Cayman Islands: The Port Fund: Limited Partner Joinder And General Partner Interim Receivership

In a judgment delivered on 25 May 2023, the Grand Court of the Cayman Islands ordered the joinder of two plaintiff limited partners of The Port Fund L.P. (the "Fund") as defendants to a crossclaim which had been filed against the general partner (the "GP") of the Fund, and appointed interim receivers over the GP to manage litigation related to the GP and the Fund, notwithstanding the GP was in voluntary liquidation. The decision addresses the role of limited partners, and the interaction between the Grand Court Rules and Exempted Limited Partnership Act (2021 Revision) ("ELP Act").

The Fund is the subject of ongoing litigation in the Cayman Islands, and is the first Cayman Islands exempted limited partnership to be the subject of derivative claims by limited partners pursuant to section 33(3) of the ELP Act.¹ The relevant limited partners are two Kuwaiti state authorities, the Kuwait Ports Authority and the Public Institution for Social Security ("KPA" and "PIFSS" respectively).

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.

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 under section 11 of the Grand Court Act (2015 Revision).

The joinder application was opposed by the defendants who had brought the crossclaim 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 exempted limited partnership, 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 a derivative claim where a general partner has, without cause, failed or refused to do so).

Following the hearing, but before judgment was delivered, the sole shareholder of the GP exercised its statutory right to appoint joint voluntary liquidators over the GP. Notwithstanding that the constiutional void following the resignation of the directors of the GP had thereby been filled, Justice Parker appointed interim receivers over the GP (which KPA and PIFSS had agreed to fund) for the limited purpose of conducting litigation to which the GP and the Fund are parties only. Justice Parker held "it would be just and convenient to appoint the Receivers for the purpose of ensuring that there is a professional, independent, and impartial office holder in place who will regularly report to the Court", and His Lordship favoured the appointment of receivers over "a statutory liquidation with its rigid rules". Accordingly, pending an application by the joint voluntary liquidators pursuant to section 124 of the Companies Act (2023 Revision) to bring the liquidation under the supervision of the Court, both liquidators and receivers have been appointed to the GP.

Justice Parker also permitted KPA and PIFSS to be joined as defendants to the crossclaim against the GP 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. Justice Parker held "it would be illogical and unfair if [a] derivative claim could be pursued on behalf of the partnership, but the limited partner not be permitted to defend a counterclaim or a crossclaim." The Court appeared to find that the statutory prohibition against the joinder of limited partners as defendants was not engaged because KPA and PIFSS sought to defend the crossclaim not as limited partners, but in their individual capacities as plaintiffs, and were not representing or replacing the GP. As KPA and PIFSS brought proceedings only in their capacities as limited partners, their joinder qua "plaintiffs" is not easily reconcilable.

The judgment provides a helpful overview of the law and procedure relating to joinder and the appointment of receivers, and the interaction with the ELP Act which governs more than 19,000 exempted limited partnerships in the Cayman Islands.

Footnote

1. Kuwait Ports Authority & Ors v Port Link GP Ltd & Ors – FSD 236 of 2020 (RPJ).

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