The Grand Court has denied the appeal of a judgment that refused to throw out a case alleging the misappropriation of funds in a Cayman Islands private equity fund.
In the 25 Nov. 2021 judgment, Justice Raj Parker examined, for the first time under Cayman law, when a limited partner could bring a derivative claim on behalf of an exempted limited partnership.
In the case, Kuwait Ports Authority and The Public Institution for Social Security, two private equity investors in the Cayman Islands-based Port Fund L.P., claim that the general partner of the fund Port Link GP Ltd caused more than $100 million in losses.
The Kuwait state-owned entities allege the general partner made payments to third-party service providers in a fraudulent scheme to expropriate money from the fund.
The defendants, which include Port Link GP and the former investment manager of the fund, sought to dismiss the lawsuit on the basis that the independent directors, who are now in charge of the general partner Port Link, had investigated the claims, found them without merit and concluded there was no reason to pursue them on behalf of the fund.
The Grand Court, however, dismissed the application to strike out the derivative claims, deciding that a general partner cannot be impartial in claims against itself or those that arise from its own alleged breaches.
The judgment noted that the interpretation of the relevant section of the Exempted Limited Partnership Act was “a new and important point of law which has not been the subject of any judicial consideration and […] arises against a complex and hotly contested set of facts”.
But even though it was the first time the Cayman court considered the rules for bringing indirect claims on behalf of an exempted limited partnership, the application for leave to appeal was refused.
Justice Parker wrote in his decision on 28 Jan., “None of the defendants’ draft grounds have a realistic prospect of success.”
In the initial judgment, he noted that the merits of the case could not be properly determined at that stage, but the plaintiffs’ claims were “clearly arguable and in my judgment may proceed to trial”.
The defendants have vigorously denied the claims.
In a press release on 14 Jan., Andrew Pullinger, a partner at Campbells, who represents three of the four defendants in the case, called it “a malicious claim” that was part of a “five-year campaign” by Kuwaiti state actors against the Port Fund and its executives.
The Port Fund’s allegedly misappropriated funds involve a portion of the $496 million the fund received from its sale of Clark Global City, a real estate investment in the Philippines, in November 2017.
The money was sent to the fund’s account at Noor Bank in Dubai where it was frozen in response to a suspicious activity report.
The defendants suggest that Kuwaiti authorities had attempted, through political channels, to have all of the funds diverted to the two Kuwait-based plaintiffs, even though they only represented two of the 11 investors in the fund.
They also point to the arrest of two former Port Link directors, Marsha Lazareva and Saeed Dashti, in Kuwait on allegedly “trumped up charges”.
Both have received long prison sentences in Kuwait over the misappropriation of public funds by allegedly billing Kuwait Port Authority for work they did not perform.
Lazareva’s case has garnered worldwide attention, not least as a result of prominent advocates like human rights attorney Cherie Blair, wife of former UK Prime Minister Tony Blair; former FBI director Louis Freeh; and Neil Bush, son of former US President George H. W. Bush.
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