Frontiers Capital I Limited Partnership v Thomas Flohr
[2023] EWHC 2723 (Ch)
Kuwait Ports Authority and another v Mark Eric Williams and 2 others (Cayman Islands)
28 October 2024
[2024] UKPC 32
Privy Council
Two investors sued a company's management for misusing funds. The management refused to sue itself. The court ruled the management was too conflicted to make an unbiased decision, allowing the investors to sue on the company's behalf. The court also clarified that this type of decision is made on all available facts at the time of the hearing, not just based on circumstances when the lawsuit started.
Key Facts
- •The Cayman Islands Exempted Limited Partnership Act (2021 Revision) governs derivative actions by limited partners in ELPs.
- •Kuwait Ports Authority (KPA) and The Public Institution for Social Security (PIFSS) brought derivative claims against the general partner and others alleging misappropriation of funds.
- •The general partner, Port Link GP Ltd, is ultimately owned by Mark Williams, also connected to other defendants.
- •The general partner, initially acting through independent directors, refused to pursue the derivative claims, claiming it had cause.
- •The case concerns the interpretation of 'without cause' in section 33(3) of the Act and the court's discretion in derivative actions.
- •The general partner went into liquidation during the proceedings.
- •Receivers were appointed to manage the litigation for the general partner and the fund.
Legal Principles
A limited partner may bring a derivative action on behalf of an ELP if the general partner, without cause, failed or refused to institute proceedings.
Section 33(3) of the Cayman Islands Exempted Limited Partnership Act (2021 Revision)
The 'without cause' test requires 'good cause'; a decision by the general partner, however conflicted, is not sufficient to prevent a derivative action.
Court of Appeal's interpretation of Section 33(3)
The relevant conflict of interest is that of the general partner itself, not its directors.
Court of Appeal's interpretation of Section 33(3)
Special circumstances, as developed in trust and limited partnership law, are relevant to determining whether the general partner's refusal was 'without cause'.
Court of Appeal and Privy Council's interpretation of Section 33(3), referencing Lewin on Trusts and case law.
An actual conflict of interest, as in Henderson, constitutes special circumstances.
Privy Council's analysis of Henderson PFI Secondary Fund II LLP.
The court's assessment of 'without cause' should consider all relevant circumstances at the time of the hearing, including post-commencement developments.
Privy Council's decision on the Timing Issue
Outcomes
The appeal and cross-appeal were dismissed.
The Privy Council upheld the Court of Appeal's finding that the general partner was subject to an actual conflict of interest, precluding a valid determination on the derivative claims. The court rejected the two-stage approach, holding that the section 33(3) test is an evaluative one made considering all facts at the time of the hearing. There is no separate discretionary stage.
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