The Companies Act (2020 Revision) and 58.Com, Inc.
| Jurisdiction | Cayman Islands |
| Judge | Justice Kawaley |
| Judgment Date | 22 March 2023 |
| Docket Number | CAUSE NO: FSD 275 OF 2020 (MRHCJ) |
| Court | Grand Court (Cayman Islands) |
The Hon. Justice Kawaley
CAUSE NO: FSD 275 OF 2020 (MRHCJ)
IN THE GRAND COURT OF THE CAYMAN ISLANDS
FINANCIAL SERVICES DIVISION
Petition under section 238 of the Companies Act-cross-application by Dissenters for a declaration that the Company is not entitled to claim privilege against its own shareholders save as regards hostile litigation against them-Companies Act (2020 Revision), section 238
Mr Jonathan Adkin KC instructed by Ms Dunzelle Daker of Ogier, Mr Mark Dowds of Carey Olsen, Ms Charlotte Walker of Collas Crill and Ms Katie Logan of Campbells, on behalf of “the Dissenters” 1
Mr Charles Béar KC instructed by Ms Caroline Moran, Mr Daniel Mills, Ms Christiana McMurdo and Mr Malachi Sweetman of Maples and Calder, on behalf of 58.Com, Inc. (“the Company”)
On 2 April 2020, Ocean Link announced a proposal to buy the Company's shares for US$55 per Alternative Depositary Share (“ADS”). Later that month, a Special Committee was appointed and advisers including Fenwick & West LLP were retained. The possibility of dissenting shareholders to any merger agreement which might be reached surfaced, according to the Company, one week later. On 30 April 2020 the buyer group including Ocean Link and the Company's founder Mr Yao submitted a formal offer. On 15 June 2020, the Special Committee recommended acceptance of the merger offer (subject to shareholder approval) and Maples & Calder (Cayman) LLP were retained to handle litigation on 19 June 2020. The extraordinary general meeting to consider and potentially approve the merger was held on 6 September 2020 (“EGM”). The merger was approved by the requisite majority of more than 75% of shareholders voting. The 45 Dissenters filed Notices of Dissent between on or about 14 September and on or about 1 October 2020. A fair value offer made by the Company to the Dissenters on 7 October 2020, pursuant to section 238(8) of the Act, was rejected.
The Company presented its Petition herein on 10 November 2020. The case was assigned to Ramsay-Hale J (as she then was) and it remains, save for the present discrete application, on her docket. A three-day directions hearing took place in the summer of 2021 and the present dispute of the scope of the Company's ability to claim privilege was not canvassed. The order on the Summons for Directions was formally made on 8 November 2021, and the Company gave disclosure in various batches or tranches over several months commencing in mid-October 2021. On 12 April 2022, the Company filed a Summons seeking, inter alia, injunctive relief against the Dissenters in relation to their section 1782 discovery applications in the United States. By their Cross-Summons dated 10 May 2022, the Dissenters sought so far as is relevant for present purposes the following relief:
“ 3. An order that the Company disclose and produce for inspection (and may not claim privilege against the Dissenters in respect of) documents within its possession, custody or power in relation to any period prior to 30 September 2020.
4. Such further or other orders as the Court thinks fit, including as to costs.”
The Dissenters' fundamental position, opposed by the Company, is that the well-known principle that a company cannot assert legal advice privilege against a shareholder in relation to the management of the company's affairs applies to discovery given by the petitioner in appraisal proceedings. It is common ground that this legal point, in effect whether the Dissenters share a joint interest privilege with the Company, has not been adjudicated (nor seemingly even raised) before in any of the many section 238 proceedings which have taken place in this Court since the section's enactment in 2014.
It seemed reasonable to infer that the Dissenters' Cross-Summons was to some extent a tactical response to the Company's ‘attack’ on the Dissenters' overseas discovery machinations. The First Affidavit of Marie Skelly was sworn both in opposition to the Company's Summons and in support of their own Cross-Summons. The Dissenters' evidence did not reveal any pivotal event, like Isaac Newton's falling apple, which suddenly inspired the notion that a joint interest privilege claim existed and/or should be asserted. As the common law is grounded in the notion of legal theory rendering service to practical problems, a common lawyer is entitled to view with some initial scepticism an argument based on longstanding legal principles being raised in well-trodden legal terrain seemingly entirely detached from any discernible practical dilemma. However, that same initially sceptical common lawyer will generally do well to recall that the soundness of legal points does not invariably depend on the familiarity of the factual matrix in which a novel argument is advanced.
Because of the consistently high value of section 238 appraisal proceedings, company founders and dissenters have a shared vested interest in ensuring that the governing legal framework conforms as far as possible to their respective notions of commercial rationality. While I would not hesitate about summarily dismissing an obviously hopeless tactical application, this Court should be slow to allow initial scepticism to cloud its judgment about the true merits of novel legal points which litigants have clearly significantly invested in having fully argued by experienced counsel. Although the section 238 path is now fairly familiar, this Court's less than one decade's experience is still only infantile in historical legal terms. By the end of the hearing therefore I had formed the following preliminary views:
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(a) in principle, joint interest privilege should be enforceable by registered shareholders of companies, without regard to whether they were registered shareholders or ADS holders at the time the legal advice was given. Section 238 does not exclude the rights of dissenting shareholders to assert joint interest privilege where it properly arises;
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(b) joint interest privilege is unlikely in most cases to properly arise in relation to legal advice obtained by the Company in relation to the merger process itself. Legal advice received at some point after the announcement of the merger (the date when the first notice of dissent is served being the latest possible point) is likely in most cases to be covered by litigation privilege in any event;
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(c) as section 238 proceedings are appraisal proceedings, only legal advice relevant to the fair value of the shares would be properly discoverable. This would be unlikely to occur in each and every case. When legal advice was materially relevant, the case in favour of disclosure would probably speak for itself and would be clearly linked to specific assets and documents related to their valuation;
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(d) assuming that joint interest privilege could be asserted by the Dissenters, would the right to assert it not be constrained to some extent by the context of the present litigation since they had no subsisting interest in the general administration of the Company's affairs? This might explain why:
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(i) the joint privilege issue was belatedly raised in the present case, detached from any specific challenges to privilege claims in relation to identified documents; and
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(ii) joint interest privilege had not apparently been asserted by dissenters, on a broad basis at least, in past section 238 cases 2; and
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(e) further and in any event, it seemed likely that in relation to issues and documents in relation to which the legal advice received by a company were highly material to the central issue of fair value, the law would not in any event permit the section 238 petitioner from using legal privilege as a shield.
In their Skeleton Argument, the Dissenters' counsel summarized their case on the present application as follows:
“ 2. In overview, the 10/5/22 Summons relevantly seeks an order for disclosure and production of documents which the Company claims to be entitled to withhold from the Dissenters on grounds of legal professional privilege. Save in relation to documents created after the Dissenters had served their notices of dissent pursuant to section 238(5) of the Act, those claims of privilege are unfounded:
2.1. It is a well-established rule that a company cannot claim privilege against its own shareholder in relation to the documents of the company, including confidential advice obtained by the company, unless obtained for the purpose of hostile litigation against that shareholder: Woodhouse v Woodhouse [1914] TLR 559 [DA/2/15–16].
2.2. The Company contends that the rule does not apply here because the Dissenters' shareholdings originally took the form of interests under the American Depositary Share (“ADS”) system, whereby they were beneficial owners of the shares rather than registered shareholders. That is a wholly unmeritorious distinction without a difference given the established scope and purpose of the rule, which is engaged by the joint or common interest of those beneficially entitled to a common fund in advice obtained in respect of that fund (and where they will have borne, directly or indirectly, part of the cost of obtaining the advice). In any event, the Dissenters all ultimately exercised their rights as holders of ADSs to become legal owners of shares in the Company and, to the extent of any difference, will have succeeded to all the rights of the nominee as regards privilege.
2.3. The Company alternatively contends that it is entitled to withhold documents from a given Dissenter save where the documents were created at a date by which that Dissenter already held shares (or ADSs). Given the various dates on...
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