Changyou.com Ltd v Fourworld Global Opportunities Fund Ltd and 7 others (Cayman Islands)

Where a Cayman short-form merger compulsorily takes minority shares, Part 16 of the Companies Act confers appraisal rights under section 238(1), as in a long-form merger. Sections 238(2)–(5) prescribe the machinery for exercising those rights but do not define or restrict the class entitled to them. Their failure to accommodate a procedure involving no shareholder vote is a legislative omission. Ordinary statutory construction cannot supply detailed machinery unless the court is abundantly sure what the legislature would have enacted. However, pre-constitutional legislation which remains materially unchanged must be modified under section 5 of the Cayman Islands Constitution Order 2009 so far as necessary to conform with constitutional property protection. The contractual-incident exception is narrowly construed.

The appellant company merged with its parent by the short-form procedure in Part 16 of the Companies Act. Minority shareholders objected and sought determination of the fair value of their shares under section 238.

The Grand Court decided that the shareholders had appraisal rights and had taken appropriate steps to dissent. Its judgment was reported at 2021 (1) CILR 294. The Court of Appeal dismissed the company’s appeal, holding that section 238 could be read compatibly with section 15 of the Bill of Rights under section 25 of the Bill of Rights.

The Privy Council considered whether section 238 conferred appraisal rights in a short-form merger, whether the procedural omission could be corrected by ordinary construction or under section 5 of the Constitution Order, and whether the shareholders had complied with the modified procedure.

Disposition

Sir Christopher Nugee, delivering the Board’s judgment, dismissed the appeal and advised His Majesty accordingly.

1. Statutory construction. Part 16 must be read according to the enacted words, statutory context and legislative purpose, applying the approach summarised in Shanda Games Ltd v Maso Capital Investments Ltd [2020] UKPC 2. Section 238(1) confers a general entitlement to fair value on a dissenting member of a constituent company. It does not distinguish between long-form and short-form mergers. Sections 238(2)–(5) are mechanical provisions explaining how dissent is expressed; they are not definitional provisions limiting the entitlement. The omission of machinery for a short-form merger was an oversight.
2. Ordinary construction. The three conditions in Inco Europe Ltd v First Choice Distribution [2000] 1 WLR 586 were satisfied as to purpose and inadvertence, but not as to the substance of the provision the legislature would have made. The detailed timetable could have been adapted in several materially different ways. Devising one would cross the boundary between interpretation and legislation.
3. Constitutional protection. Section 15 of the Bill of Rights is engaged where legislation authorises a private person to deprive another of property. A statutory power which operates in the future to interfere with existing property rights engages the protection even if the legislation existed when the rights were acquired. The contractual-incident exception in section 15(2)(a)(iii) is narrow and concerns analogous rights arising from the contract itself, such as forfeiture or enforcement of security. A short-form merger was solely a consequence of legislative intervention.
4. Existing law and modification. The test under section 5 of the Constitution Order is whether the relevant provisions have been materially amended. Sections 238(1)–(5) were unchanged from the pre-appointed-day section 251G(1)–(5), so they were existing law. Section 5 imposed a mandatory and sufficiently broad obligation to permit modest adaptations to the machinery. The Board therefore upheld the Court of Appeal’s modifications to sections 238(2), (4) and (5).
5. Compliance. The Court of Appeal was entitled to refuse the company’s late procedural objection because it had not been raised during the appeal. The Board expressed no view on its merits. The respondents’ contingent cross-appeal therefore did not arise.

• Privy Council: Appeal dismissed on 11 March 2025: [2025] UKPC 12.
• Court of Appeal of the Cayman Islands: Appeal dismissed on 16 September 2022. The Court held that ordinary construction did not accommodate short-form mergers but that section 238 could be read compatibly with section 15 of the Bill of Rights under section 25.
• Grand Court of the Cayman Islands: Preliminary issue determined for the shareholders on 28 January 2021. The judgment was reported at 2021 (1) CILR 294.