On 10 April 2018, the Cayman Islands Court of Appeal released its decision in the appeal of Justice Parker directions order In the matter of Qunar Cayman Islands Limited (CICA 24 of 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 one that has been mentioned on this blog, namely whether dissenting shareholders in appraisal actions under section 238 of the Companies Law are required to give discovery.
The prevailing view, exemplified by the first instance directions decision In the matter of Homeinns Hotel Group (FSD 25 of 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 did find assistance in the reasoning of the Delaware Court of Chancery In re Appraisal of Dole Food Company, Inc., Consol C.A. No. 9079—VCL (Del. Ch. Dec. 9, 2014). While noting that the rules for discovery in Delaware differed significantly from those in Cayman, the Court nonetheless found Dole to be a “sophisticated, well-informed, modern judgment”, which considered the issue of dissenters’ discovery in real depth. The considerations raised in Dole accordingly could not be ignored. Key among these was that a company has no monopoly of understanding into the world in which it operates. However important its own documents might be, the company might not understand the outside world as well as professional investors.
The dissenters’ case was further undermined by the inconsistency between their expert on the one hand stating that third-party reports held by the dissenters were “of no relevance” while simultaneously 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. The authors of this blog have long argued that there was no sui generis category of litigants that were exempted from the general rules of discovery which are designed to protect the integrity of the litigation process.