In Jardine, approximately 84 per cent of the shares held by the dissenting shareholders were acquired after the date of the notice and with knowledge that the amalgamation would be approved (due to an undertaking given by the Jardine Matheson group’s ultimate holding company to vote in favour of the resolution). The Company sought to argue that only those shareholders who held shares at the date of the notice had standing to bring appraisal proceedings under section 106 – a position which was rejected at first instance and on appeal.

On appeal, the Board rejected each of the Company’s three grounds of appeal.

1. The Company submitted that as a matter of construction of section 106, the right to apply for a court appraisal is restricted to those who held shares at the date of the notice of the EGM

Section 106(6) provides that any shareholder who did not vote in favour of the amalgamation or merger “and who is not satisfied that he has been offered fair value for his shares”  may apply to the court, within one month of the notice, to appraise the fair value of their shares. The Company submitted that these words demonstrate that a company putting forward an amalgamation proposal is making an “offer” to its shareholders. The Company argued that an “offer” is made to shareholders entitled to receive the notice, being those on the register of members at the date of the notice of meeting (or any applicable record date), and therefore only those shareholders are entitled to apply for relief.

The Board held that:

• The Company was seeking to place undue weight on the word “offered”. No “offer” to shareholders is made in an amalgamation. There is no offer capable of acceptance or rejection and at no stage is a contract concluded between the amalgamating parties and their shareholders. An amalgamation is a statutory process and the rights of shareholders arise and are enforceable under statute. The words “he has been offered fair value for his shares”  in section 106(6) refer to the fair value of the consideration under the amalgamation proposal or to the fair value stated in the notice. It is therefore irrelevant to identify the group of shareholders to whom an “offer” is made.
• There is nothing more generally in section 106 to suggest that the right to apply for a court appraisal is limited to those shareholders to whom notice is sent. The notice is a notice of meeting, not the communication of an offer. As previously noted by Justice Kawaley (in a commercial law publication in Bermuda) a dissenting shareholder is one who does not vote in favour of the amalgamation at the meeting convened by the notice. That is the only means under the statutory provisions by which a shareholder can dissent. Therefore, it is the shareholders at the date of the meeting who have the right to be paid the “fair value”.

The Company also submitted that the legislation of other countries from which the shareholder appraisal regime took its inspiration, particularly Canada, shows that the purpose of the regime was to protect shareholders as at the time when the proposal was made and not those who subsequently acquired shares. In addition, the Company sought to rely on a decision of the New York Supreme Court (Application of Stern) where the Court held that those in the position of shareholders who had acquired stock after a plan for merger had been adopted and publicised did not enjoy appraisal rights.

The Board rejected that the Company’s submission on the purpose of section 106, identifying two fundamental difficulties:

• The provisions are bespoke and do not follow the terms of similar provisions in other jurisdictions. Decisions on differently worded provisions elsewhere will, the Board noted, be of very limited, if any, value. The Board held that there is nothing in the preparation materials for this legislation to suggest that only dissenting shareholders with shares at the date of the notice of meeting should be entitled to apply for a court appraisal.
• The opposite approach has been taken in other jurisdictions, including Canada and the Cayman Islands. The approach taken by the New York courts has also been rejected by the Delaware courts.

The Company also submitted that the effect of a legislative amendment, requiring the notice of meeting to state the fair value of shares as determined by the amalgamating or merging company, was to put the argument beyond doubt that the right to have the fair value appraised by the court was to be available only to shareholders at the date of the notice. The Board again rejected this submission, noting that if correct, the amendment would have introduced a significant change to those dissenting shareholders entitled to apply for relief and there was nothing in any material relevant to the amendment to suggest that this was the intended effect.

The Board also held that the Company’s proposed construction of section 106 would give rise to difficulties which are unlikely to have been intended:

• If the right to apply for a court appraisal can be exercised only by those shareholders at the date of notice, that may act as a serious inhibition on those shareholders’ rights to sell their shares between the date of notice and the date of the meeting. No purchaser would be required to pay more than the value of the consideration under the amalgamation proposal because that would be the maximum that they could receive for the shares. This would depress what would otherwise be the market price for the shares.
• The Company’s construction was difficult to reconcile with the position of a shareholder who is registered as the holder of some shares at the date of notice and subsequently acquires other states. It would be inconsistent with the terms of section 106(6), which entitles a dissenting shareholder to seek an appraisal of “the fair value of his shares” without qualification.
• The Company’s construction would create difficulties with regard to shares held by a nominee for more than one beneficial owner.

2. The Company submitted that the proceedings were in any event an abuse of process because they were brought by persons who acquired shares with knowledge of the amalgamation proposal and its terms

The Company accepted this ground of appeal could only succeed if the Board accepted that the purpose of the legislation is to provide an opt-out to shareholders who are facing a fundamental change in the company in which they invested, which it did not. Accordingly, the Board also rejected this ground of appeal.

3. The Company submitted that in appraising the fair value of any particular shares, the court may take into account the time at which and the circumstances in which those shares were acquired

The Company submitted that it should be open to the court to take into account the timing of the acquisition of the relevant shares. Section 106(6) requires the court to appraise “the fair value of his shares” which is in contrast to the wording of section 238(9) of the Cayman Islands Companies Act which requires the court to determine “the fair value of the shares of all dissenting members.”

The Board rejected the Company’s position and held that:

• The wording and context of section 106 makes it clear that the court is charged with appraising the fair value of dissenting shareholders’ shares on an objective basis, unconnected with the circumstances in which particular shareholders acquired their shares or their motives in doing so.
• Section 106(2) requires, it was held, the statement of a single fair value and there is no reason to think that section 106(6) was intended to produce a range of different values unconnected with objective value.
• The Company’s submission could also complicate proceedings due to investigations into the circumstances and reasons for the acquisition of shares by each dissenting shareholders, which the Board was confident cannot have been intended.

In the Cayman Islands decision of Re Qunar, similar arguments were made. Justice Parker held that the character and motivations of the dissenters are strictly irrelevant to the entitlement to be paid the fair value of their shares. Likewise, his Lordship held, was the timing and motivation of their investment. It did not matter that they had bought after the merger announcement with full knowledge of it, or whether they in fact voted for or against the merger. Justice Parker held that fair value had to be determined in one way for all dissenting shareholders.

The decision is likely to be considered in other jurisdictions with similar statutory dissenting rights and fair value appraisal regimes. As a corollary, if it is the case that dissenting shareholders’ motivations in buying in are irrelevant to fair value then it ought properly to follow that motivations of the buyer group are also irrelevant when it comes to the assessment of fair value in appraisal proceedings. Whether that parity of approach will be universally adopted remains to be seen.