Determining fair interest rates without expert evidence: Cayman Islands Court ruling in Re Xingxuan Technology Ltd

In a landmark decision, the Grand Court of the Cayman Islands has set a new precedent by determining a fair interest rate of 6.39% in the long running case of Re Xingxuan Technology Ltd, without relying on expert evidence. The Court also awarded indemnity costs to the dissenter.  

In its written reasoning for the judgment handed down on 25 March 2025, the Court confirmed that in appropriate cases, the fair rate of interest can be determined without expert testimony in section 238 fair value proceedings.  

Managing associate Farrah Sbaiti and associate Raedean Simpson in Ogier's Dispute Resolution team acted for the dissenter.  

Background 

Following an unopposed trial on 17 July 2024 of the section 238 fair value petition in Xingxuan Technology Ltd (Xingxuan), the Court handed down its fair value judgment on 9 September 2024.  

The judgment determined that the fair value of the dissenter's shares was US$318.69 million - approximately 659% higher than the merger consideration offered by Xingxuan. For more information on this fair value judgment, read: Approach to unchallenged expert evidence in Cayman Islands.

Once the Court indicated that it would hear counsel in relation to interest, costs and any other consequential matters arising from the fair value judgment, the dissenter asked the Court to consider its application for interest and costs on the papers and without an oral hearing. The Court provisionally agreed to this request but reserved the right to require expert and/or factual evidence to be filed, and/or an oral hearing, should it be considered appropriate.  

After the written submissions and supporting materials were filed, the Court required the dissenter to file evidence formally confirming:  

1. the basis for the proposed company borrowing rate 

2. its belief in the reasonableness of the prudential investor rate methodology adopted and the accuracy of the final rate relied on in the written submissions filed 

How did the Court determine a rate of fair interest in Xingxuan Technology Ltd? 

 
1. Determining a fair rate of interest without expert evidence 

The Court considered the English courts' approach to the calculation of statutory pre-judgment interest on compensation for actionable loss, as summarised by Justice Segal in the most recent section 238 interest decision, iKang. 

The Court noted that pre-judgment interest is routinely assessed without expert evidence. It also stated that as a commercially rational remedy, interest in section 238 cases should be determined using a process which is appropriate, proportionate and cost-effective, in accordance with the overriding objective.  

The Court also noted "higher level" support for the existence of a positive duty to make the substantive law effect in an efficient manner, from the recent Privy Council decision in Re Changyou.com Limited (Changyou). The decision confirmed that section 238 must be read in a way that is compatible with, and which gives effect to, section 15 of the Cayman Islands Constitution, providing peaceful enjoyment of property and prompt compensation in the event of interference (such as compulsory acquisition).  

The Court determined that it would not be a commercially-rational remedy if a dissenter had to incur disproportionate costs to recover an interest award. Justice Kawaley, the assigned judge to the proceedings, considered that both economy and proportionality have increased significance in the context of a case such as Xingxuan, which he referred to as "section 238-lite" - particularly in circumstances where there was uncertainty over recoverability of the fair value and interest awarded.   

The Court concluded that there was no invariable mandatory legal requirement that the entitlement to an award of interest on compensation awarded by a court must be supported by expert evidence in every case. Having concluded that interest can be determined without expert evidence in appropriate cases, the Court then moved on to considering whether the fair rate could be determined justly without expert evidence in this particular case.  

2. The fair rate of interest applied 

The written reasons helpfully summarise the key cases considered to develop the application of the "mid-point approach" for determining the fair rate of interest, and the underlying methodologies for determining the company borrowing rate and the prudent investor rate. The Court accepted the dissenter's central submission that the core principles governing the approach to assessing the fair rate of interest under section 238 are clearly and firmly established. 

The Court accepted Xingxuan’s factual evidence that the appropriate company borrowing rate was 4.35%, based on the interest rate applicable to an inter-company loan, the terms of which were documented in the company's disclosure in the proceedings. The Court concluded it did not need expert evidence to arrive at its decision on the company borrowing rate.   

In relation to the prudent investor rate, the Court provided several reasons for its decision to accept the dissenter's proposal to apply the iKang methodology (under the objective standard of an ordinary prudent investor) without expert evidence being adduced. In particular, the fact that the approach was substantially based on expert evidence adduced by Xingxuan in iKang made the risk of serious prejudice to the company in this case unlikely and the dissenter's inability to enforce was to be balanced against any risk of unfairness to the company of proceeding without expert evidence.  

The Court applied 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 iKang under the objective prudent investor standard. It was noted that the entire interest period in iKang fell within the interest period (representing approximately 70%) in Xingxuan. The Court determined that the prudent investor rate at 8.43% which was considered to be broadly consistent with the primary prudent investor rate in iKang (taking into account the longer interest period in Xingxuan and market movements during the extended period). Consistent with the previous authorities, the Court held the fair rate of interest was 6.39% which was the mid-point between the company borrowing rate of 4.35 % and the prudent investor rate of 8.43%.   

3. The interest period in Xingxuan 

As Xingxuan had not made an interim payment to the dissenter, the relevant interest period for the purposes of the fair rate of interest calculation was 29 September 2017 (the date of Xingxuan's fair value offer) until 5 February 2025 (the date of the Court's decision on interest).  

4. Costs awarded to the dissenter 

The Court had no difficulty in concluding that the dissenter was entitled to its costs of the proceedings, in circumstances where it had obtained a fair value award far in excess of what Xingxuan had offered.  

In considering the dissenter's application for costs to be taxed on the indemnity basis, Justice Kawaley examined Xingxuan's conduct - particularly its absence from the litigation stage -and the actions and omissions leading to the company being debarred from contesting the proceedings.  

Xingxuan's failure to engage new attorneys and its breach of its obligation to pay the interim payment ordered by the Court amounted to improper and/or unreasonable conduct which, despite occurring (or manifesting itself) at a late stage in the proceedings, infected the proceedings as a whole and justified an award of costs to be taxed on the indemnity basis.  

Conclusion  

The circumstances in Xingxuan, which include a company in breach of a court order for an interim payment and subsequently debarred from participating in the proceedings, are plainly unusual. In most section 238 cases all parties will take an active role in what are usually heavily contested proceedings. Therefore, it is often impossible or impractical for expert evidence on interest to be dispensed with. However, the decision in Xingxuan reinforces the Court's willingness to approach applications with pragmatism, proportionality and efficiency. In appropriate circumstances, the Court may be receptive to determining applications on the papers and without an oral hearing, and without expert evidence being adduced, in order to best serve the interests of justice and facilitate a just outcome.  

The Court's reference to the recent Changyou decision also indicates that the Court is likely to deprecate poor conduct and delay in section 238 cases to an even greater degree and make appropriate orders to uphold and give effect to what is now an accepted constitutional right to prompt payment of adequate compensation where shares are compulsorily acquired under the Cayman Companies Act. The Court has helpfully indicated that adjustments to the relevant statutory provisions and/or the Court Rules may well be required to prevent the integrity of the statutory scheme (which is now enshrined as a constitutional right) being undermined and/or abused in future cases. This would no doubt be a welcomed development for dissenting shareholders concerned about a company's ability or willingness to meet a fair value and interest award.  

How can Ogier help? 

Ogier acted for the dissenter in this matter and presently acts for dissenting shareholders in multiple ongoing section 238 matters. As one of the leading shareholder appraisal firms in the Cayman Islands, Ogier’s cross-border team of appraisal rights specialists are experienced in providing legal advice and representation in fair value proceedings in the jurisdiction. 

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Disclaimer

This client briefing has been prepared for clients and professional associates of Ogier. The information and expressions of opinion which it contains are not intended to be a comprehensive study or to provide legal advice and should not be treated as a substitute for specific advice concerning individual situations.

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