Parker J
200819 In the matter of the Qihoo 360 Technology Co. Ltd. – FSD 129 of 2016 (RPJ) Judgment
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IN THE GRAND COURT OF THE CAYMAN ISLANDS
FINANCIAL SERVICES DIVISION
CAUSE NO. FSD 129 OF 2016 (RPJ)
IN THE MATTER OF PART XVI OF THE COMPANIES LAW (2020 REVISION)
IN THE MATTER OF QIHOO 360 TECHNOLOGY CO. LTD.
Appearances:
Mr Tom Lowe QC, for the Petitioner
Mr James Eggleton and Mr. Paul Madden, Harneys
Mr Robert Levy QC, for the Dissenting Shareholders
Mr. Rupert Bell and Mr. Patrick McConvey, Walkers
Before:
The Hon. Raj Parker
Heard:
16 July 2020
Draft Judgment
circulated:
18 August 2020
Judgment delivered:
19 August 2020
HEADNOTE
s.238 proceedings-application to determine certain presumptions of law - GCR O.14A r.1.1(a)
approach of court.
Introduction
1.
On 11 March 2020, Qihoo 360 Technology Co. Ltd. (the Petitioner) issued a summons
asking the court to decide the presumptive approach to the determination of fair
value of certain shares in the Petitioner in advance of the trial.
2.
The application1 seeks orders that the court should apply certain presumptions of law
and consequential directions for the expert evidence should the court agree to do so.
1 Supported by the third affidavit of Natalie Yen Kit Lee sworn on 11 March 2020 (Lee 3).
200819 In the matter of the Qihoo 360 Technology Co. Ltd. – FSD 129 of 2016 (RPJ) Judgment
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3.
Maso Capital Investments Limited, Blackwell Partners LLC - Series A and Crown
Managed Accounts SPC acting for and on behalf of Crown/Maso Segregated Portfolio
(the Dissenting shareholders) have applied to the court in a letter dated 28 April 2020
to adjourn the summons and to direct the trial be fixed at the next convenient date.
4.
As a result of significant correspondence between the parties which the court
attempted to mediate without success, the court directed that the issue as to when
the questions and the summons should be decided was to be addressed at an oral
hearing which took place on 16 July 2020.
Submissions of the parties
5.
Mr Tom Lowe QC for the Petitioner argues that the questions raised in the summons
are plainly questions of law which will determine the central issue in the proceedings,
namely the case law which should apply to the determination of the fair value of the
Dissenting shareholders' shares in the Petitioner.
6.
These legal issues need to be applied because of the decision of the Judicial
Committee of the Privy Council (JCPC) in the Shanda Games case2.
7.
The argument for determining the summons before trial is that if the Petitioner were
to be successful the issues in dispute and the expert evidence between the parties
would be substantially reduced, and so would be the length of submissions and the
time spent on cross-examination. The documents the court would need to consider
would also be substantially reduced and so the costs of the parties and court resources
would consequentially be also significantly saved in accordance with the Overriding
Objective. There has been a history of heavily contested discovery and allegations
concerning the destruction of documents which could involve many factual witnesses
for the Petitioner which would be avoided.
8.
Mr Lowe QC advances the submission that the summons could be heard in two days.
If the issues were not addressed before trial the approach would have to be addressed
at the trial itself in any case. It would be better as a matter of case management to
address the issue in advance so a trial, substantially reduced in scope, could be
prepared for.
9.
Mr Lowe QC submits that the court will need to consider, following the decision of the
JCPC in Shanda Games, whether what has now become an amalgamation of English
and Delaware case law approaches to fair value should continue to be applied, or
whether the correct approach is that English law on fair value should be followed in
its entirety and not used merely to modify the approach based on Delaware case law
on fair value.
10.
Mr Robert Levy QC for the Dissenting shareholders submits that the court should
exercise its case management powers by adjourning the summons to trial and asks for
2 [2020] 1 BCLC 577.
200819 In the matter of the Qihoo 360 Technology Co. Ltd. – FSD 129 of 2016 (RPJ) Judgment
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a direction that the trial be listed as soon as possible. He characterised the Petitioner’s
application as a ‘try on’ to further delay the trial itself.
11.
He submits that the question of valuation is supremely a matter for trial. Full argument
and expert evidence need to be heard to make the fair value assessment and the court
should not proceed on the basis of legal ‘presumptions’. He takes issue with what the
JCPC in Shanda Games decided, as characterised by Mr Lowe QC, and submits that in
any case the presumptions in the summons are contrary to Cayman Islands authority3.
12.
Mr Levy QC suggested that the supposed savings, reductions of time and resource are
illusory and this application should be seen by the court as a tactical device calculated
to further delay the proper and efficient resolution of these proceedings. If the court
were to entertain such an application there would inevitably be an appeal to the
Cayman Islands Court of Appeal and then to the JCPC in a bid to slow down further
the listing of the trial. If the Petitioner wishes to argue for a particular basis of
valuation trial it is free to do so and cross-examine the experts as to the appropriate
methodology at trial. Both experts are perfectly competent to address such questions.
He indicated that he could cross-examine the relevant factual witnesses on the
discovery issues and still keep to a three week estimate, not the six week potential
trial length Mr Lowe QC suggested.
13.
He also says the basis upon which the application is brought is inapt.
Analysis and decision
14.
The application is brought pursuant to GCR 0.14A, r.1.1(a) which provides as follows:
“… the court may, upon the application of a party or of its own motion, determine any
question of law or construction of any document arising in any cause or matter at any
stage of the proceedings where it appears to the court that a) such question is suitable
for determination without a full trial of the action; and b) such determination will
finally determine (subject only to any possible appeal) the entire cause or matter of
any claim or issue therein”.
15.
The relevant presumptions proposed by the Petitioner are:
"-Fair value is the value of the Dissenting Shareholders' shares in the Petitioner on the
hypothesis that they were willing sellers of those shares to a willing purchaser in the
open market.
-The subject matter of the valuation is to be the Dissenting Shareholders' shares in the
Petitioner and not a pro-rata or proportionate interest in the Petitioner as a whole or
of its net assets or of the fair value of its undertaking.
3 Re Qunar (unreported, Parker J, 13 May 2019) and Nord Anglia (unreported, Kawaley J, 17 March 2020).
200819 In the matter of the Qihoo 360 Technology Co. Ltd. – FSD 129 of 2016 (RPJ) Judgment
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-The information available to value the Dissenting Shareholders' shares in the
Petitioner was information which would in fact have been known by or have been
available to a hypothetical willing buyer and a hypothetical willing seller in the open
market"4.
16.
It seems to me that the points addressed by the summons are not easily approached
to be determined in advance of trial as dispositive pure questions of law.
17.
Valuation in s.238 of the Companies Law (as revised) cases is based upon the particular
facts of the case. The court is not an expert valuation tribunal. It relies heavily on
expert evidence to assist it, and needs to decide questions relating to methodologies
to be adopted based upon the facts and circumstances made available to it. Of course,
it is also bound by the decisions of appellate courts on legal issues which are evolving
in this particular area. However the legal issues are inextricably linked to the factual
and expert evidence and cannot easily be ‘hived off’ for separate prior determination.
18.
I am not satisfied that it would be right to order what might be better described as
‘preliminary issues’5 in relation to the contended for presumptions, because the court
in order to assess fair value needs full argument on all the issues based upon the facts
and the expert evidence.
19.
In my experience of s.238 cases there are no easy shortcuts to this exercise.
20.
These proceedings were commenced in August 2016, (some four years ago) and have
had a convoluted and highly contentious procedural history, particularly over
discovery by the Petitioner.
21.
The expert reporting process has now been completed6. At no doubt substantial
expended cost to the parties, the matter is now ready for trial. Unless the court is
persuaded that there was a clear advantage, as a matter of case management and
fairness, in hearing the contended for presumptions in the way suggested, the already
significantly delayed process should in the ordinary course be taken to trial as soon as
possible.
22.
The court is not so persuaded. To order the determination of these presumptions
before trial risks further dispute, appeals and delay to the trial.
23.
The question of the approach to valuation is pre-eminently a matter for the trial judge
and is a decision that the court makes having heard all the evidence and argument.
4 Paragraph 1 of the summons dated 11 March 2020.
5 Under GCR O.33, r3.
6 Initial Reports were exchanged on 26 December 2019, Joint Statements on 19 January 2020 and Supplemental Reports on
22 April 2020.
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24.
It is not appropriate to determine in advance what methodology or hypothesis of
valuation should apply without a full examination of the factual matrix, expert
evidence on methodologies and submissions on the applicable legal principles.
25.
Similarly on the question of what information would or would not be not be available
on the basis of a hypothetical buyer and seller (as suggested in the presumption,) the
context is an important consideration.7
26.
It is not necessary at this stage for the court to decide whether or not the JCPC in
Shanda Games decided that any particular basis of valuation was right or wrong as
contended for in the presumptions8, or whether as Mr Lowe QC submitted English law
had effectively displaced Delaware law, or whether the decision dealt more narrowly
with the principles relating to minority discounts as contended for by Mr Levy QC.9
These are also matters for submission and decision at trial.
27.
I have come to the clear conclusion that it is not appropriate in this case to list a
hearing for resolution of the issues proposed before trial.
28.
The summons will be adjourned to trial so that it can be dealt with during the course
of the trial. The Dissenting shareholders' application sought by way of letter is granted
so that the trial may be listed as soon as possible.
THE HON. RAJ PARKER
JUDGE OF THE GRAND COURT
7 See § 84 and 87 in Qunar per Parker J for the approach of the court in that case which assessed that in order to do justice
between the parties the experts would need access to all relevant information on which to base their opinions and the
hypothetical sale concept and its consequences should not be applied. See also In the matter of Qihoo 360 Technology Co.
Ltd. (unreported, Cayman Islands Court of Appeal, Hon John Martin QC, JA; Hon Sir George Newman, JA; and Hon Dennis
Morrison, JA, 9 October 2017) at § 19 in which the court said that full information was needed.
8 see § 11 of Lee 3.
9 See § 28 and §55 the JCPC's analysis.