Cayman Islands Grand Court orders disclosure beyond the valuation date in s.238 proceedings

06/06/24

The Grand Court of the Cayman Islands (Parker J) has ordered an extension of the cut-off date for the Company’s disclosure in Re Sina Corporation (Cause No FSD 128 of 2021 (RPJ)), giving effect to dicta of the Cayman Islands Court of Appeal (the “CICA”) in the same proceedings. This judgment is likely to be of interest in future s.238 proceedings, since it confirms that there is scope for disclosure post-valuation date to be ordered in appropriate circumstances.

The case concerns a merger by which a previously Nasdaq listed company (“Sina”), incorporated in the Cayman Islands but operating in China, was taken private. The Grand Court had earlier decided that the Valuation Date for determining the fair value of the Dissenters’ shares under s.238 of the Companies Act was to be the date of the shareholders’ extraordinary general meeting (“EGM”) at which the merger was approved. On appeal the CICA upheld that decision but indicated (obiter) that disclosure of documents post-dating the Valuation Date would be appropriate, insofar as that disclosure related to price-sensitive events that were foreseeable as at the date of the EGM. The CICA recognised that there was (at least) one such event, namely a substantial increase in the price of shares of a subsidiary, Weibo, which occurred shortly after the EGM; and therefore, Birt JA stated (obiter) that it seemed to him “essential that the disclosure order should be varied so that the period covered by the order is extended […] in order to cover the period of the Weibo increase”.

The Dissenters therefore applied for a variation of the disclosure order, to cover not only the Weibo increase but another price-sensitive event, an initial public offering of a company (TuSimple) in which Sina had a significant investment. Sina resisted that application on several grounds, including (i) the CICA’s judgment was merely obiter; (ii) the application was said to be precluded by issue estoppel and/or abusive under Henderson v Henderson; and (iii) the documents, insofar as relevant, could be obtained via expert information requests rather than via disclosure.

In his judgment, Parker J rejected those arguments and granted the relief sought by the Dissenters. Parker J held that the CICA’s judgment, while obiter, provided clear guidance to the Grand Court in its assessment of what is the fairest scope of discovery to be ordered. Parker J rejected the estoppel and abuse arguments – properly characterised, the Dissenters’ application was simply to vary an existing order pursuant to the liberty to apply provision contained within it, and caused no undue prejudice to the Company. The Judge acknowledged the utility of the expert information request process but held that this was not to be used as a substitute for disclosure, re-iterating that the primary means by which documents are to be produced in s.238 proceedings is through discovery.

The judgment is here.