Xingxuan: Interest on Fair Value Award in Section 238 Proceedings

In a Nutshell

The Grand Court (the “Court”) determined the fair rate of interest to be applied to the fair value amount on the application of the dissenting shareholder without any expert evidence and without the company being represented. In doing so a clear message was sent that the Court will actively manage appraisal cases to deliver effective, proportionate outcomes consistent with constitutional and appellate guidance and that non-participation in proceedings can result in serious financial consequences (with indemnity costs being awarded against the company for its improper and unreasonable conduct which undermined the s.238 regime).

The extreme facts are unlikely to be repeated in the future and given that the assessment of interest proceeded on an uncontested basis, without the benefit of expert evidence, the judgment (which in many respects simply applies the reasoning of prior cases) is of limited precedential value to the calculation of a fair rate of interest. Of greater significance is the message that the Court sent to litigants.

Fair Value Judgment

XingXuan Technology Ltd (“XingXuan”) was a food service delivery servicing cities in the PRC, founded in 2014. Originally a wholly owned subsidiary of Baidu Inc. (“Baidu”), in time other investors became shareholders of XingXuan but it was never publicly listed. In a highly competitive sector, XingXuan was always loss making and in 2017, the business was sold to a subsidiary of Ele. me, itself owned by Alibaba Group, giving rise to the appraisal proceeding.

In 2023, XingXuan informed the Court that it could no longer afford to instruct its attorneys and its Cayman counsel came off the record. The Court declined to allow XingXuan participate in the appraisal without legal representation and in 2024 proceeded to determine the fair value of the dissenter’s shares on an unopposed basis, based on expert evidence from the dissenter only.

Following the fair value judgment, the dissenter applied for the determination of a fair interest in accordance with s.238(11) of the Companies Act (As Revised) and the costs of the proceedings to be determined by the Court on the papers without an oral hearing and without expert or factual evidence – i.e. based on written submissions alone. The judge agreed to the proposal reserving the right to request expert evidence, factual evidence and/or an oral hearing if necessary.

The dissenter submitted that in applying the principles from previous s.238 cases where expert evidence was adduced to the facts of this case:

• The established basis to determine the fair rate of interest is the mid-point between the company borrowing rate (being the rate at which the company could have borrowed the fair value of the dissenters’ shares) and the prudent investor rate (being the rate at which prudent investors in the position of the dissenting shareholder could have obtained, if they had had the money to invest).
• The company borrowing rate in this case was 4.35% and the prudent investor rate was 8.43% (using the same asset allocation of 45% equities, 45% bonds and 10% cash, and the same asset class indices (ETFs) for the assumed returns as applied in Re iKang Healthcare Group, Inc²) and therefore the midpoint between the company borrowing rate and the prudent investor rate was 6.39%.
• They were entitled to pre-judgment interest from the date of the company’s fair value offer under s.238(8) to the date of the Court’s order on interest (as no interim payment had been made) and thereafter interest would accrue on the fair value sum at the judgment debt rate of 2.375% per day until paid.

The dissenter submitted that it should be awarded indemnity costs due to the company’s conduct in relation to the proceeding which it submitted was “wholly cynical”.

Decision

The judge, although sceptical at first, accepted that the fair rate of interest could be determined without expert evidence and by reference to well established principles from previously decided cases. He noted that past cases the general principles concerning the determination of the fair rate of interest were discussed in detail and in, Integra Group³, it was determined without any expert evidence or affidavit evidence. He further noted that in Re iKang Healthcare Group, Inc.⁴, the Court stated that the procedure for establishing the fair rate of interest must be conducted in accordance with the overriding objective and must be proportionate and cost-effective.

The judge referred to sections 7 and 15 of the Cayman Islands Constitution and Re Changyou.com Limited⁵ in support of the conclusion that there was “a positive duty on the Court to seek to make the substantive law effective in an efficient manner.”

Accepting the dissenters’ submissions, the judge held that:

• The fair rate of interest was 6.39% which is the mid-point between the company borrowing rate and the prudential investor rate.
• The judge cross-checked the interest rate against fair rate of interest findings in previously decided cases such as 4.95% in Re Integra Group⁶ in 2015, 4.295% in Re Shanda Games Limited⁷ in 2017, and the rates (for various dissenters and various interest periods) ranging between 6.7% and 7.19% in Trina Solar⁸ in 2021.
• Pre-judgment interest should run from 29 September 2017 (the date of the company’s fair value offer under s.238(8)) until 5 February 2025 at the rate of 6.39% and interest thereafter at the statutory rate of 2.375% on the judgment debt of US$318,690,000. The pre-judgment interest ran from the date of the company’s fair value offer as the company had failed to make the interim payment after being ordered to do so.
• As regards indemnity costs, the improper and/or unreasonable conduct of the company (e.g. failure to make an interim payment and the withdrawal of funding for its lawyers) infected the proceedings as a whole and justified a general award of costs on the indemnity basis.

¹ [2025] CIGC (FSD) 25
² FSD 32/2019 (NSJ) 11 September 2024 (Unreported)
³ 2016 (1) CILR 192
⁴ As above.
⁵ [2025] UKPC 12
⁶ 2016 (1) CILR 192
⁷ 2018 (1) CILR 352 (CICA)
⁸ FSD 92/2017 (NSJ) 8 December 2021 (Unreported)