD; Parker J judgment 6 August 2018);

• (7) Practice Direction No 1 of 2019;

• (8) Re JA Solar Holdings Co Ltd (Unreported; FSD; Smellie CJ ruling 18 July 2019);

• (9) Re eHi Car Services Ltd (Unreported; FSD; Parker J judgment 24 February 2020);

• (10) Re FGL Holdings (Unreported; FSD; Parker J judgment 18 December 2020);

• (11) Re Sina Corporation (Unreported; FSD; Parker J judgment 25 January 2022); and

• (12) Re 58.com, Inc. (Unreported; FSD; Ramsay-Hale J ruling 8 March 2022).

Rulings on disputed issues

6 In my preparation for the hearing I largely used the issue numbers provided in the skeleton argument of the Dissenters. The Company's skeleton argument did not divide the issues into numbered issues but yesterday at the start of the hearing Mr. Cregan for the Company handed in a document (the “Company's Issues Document”) which helpfully, albeit somewhat belatedly, specified some 18 issues (some of which had not been canvassed in the skeleton arguments) and it was to that document that counsel referred to at the hearing. In specifying my various rulings I have used the numbered issues provided in the Dissenters' skeleton argument and, where possible, I have cross-referenced these to the Company's Issues Document. Hopefully this will assist those who will be producing an updated Order for my approval following the delivery of my rulings on the various issues.

7 I deal with the remaining issues in dispute as follows:

Issue 1 (Company's Issues Document Issue 2)

(1) Whether the lookback period for the Company's discovery should be 5 years as sought by the Dissenters or 3 ¹/₂ years as sought by the Company.

Ruling

My ruling is that it should be 5 years.

Reasons

Although the Company was only incorporated on 28 March 2018, Mr. Hopkins notes (at paragraph 20) that in July 2019 it entered into an agreement to acquire Healthy Harmony Holdings L.P. whose healthcare business operations had ongoing operations prior to the incorporation of the Company and indeed beyond the 5-year lookback period being proposed by the Dissenters. I am not persuaded that I should reduce the “customary” 5—year lookback period. I noted that the Company had already offered to accept a 5-year lookback period for its discovery but only if the Dissenters accepted a 3-year lookback period for their own discovery in return (see emails from the Company's attorneys Maples dated 16 July 2022 and 13 July 2022). The Company itself sensibly acknowledged the applicability of a 5-year lookback period. It should, however, have agreed to this self-standing issue without trying to connect it to another. At the hearing yesterday the Company sensibly did not seriously contest the 5-year period.

Issue 2 (Company's Issues Document Issues 10 and 11)

(2) Disputed categories of Company discovery under Appendix 3 of the draft Order including whether certain categories of that discovery should be subject to lookback periods of 1 year or whether a 5-year period should apply to all Appendix 3 categories (as contended for by the Dissenters).

Ruling

My ruling is that it should be 5 years.

Reasons

I am not persuaded to reduce the period to below 5 years. The 5-year period should apply to all Appendix 3 categories. I am not persuaded that in respect of paragraphs 23 and 27

the period should be limited to a 1-year period and I note the lack of evidence to support such a shortened period.

Issue 3 (also Company's Issues Document Issue 3)

(3) Whether the lookback period for the Dissenters' discovery under Appendix 4 of the draft Order should be the 2-year period sought by the Dissenters or the 3-year period sought by the Company.

Ruling:

My ruling is that the relevant period should be a 2-year period.

Reasons:

This would be largely consistent with previous rulings in other cases. I am not persuaded that a 3-year period is warranted in the circumstances of this case even for the limited number of Dissenters identified by Mr. Cregan in his oral submissions. I have noted the evidence of Mr. Hopkins at paragraphs 28 – 30. I think a 2-year period is appropriate and proportionate in the circumstances of this case.

Issue 4 (Company's Issues Document Issue 1)

(4) Whether the Company should be ordered to provide the bulk of its discovery within 180 days (as contended for by the Company) or within 120 days (as contended for by the Dissenters).

Ruling

My ruling is that a period of 120 days should be allowed. This should be specified at paragraph 11a of the draft Order.

Reasons

I am not persuaded that the impact of the COVID 19 pandemic and the PRC Data Protection Laws mean that a longer period than 120 days should be allowed. 120 days should be adequate and realistic. The discovery process cannot be permitted to unduly delay the determination of the issues in this case within a reasonable time. The Dissenters have referred to authorities where a “customary” 70 days has been ordered in the past. The evidence before the Court goes nowhere near justifying 180 days. I noted with concern Mr. Wu's statement at paragraph 24 that “the company is yet to...