In Integra, the Grand Court of the Cayman Islands (the "Court") made a costs order in favour of dissenting shareholders who had proved that the company's value was higher than that offered in the merger process (and significantly higher than the even lower value the company had placed on the shares in the court proceedings to assess fair value). Maples and Calder acted for the dissenting shareholders. For background on Integra, including the substantive court decision on "fair value", please see our update of 28 August 2015.
Where a merger is structured under Part XVI of the Cayman Islands Companies Law (2013 Revision) (a "Statutory Merger"), and where a dissenting shareholder triggers the court process for determining "fair value", the Court then, as is common in litigation in the Cayman Islands generally (similar to most other common law jurisdictions), has a discretion to make such award as is just and equitable with respect to the parties' legal costs. This case represents the first guidance from the Court as to how such a discretion might be exercised in the context of "fair value" assessments in Statutory Mergers.
The Court held that, where a shareholder dissents from a Statutory Merger and chooses to participate in the court proceedings to assess the "fair value" of the company (the "Appraisal Hearing"):
- That shareholder's potential liability for the company's costs will be limited solely to the additional costs, if any, incurred by the company as a result of the dissenting shareholder's participation in the Appraisal Hearing.
- Liability for such costs will ordinarily be determined by the usual rule that "costs follow the event" (i.e. whether or not the shareholder has been successful at the Appraisal Hearing).
- What constitutes success or failure will depend on all the circumstances of the case. In this case, in finding that the dissenter had been successful, the Court found it relevant not only that the dissenter had been awarded an amount higher than the merger consideration, but also that the company had unsuccessfully contended at the Appraisal Hearing that "fair value" was lower than the merger consideration.
Notably, but on an obiter basis, the Court stated that, where the dissenting shareholder does not participate in the Appraisal Hearing, the non-participating dissenter will not be at risk of an adverse costs order. The Court took the view that to impose any liability for costs on non-participating dissenters would discourage shareholders with a small interest in the company from dissenting (on the basis that the costs of an appraisal action could end up exceeding the value of that interest). Whether it would be in the interests of a dissenting shareholder not to participate in the Appraisal Hearing may be a difficult call, as the company may argue (as they did in Integra) that "fair value" is less than was offered as the merger consideration.