The president of the Cayman Islands Court of Appeal has granted the defendants in an alleged private equity fund fraud the right to appeal a 25 Nov. 2021 judgment that rejected their application to have the case thrown out.
The ruling examined for the first time under Cayman law when a limited partner can bring a derivative claim on behalf of an exempted limited partnership.
In the case, the limited partners of the Cayman Islands-based Port Fund L.P. claim that the general partner of the fund Port Link GP Ltd expropriated money from the fund by making fraudulent payments to third parties.
The defendants, which include the general partner and the former investment manager of the fund, argued that the allegations had been fully investigated by the independent directors who are now in charge of Port Link GP and were found to be meritless.
Under the Exempted Limited Partnership Act, limited partners, who are not typically involved in the management of a fund, can bring a claim on behalf of the fund if the general partner is refusing to do so without reason.
But the Grand Court dismissed the application to strike out the indirect claim arguing that a general partner cannot be impartial in claims against itself or those that arise from its own alleged breaches.
The judgment effectively ordered the litigation to proceed to trial.
On 28 Jan. 2021, Justice Raj Parker refused an application for leave to appeal his judgment stating, “None of the defendants’ draft grounds have a realistic prospect of success.”
Nor were there exceptional circumstances or public policy issues that required the right to appeal to be granted, Parker said.
However, on 8 Feb. 2021, Sir John Goldring, the president of the Court of Appeal, granted the defendants “leave to appeal on all grounds”.
In his reasons for the order, Goldring wrote that the case raised issues of public importance regarding exempted limited partnerships.
“That alone justifies consideration by the Court of Appeal. Moreover, the grounds of appeal regarding such partnerships, as amplified by the skeleton arguments, have sufficient prospect of success to justify the grant of leave,” he noted.
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