Shareholders in a company that is the subject of a takeover and merger have certain intrinsic rights available to them in the event that they dissent to the merger, most notably a right to have their shares purchased at a ‘fair value’.
The principal legislation dealing with company law in the Cayman Islands is the Companies Law. This includes the statutory framework by which mergers are governed and provides flexible structuring mechanisms. Mergers are well used and continue to be a favoured method of takeover or consensual restructuring; one recent example is Silver Wheaton’s billion-dollar acquisition of Anani Investments Ltd from Glencore PLC for mixed cash and commission consideration.
But what are the discovery obligations of a company subject to dissenter shareholder litigation in the Cayman Islands?
Wherever a case commenced in the Cayman Islands court involves a disputed question of fact an obligation will arise to give discovery. In dissenter shareholder litigation, once the Petition is filed, the Court will make an order for the discovery of those documents that are or have been in the Company’s “possession, custody or power” which are relevant to valuation. It is the duty of the Company to ensure that it complies with the rules as to discovery. In the Cayman Islands as in other common law jurisdictions it is also the duty of the party’s lawyer to ensure that the party is properly advised as to their obligation to preserve relevant documents and documents which are potentially relevant to the dispute.
A recent Cayman Islands dissenter shareholder case has ruled that the only the Company is compelled with the obligation of discovery. Further, it has become common practice in these matters that, instead of a list of documents, the Company uploads documents to an electronic data room accessible by all parties with a corresponding index.
There is an added layer of complication to this process in Cayman Islands litigation arising from Cayman’s Confidential Information Disclosure Law (CIDL), which relates to confidential information held by professionals in the course of conducting professional business in the Cayman Islands. “Confidential information” is defined as information arising in or brought into the Islands concerning any property of a principal to whom a duty of confidentiality is owed by the recipient of the information. The existence of documents containing confidential information would normally be disclosed. They will not, however, be subject to inspection unless the court has made an order under the CIDL.
Other documents that are not disclosed are:
- Communications passing between the Company and its legal advisors in which you are seeking or obtaining legal advice. It applies to transactional advice as well as advice regarding contentious matters. This is called legal advice privilege.
- Certain communications made when litigation is likely or has begun, passing between the Company and its legal advisors, you and third parties (potential witnesses, for example) and, in certain circumstances, you and third parties, where the main purpose of the communication is to seek or obtain evidence for use in the litigation, or to provide advice on the litigation. This is known as litigation privilege.
- Correspondence and other communications generated as part of a genuine attempt to settle an existing dispute – this is called without prejudice privilege.
The obligation to give discovery continues beyond the production of documents and up to the end of the trial and judgment. In dissenter shareholder litigation, directions are normally ordered that allow both parties’ respective valuation experts to make specific requests for documents and information after the initial upload of documents to the data room. Further, documents may be created later in the proceedings which are discoverable, or it may be that as the case develops documents which were not at the outset relevant to the litigation do subsequently become relevant.
A party who wilfully destroys documents after the commencement of litigation may commit the offence of perverting the course of justice and may also find that their claim or defence of the claim is brought to a peremptory end because of that conduct. Furthermore, a party may not use documents for any purpose other than the litigation which the opponent provides by way of discovery. The obligation not to use the document for a purpose outside of the litigation continues after the conclusion of the case, unless during the course of the proceedings the document is read to or by or referred to in court. It is now common for the parties to also enter into non-disclosure agreements in respect of documents provided. A party who uses a discovered document for a purpose unconnected with the litigation commits a contempt of court.