Shanda Games Ltd v Maso Capital Investments Ltd and others

Under a statutory appraisal regime, fair value is a question of statutory interpretation read in its legislative context. It does not automatically require either a pro rata share of the company’s value or a minority discount. The ordinary principle is that the court values the actual shareholding which the shareholder must transfer. Unless the legislation indicates otherwise or special circumstances exist, a minority holding is valued as such. Comparable merger, scheme and squeeze-out provisions may inform interpretation, and foreign jurisprudence may provide guidance, but neither controls an undefined statutory expression. A court should not adopt a bright-line rule that a discount is always, or never, appropriate. A challenge to a discretionary interest award based on a new point not raised below will generally not be entertained absent good reason.

These conjoined appeals arose from a Cayman Islands merger in which minority shareholders exercised statutory appraisal rights. The Grand Court determined the fair value of their shares without a minority discount and awarded interest at 4.295 per cent. The Cayman Islands Court of Appeal applied a 23 per cent minority discount but upheld the interest award.

The minority shareholders appealed on fair value. The company appealed on the basis that interest should be assessed by the principles applicable to debt or damages. The central issues were whether section 238 of the Companies Law (2013 revision) required a pro rata valuation and whether the interest challenge could be advanced on appeal.

1. Fair value. The Board dismissed the minority shareholders’ appeal. The meaning of fair value under section 238 of the Companies Law (2013 revision) must be determined by statutory interpretation, having regard to the statutory language, context and legislative mischief. The Board confined its decision to the minority-discount issue.
2. The comparable Cayman provisions on schemes of arrangement and squeeze-outs, and the corresponding provisions of the Companies Act 2006, did not establish a right to a pro rata share of the company’s value. They supported the view that a minority shareholding may be valued as such. The unfair-prejudice authorities, including the quasi-partnership exception, concerned a materially different statutory remedy and did not govern the appraisal question.
3. The general principle stated in Short v Treasury Comrs [1948] 1 KB 116, affirmed by the House of Lords at [1948] AC 534, was applicable. Unless there is a contrary statutory indication or special circumstances, the court values the actual shareholding which the shareholder has to transfer, not a hypothetical controlling share or a pro rata part of the company’s undertaking. The reasoning in Kummen v Kummen-Shipman Ltd (1983) 19 Man R (2d) 92, insofar as it took account of the acquirer’s post-acquisition position, was inconsistent with that principle.
4. Delaware appraisal jurisprudence may provide useful comparative guidance, but the Cayman legislature used an undefined expression and did not incorporate the evolving Delaware meaning of fair value. The Delaware policy against a minority discount could not displace the general principle or the related Cayman statutory context.
5. Neither a rule that a minority discount is always required nor a rule that it is never permissible could be justified. The Court of Appeal’s valuation order therefore remained in force, because the parties had argued only for a pro rata valuation or the discounted valuation adopted below.
6. Interest. The Board dismissed the company’s appeal. The judge’s discretionary award was challenged on a new argument not presented at first instance. In general, an alleged improper exercise of discretion must arise from a submission made to the judge, subject to exceptional cases. No sufficient reason existed to entertain the new challenge. The Board provisionally ordered that costs should follow the event unless contrary submissions were lodged within 14 days.

• Privy Council (27 January 2020): dismissed both appeals. The Court of Appeal’s order on fair value and its interest award remained in force.
• Cayman Islands Court of Appeal (6 March 2018): allowed the company’s fair-value appeal, applied a 23 per cent minority discount and reduced the valuation; upheld the interest award.
• Grand Court of the Cayman Islands (25 April and 16 May 2017): determined fair value without a minority discount and awarded interest at 4.295 per cent.