Privy Council clarifies appellate restraint in Cayman Islands merger appraisal cases

The Privy Council's decision in Maso Capital Investments Ltd v Trina Solar Ltd reinforces fundamental principles governing appellate intervention in complex valuation disputes, particularly concerning dissenting shareholder appraisal rights under Cayman Islands law.

The case concerned Trina Solar's 2016 management-led buyout at US$11.60 per American Depositary Share. Dissenting shareholders challenged this merger price, seeking determination of "fair value" under section 238 of the Cayman Islands Companies Act. The Grand Court judge undertook an exhaustive sixteen-day trial, hearing evidence from four expert witnesses whose reports exceeded 1,000 pages, before determining fair value at US$11.75 per ADS using a blended approach: 45% weighting to the merger price, 30% to market price, and 25% to discounted cash flow (DCF) valuation.

The Court of Appeal reversed this, eliminating the merger price weighting entirely and redistributing it to increase the DCF weighting to 70%. The Privy Council unanimously overturned this intervention.

Sir Andrew Popplewell's leading judgement emphasised that assessing fair value is "highly case specific and highly fact dependent", requiring nuanced evaluative assessments beyond simple factual determinations. The trial judge must weigh multiple valuation methodologies—none hierarchically superior—considering their comparative reliability through extensive expert evidence addressing numerous variables and inherent uncertainties.

The Board identified critical errors in the Court of Appeal's reasoning. First, it wrongly dismissed the Citi fairness opinion based solely on one input component (13% cost of debt) whilst ignoring the expert evidence that the overall weighted average cost of capital remained sound. The trial judge had accepted the company's valuation expert evidence that Citi's model, viewed holistically, did not materially undervalue the company.

Second, the Court of Appeal improperly elevated market check deficiencies to threshold requirements. Whilst the judge acknowledged concerns about the special committee's performance—including inadequate outreach to major competitors and potential chilling effects from the founder's position—he made findings that these deficiencies likely had not prevented interested bidders from emerging. These factual findings, based on extensive industry evidence, lay within the judge's evaluative discretion.

Third, the appellate court failed to conduct proper comparative reliability analysis between valuation methodologies. Having eliminated the merger price without reasoned analysis, it simply transferred the 45% weighting to DCF valuation, producing a result dramatically inconsistent with expert evidence favouring market-based approaches.

The Board also restored the judge's findings on module selling prices and capacity factors for DCF calculations. The Court of Appeal had impermissibly substituted its own figures despite acknowledging difficulties in determining appropriate adjustments, effectively treating estimation exercises as mathematical calculations admitting single correct answers.

This decision reinforces established appellate restraint principles with particular force in complex commercial litigation. Trial judges immersed in voluminous expert evidence occupy uniquely advantageous positions for making nuanced evaluative assessments. Appellate courts must not engage in "island hopping" through evidence or treat trials as "dress rehearsals". Interference requires demonstrating conclusions lie outside bounds of reasonable disagreement—a demanding threshold the Court of Appeal failed to meet.

The judgement provides valuable guidance on applying Delaware jurisprudence in Cayman appraisal proceedings whilst emphasising that cited factors constitute helpful considerations rather than mandatory checklists. Each case demands careful, fact-specific analysis respecting trial judges' evaluative functions.