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26 April 2018
In a partial ruling in Xiaodu Life Technology, the Cayman Islands Grand Court ruled on:
The decision as to whether dissenting shareholders should be subject to the usual rules of discovery (which are imposed on a company in these cases), rather than being a sui generis litigant was deferred until after the Cayman Islands Court of Appeal has ruled on the issue in In the Matter of Qunar Cayman Islands Limited.
The partial ruling began with a common-sense premise, universally applying the overriding objective to Section 238 dissenting shareholder cases, in order to promote stakeholder confidence in the court process, and adopting the same general approach as was adopted in the partial ruling in Re Nord Anglia Education, Inc, 235 of 2017 ((IKJ) March 19 2018):
"These increasingly common petitions should in my judgment be judicially managed in a way that will, so far as is reasonably practicable, promote confidence in the processes of this Court for all key stakeholders. Where, as here, the parties have achieved substantial agreement on the proposed directions but found certain issues to be intractable, the Court must do its best to adopt a balanced approach to the opposing contentions. An approach which will encourage the parties to cooperate in the ensuing phases of the proceedings, and indeed, in future similar cases."
In relation to keyword searches, although agreed on between the parties, there was a narrow dispute as to which categories of document should be disclosed and the appropriateness of using electronic keyword searches. The court permitted the company to use keyword searches across all of its documents to identify any of potential relevance beyond those initially identified. It held:
"Authorising the use of such tools in no way dilutes the general discovery obligations of the Company in relation to all documents relevant to the fair value question which this Court has to decide."
Regarding whether the number of information requests should be limited, the parties had agreed in areas; however, the court ruled that expert information requests should be made periodically using best endeavours to submit only clear and concise questions that are reasonably required to assist in the formation of a valuation opinion. Further, the interval between information requests must be sufficient to afford the company a reasonable opportunity to answer all or most of the previous batch of questions. This ensures that parties do not abuse the process.
In relation to whether management meetings should be without prejudice, the court held that experts may use information obtained in management meetings to prepare their reports, but neither the transcript nor any of its contents is admissible in evidence unless otherwise agreed or directed by the court. This follows the decision in Trina Solar.
The manner in which management is questioned at management meetings lacks key protections afforded to witnesses examined at trial. In particular, management meetings are not provided the formal right to object to questions put by experts who are not attorneys and therefore are not trained in cross examination. The risk of unfairness arising from unfair, ambiguous or loaded questions is high.
For further information on this topic please contact Ian Mann or Joanne Verbiesen at Harneys' Hong Kong office by telephone (+852 5806 7800) or email (email@example.com or firstname.lastname@example.org). Alternatively, contact Nick Hoffman at Harneys' Grand Cayman office by telephone (+1 345 949 8599) or email (email@example.com). The Harneys website can be accessed at www.harneys.com.
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