London’s Privy Council has dismissed an appeal in a US$100 million legal battle between a Kuwait investment company and a Cayman-based fund manager.
The court rejected the bid by the general partner of the Cayman-based Port Fund to quash a Cayman court ruling on the millions of dollars worth of disputed payments.
Port Fund is an exempted limited partnership set up by the Kuwait Ports Authority and the country’s Public Institution for Social Security to invest in port-related assets around the world.
The written judgment from the Privy Council, the final court of appeal for Cayman, said the islands’ Court of Appeal had “erred in stating that the court has a discretion as to whether to permit a derivative action to continue … “.
It added that the five-strong panel of law lords would “humbly advise His Majesty that the appeal and the cross-appeal be dismissed”.
A derivative action, which must be made by a company, not its shareholders, is made for an alleged breach of statutory and/or common law duties of a director.
Cayman law allows exempted limited companies (ELPs) to be set up.
Limited partners in the companies have limited liability, but cannot take part in the running of the ELP, which is done by a general partner.
The investors alleged that funds were embezzled after the sale of Clark Global City, a major port asset in the Philippines, and asked for compensation from Port Fund’s general partner, Port Link GP, and its associates.
The Kuwaiti investors launched a legal action against the fund’s general partner in 2020.
It was the first time it had been tested in court whether a limited partner could bring a derivative claim on behalf of an ELP.
The two limited partners of the Port Fund alleged that the general partner had expropriated money from the fund through fraudulent payments to others.
These were alleged to include about US$60 million paid to Wellspring Capital Group, listed as the beneficial owner of the general partner and run by Mark Williams, a former investment director of the Port Fund.
The amount resulted from a claim by the investment manager of the fund, KGL Investment, against the Port Fund in Dubai, which was not contested by Port Fund.
The defendants, which included the general partner and Williams, insisted that the allegations had been investigated by the independent directors and found to be false.
The original case centred on the proper test to determine whether a limited partner of an exempted limited partnership was entitled to bring a derivative action under the Caymanian Exempted Limited Partnership Act (2021 Revision).
Limited partners, who are not usually involved in the management of a fund, can bring a claim on behalf of the fund if the general partner refuses to do so without good reason.
The respondents’ cross-appeal was related to a single aspect of the general guidance given on when the test for whether a case can be made for a derivative action should be made.
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