Kuwait Ports Authority and another (Respondents) v Mark Eric Williams and 2 others (Appellants) (Cayman Islands)
Case ID: JCPC 2023/0045
Jurisdiction: Court of Appeal of the Cayman Islands
Case summary
Issue
What is the correct test for determining whether a limited partner of an exempted limited partnership ("ELP") is entitled to bring a derivative action under section 33(3) of the Exempted Limited Partnership Act (2021 Revision)?
Facts
The Port Fund L.P. (the "Fund") is an ELP established on 21 March 2007 pursuant the Exempted Limited Partnership Act (2021 Revision) (the "ELPA"). The Fund was established as a vehicle for investments in port-related assets around the world.
On 21 March 2007, the original limited partners of the Fund appointed Port Link GP Limited ("Port Link GP") as general partner of the Fund pursuant to a limited partnership agreement. Port Link GP is wholly owned by Port Link Holdings USA Inc., a Delaware-incorporated company, which is wholly owned by Mr Mark Williams, the first Appellant in these proceedings. Mr Williams was also a member of the Fund's investment committee from 2009 to 2013.
The Fund's sponsor and placement agent is KGL Investment Company KSCC (the "Sponsor"), a company incorporated in Kuwait. Mr Williams was the Sponsor's Vice President from 2007 to 2008 and its investment director from 2009 to 2011. Mr Williams was also involved in the management of KGL Investment Company Asia ("KGL Asia"), the third Appellant in these proceedings. KGL Asia provided administrative support to the Fund between December 2017 and August 2020.
Mr Williams is also the Chief Executive Officer, Chief Financial Officer, President, Vice-President, Treasurer and Secretary of Wellspring Capital Group, Inc, which is the second Appellant in these proceedings (together with Mr Williams and KGL Asia, the "Appellants").
Kuwait Ports Authority and the Public Institution for Social Security (the "Respondents") are Kuwaiti state-owned entities and limited partners in the Fund, alongside nine other limited partners. Together, the eleven limited partners have invested a total of U$188,152,000 in the Fund.
In November 2017, the Fund sold its main asset, an asset in the Philippines. US$496,429,767 of the sale proceeds were transferred into Port Link GP’s bank account in Dubai.On the same day, the bank reported the transaction as suspicious to the Dubai authorities, and the Dubai Public Prosecutor froze the account. The freeze was lifted in February 2019, after which Port Link GP made a number of transfers to third parties.
In 2021, the Respondents issued proceedings against Port Link GP and the Appellants alleging that they misappropriated the funds in Port Link GP's account. The Respondents' claims are in unlawful means conspiracy, and dishonest breaches of trust and fiduciary duty, knowing receipt and/or dishonest assistance. The claims are brought both as direct claims for the alleged losses that each Respondent has suffered as a limited partner of the Fund, and as derivative claims on behalf of the Fund. The Appellants and Port Link GP filed applications to strike out the Respondents' claims.
In the Grand Court of the Cayman Islands, the Appellants and Port Link GP argued that the derivative claims should be struck out because the Respondents did not have a right to bring them. The issue turned on the proper construction and application of section 33 of the ELPA, which provides that a claim belonging to an ELP must be brought by the general partner of the ELP acting on behalf of the ELP. Exceptionally, pursuant to section 33(3) of the ELPA, a limited partner may bring a derivative claim for and on behalf of an ELP if the general partner has refused or failed to bring the claim without cause.
The Appellants and Port Link GP argued that the directors of Port Link GP had conducted a detailed investigation and undertook their own assessment of the position before concluding that it would not be in the Fund's best interests to pursue the Respondents' claims. The Respondents argued that section 33(3) does not require the Court to embark on a detailed inquiry of the merits of the underlying claims. Their case is that the derivative claims are maintainable as pleaded and that Port Link GP had a reasonable opportunity to bring those claims but did not do so. It therefore failed to do so "without cause", within the meaning of section 33(3) of the ELPA.
The Grand Court found that there was a good arguable case that Port Link GP had failed and refused to bring the claims and that it still has a 'relevant inhibition' to do so because it is conflicted (it being the target of the claims). The Grand Court therefore refused to grant the Appellants' strike-out applications, save in respect of the parts of the Respondents' case which relied on criminal convictions.
The Appellants and Port Link GP appealed the Grand Court's judgment to the Court of Appeal of the Cayman Islands (the "CICA"). The CICA struck out the derivative claim against Port Link GP on the basis that direct claims are being pursued against it. However, it upheld the Grand Court's decision not to strike out the derivative claims brought against the Appellants because there are 'relevant inhibitions' which led Port Link GP to refuse to bring those claims. The statutory test for being entitled as a limited partner to bring a derivative action was therefore satisfied. The Appellants now appeal the CICA's refusal to strike out the claims to the Judicial Committee of the Privy Council (the "Privy Council").
Parties
Appellant
(1) Mark Eric Williams, (2) Wellspring Group Inc, (3) KGL Investment Company Asia
Respondent
(1) Kuwait Ports Authority, (2) The Public Institute for Social Security
Appeal
Justices
Lord Reed, Lord Hodge, Lord Hamblen, Lord Leggatt, Lady Simler
Hearing start date
20 June 2024
Hearing finish date
20 June 2024
| Watch hearing | ||
|---|---|---|
| 20 June 2024 | Morning session | Afternoon session |