In The Matter Of Qunar Cayman Islands Ltd: Cayman Islands Appraisal Actions – Moving Towards Standard Directions?

Introduction

In ordinary commercial litigation there is a plaintiff making a claim and a defendant resisting the claim made by the plaintiff. There is a well-established set of standard directions which will be made leading to a trial of the action. This will involve mutual discovery, exchange of witness statements and, in some cases, directions for expert evidence. There is little scope for disagreement about the directions which are made, other than questions of timing.

In an appraisal action, commenced by petition under section 238 of the Cayman Islands Companies Law, the sole purpose of the action is for the Court to determine the fair value of the shares of the shareholders who have dissented to the merger of two companies, together with a fair rate of interest to be paid by the company to the dissenting shareholders. The proceedings are quite unique in that respect because there is no plaintiff and no defendant and there is no burden of proof on one party or the other to prove particular allegations. Instead each party bears the burden of proving the value for which it contends, but ultimately the Court will decide upon the fair value.

Such a process ought to be straightforward and non-contentious as it simply involves a valuation exercise which necessarily requires the assistance of valuation experts who require access to the necessary financial and business information upon which to base their opinions.

Given that appraisal actions are unique, in that a statutory burden is placed upon the Court by the Companies Law to appraise the fair value, it would be possible to conceive of some unique directions which could be applied to such cases. For example the Judge could sit with assessors or there could be one or more court appointed experts and discovery could be directed by the experts. This would follow a more inquisitorial approach to the discharge of the statutory requirement placed upon the Court. However, the Cayman Islands follows a traditional English adversarial approach and has therefore adapted the traditional commercial litigation directions to appraisal actions, with some minor modifications. As a result there is now a fairly standard set of directions which are typically made in such cases. The basic modifications to the usual directions orders are as follows:

Because of the voluminous nature of the company's documents and their availability in electronic form the practice is for the company to open a data room in order to provide access to the lawyers and the experts. The Experts are permitted to request documents, to ask questions of the company, and also request a meeting to be held between themselves and the management of the company. Unfortunately in every single reported case to date, starting with the Russian company in In the matter of Integra Group1 through to the latest Chinese company case, In the matter of Qihoo 360 Technology Co. Ltd,2 difficulties have arisen as to discovery by the company, even against the background of consent orders and a formal acceptance of the need to provide all relevant documents.

However, in In the matter of Qunar Cayman Islands Ltd.,3 unlike in almost every other case, the Company was not even prepared to agree to provide discovery, save on a very limited basis by reference to a restricted category of documents which it had drawn up. On the other hand, although unwilling itself to give discovery of all relevant documents, the Company sought discovery from the dissenting shareholders. The Court was therefore required to determine the scope of discovery to be required of a company in a section 238 action and whether the dissenting shareholder ought to give discovery.

A further point arose in that unlike previous cases, this case involved multiple dissenters so that the Court had to decide whether it had the power to restrict the number of experts, and if so whether that power should be...