Cayman Islands Grand Court declines to order general discovery under the just and equitable winding up jurisdiction

In re Sohu.com Limited¹, the Grand Court of the Cayman Islands clarified the distinct approach to discovery in just and equitable winding up petitions. The judge ordered the parties to exchange evidence following pleadings, after which the Court would be in a better position to decide whether general discovery was required.

Background

The minority shareholders of Sohu.com Limited (the Company) petitioned for the winding up of the Company on the just and equitable ground alleging serious mismanagement of the Company’s affairs.

At the directions stage, the petitioners sought an order for general discovery. The Company opposed that direction, arguing that the petitioners were fishing for documents to support existing or new allegations and that discovery would result in a disproportionately expensive exercise.

Discovery in just and equitable winding up proceedings

In determining whether to order general discovery, Doyle J contrasted the position under the just and equitable jurisdiction with the usual approach to discovery in civil litigation.

In ordinary civil proceedings, Grand Court Rule (GCR) O.24(1) provides that there shall be discovery following the close of pleadings. This will ordinarily take the form of general discovery, requiring parties to disclose documents relevant to the matters in issue, including documents that support their case and those that are adverse to it. In appropriate cases, the Court may also order specific discovery of particular documents or categories of documents. Although the Court may dispense with discovery where it is not necessary for the fair disposal of the proceedings or for saving costs, pursuant to GCR O.24 r.8, the rules proceed from a framework in which discovery is generally contemplated following close of pleadings.

Discovery in the just and equitable winding up jurisdiction is instead governed by Companies Winding Up Rules (CWR) O.3 r.12(1)(i), which provides the Court with a broad power to make directions relating to discovery and inspection. As such, the Court may order general discovery, specific discovery or no discovery at all.

In re Sohu.com Limited, Doyle J reviewed a line of recent Cayman authorities which provide useful guidance as to the approach to discovery in just and equitable winding up petitions.² In particular:

• Unlike ordinary civil proceedings, there is no assumption of general discovery. In just and equitable proceedings, discovery should be ordered only where it is necessary for the fair disposal of the proceedings or for saving costs.
• In determining what discovery, if any, is appropriate, the Court will consider the particular facts and circumstances of the petition. Proportionality and necessity remain key considerations, as in civil litigation.
• GCR discovery principles remain highly persuasive where appropriate but are not always dispositive given the broad discretion under CWR O.3 r.12(1)(i). Just and equitable winding up petitions should not be necessarily considered as akin to civil proceedings.
• The Court will always have regard to the overriding objective. In exercising its discretion, the Court will seek to ensure that discovery promotes the just, expeditious and economical determination of the proceeding.

The Court’s decision

Having considered the authorities, Doyle J declined to order general discovery. He found that the petitioners had filed very little evidence in support of the petition and accordingly, the Court was not yet in a position to determine whether further discovery was required for the fair disposal of the proceedings. He noted his obligation to ‘guard against potential abuse and impermissible fishing‘ when ordering discovery.

Instead, a direction was made for the exchange of evidence to occur in the first instance observing that ‘if the Petitioners have evidence in support of their Petition then they must file and serve that evidence…‘. The Judge noted that once the close of pleadings had occurred, and evidence had been filed with core relevant documents exhibited, the Court would be in a much better position to determine whether discovery was genuinely necessary for the fair disposal of the proceedings. He also suggested that the parties cooperate with one another to determine potential discovery parameters, including categories of relevant documents, date ranges, and search terms.

The sequencing of those directions is notable. Unlike ordinary civil proceedings, where discovery is generally contemplated before evidence is exchanged, Doyle J required the evidential basis of the petition to be established first so that the Court could properly assess whether broader discovery was justified.

Key takeaways

• Unlike in civil proceedings, there is no presumption of discovery in the just and equitable winding up jurisdiction. The Court may order general discovery, specific discovery or no discovery at all.
• Parties seeking discovery should be prepared to show the evidential basis of their claims. The Court may be reluctant to order discovery where it is unable to determine whether it is necessary or amounts to an impermissible fishing exercise.
• As a result of the above, discovery may not follow the ordinary civil litigation timetable. The Court may require evidence to be exchanged in the first instance.