On 10 December 2018, the Grand Court of the Cayman Islands (Kawaley J) handed down judgment in Gao v China Biologic Products Holdings Inc, striking out a claim brought by the company’s former chairman following his unsuccessful US$3.9 billion takeover bid for the defendant company.

The plaintiff alleged that the company had arranged a US$590 million private placement of shares with the improper purpose of blocking his takeover bid; he brought a personal action against the company in respect of that transaction. Where an improper allotment of shares is alleged, several authorities, and many of the leading textbooks (including Gore-Browne on Companies), had assumed that a shareholder has a personal right of action against the company.

However, the defendant alleged that no such personal right of action exists. In a detailed and carefully reasoned judgment, Kawaley J agreed with the defendant and decided that Cayman Islands law should apply the principles set out by the English Court of Appeal in Bamford v Bamford [1970] 1 Ch 212, holding that it was a fundamental rule of company law that directors owe duties to the company and that shareholders should not be entitled to enforce those duties in their own name. Breach of directors’ fiduciary duties should be actionable only by company itself or on its behalf (via a derivative action); it was not appropriate for a shareholder to have a personal right of action, unless some special circumstance gave rise to a personal duty owed to that shareholder. In so holding, Kawaley J declined to follow Residues Treatment and Co Ltd v Southern Resources Ltd (No.4) (1988) 51 SASR 196, a long-standing decision of the Supreme Court of New South Wales, and a range of further English and Commonwealth authorities, including an obiter conclusion of Hoffmann J in Re a Company [1987] BCLC 82.

The defendant company also succeeded in arguing that the beneficial owner of shares would lack standing to bring proceedings qua shareholder, even if a personal right of action existed. The Grand Court also accepted that the plaintiff’s attempt to take an assignment of the alleged cause of action from the nominee that held the shares (Cede & Co, a share depositary) was impermissible: the causes of action asserted by the plaintiff (seeking rectification of the register and rescission of the share allotment contracts) amounted to ‘mere equities’ not proprietary rights and so could not be assigned separately from the underlying shares.

As a result of these findings, the plaintiff’s case was struck out. A copy of the judgment can be found here.