Always show your working: Court of Appeal provides valuable guidance on ‘adequate reasons’

BACKGROUND

Simplified for present purposes, by way of background: the appellant (the fourth defendant at first instance), Wuhu Ruyi Xinbo Investment Partnership Enterprise (“Xinbo”), was a PRC limited partnership that was majority-owned by the Shandong Ruyi group (a Chinese textile manufacturing conglomerate).  Xinbo was, in turn, latterly the indirect majority owner of Dynamic (a BVI company and the second defendant at first instance).

The respondent (the applicant at first instance), GLAS SAS (“GLAS”), was the trustee in respect of exchangeable bonds issued by European Topsoho S.a R.L. (“ETS”), a Luxembourg company which was also a part of the Shandong Ruyi group.

ETS defaulted upon the maturation of its bonds, but shortly after the default, ETS transferred certain shares held by it (the “Shares”) to Dynamic (for €1) as a nominee for Xinbo (which claimed entitlement on the basis of a secured debt owed to it by the Shandong Ruyi group).

Amongst a raft of multi-jurisdictional actions, GLAS commenced proceedings in England and Wales against ETS, Dynamic and another, claiming (amongst other things) against ETS and Dynamic to recover the Shares.  Dynamic only became active in the proceedings two years later and was ultimately given leave to defend the proceedings, but this was conditional upon it making a €9 million payment into court.  The payment was not made and partial summary judgment was granted against Dynamic in 2024, ordering the return of the Shares to ETS.

Xinbo was joined as a defendant later in 2024, but Xinbo did not comply with the initial deadline for it to file its defence. GLAS applied for conditions to be imposed on Xinbo’s ability to defend the proceedings, while Dynamic cross-applied for an extension of the deadline for the filing of its defence.

Following a hearing of just over an hour (heard in the Commercial Court Friday applications list, reserved for shorter applications), the Deputy High Court Judge imposed conditions on Xinbo’s ability to defend the proceedings, barring it from doing so unless it met certain conditions by a deadline. These conditions were (in addition to filing its defence) that it (i) procured that Dynamic complied with the existing order to return the shares to ETS; and (ii) paid €10 million into court.

The first-instance judge provided a short ex tempore ruling for his decision, which was expressed as “not self-contained” but which variously cross-referenced (without otherwise particularising or quoting in full) discussions at the hearing itself, previous judgments in the matter and the respondent’s skeleton argument. The judge otherwise only expressed that there was “surreality” and that he held “some scepticism” as to (largely unparticularised) elements of Xinbo’s written and oral case.

Xinbo appealed the order and challenged it on the grounds that the judge’s decision to impose conditions was wrong, and (later) that the judge had failed to give adequate reasons.

THE COURT’S DECISION

The Court of Appeal (Falk LJ giving the leading judgment) held that the first-instance judge had not given adequate reasons for the order made.  However, the Court dismissed the appeal after conducting its own review of the merits and finding that the order was appropriate and proportionate in the particular circumstances of the case.

What amounts to adequate reasoning?

While the Court of Appeal recognised the “significant challenges” faced by judges dealing with interim applications in busy lists (often compounded by “unrealistically low time estimates” set by parties), it nevertheless held that there remains a “minimum level of reasoning” required in determining such applications.  In this regard, the Court noted that:

• the “critical elements” of the judge’s decision-making process must be recorded, so as to allow the parties to understand why the decision was reached. In this respect, it is “particularly important” that the losing party is able to understand why their case was not accepted; and
• the reasons given must also be understandable to an appeal court (or sufficiently apparent, so as to enable it to uphold the judgment).

The Court of Appeal also noted a number of other key principles on the topic of inadequate reasoning, as applied to interim applications or case management decisions, which it noted “should come as no surprise to experienced judges” but which “may assist those at earlier stages of their judicial careers”. These included (in outline):

• Judgments or rulings given in an application list or at a case management hearing (where there may be a multiplicity of issues to address in a limited time) are unlikely to be, and need not be, as polished as a reserved judgment.
• What is required is dependent on context, and summaries of background facts and uncontroversial legal principles may be omitted or significantly trimmed in appropriate cases. Cross-references to skeleton documents or other documents can be made if essential, but it is preferable for these to be “read in” to the transcript (or for the approved transcript to otherwise include the information referred to).
• The “best approach” is to identify the relevant issue(s), refer to any relevant evidence (by cross-reference if needed), and give the core reasons for the judge’s conclusions. Where the judge has formed a provisional view, this may be reflected in a tentative draft that will be the subject of careful review in light of oral argument, and (if necessary) the judge should rise to allow enough time for that review.
• Alternatively, if necessary and if the judge is sure as to the outcome, a decision could be announced, with reasons to follow.
• In other cases, judgment may have to be reserved, “however unpalatable that is”.
• As a “rule of thumb”, it will be more important in practice to focus on the reasons why the losing party’s case was rejected, rather than the positive attractions of the winning party’s case. Accepting the wining party’s arguments “for the reasons they give” (or equivalent) will not usually suffice in the absence of specific comment about the losing party’s case.
• Although ex post facto justifications for already-given reasons are inappropriate, a judge may nevertheless consider making amendments to ensure the transcript of a ruling clearly conveys what they intended to say (and the Court expanded on steps that the judge might take in this regard)
• It is important for counsel to point out immediately any perceived inadequacy of reasoning. While failure to do so will not be fatal to an appeal, it may be considered by the appellate court when determining issues as to costs (since raising the issue might have resulted in an unnecessary appeal being avoided).

Here, the Court of Appeal found that the reasons at first instance were inadequate, as they were insufficient to explain the result to the parties or to the appellate court. There had been very little engagement with Xinbo’s case as the losing party beyond those references to “surreality” and “scepticism”. References made to previous judgments did not serve to “plug the gap” without further explanation. Ultimately, the judge had erred in failing to provide adequate reasoning.

As noted, that was not the end of the matter, as the Court of Appeal proceeded to reach its own decision – which was (with its reasoning explained) to leave the order undisturbed and to dismiss the appeal.

KEY TAKEAWAYS

Self-evidently instructional to judicial officers, Cayman Islands disputes attorneys will also do well to familiarise themselves with the guidance in this judgment, which spells the need for advocates on both sides to take a proactive approach on the topic of the sufficiency of reasons for judicial decisions. Proactivity is key.

1. If your case is rejected – ask why: The judgment makes clear that the provision of adequate reasons is primarily for the benefit of the losing party, which is entitled to know why its case has been rejected.  It is therefore incumbent on attorneys for the unsuccessful party to draw the judge’s attention to any perceived failure to give adequate reasons swiftly (at the very least, bearing in mind the potential for adverse costs consequences on any appeal should they fail to do so).
2. If your case is accepted – still ask why: Even attorneys who have represented a successful case would be wise to remain alert for any inadequacy in a judge’s reasoning: in the right case, they may want to flag it to the Court if the losing party fails to do so.  Although such an approach should be exercised with caution and sensibly undertaken after due consultation with clients (ideally in advance of any hearing or ruling), taking steps to identify and seek to address any perceived lack of clarity in the court’s reasoning where necessary (i) will hopefully help dispel an appeal; or (ii) at least pre-emptively weaken any efforts by the losing side to appeal on the basis of a perceived lack of adequate reasons.  This is in addition to providing potentially useful ammunition as to costs following the determination of any appeal.