Cayman Islands Court Of Appeal Upholds Grand Court's Decision On Exempted Limited Partnerships Derivative Claims

• Law Firm: Ogier
• Subject Matter: Litigation, Mediation & Arbitration, Trials & Appeals & Compensation
• Author: Ms Jennifer Fox and Harry Clark
• Published date: 03 February 2023

On 20 January 2023, the Cayman Islands Court of Appeal handed down its judgment In the Matter of the Kuwait Ports Authority & others -v- Port Link GP Ltd and others.

The substantive issue on appeal concerned the test for a limited partner to bring derivative claims on behalf of a Cayman Islands exempted limited partnership under section 33(3) of the Exempted Limited Partnership Act:

"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."

The Cayman Islands Court of Appeal (CICA) upheld the first instance decision of Parker J in the Grand Court of the Cayman Islands dated 25 November 2021. Further, the CICA confirmed that section 33(3) of the Exempted Limited Partnership Act (ELPA) is to be considered a standalone statutory test. Only this statutory test needs to be satisfied. Other common law tests to bring derivative claims, such as those applicable to companies or trusts, do not need to be satisfied for a limited partner to pursue a derivative claim.

However, the CICA considered that: "the expression 'without cause' must carry the implication of 'good' cause. The legislature cannot have intended that a decision for any cause, no matter how inhibited or conflicted the decision-maker, would be sufficient to prevent a derivative action".

Notwithstanding the CICA's decision, it was noted that in deciding whether a general partner has "without cause, failed or refused to institute proceedings", a limited partner and/or the Court "is likely to derive assistance from considering whether special circumstances (as established in the contexts of trusts and English limited partnerships) exist." However, this is only a consideration that may assist in establishing the statutory "without [good] cause" test.

In addition to the above, since this was the first case concerning section 33(3) heard by the CICA, the Court expressed the following applicable principles, which will likely prove helpful for funds practitioners and litigators in the Cayman...