In the Matter of Nord Anglia Education, Inc - Costs Ruling

¶ IN THE GRAND CO?JRT OF THE CAYMAN ISLANDS FmANCIAL SERVICES DIVISION CAUSE NO. FSD 235 0F 2017 (IKJ) m THE MATTER OF SECTION 238 0F THE COMPANIES LAW (2016 REVISION) AND m THE MATTER OF NORD ANGLIA EDUCATION, INC m CHAMBERS Appearances: Mr Malachi Sweetman, Maples and Calder, on behalf of Nord Anglia Education, Inc. ("the Company") Mr Christopher Harlowe, Mourant Ozannes, on behalf of the Morirant Dissenters Before: The Hon. Justice Kawaley Heard: On the papers Submissions filed: 30 January /7 March 2019 Draft Ruling Circulated: 25 March 2019 Ruling Delivered: 18 April 2019 HEADNOTE Costs of Dissenters Summonses for Directions-section 238 of the Companies Law-whether costs sho'bddfollow the event-whether successfid party acted unreasonably-needfor tiinetable fixed by Grand Court to address the filing of section 1782 applications before the US courts 190418 In the nyatter of NordAnglio Edyrcation, Inc - FSD 235 of 201 7 (IKJ) - Costs Riding I COSTS RULmG ON THE PAPERS Introduction 1. On December 6, 2018, I heard the Mourant Dissenters' Data Room Summons dated October 25, 2018 and the Company's Notice seeking general case management directions. My Ruling on the issues raised was delivered on December 21, 2018. 2. My provisional views on costs were set out as follows: "28. The Mourant Dissenters have achieved substantial success on their firmly contested Summons, but exploited the fortuitous fimctionality problems thrown ttp by the Company's improvisational approach to e-discovery to obtain tactical benefits through extending the duration of the inspection process. I do not think the Disseriters should be auiarded their costs in any event.

¶ [29] The option of accepting the offer to provide experts only with access to native format could hme been accepted without prejudice to the pursuit of the present application as a matter of principle. Not only would the tria[ preparations have been fitrther advariced (it is, after all, for the Experts to carry out the inspection process). The scope of argument covdd have been narrowed so as to focus not on the functionality issues, but on the principles and practice governing e-discovery. Unless any party applies within 28 days by letter to the Registrar to be heard as to costs, the costs of this Summons shall be the Dissenters' costs in the cause.

¶ [30] The separate costs relating to those portions of the Company's Notice which did not relate to the inspection controversy are probably de minimis. Some of the relief was agreed (the timetable), some of the relief was refitsed (the section [1 782] applications) and some relief was substantially granted (fixing a trial date) However those were quintessentially pre-trial general case management issues. Unless any party applies within 28 dctys by letter to the Registrar to be heard as to those costs, those costs shall be in the cause." 3. On January 30, 2019, Mourant filed written submissions and authorities in support of the Mourant Dissenters' application for costs in relation to the Mourant Dissenters' Data Room Summons. There was some delay in serving these documents on the Company's attorneys. On March 7, 2019 Maples forwarded its written submissions under cover of a letter which requested that the costs application should be dealt with 190418 In the matter of Word Anglia Education, Inc - FSD 235 oJ' 201 7 (IKi) - Costs Ryding 2 on the papers. By an email dated March 11, 2019, Mourant confirmed that they were also content for the matter to be dealt with on the papers. 4. The Appleby Dissenters and the Campbells Dissenters did not formally seek to persuade me to depart from the provisional views I expressed as to costs, which was (a) Dissenters' costs in the cause (Mourant Dissenters' Data Room Summons), (b) costs in the cause (Company Notice in relation to general pre-trial case management issues). However, that view assumed equality of treatment for all participating Dissenters, so in principle any more generous award secured by the Mourant Dissenters should logically accrue to the benefit of their comrades in arms as well. This principle must have regard to the context on which the present costs application was made, however. As the Company's position was that my provisional view should be sustained and the other Dissenters raised no challenge to that provisional view, the appropriate costs oritcome was implicitly agreed between them. The Merits of the Mourant Dissenters' Data Room Summons 5. The central complaints were that (a) the Company had adopted a form of watermarkmg for non-HSD documents withorit express Couit approval or Dissenter consent, and that (b) as a result the documents could not be properly inspected. The following findings were made on this issue: "20. In m.'iijudginent it is clear that there is astarting premm'iption infavour oj"the provision of documents' in their native joriirat maid, in the present section 238 context, it was incumbent on the Companv to justifii a departure froin this general rtde. It i.s' important for the governing principles not to be clouded b)i the peculiar circwyistances of the present case. The Compan)i, vexed 7y cm apparently'ttnusually large immber qf potential Data Room risers ar'id (in 7??,V view) genuinely anxious about confuientiality concerns, sought to introduce additioncd security protections j'or n<'in-HSDs which it considered wo'tdd be tmcontroversicd. Having created a 'bespoke' e-discosieiy system, the Company's central preocc'tpation /3) the time the present ctppltcation was heard had in my fitdgment by dejctult becoine an essentially de.fensive one. The Compcmy sought to fiisti,j5i itss)istem by re,jerence to logistical argtnnents vmtethered to a/U) discernible legal principle.

¶ [21] IfindtheCompanvhasjailedtomakeoutacaseforprovidingonl)ithe limited dass </ Users entitlcid to view unredacted versions of HSDs with 1904]8 In the nyatter of NordAnglia Eductrt'ori, Inc - FSD 235 of 201 7 (IKJ) - Costs Ruling 3 nt'tlive format documents. because providing documents in .s;uch cz jornyat forms partof tht= Company',s; basic ciiscoveiy obligations. Itwas not for the Dissenters to demonstrate ariy practical need for production in this form.

¶ [22] The Compan)i has, nonetheless, established that the watern'iarking of native format ntm-HSD." (as described in the First Hanna Affidavit at paragraph 31), isjustifzed in the 'vmiquccircumstanccsofthepresentcase. Although the matter should ideally have been addressed at the hearing of the Suynnyons for Directions, the Dissenters cannot (anc'l did not in correspondence bej;ore the present Summons was is,sued) object to the principle ofivctiermctr7cing. This asswyyes that 'waterinarking' takes the form of an unobtrusive added layer (!7"protection which will help to prevent ctccidental or intentional brettches ofcoifidence. bdeed, the evideyzce of /7?(' Di,sa,saenters'own 'expert a in yn)ijz.tdgmentsziliporl,'; the 1))'("w /77(7X static walermarking by way qfBates number is standard e-discovery practice, and that the word 'confidentiar has also been added vmder direction of the courts." 6. The Data Room Summons clearly resulted in the Morirant Dissenters (supported by the other Dissenters) achieving substantial success thus triggering a prima facie entitlement to their costs applying the usual costs follow the event rule. 7. The only qriestion is whether my provisional view, that the Dissenters' conduct in declining an offer from the Company which would have advanced the trial preparation process combined with the overseas discovery applications was unreasonable, is sustainable in light of the contrary arguments advanced by the Morirant Dissenters in the present application for their costs. The respective submissions 8. The Morirant Dissenters' submissions may be summarised as follows: (a) where a party provides deficient e-discovery, the Corirt can and should compensate the party who wastes costs in dealing with the defective discovery: Wheater & Raffin 'Electronic Discovery', Ist edition (paragraphs 1.82(9), 4-179-180), WestAfrican Gas Pipelirre Co Ltd.-v- Willbros Global Holdings Inc [2012] EWHC 396 (TCC), (Ramsay J, at 190418 In the matter of NordAnglia EdyrcaNon, Inc - FSD 235 of 201 7 (IKJ) - Costs Rydirig 4 paragraphs 50, 65, 68, 70, 71, 92, 93), Vector Investments-v-Williams

¶ [2009] EWHC 3601 (TCC) (Ramsay J, paragraphs 15, 22, 84ff, 92-95), Earles-v-Barclays BankPlc [2009] EWHC 2500 (QB) (Simon Brown J, paragraphs [71], [75], [77]; (b) the usual rule shorild apply as regards the costs of the Summons: Merck KGctA-v-Merck Sharp & Dohme Corp and Others [2014] EWHC 3290 (Ch) (Nugee J, at paragraph 6), Sagicor General Insurance (Cayman) Limited-v-CrawfordAdjusters (Cayman) Limited [2011] (2) CILR 471 (Henderson J, at [29]), Re Wimbledon Frmd SPC, FSD Ill of 2017 (RPJ), Judgment dated November 19, 2018 (unreported) (Parker J at paragraphs 5-6); (c) the Dissenters' commercial motives or priipose in buying their shares is irrelevant: Re Zhaopin Limited FSD 260 of 2017 (RMJ), Judgment dated June 22, 2018 (unrepoited), (McMillan J at [48]), RFG Private Equity Limited Partnership No IB-v- Value Creation Inc, 2016 ABQB 391(Romaine J, paragraph [279]), Solomon Bros Inc.-v-Interstate Bakeries Corp 576A. 2d 650 (Del. Ch. 1989) 652-653; (d) there was no need for this Court to pre-approve the US section 1782 applications so the Court's provisional view that the Dissenters had acted unreasonably in not seeking prior approval was unwarranted: Lyxor Asset Management S.A.-v- Phoenix Meridien Equiffl Limited

¶ [2009] CILR 553 (CICA), (Chadwick P, paragraph 57). Moreover, it would be wrong for the Court to penalize the Dissenters in costs in relation to an asserted collateral prirpose unsupported by evidence. 9. The Company submitted that the Corirt should adhere to its provisional view that the Dissenters' costs should be in the cause. It was submitted that a distinction was to be drawn between a failure to comply with the content of e-discovery obligations (the concern of the cases ripon which the Mourant Dissenters' relied) and what transpired here: a defective security mechanism.

¶ [10] As regards the irrelevance of the commercial motives of investors (Re Zhaopin:), the case relied upon was not concerned with the qriestion of costs, it was sribmitted. The Company fiirther argued that there was ample evidence before the Court of a collateral prirpose behind the delayed manner in which the Mourant Dissenters advanced their Summons. Although not all of the Mourant and Appleby Dissenters had made section 1782 applications, for costs purposes all Dissenters should stand or fall together. As regards the claim for wasted costs, the Company submitted that no claim for any separate head of costs had originally been made. In any event, once the Mourant 190418 In the matter of NordAnglia Education, Inc - FSD 235 of 201 7 (IKJ) - Costs Rrding 5 Dissenters decided to challenge the Company's disclosure, it was clear that all efforts had been devoted to preparing for the Data Room Summons. Findings: costs wasted in dealing with defective discovery 12, I accept the Mourant Dissenters' submission that this Court has the jurisdiction to compensate a litigant who has wasted costs in attempting to deal with defective discovery by an appropriate costs order: WestAfrican Gas Pipeline Co Ltd.-v- Willbros Global Holdingslnc

¶ [2012] EWHC 396 (TCC); Vectorlnvestments-v-Williams [2009] EWHC 3601 (TCC); Earles-v-Barclays Bank Plc [2009] EWFJC 2500 (QB). Wheater & Raffin 'Electronic Discovery', Ist edition, upon which reliance was also placed, states (at paragraph 1.79): ...the court is entitled to take a party's conduct into account when assessing whether to make an order for costs and what costs order to make. Examples of cases irx which the court has taken parties' conduct into account in eDisclosure matters include, for example, lateness of disclosure, precipitous applications, over-disclosure, failing to comply with the duty to carry out a reasonable search, and lack of cooperation."

¶ [13] In my judgment the threshold question of legal principle is not whether or not the defect in question goes to the content of discovery as opposed merely to its form, as the Company contended. The question is whether the disclosing part is guilty of a serioris failure to comply with their discovery obligations. The Company's rinilateral decision to institute its own document security protections without seeking the agreement of the Dissenters or the approval of the Court potentially qualifies for a sanction in terms of costs. What sanction is appropriate depends on the circumstances of each case.

¶ [14] The costs sanction soright by the Mourant Dissenters as against the Company presupposes that the Company's conduct has caused their opponent to waste a significant period of time and effort which might otherwise have been avoided. While the detail would be a matter for taxation, the cases relied ripon by the Morirant Dissenters demonstrate that this form of wasted costs order is only appropriate where it is clear prior to the taxation phase that a significant degree of effort has been wasted. In my judgment the Company is correct to argue that the evidence strongly points to the conc{usion that the Mourant Dissenters devoted most of their effort towards making orit the case that riltimately prevailed, namely that the watermarking system deployed was inappropriate and/or ineffectiye. These costs fall within the ambit of the costs of the Data Room Summons. 190418 In the matter of Word Anglia EducaNon, Inc - FSD 235 of 201 7 (IKJ) - Costs Riding 6 15. In the exercise of my discretion, I find that no additional costs sanctions are warranted in relation to costs thrown away by virtue of the Company's failure to comply with its fundamental discovery obligation to make electronic documents available in native format. Findings: the costs of the Mourant Dissenters' Data Room Summons

¶ [16] Shorild the Morirant Dissenters be deprived of the usual costs order because they acted unreasonably in relation to their conduct of the Summons? My provisional view was that (a) they had been motivated by the collateral prirpose of seeking to obtain a delay to facilitate the pursuit of discovery applications in the United States, which applications oright to have been integrated into the timetable fixed in the present proceedings, and (b) they acted unreasonably in failing to progress the discovery process by accepting the offer for their expert to inspect documents withorit the imprigned watermarks.

¶ [17] The Mourant Dissenters submissions do not in my judgment advance any satisfactory answer to the second limb of my provisional rinreasonable conduct finding. They do however fairly point out that before the hearing of their Summons the Company agreed to adjust the timetable in any event. My provisional views on this costs segment were expressed on December 21, 2018. They were subliminally influenced by the fact that in my Ruling on Costs of Dissenter Discovery Application dated October 24, 2018, I had expressed strong views about what might loosely be described as 'tactical non- cooperation', views which it seemed to me had been ignored. In fact, the events which concern the present application largely occurred before those views had in fact been expressed'. Nonetheless this was conduct which potentially qualifies for some costs consequences, subject to a fair evaluation of its seriorisness and impact on the proceedings

¶ [18] In my judgment it was unreasonable to spurn the offer to allow the Dissenters' expert to progress the inspection process while the dispute about wider access was worked out. Nonetheless, it is impossible to fairly find that this conduct was, standing by itself in light of the way events unfolded, so rinreasonable as to justify displacing the usual rule that costs should follow the event. Or, to put it another way, it has neither been established nor is it self-evident that there was any causative link between the spurning of the offers which were made and subseqrient course of the discovery process. Going Q, :,)1,. forward the parties are on notice that failures to comply with their obligation to assist AX,4 " 190418 In the rnatter of Word Anglra Education, Inc - FSD 235 of 201 7 (IKJ) - Costs Ruling 7 the Court to achieve the overriding objective will be subject to more rigorous scrutiny by this Court.

¶ [19] More serious was my provisional finding that it was unreasonable to use the Mourant Dissenters' Data Room Summons for the collateral prirpose of advancing the section 1782 US discovery applications, rather than seeking to accommodate those applications in the trial timetable in the present proceedings. I regarded it as"obvious that the Mourant Dissenters' application has in part been motivated by a tactical desire to extend the timetable" (December 21, 2018 Ruling, paragraph 5). That was not a wholehearted acceptance of the Company's submissions on this issue, but it signified that I felt it was open to me to draw such an inference from the correspondence and what appeared to me to be largely rmcontested background facts. I tacitly rejected the plea by Mr Levy QC in his oral reply that in the absence of supporting evidence his clients were not fairly able to respond to the collateral purpose complaints.

¶ [20] More significantly, however, the Mourant Dissenters contend that the Cayman Islands Court of Appeal has ruled that this Court is not competent to restrain the conduct of section 1782 applications in the United States. Lyxor Asset Management S.A.-v- Phoenix Meridien Equity Limited [2009] CILR 553 does establish that"prima facie a party who can invoke the jurisdiction of the United States District Court rmder §1 782 may choose to do" (Chadwick P, at paragraph 57). Smellie CJ's decision to refuse an anti-suit injunction was upheld. However, for present purposes the critical finding was not that the prirsuit of section 1782 applications could never be complained of in Caymanian proceedings. On the contrary, the finding in the circumstances of that case was that: "58. In the partic'ydar circuinstances of this case... Phoenix has taken the view that its interests are best served by seeking to obtain the information which it needs by taking oral depositions in New York - a relatively s'ymzmary process - rather than by proceeding by way of fitrther and better particulars and interrogatories in the Grand Court - with the potential for procrastination and delay inherent in that process. It cannot be said that, in making that choice, it is acting oppressively or vmconscionably or that its choice amovmts to an abuse of the process of the Cayman courts." 21, It is accordingly competent for this Corirt to find that a party has acted unreasonably or abused the process of this Corirt by pursuing section 1782 proceedings in a manner which disrupts primary proceedings before this Court. On the other hand, the only authority cited which addresses the interaction between section 1782 applications and proceedings in the Grand Court supports the general proposition that parties are free in appropriate circumstances to pursue such applications in the US courts. In considering the propriety of the applications, it is relevant to note that: 190418 In the nyatter of Word Anglia Education, hic - FSD 235 of 201 7 (IKJ) - Costs Rxding 8 (a) the Company has not contended that the applications (against third parties) are wholly unnecessary and are seeking information which could be obtained through applications against the Company before this Court; and (b) the Company has essentially contended that the Dissenters have exaggerated their discovery complaints and maniprilated them with a view to aligning the timetable in this action to that in the US proceedings.

¶ [22] I accept that the Mourant Dissenters' approach to the present application has in part been motivated by a desire to elongate the timetable with one eye on the section 1782 applications2. However, the extension of the timetable was ultimately agreed before the Morirant Dissenters' Data Room Summons came on for hearing and that summons succeeded on its merits. I am rmable to find that the section 1782 applications are themselves abusive or oppressive. Lyxor (see paragraphs 42-45) suggests that the US courts will usually be best placedto make such a determination. This Court had imposed no prior constraints on the Dissenters as regards when section 1782 applications should be made. It is difficult in these circumstances to justify a finding that the Mourant Dissenters' collateral motives had such a materially adverse impact on the course of the present proceedings to result in a penalty in costs. I reach this conclusion mindful of the fact that the Company is right to point out that my provisionally proposed penalty was not the most severe one, becarise if they succeeded at trial the Dissenters would ultimately recover their costs.

¶ [23] However, the experience of this case strongly suggests that when this Court fixes a timetable on a Summons for Directions in section 238 cases, the parties have a duty under the Overriding Objective to explicitly address the possibility of section 1782 applications, unless it is common grormd that the need to do so does not arise. While this Court cannot in general terms restrain the parties from making such applications (unless they are rmconscionable), suitable standard directions should be able to avoid parallel proceedings being commenced within a timeframe which adversely affecting the timetable fixed by this Court.

¶ [24] In the present case the Mourant Dissenters exploited a loophole in the Directions Order and a serious misstep by the Company and, on balance, have not acted so rinreasonably so as to justify depriving them of the costs of their successfiil summons in any event. 2 I express no view on their motives in purchasing their shares. 190418 In the matter oJ' NordAnglia Educahon, Inc - FSD 235 of 201 7 (IKJ) - Costs Ruhng 9 Costs of the Company's Notice

¶ [25] TheCompany'sattorneysonNovember28,20l8servedaNoticeofDraftOrdersand Directions rinder GCR O.25 rule 7(1) which proposed: (a) that the Mourant Dissenters' application for the documents uploaded to the Data Room to be capable of being downloaded in native format and with an ability to copy and paste from them, and further for the Company to be reqriired on reqriest to produce the documents without any watermark, should be refused; (b) that the Morirant Dissenters' application for (i) the ability to print the documents to be enabled and for (ii) the inclusion of specified metadata fields, should be granted by consent; (C) that the Mourant Dissenters' application to be able to view the documents in native and image format shorild be granted: (i) as regards the Experts and the Dissenters' attorneys, (ii) in respect of such documents as they might reasonably request, and (iii) provided that a fixrther confidentiality confirmation was signed in the form set out in Appendix 2 to the notice; (d) that the timetable should be modified in accordance with Appendix 3 to the notice; (e) that the Petition be fixed for trial on the first open date after September 2, 2019; (f) thatanyfurtherapplicationsbyDissentersprirsuanttosl782ofUSCor any similar overseas third party discovery legislation should be made by December 20, 2018.

¶ [26] Of the six proposed directions, (a), (b) and (c) overlapped with the Morirant Dissenters' Data Room Summons and so no discrete costs claims properly arise. On the other hand, (d), (e) and (f) were general trial management issues which can be fairly regarded as falling within the ambit of the usual costs in the cause rule. On balance I find that any (probably minimal) costs which can fairly be attributed to these general trial management issues shorild, consistently with my provisional view, be costs in the carise. 1904]8 In the matter of Word Anglia Educatiori, Inc - FSD 235 of 201 7 (IKJ) - Costs Ruling 10 Conclusion

¶ [27] For the above reasons I find that the Mourant Dissenters should have their costs of the Data Room Summons (and the Mourant Dissenters are awarded the costs of the present costs application) in any event, to be taxed if not agreed on the standard basis. The Company's costs attributable solely to the trial management aspects of the Company's Order 25 rule 7(1) Notice (as itemized in paragraph 26 above) shall be in the cause. JUDGE OF THE GRAND CO[TRT THE HONOTJRABLE MR. JUSTICE IAN RC KAWALEY 190418 In the nyatter of Nord Anglia Education, Inc - FSD 235 of 201 7 (IKJ) - Costs hrlirig 11