In the matter of Qihoo 360 Technology Co Ltd
(Unreported, Mangatal J, 24 July 2017)
In a recent application made before the Grand Court of the Cayman
Islands (the "Court"), Walkers, along
with Robert Levy QC as leading counsel, has successfully argued
that the Court does have the power to order the appointment of an
independent forensic information technology expert to conduct a
forensic information technology audit of a party's discovery in
proceedings commenced under section 238 of the Companies Law (2016
Revision) (the "Law" and
"Fair Value Proceedings"), provided the
circumstances of the case are exceptional.
In this case, the dissenting shareholders, which are all funds
managed by Hong Kong based fund manager Maso Capital (the
"Dissenters"), had their shares
cancelled as part of a management buy-out that was completed by way
of statutory merger under Part XVI of the Law and exercised their
statutory right to dissent from the merger. In the first case of
its kind in Fair Value Proceedings, the Court was asked, inter
alia, in a contested matter to order that Qihoo 360 Technology
Co. Ltd. (the "Company") and the
Dissenters jointly appoint an independent forensic technology
expert to conduct an audit of the Company's information
technology systems and electronic devices to ascertain the
Company's compliance with its discovery obligations.
Mangatal J. held, after considering various authorities, that
"this Court does have the inherent jurisdiction to order
discovery to be carried out by a forensic information technology
expert who will perform a forensic audit. It is also in keeping
with the overriding objective of dealing with cases justly, in a
way which is proportionate to the amount of money involved, the
importance of the case, and the complexity of the issues, to give
that flexible interpretation to the GCR set out in Order 24 as to
discovery" [110].
Mangatal J. considered that the case was an 'exceptional'
one, "not only because of the central importance of
discovery in section 238 proceedings and the Company's role in
the process, but also because of the Company's inconsistent and
cavalier approach to discovery resulting in insufficient discovery
under previous orders" [112].
As such, Mangatal J. confirmed that "the circumstances of
the case warrant the Court granting orders in relation to the
appointment of a forensic expert to carry out a forensic audit.
This is necessary to avoid a denial of justice to the Dissenters,
as well as to allow the Court to properly carry out the function
which it will have to carry out at the end of the day, namely
appraising the fair value of the Dissenting Shares. Whilst the
Order is undoubtedly intrusive, it is justified in this
case" [113].
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.