Bermuda Court of Appeal rules on the scope of dissenting shareholder rights under the Companies Act 1981

12/04/23

Jardine Strategic Holdings Limited (the “Company”) was a company incorporated in Bermuda. About 85% of its shares were owned by another company in its corporate group. The remaining 15% were publicly traded and listed. On 8 March 2021, the Company announced an intention to enter into an amalgamation pursuant to s.104 of the Bermuda Companies Act 1981 (“CA 1981”) that involved (as a first step) the acquisition by the Company of the publicly listed shares in return for payment of their “fair value”. On 17 March 2021, the Company issued a notice stating its determination that US$33 per share represented the “fair value” of its shares.

The amalgamation was approved on account of the votes of the 85% shareholder. However, a significant number of independent shareholders dissented, and commenced proceedings seeking an appraisal of the fair value of their shares by the Court pursuant to s.106(6) of the CA 1981. They included shareholders who acquired their shares before 17 March 2021 (“Pre-Notice Shareholders”) and shareholders who acquired their shares after 17 March 2021 (“Post-Notice Shareholders”).

The Company brought an application seeking to strike out the claims by the Post-Notice Shareholders (and those Pre-Notice Shareholders who acquired their shares after the intention to amalgamate was announced) on the basis of arguments that (a) s.106(6) should be construed as permitting only ‘long-term’ shareholders to seek appraisal of the fair value of their shares; (b) it was an abuse of process for those who had acquired shares with notice of the proposed amalgamation to exercise the statutory right to appraisal and/or (c) the ‘fair value’ of the shares belonging to those who had acquired their shares with notice of the proposed amalgamation was necessarily the sum stated in the Company’s notice.

The application was dismissed on all grounds by Hargun CJ at first instance.

The Court of Appeal (Clarke P, Kay JA, Bell JA) unanimously upheld that decision on appeal. Bell JA, with whom the other members of the Court agreed, held that the Company’s proposed interpretation of s.106(6) “simply does not work”, was inconsistent with the history of the legislation and yielded a number of analytical and practical difficulties to which there was no proper answer. Clarke P (with whom Kay JA agreed) further noted that the legislature could not have intended to create a situation where some shareholders would be entitled to fair value and others would not, and that the “fair value” of the shares falls to be determined as at the date of the amalgamation and is unaffected by the date on which a shareholder purchased his shares (or why he did so).

In response to the Company’s suggestion that this approach would encourage arbitrage, Clarke P held that “[a]rbitrage in this context means no more than that people may be prepared or encouraged to purchase shares after the $33 price has been announced in the hope that the fair value which is later determined may be greater than that. There is nothing wrongful, abusive or in bad faith in that…”.

The judgment is here.