The Cayman Islands Grand Court has recently ordered disclosure of documents in on-going court proceedings despite arguments that disclosure would breach the PRC’s Data Security Law.
In the decision in Re New Frontier Health Corporation (FSD 72 of 2022, unreported judgment, 24 April 2024), Doyle J of the Grand Court of the Cayman Islands refused New Frontier Health Corporation’s (New Frontier) application for an extension of time to provide discovery of documents located in the PRC while acknowledging that New Frontier was not permitted to do so in accordance with PRC law. The Court’s decision was made in the context of ongoing merger appraisal proceedings commenced pursuant to section 238 of the Cayman Companies Act between New Frontier and various dissenting shareholders (Dissenters).
New Frontier had previously been ordered to give discovery by 19 December 2022 and it had, during the course of the proceedings, provided discovery of 36,000 documents. New Frontier sought and was granted several extensions of time to provide discovery. On 18 August 2023, New Frontier filed an application seeking an open-ended extension of time in light of issues arising under PRC law to give discovery of 444,000 outstanding documents. New Frontier’s position was that it could not give discovery of the documents without the approval of the PRC authorities and there was no approval mechanism in place to obtain the necessary approvals.
THE COURT’S DISCRETION
Doyle J observed that the Court’s power to extend time for compliance with its orders was to be found in Order 3 rule 5(1) of the Grand Court Rules and that while the Court will grant reasonable extensions of time, compliance with Court orders and the impact on the administration of justice are of paramount importance.
Aside from ordinary case management principles relevant to the Court’s discretion whether to grant an extension of time, Doyle J determined that he ought to apply the test set out in the judgment of Gross LJ in Bank Mellat v Her Majesty’s Treasury [2019] EWCA Civ 449 (Bank Mellat) in circumstance where there is a conflict between a local law requirement to discover documents and a foreign law requirement preventing production of the relevant documents. In that case, Gross LJ observed that the test to be applied was:
“where such a tension arises, it is for the Court to balance the conflicting considerations: the constraints of foreign law on the one hand, and the need for the documents to ensure a fair disposal of the action in this jurisdiction, on the other.”
Doyle J further observed that Gross LJ’s judgment in Bank Mellat had been followed in several decisions in the United Kingdom and had been followed by Parker J of the Grand Court in the decision in Re Sina Corporation (FSD 128 of 2021, unreported judgment, 6 February 2024) (Sina Corporation). Like the case before Doyle J, Sina Corporation also concerned section 238 appraisal proceedings and an application by the company to extend time to provide discovery of certain documents due to PRC legal issues.
PRC LAW
The Court was referred to various provisions of the Data Security Law of the PRC (the DSL) and the Personal Information Protection Law of the PRC (the PIPL) and was assisted by expert witnesses in PRC law called by New Frontier and the Dissenters.
Doyle J observed that Article 36 of the DSL provides that organisations and individuals within the PRC “shall not provide data stored within the territory of the [PRC] to any overseas judicial or law enforcement body” without the approval of the PRC authorities and that article 41 of the PIPL imposes a similar requirement to seek approval with respect to the provision of personal information. He noted that penalties for non-compliance with these provisions include the imposition of fines and, in the most serious circumstances, suspension or revocation of business licences. Having considered the evidence of both New Frontier and the Dissenters’ experts on PRC law (which reached opposite conclusions on the issue), Doyle J accepted that Article 36 of the DSL and Article 41 of the PIPL were likely to apply to orders requiring New Frontier to disclose documents to the Dissenters (this was despite the evidence from the Dissenters’ PRC law expert witness that these provisions would not apply).
Having determined that the provisions of the DSL and PIPL applied in the circumstances before the Court, Doyle J, “erring on the side of caution and in favour of the Company”, concluded that New Frontier faced a “low to moderate” risk of prosecution in the PRC should it provide discovery to the Dissenters contrary to the DSL and the PIPL.
THE COURT’S DECISION
Having determined that there was an actual risk of prosecution, Doyle J stated that, in accordance with the test set out in Bank Mellat, he was required to undertake a balancing exercise “weighing on the one hand the risk of prosecution and on the other the need for and importance of the documents to ensure the fair determination of the Section 238 proceedings within a reasonable time”.
Doyle J considered a number of factors as part of this balancing exercise including: the overriding objective of dealing with cases in a just, expeditious and economical way; the need for a fair trial within a reasonable time; the importance of complying with court orders; the importance of the documents to be discovered; considerations of ‘comity’; New Frontier’s conduct in the proceedings; and the impact of the delay in providing discovery. Most significantly, his Honour reasoned that:
- although there was a lack of evidence as to the importance of the outstanding 444,000 documents, it could be inferred that some of the documents would be necessary and important to the proceedings;
- comity (i.e. the Grand Court’s “respect for the laws and interests of the PRC and the PRC’s respect for the laws and interests of the Cayman Islands”) being “a two-way street” required the PRC authorities to take into account the requirement that the documents be disclosed pursuant to an order of the Grand Court and that a refusal to allow New Frontier additional time “entails no disrespect to the relevant interests of the PRC or its laws”;
- while acknowledging the time and money spent by New Frontier to gather the documents and redact them, on the basis that only 8% of documents had been discovered previously by New Frontier, Doyle J described New Frontier’s efforts as “inadequate and simply not good enough” and was critical of New Frontier not having cooperated with the Dissenters in an US application for discovery or to provide the same documents from sources outside the PRC that were not subject to the DSL or PIPL;
- New Frontier had “not produced an acceptable explanation or good excuse for the delay” (despite the fact that no mechanism was in place to authorise the transfer of the 444,000 documents out of the PRC); and
- in the context of the New Frontier being originally required to provide its discovery by 19 December 2022 and that Doyle J granted a previous extension of time “somewhat reluctantly”, it was prejudicial to the interest of the parties and to the legal system to grant a further extension of time.
In weighing these factors, Doyle J concluded that “the balance clearly firmly comes down in favour of declining to grant yet a further extension of time for [New Frontier] to comply” with its obligation to give discovery to the Dissenters and that New Frontier “should now push the button and upload [the 444,000 documents] to the Data Room forthwith”.
