Cayman Court of Appeal rejects Merger Price, increases fair value and advises Judges on drawing inferences

09/05/23

Under the Cayman Islands Companies Law section 238, shareholders who dissent from a merger are entitled to be paid the fair value of their shares as determined by the Court.

In 2019, Simon Salzedo KC represented the dissenting shareholders in the case of Re Trina Solar Ltd, in which Segal J gave judgment in September 2020. The outcome of Segal J’s assessment was that fair value was only slightly higher than the Merger Price set in the transaction. Segal J determined issues of interest and costs after a further trial in July 2021.

The dissenting shareholders appealed on several issues. The Cayman Islands Court of Appeal (Sir Richard Field JA, Sir Michael Birt JA, Sir Jack Beatson JA) has allowed the appeal, holding that the Judge erred in according a weighting of 45% to the merger price in circumstances where the Company had failed to establish that the merger price had been determined in a way that made it a reliable indicator of fair value. The entire weighting of 45% was instead added to the weighting that the Judge had accorded to the discounted cash flow value. In addition, the Court of Appeal upheld the dissenting shareholders’ appeal on two issues within the calculation of the discounted cash flow value.

While the final calculations have been remitted for a further hearing of the Grand Court, the net result of the appeal will be a substantial increase in the fair value of the shares of the dissenting shareholders.

In comments which will be important in other appraisal cases, the Court of Appeal made clear that it was for the Company to produce the documentary and witness evidence which would be expected to be within its control and that Judges should be willing to draw inferences against a company which fails to do so.

The judgment is here.