Cayman Islands Section 238 appraisal litigation: an evolutionary year in review

Over the past year, the Cayman Islands have consolidated their standing as the premier offshore jurisdiction for shareholder appraisal litigation following mergers and privatisations.

Section 238 of the Companies Act (2025 Revision) (section 238) empowers dissenting shareholders to seek “fair value” for shares following a merger of a Cayman Islands company. Since its introduction, the Cayman Courts have delivered a series of pivotal judgments that clarify both the substantive and procedural law in this complex, fast-evolving area. 

The latest briefing in our series of section 238 overviews explores the most important recent developments in section 238 appraisal disputes, providing practical guidance and strategic insight into what can be expected in the future.

Read our 2020, 2022 and 2024 overviews here. 

High value trials and a record uplift in s.238 proceedings 

Pending outcomes in 58.com and Sina, trial underway in 51job 

Two of the highest value and longest running section 238 proceedings – 58.com and Sina - have recently gone to trial. At the time of writing, decisions are currently pending in both cases. 

Despite a last-minute attempt by the company in 51job (Doyle J, 13 May 2025) to adjourn its appraisal trial to April 2026, the Court has ordered that the trial must commence in late June 2025. Once set, the court will enforce trial dates unless there are compelling reasons to alter them to ensure the fair and efficient administration of justice. 

The outcomes of the heavily contested appraisals in 58.com, Sina and 51job are expected to transform the Cayman Islands appraisal landscape given their complexity and high value. Only eight other trial judgments have been delivered by the Cayman Court since s238 was introduced in the Cayman Islands 16 years ago. 

Uncontested trial outcome in Xingxuan 

The remarkable case of Xingxuan Technology (Kawaley J, 9 January 2024) proceeded to an uncontested trial that resulted in a record uplift for the dissenting shareholder.   

After the company dispensed with its legal team and failed to comply with an order to make an interim payment, the Grand Court allowed the trial to proceed unopposed, leaving Xingxuan to bear the consequences of its absence.   

The Court then grappled with how to treat the uncontested expert evidence of the dissenting shareholder before making its own determination of fair value. The Court determined that it had a duty to scrutinise the commercial rationality of the appraisal result, applying its critical faculties to the expert reports even in the absence of an adversarial contest. 

The Court could not use a market price as a guide since Xingxuan's shares were not listed on any public exchange. The merger price was considered unreliable as evidence revealed serious flaws in the sale process. A discounted cashflow valuation was impractical as:  

• the company was a new business 

• the management projections were unreasonably optimistic  

• the company's failure to comply with discovery obligations meant that the projections were unable to be reliably evaluated  

Ultimately, the Court employed a gross merchandise value approach, incorporating multiples from sector peers and prior financing rounds, discounting for the minority position and illiquidity as necessary in arriving at a fair value of a record 659% uplift on the merger consideration – more than seven times higher than any other section 238 determination. 

For further detail on this decision read: Approach to unchallenged expert evidence in Cayman Islands

Interim payments remain key in s.238 proceedings 

As section 238 proceedings often span across several years, an area of growing practical relevance is the availability of interim payments made to dissenters before the final fair value award. Recent decisions have clarified the principles applicable to such payments. 

Merger price is the starting point in s.238 proceedings 

In China Index Holdings (Doyle J, 23 August 2024), the dissenters argued for interim payments above the merger price, contending clear undervaluation. The Court concluded that without clear and compelling evidence justifying an alternative, the merger price is generally treated as the appropriate sum for interim payment and any upward or downward adjustment would be an exception.   

For more information on interim payments and the case of China Index Holdings, read: Interim payments in Cayman Islands shareholder appraisals: how much should be paid?

Payments into escrow in limited circumstances 

In Trina Solar (Segal J, 9 August 2024), both sides accepted that the company should make an interim payment but disagreed whether it should be paid directly to the dissenters or into escrow. The Court considered three broad principles: 

1. Security for payments: if there is realistic doubt that an interim payment could be recouped by the company should it exceed the final award, the Court may order payment into escrow 

2. Need for evidential support: where dissenters fail to provide evidence of their ability to repay excess amounts, adverse inferences may be drawn by the Court and further conditions imposed 

3. Discretion in each case: the Court has discretionary power, to be exercised by reference to the facts, the undertakings offered, and in a way that reduces risk without unfairly prejudicing dissenters 

In Trina, the dissenters had provided appropriate evidence and undertakings, and the payment was ordered to be made to them directly. 

Discovery remains a battleground 

One of the pillars of the section 238 regime is fulsome company-side disclosure. This ensures both sides’ valuation experts have access to key information, including management accounts, business plans and internal projections relevant to value. The Cayman Courts have continued to ensure that discovery is timely, comprehensive, and proportionate. 

Post-valuation date disclosure and information requests in s.238 proceedings

In three recent decisions, the Court confirmed that discovery of documents and responses to information requests concerning price-sensitive events occurring after the valuation date should be produced by the company, provided that such events were foreseeable at the valuation date, but that dissenting shareholders are not under any reciprocal obligation. 

In Sina (Parker J, 3 June 2024), following an earlier direction from the Cayman Islands Court of Appeal (Birt JA, Moses JA, Field JA, 26 September 2023), the Grand Court found that where there has been a material delay between an EGM and completion of the merger – and significant, price-sensitive events occur during this time – the Court may admit evidence and require disclosure of such events, so long as they could have been foreseen at the valuation date.  

In 58.com (Ramsay-Hale CJ, 2 April 2024) the Court was required to consider whether valuation experts need to demonstrate that any requests for information and documents post-dating the valuation date are likely to be relevant to determining fair value. The Court was unequivocal: valuation experts have freedom to determine relevance, and unless disclosure becomes oppressive or disproportionate, companies must provide all material that would have been “known or knowable” at the valuation date – even if formally generated afterwards.  

In another Sina decision (Parker J, 16 January 2025), the company made a belated application to obtain further discovery from the dissenters of additional categories of documents post-dating the valuation date.  The Court refused the company’s application, finding no sufficient reason to impose wider disclosure obligations beyond the well-established and limited "Qunar categories".  Any dissenter discovery must be clearly defined and necessary for the fair resolution of the fair value dispute, proportionate and likely to be sufficiently probative at trial. The Court found no evidential basis to believe that the dissenters held further relevant documents, viewing the company's request as a "fishing expedition" and not likely to help the Court. 

For more information, read: Post-valuation date information in Cayman Islands appraisals

Interest is becoming more predictable in s.238 proceedings 

Given the duration of litigation in section 238 proceedings, interest awards can form a significant component of compensation for dissenters.  

Endorsement of the mid-point approach and confirmation of objective prudent investor standard 

In iKang Healthcare (Segal J, 11 September 2024) the Court confirmed that although the "fair rate of interest" to be paid by the company is within the Court's discretion, it is usually assessed at the mid-point between the rate which prudent investors in the position of the dissenting shareholders could have obtained, and the company's borrowing rate. The prudent investor rate is usually assessed objectively based on returns available to an average, non-specialist retail or professional investor. However, this presumption can be rebutted if the dissenters can demonstrate that this would be unfair to them in regard to their position.  

The Court found that the evidence filed by the iKang dissenters regarding their own investment strategies was limited, and so the presumption of objectivity was not displaced. It was further held that the dissenters’ expert’s approach, based on hedge fund returns, was inconsistent with a prudent investment strategy, which is conservative with low to moderate risk. On this basis, the Court adopted a notional asset allocation of 45% equities, 45% bonds and 10% cash in calculating the prudent investor rate of return. 

No need for expert evidence on interest in every s.238 case 

In Xingxuan Technology (Kawaley J, 25 March 2025), the court set a new precedent by determining a fair rate of interest without relying on expert evidence. As explained above, the company in this case had been barred from participating in the proceedings. The dissenter accordingly asked the Court to consider its application for interest without expert evidence or an oral hearing. The Court accepted that there was no invariable mandatory legal requirement that the entitlement to interest must be supported by expert evidence in every case. 

The Court accepted factual evidence of the company's borrowing rate being 4.35%, based on an inter-company loan documented in the company's disclosure. The Court then applied the same asset allocation (45% equities, 45% bonds and 10% cash) and indices as in iKang to arrive at a prudent investor rate 8.43%. Applying the mid-point approach, the Court held the fair rate of interest was 6.39%. 

Read Court determines interest rate in Re Xingxuan Technology Ltd for deeper analysis on this decision. 

Additional experts are difficult to appoint in s.238 proceedings 

Parties in section 238 proceedings are generally limited to a single valuation expert (to be instructed jointly in cases of multiple dissenters).   

In Sina (Parker J, 15 January 2015) the company applied  for the appointment of additional experts in the field of People's Republic of China regulatory law a month before the trial began. The application was denied for many reasons.  

The Court accepted the dissenters’ submissions regarding the lateness, impracticality and prejudice of the application, given how close it was to trial. The Court also found the new discipline unnecessary for fairly resolving the central issue of fair value, as regulatory matters could be addressed through documentary evidence and factual witnesses. Neither valuation expert requested such additional expert evidence and introducing it at such a late stage would have disrupted trial preparations, outweighing any potential benefit and undermining the overriding objective of fairness and efficiency. 

S.238 appraisal rights exist for short-form mergers

The availability of appraisal rights in so-called "short form" mergers (where a parent company holds over 90% of the voting power in the subsidiary) has been a topic of hot debate for the past five years. In 2021, the Grand Court held that such rights were available – read more: Short-form mergers – appraisal rights confirmed in the Cayman Islands in Changyou judgment.

This was then confirmed by the Court of Appeal (albeit on a different basis). Read more in Appraisal rights confirmed in Cayman Islands short-form mergers.

In a landmark victory for dissenting shareholders, the availability of appraisal rights has now been conclusively determined by the Cayman Islands' highest appellate court, the Judicial Committee of the Privy Council. In Changyou.com (JCPC, 11 March 2025), the Privy Council ruled that that to deny minority shareholders in short-form mergers dissent rights would be inconsistent with the legislative purpose of the appraisal regime afforded by section 238 and would violate a shareholder's constitutional right to peaceful enjoyment of their property. Even though the Cayman Companies Act does not explicitly provide for dissent rights in short-form mergers, the Privy Council found that the Court must “read down” s238 to give effect to the Constitution. 

For further explanation of the basis for this decision, read: Short-form mergers: the final word in Changyou.

Indemnity costs will be ordered against unreasonable litigants in s.238 proceedings 

Costs in the Cayman Islands generally “follow the event,” with the successful party recovering their costs on the standard basis. However, when a party's conduct has been grossly unreasonable or abusive it may justify an award of indemnity costs. Mere failure to engage or losing a discrete application is not enough; the conduct must significantly breach proper standards of litigation. 

A close escape in China Index Holdings 

In China Index Holdings (13 September 2024, Doyle J), the court found that the company's refusal to engage with the dissenters' request for interim payment was "unfortunate, disappointing and unimpressive". The company had also fundamentally changed its position on the day of the hearing, from arguing that any interim payment should be at a substantial discount to the merger price with no interest, to accepting payment of the merger consideration with interest, but no more.  

This still wasn't enough for the dissenters to overcome the high hurdle to obtain indemnity costs in this case, but the Grand Court sent a stark future warning that "Companies should be aware however that if they fail to reasonably engage with dissenters in respect of interim payments and adopt a fundamentally different position to that adopted in their skeleton arguments such conduct may, in the future, attract an adverse costs order against them on the indemnity basis.” 

For further discussion on this case, read: Interim payments in Cayman Islands shareholder appraisals: how much should be paid?

A clear case for indemnity costs in Xingxuan 

In Xingxuan Technology (25 March 2025, Kawaley J), the Court examined the company's conduct - particularly its absence during trial - and the actions and omissions that led to the company being debarred from contesting the proceedings. Xingxuan's failure to engage new attorneys and the breach of its obligation to pay the interim payment ordered by the Court amounted to improper and/or unreasonable conduct which, despite occurring (or manifesting itself) at a late stage in the proceedings, affected the overall proceedings  and justified an award of costs on an indemnity basis.   

The decision serves as a reminder that parties should always pursue their cases in good faith, co-operate with scheduling, comply promptly with procedural orders and avoid tactical brinkmanship. Failure to do so may have costly consequences. 

Transcripts and expert reports from other s.238 cases are difficult to deploy 

A novel issue has recently arisen as to the extent to which parties may obtain, reference, or rely upon transcripts and expert reports from separate, unrelated section 238 proceedings.

Principles of access and use 

In 51job (Doyle J, 13 May 2025) the company applied to access a wide tranche of materials (including transcripts and expert reports) from ten prior s238 cases, arguing fairness and a level playing field in trial preparation. The court articulated three key principles for doing so:

Purpose clearly stated

Applicants must precisely explain why access is sought and how it advances the open justice principle; vague references to nuance or context are not enough. Purpose must be clear at the outset and communicated to all concerned.

Open justice and proportionality

The open justice principle is balanced against practicality and proportionality, especially for concluded cases. There is no automatic right to access; applicants must show true necessity for understanding the court’s decision-making, and that compliance will not be disproportionately burdensome. 

Correct procedure and notice

Applications should normally be brought by formal summons to the relevant trial judge, not by informal letter, and with proper notice to affected parties. Administrative approaches are reserved for uncontroversial, simple requests. 

The company in 51job had satisfied none of these principles and therefore its application was refused. 

Further grounds for refusal 

A similar application was made partway through the Sina trial to deploy (unspecified) parts of the transcript from the earlier 58.com trial during cross-examination of a valuation expert who had been appointed in both sets of proceedings. 

In Sina (Parker J, 7 March 2025), the Court confirmed that, while transcripts from other section 238 cases can theoretically be admitted if relevant and procedurally fair, objections on grounds of unfairness, lateness, or risk of prejudice to pending cases can justify refusal.   

In this case, the application had been made three-quarters of the way through trial and the Court found that the company could have made the application much earlier. The clear prejudice caused to the dissenting shareholders if the 58.com transcripts were able to be deployed was found to outweigh any assistance that the court may derive from them. 

Looking forward 

As further section 238 judgments emerge, the principles governing Cayman Islands appraisals are likely to be refined but not fundamentally altered. Key themes of procedural discipline, protecting dissent rights, ensuring financial fairness and penalising misconduct are present in many of the decisions of the past year. 

The combination of reliable precedent, constitutional protection, flexible procedure, and judicial scrutiny ensures that minority shareholders can approach s238 appraisals with confidence in the fairness and rigour of the court process. The Cayman Islands remains an international leader in delivering effective, commercial, and principled resolution of high value and complex appraisal disputes. 

How can Ogier help? 

Ogier presently acts for dissenting shareholders in multiple ongoing section 238 matters and our cross-border team of appraisal rights specialists provide legal advice and representation across all aspects of fair value proceedings in the Cayman Islands. 

For further insights or tailored legal advice on section 238 appraisals or Cayman Islands disputes, please contact Ogier’s Dispute Resolution team. 

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Disclaimer

This client briefing has been prepared for clients and professional associates of Ogier. The information and expressions of opinion which it contains are not intended to be a comprehensive study or to provide legal advice and should not be treated as a substitute for specific advice concerning individual situations.

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