On April 10 2018 the Cayman Islands Court of Appeal released its decision in the appeal of a directions order in In the matter of Qunar Cayman Islands Limited (CICA 24 2017). There were originally three grounds of appeal, but two of these had been effectively conceded by the time of the appeal hearing. The remaining contested issue was whether dissenting shareholders in appraisal actions under Section 238 of the Companies Law are required to give discovery.(1)

The prevailing view – exemplified by the first-instance directions decision in In the matter of Homeinns Hotel Group (FSD 25 2016) – had been that only the company must give discovery in Section 238 cases. The Court of Appeal observed that orders for one-sided disclosure were anomalous and without precedent in the Cayman Islands. Previous first-instance decisions relied on by the dissenters carried little weight, as none contained a sufficient explanation for the departure from the ordinary rule that discovery is a mutual obligation.

The Court of Appeal relied on the reasoning of the Delaware Court of Chancery in In re Appraisal of Dole Food Company, Inc (Consol CA 9079 VCL (Del Ch December 9 2014)). Noting that the rules for discovery in Delaware differed significantly from those in the Cayman Islands, the court nonetheless found Dole to be a "sophisticated, well-informed, modern judgment", which considered the issue of dissenters' discovery in real depth. Accordingly, the considerations raised in Dole could not be ignored. Key among these was the fact that a company has no monopoly of understanding in the world in which it operates. However important its own documents may be, the company may not understand the outside world as well as professional investors.

The dissenters' case was further undermined by the inconsistency of their expert stating that third-party reports held by the dissenters were "of no relevance" while also asserting the relevance of third-party reports held by the company. The court emphasised the danger in forming a priori assumptions regarding relevance and concluded that there was insufficient justification for adopting an "extreme and unique" position of one-sided disclosure in Section 238 cases.

It has long been argued that no sui generis category of litigants is exempt from the general rules of discovery, which aim to protect the integrity of the litigation process.

For further information on this topic please contact Ian Mann, James Granby or Vicky Lord at Harney Westwood & Riegels' Hong Kong office by telephone (+852 5806 7800) or email (ian.mann@harneys.com, james.granby@harneys.com or vicky.lord@harneys.com). Alternatively, contact Nick Hoffman at Harney Westwood & Riegels' Grand Cayman office by telephone (+1 345 949 8599) or email (nick.hoffman@harneys.com). The Harneys website can be accessed at www.harneys.com.

Endnotes

(1) See "Cayman Fair Value Claims: Do Dissenters need to beware of Delaware?".

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