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Dissenter discovery in Cayman Islands share valuation litigation

The Cayman Islands court has confirmed that dissenting shareholders may be required to give discovery in proceedings under section 238 of the Companies Law, but the circumstances will have to be “exceptional”. 

Section 238 is the statutory mechanism by which a shareholder may dissent from a merger or consolidation, reject the compensation being offered for the compulsory acquisition of its shares, and have the fair value of its shares determined by the Court instead. In In the matter of Qunar Cayman Islands Limited, the company (represented by Harneys), argued that the dissenting shareholders, comprised of a number of professional arbitrage funds, should give discovery on the same terms as the company. Prior to Qunar, the prevailing view following Homeinns Hotel Group, another section 238 case, was that dissenting shareholders would never be required to give discovery. The rationale in Homeinns was that an outsider to the company would not be expected to have any materials going to fair value additional to those already held by the company.

The company referred to the Delaware decision of Dole Food Company, which had not been relied upon in Homeinns. Although Delaware authority is not authority binding on the Cayman Islands courts, section 238 of the Companies Law codifies the same valuation concepts and terms and so decision of the Delaware courts are persuasive. In a departure from Homeinns the Cayman Court acknowledged that it had power to order discovery by dissenting shareholders in section 238 proceedings, but would do so only in appropriate and exceptional cases, where it was demonstrated that the dissenters were likely to have documents that could be of assistance to the Court in its determination of the fair value of the shares. 

Cayman

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