Bermuda court considers privilege between company and shareholders

15/02/23

Re Jardine Strategic Holdings Ltd is one of the numerous “fair value” cases which are currently being litigated offshore, mostly in Bermuda and Cayman. Minority shareholders are entitled to be paid fair value for their shares on the amalgamation or mergers of public companies. Dissenting shareholders bring action against the company contending that the price paid to them for their shares does not represent fair value.

Hargun CJ considered [2023] SC (Bda) 8 Civ in the course of a five day hearing an issue which arises in many such cases, namely whether and in what respect the company can claim privilege in fair value proceedings for communications prior to the merger or amalgamation against its former shareholders. There is a long line of case in England which hold that a company cannot claim privilege against existing or former shareholders other than where the documents are brought into existence for the purpose of a dispute between company and shareholders, the most recent authority being the decision of Nugee J in Sharp v Blank [2015] EWHC 2681 (Ch).  However, the principle has been criticised and not followed in some Commonwealth jurisdictions as failing properly to recognise the company‘s separate legal personality from its shareholders.

The Chief Justice considered that it was a matter for the Court of Appeal whether the principle should be followed in Bermuda and himself gave effect to it. He held that on the facts it was apparent to the company two months before the amalgamation that litigation thereafter was likely from dissentient shareholders, and the company could claim privilege from then on for documents in defence or or in connection with contemplated fair value proceedings.

He also separately ruled on the question whether the documents of the company’s subsidiaries were within the “practical control” of the company in the light of cases such as Ardila Investments NV v ENRC NV [2015] EWHC 3761. It was argued that the unequivocal representations made by the company to its auditors could only be consistent with the company having practical control of the documents of its subsidiaries. This is another issue likely to arise in other cases. On the facts, the Chief Justice rejected the claim of practical control.

The judgment is here.