Cayman ELPs And Limited Partner Protections: First Substantive Decision On Derivative Claims

• Published date: 16 December 2021
• Subject Matter: Finance and Banking, Financial Services, Commodities/Derivatives/Stock Exchanges
• Law Firm: Ogier
• Author: Ms Rachael Reynolds, Jennifer Fox, Harry Clark and Oliver Green

Cayman Islands exempted limited partnerships (ELPs) are an important feature of the Cayman Islands' financial services industry and funds business, and remain one of the most widely used vehicles selected by fund sponsors setting up private equity and real estate structures, tax transparent master funds and single investor vehicles. However, an ELP is effectively no more than a contract between parties, it has no separate legal personality, and its general partner holds the ELP's assets on statutory trust, including legal claims, and conducts all of its business and affairs (to the exclusion of the limited partners). Whilst this balance of power facilitates passive investment and limits the liability of investors; it begs the question: how are the interests of its limited partners protected? The recent judgment discussed in this note provides some answers to this question.

On 25 November 2021, the Grand Court of the Cayman Islands delivered the first Cayman Islands judgment clarifying the meaning and application of section 33(3) of the Exempted Limited Partnership Act (ELPA), which provides limited partners in an ELP with the statutory right to bring derivative claims on behalf of the ELP. This represents an important protection against a miscreant or conflicted general partner who refuses or fails to bring a claim which the limited partners believe would be in the interests of the partnership.

The judgment also deals with the nature and extent of the duties owed by a general partner to a limited partner and the latter's ability to pursue any claims for breach of those duties.

Section 33(3) of the ELPA provides:

"A limited partner may bring an action on behalf of an exempted limited partnership if any one or more of the general partners with authority to do so have, without cause, failed or refused to institute proceedings."

Background

The Port Fund L.P. (Fund) is a Cayman Islands ELP and was set up in 2007 as a vehicle for investments in port-related assets around the world. Various state-owned entities invested.

On 14 October 2020, the majority (in value) of the limited partners of the Fund issued proceedings against the general partner of the Fund, namely Port Link GP Ltd, concerning allegations of wrongdoing in relation to the dealings with the assets and affairs of the Fund.

The Defendants issued strike out and security for costs applications.

Judgment

Parker J dismissed the Defendant's strike out applications and permitted the limited partners'...