The Companies Act (2022 Revision) and New Frontier Health Corporation
Jurisdiction | Cayman Islands |
Judge | Justice David Doyle |
Judgment Date | 24 April 2024 |
Docket Number | CAUSE NO: FSD 72 OF 2022 (DDJ) |
Court | Grand Court (Cayman Islands) |
The Hon. Justice David Doyle
CAUSE NO: FSD 72 OF 2022 (DDJ)
CAUSE NO: FSD 74 OF 2022 (DDJ)
IN THE GRAND COURT OF THE CAYMAN ISLANDS
FINANCIAL SERVICES DIVISION
Company's application to extend time period within which to comply with discovery obligations in a Section 238 case on the grounds that there was a risk of prosecution under the law of the People's Republic of China if it complied without approval from the PRC authorities — no approval mechanism presently in place and unlikely to be in place in the near future — the relevant law and procedure — GCR's overriding objective — Section 7 of the Bill of Rights requiring a fair trial within a reasonable time — the importance of complying with court orders and local rules — a consideration of the relevant authorities including Bank Mellat and some American authorities — the approach — whether the relevant PRC law provisions apply — whether there is an actual risk of prosecution — the balancing exercise and the relevant factors to consider
Mr Tom Lowe KC instructed by Grainne King, Aline Mooney and Catie Wang of Harney, Westwood & Riegels for New Frontier Health Corporation
Ms Blair Leahy KC instructed by Nigel Smith and Kalyani Dixit of Carey Olsen for Hildene Opportunities Master Fund II, Ltd, Invictus Special Situations Master I, LP, Oasis Investments II Master Fund Ltd and Alpine Partners (BVI) LP and Katie Logan of Campbells for Blackwell Partners LLC — Series A, Maso Capital Investments Limited and Star V Partners LLC
Heading | Page |
Introduction | 3–4 |
Background | 4–5 |
The Application | 5 |
Summary | 5–6 |
The August 2022 Order | 6–7 |
The main issue | 7 |
Law | 7 |
— Grand Court Rules | 7–10 |
— The Constitution of the Cayman Islands — Section 7 of the Bill of Rights | 10–11 |
— The importance of complying with court orders and the local rides | 11–12 |
— Authorities | 12 |
— Brannigan v Davison | 12–15 |
— Bank Mellat | 15–17 |
— Re Sina | 17–19 |
— The submissions on the authorities | 20–24 |
— Some American authorities | 24 |
— Rogers | 24–25 |
— Aerospatiale | 25–26 |
— Richmark | 26–27 |
Determination of the Application | 27 |
— The approach | 28–29 |
— Do the relevant PRC law provisions apply in the present context? | 29–32 |
— Conclusion as to whether the relevant PRC law provisions apply in the present context | 32 |
— Is there an actual risk of prosecution? | 33 |
— Lingjun (Judy) Wang's evidence on actual risk of prosecution | 33–34 |
— Professor Liu's evidence on actual risk of prosecution | 34 |
— Mr Duan's evidence on actual risk of prosecution | 34–35 |
— Conclusion on actual risk of prosecution | 35–38 |
— The balancing exercise | 39–40 |
— The actual risk of prosecution and the degree and extent of such risk | 40 |
— The need for and importance of the documents | 40–42 |
— Minimisation of the concerns under the foreign law | 42 |
— The location of the documents and the parties | 42 |
— Comity considerations | 43–45 |
— The availability of alternative means of securing the documents | 45 |
— (a) Generally | 45–46 |
— (b) Letters rogatory | 46–49 |
— (c) CAC self assessment | 49–51 |
— The conduct of the party seeking the extension | 51–56 |
— Whether the delay causes any prejudice to the parties and the legal system generally | 56–57 |
— The extent to which non-compliance would undermine important interests of the Cayman Islands or compliance would undermine the important interests of the foreign state | 58 |
— Whether there is an acceptable explanation and good excuse for the delay | 58 |
— What the justice of the case requires | 59 |
— Conclusion on the balancing exercise | 59 |
Ancillaries | 59–60 |
The Order | 60 |
Put simply and stripped of its detail and complications this case concerns the legal position when a company which has voluntarily chosen to be incorporated under and subject to the laws of the Cayman Islands, with management and operations on the ground in the People's Republic of China, seeks more time to disclose documentation relevant to a dispute with dissenting shareholders as to the fair value of shares in the company. The company says that it cannot disclose such documentation without the approval of the Chinese authorities but there has been no approval mechanism in place for over a year now and it is unlikely to be in place in the near future. The company is concerned that if it discloses the documentation without the approval of the Chinese authorities a real risk of prosecution will arise. Should yet more time be granted to the company or not? On the facts and in the circumstances of this case, balancing the relevant factors and competing interests, and applying well established and internationally recognised principles of the common law and comity, I have decided that the requirements of the laws and interests of the Cayman Islands override the requirements of the laws and interests of the People's Republic of China and no more time should be granted to the company.
A new low in cases brought under section 238 of the Companies Act (“Section 238”) was about to be reached on 9 November 2023 until the point was conceded by New Frontier Health Corporation (“the Company”). The Company had been asking the court to determine at the case management conference on 9 November 2023 what “test” would be applied at the hearing of its summons dated 18 August 2023 (the “Application”). In effect an argument as to what law we would be arguing about at a subsequent hearing. Harneys, the attorneys acting for the Company, by letter dated 4 October 2023 had unhelpfully initially maintained the following stance:
“We repeat that the issue of whether or not there is a real risk of criminal prosecution is irrelevant. Our client genuinely fears recrimination for breach of the relevant PRC laws, but is not seeking to avoid discovery, simply time to comply.Bank Mellat is simply not engaged.”
By letter dated 5 November 2023 Harneys belatedly conceded that the court could deal with what was described as the Bank Mellat point at the hearing of the Application. In my judgment delivered on 9 November 2023 I decided the point as follows:
“16. In respect of Issue 1, my conclusion is that the Court should not determine at this CMC “the test” which should be applied on the hearing of the Application. It will be for counsel for the parties to address the relevant law in their written and oral submissions at the hearing of the Application. It would be premature and inappropriate at this CMC, almost in the abstract and certainly without the benefit of full argument, for the Court to determine the test which should be applied in respect of the Application.”
On 9 November 2023 I made an order setting down the hearing of the Application for 1.5 days commencing at 10am on 13 February 2024. The parties by agreement applied to vacate that hearing and by order made on 4 December 2023 the hearing was re-listed to commence at 10am on 26 March 2024. The Application was duly heard over two long but intensely interesting days and I reserved judgment, which I now deliver.
There was some considerable force in the submission of Blair Leahy KC, who appeared on behalf of Hildene Opportunities Master Fund II, Ltd, Invictus Special Situations Master I, L.P., Blackwell Partners LLC — Series A, Maso Capital Investments Limited, Star V Partners LLC, Oasis Investments II Master Fund Ltd and Alpine Partners (BVI) LP (the “Dissenters”) that the Company, in failing to file the Application earlier and the way in which it sought to progress the Application including its approach to the case management conference in November 2023, has in effect already obtained through the back door a further extension of six months.
By the Application correctly described by Tom Lowe KC, who appeared on behalf of the Company, as a “very unusual” one as it sought an open-ended extension, the Company applied for an order that it be granted yet another extension of time in respect of the period provided for in paragraph 10a of the Order for Directions dated 12 August 2022 (the “August 2022 Order”), as extended by Order of the Court dated 31 March 2023 as regards its obligation to give discovery in these proceedings until the later of 7 days following:
(a) the grant of regulatory approval by the government authorities of the People's Republic of China (“PRC”)
(b) the conclusion of the discovery processes pursuant to the applications ongoing in the United States under section 1782 of Title 28 of the United States Code related to the Company (“the Section 1782 Applications”).
In this case there is a clash of the local laws of the Cayman Islands and the foreign laws of the PRC.
Pursuant to the August 2022 Order the Company was required to give discovery of the relevant documentation in this case by 19 December 2022. By application dated 19 December 2022 the Company initially sought an extension of time to 28 April 2023 and subsequently to 29 September 2023. By order made on 31 March 2023 it was given until 29 September 2023 to complete its discovery. On 18 August 2023 the Company filed the Application seeking an open-ended extension of time in view of issues arising under the law of the PRC.
For reasons which follow, I have dismissed the Application and have declined to extend the deadline for the Company's discovery beyond 29 September 2023.
I have held that the relevant provisions of the laws of the PRC do apply to inter partes discovery and that there is an actual risk of prosecution but such risk is low to moderate. I have balanced the relevant factors. I have concluded that the...
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