{"id":8900,"date":"2024-08-15T14:33:38","date_gmt":"2024-08-15T19:33:38","guid":{"rendered":"https:\/\/www.campbellslegal.com\/?p=8900"},"modified":"2024-08-20T10:07:59","modified_gmt":"2024-08-20T15:07:59","slug":"cayman-islands-court-of-appeal-confirms-courts-jurisdiction-to-order-joinder-of-limited-partners","status":"publish","type":"post","link":"https:\/\/www.campbellslegal.com\/client-advisory\/cayman-islands-court-of-appeal-confirms-courts-jurisdiction-to-order-joinder-of-limited-partners-8900\/","title":{"rendered":"Cayman Islands Court of Appeal confirms Court\u2019s jurisdiction to order joinder of limited partners"},"content":{"rendered":"

Summary<\/strong><\/h3>\n

In the recent judgment of Mark Eric Williams and Ors v Kuwait Ports Authority & Ors<\/em>[1]<\/a>,<\/em> the Cayman Islands Court of Appeal (\u201cCICA<\/strong>\u201d) confirmed that the Grand Court had jurisdiction to order the joinder of two plaintiff limited partners of The Port Fund L.P. (the \u201cFund<\/strong>\u201d) as defendants to a crossclaim which had been filed against the general partner (the \u201cGP<\/strong>\u201d) of the Fund.<\/p>\n

In reaching this decision, the CICA determined that the joinder did not contravene the statutory restrictions placed on limited partners pursuant to sections 14 and 33(1) of the Exempted Limited Partnership Act (2021 Revision) (the \u201cELP Act<\/strong>\u201d), which respectively prohibit a limited partner from (i) taking part in the conduct of the business of the exempted limited partnership (\u201cELP<\/strong>\u201d) and (ii) being a party to or named in legal proceedings against the ELP.[2]<\/a><\/p>\n

This decision clarifies the rights and roles of limited partners in an ELP, particularly where limited partners have filed direct and derivative claims. This decision will therefore be of interest to private equity and other professionals and investors familiar with the widely-used Cayman ELP structure.<\/p>\n

Background<\/strong><\/h3>\n

The Fund is the subject of ongoing litigation in the Cayman Islands[3]<\/a>, and is the first Cayman Islands ELP in which limited partners have brought derivative claims pursuant to section 33(3) of the ELP Act.\u00a0The relevant limited partners are two Kuwaiti state entities, the Kuwait Ports Authority and the Public Institution for Social Security (\u201cKPA<\/strong>\u201d and \u201cPIFSS<\/strong>\u201d respectively).<\/p>\n

In February 2023, the independent directors of the GP resigned, leaving the GP without directors or officeholders, and with only illiquid assets. The GP is a party to various direct and derivative claims by and against limited partners in the Fund, and is also a defendant to crossclaims by codefendants, one of whom is the ultimate beneficial owner of the GP.<\/p>\n

Following the resignation of the directors, KPA and PIFSS were purportedly concerned that the crossclaims against the GP may not be defended and that the success of such claims would impact upon their limited partnership interest in the Fund by diminishing the partnership assets. They accordingly sought to be joined as defendants to the crossclaim against the GP pursuant to O.15, r.6 of the Grand Court Rules, and also applied to have interim receivers appointed to the GP under section 11 of the Grand Court Act (2015 Revision).<\/p>\n

The joinder application was opposed by the defendants who had brought the crossclaim against the GP on the basis that sections 14 and, in particular, 33(1) of the ELP Act prohibit a limited partner from (i) taking part in the conduct of the business of the ELP in its capacity as a limited partner, and (ii) being a party to or named in legal proceedings (save for the narrow exception provided in section 33(3) of the ELP Act allowing limited partners to bring <\/em>a derivative claim where a general partner has, without cause, failed or refused to do so).<\/p>\n

Section 33(1) states:<\/p>\n

\u201cSubject to subsection 33(3), legal proceedings by or against an exempted limited partnership may be instituted by or against any one or more of the general partners only, and a limited partner shall not be a party to or named in the proceedings.\u201d<\/em><\/p>\n

Section 14(1) provides:<\/p>\n

\u201cA limited partner shall not take part in the conduct of the business of an exempted limited partnership in its capacity as a limited partner\u201d<\/em><\/p>\n

The defendants contended that they were entitled to pursue their crossclaim against the GP alone, which was the sole proper defendant to the claim pursuant to both the ELP Act and the limited partnership agreement governing the Fund.<\/p>\n

Grand Court decision<\/strong><\/h3>\n

In a judgment delivered on 25 May 2023, the Grand Court of the Cayman Islands ordered the joinder of KPA and PIFSS, limited partners of the Fund, as defendants to the crossclaim, and appointed interim receivers over the GP to manage litigation related to the GP and the Fund.[4]<\/a><\/p>\n

Justice Parker permitted KPA and PIFSS to be joined as defendants to the crossclaim in circumstances where they had earlier been permitted to bring derivative claims against the GP and the other defendants, and as limited partners had an indirect economic interest in the crossclaim. Specifically, Justice Parker concluded that section 33(1) did not prevent joinder of KPA and PIFSS as defendants to the crossclaim for the following reasons:[5]<\/a><\/p>\n