The Partnership Act (2013 Revision) and the Exempted Ltd Partnership Act (2021 Revision) and the Companies Act (2021 Revision) and Formation Group (Cayman) Fund I, L.P. Between (1) Country Garden (Hong Kong) Development Company Ltd (2) Faircharm Global Ltd (3) Drakesville Investment Ltd (4) Fortune Bridge (China) Ltd (5) Yousu Hong Kong Ltd (6) Perfect One Ventures Ltd Petitioners v Formation Group (Cayman) Fund I, L.P. Respondent
| Jurisdiction | Cayman Islands |
| Judge | Justice Kawaley |
| Judgment Date | 21 April 2022 |
| Court | Grand Court (Cayman Islands) |
| Docket Number | CAUSE NO: FSD 366 OF 2021 (IKJ) |
In the Matter of the Partnership Act (2013 Revision) and the Exempted Limited Partnership Act (2021 Revision) and the Companies Act (2021 Revision)
And in the Matter of Formation Group (Cayman) Fund I, L.P.
The Hon. Justice Kawaley
CAUSE NO: FSD 366 OF 2021 (IKJ)
IN THE GRAND COURT OF THE CAYMAN ISLANDS
FINANCIAL SERVICES DIVISION
Petition by limited partners to dissolve or wind-up an exempted limited partnership-strike-out application by general partner-whether winding-up proceedings can validly be brought against an exempted limited partnership in its own name as opposed to against the general partner-statutory interpretation-Exempted Limited Partnership Act (2021 Revision), sections 3, 4, 33(1), 36(3)—Companies Act (2021 Revision), section 92(e)
Mr Peter Sherwood and Mr Nigel Smith, Carey Olsen, for the Petitioners
Mr Hamid Khanbhai, Campbells, for Formation Group GP I, LLC as general partner of the Respondent (the “GP”)
By their Petition dated December 15, 2021, the Petitioners (who contributed approximately 70% of the Respondent's capital contributions) claiming to be contingent creditors of the Respondent sought the following principal relief, namely an Order that:
“1. The Partnership be dissolved or wound up in accordance with Section 3 of the ELP Act and Section 35(e) of the Partnership Act or, in the alternative, Section 36(3) of the ELP Act and Section 92(e) of the Companies Act.”
The GP applied by Summons dated January 14, 2022 for the following principal relief, namely an Order that:
“1. The Winding Up Petition dated 15 December 2021 be struck out, on the basis that it has been presented against the Respondent rather than against the GP…”
Although Mr Khanbhai for the GP sought to delicately avoid directly engaging with this underlying conflict, the present strike-out application focussed on a standing point which reflects conflicting approaches by different judges of the Grand Court. Mostly recently, in Re Padma Fund LP (FSD 201 of 2021 (RPJ), 8 October 2021), Parker J held that there was no jurisdiction to wind-up an exempted limited partnership (“ELP”) under the Companies Act. I took the contrary view, consistent with earlier decisions of this Court, in Re XIO Diamond LP (FSD 256 of 2019 (IKJ), 30 April 2020, which Parker J in Padma concluded was wrongly decided. Although Mr Sherwood for the Petitioners was keen for obvious forensic reasons to reduce the strike-out argument to a choice between following my own decision and Justice Parker's conflicting decision, the present application cannot be approached in such a binary fashion. The arguments canvassed in XiO were not precisely the same as those advanced in Padma, and the submissions in the present case are not precisely the same as those advanced in either of the two previous conflicting decisions.
Interpreting bespoke legislative instruments such as the Exempted Limited Partnership Act (the “ELP Act”) without the benefit of nourishment from persuasive authorities from larger common law jurisdictions is often a challenging endeavour. Through an incremental process in which different judges confront different legal points and similar legal points framed in somewhat different ways, a consensus gradually emerges as to the meaning of the most important statutory provisions. In this context, in my judgment, each judge is entitled to be more willing than might be appropriate in more settled areas of law to depart from previous decisions, even his or her own.
By way of overview, Mr Khanbhai submitted:
“5. The correct jurisdictional gateway, i.e. between the Companies Jurisdiction and the Partnerships Jurisdiction, is not a question that arises on the Strike Out Application.
6. The Strike Out Application turns only on one discrete point. Who is the proper respondent to a petition seeking the relief sought by the Petitioners?
7. The Petition has been filed against Formation Group (Cayman) Fund I, L.P. (the ‘Fund’). The respondent to the Petition is not a legal entity. The Petitioners should have named the GP in its capacity as general partner of the Fund, as the respondent to the Petition. As a result, the Petition is defective and falls to be struck out. That is the end of the matter.”
The GP's counsel's central thesis was set out in his Skeleton Argument as follows:
“13. An exempted limited partnership is a creature of statute, comprising at least one general partner and one limited partner. It has no legal personality. It cannot own property in its own right. Its business is carried on by its general partner: section 14 of the ELP Act. Further:
(a) It is the general partner that holds assets of the partnership on trust for the partnership, in accordance with the partnership deed: section 16(1) of the ELP Act.
(b) On the admission or substitution of a general partner, the assets of the exempted limited partnership vest in the new general partner by operation of law: section 17 of the ELP Act.
(c) It is also the general partner that incurs debts or obligations on behalf of the partnership: section 16(2) of the ELP Act.
14. Section 33 of the ELP Act provides expressly in relation to ‘Proceedings’. Section 33(1) provides that: “Subject to subsection (3), legal proceedings by or against an exempted limited partnership may be instituted by or against any one or more of the general partners only, and a limited partner shall not be a party to or named in the proceedings” (emphasis added)
15. Subsection (3) relates to derivative actions brought by limited partners and so is not relevant for present purposes.
16. Winding up proceedings (Companies Jurisdiction) or proceedings for a decree of dissolution (Partnerships Jurisdiction) are ‘legal proceedings… against an exempted limited partnership’ within the meaning of section 33(1).
17. It follows that the Petition should have named the GP as the Respondent.
18. Proceedings which appear to be duly issued but fail to comply with a statutory requirement are a nullity which is incurable: the third of three classes of nullity referred to by Upjohn LJ in Re Pritchard [1963] Ch 502 at page 5242 Finnegan v Cementation [1953] 1 QB 688.
19. The consequence of failing to comply with section 33(1) of the ELP Act, when filing the Petition, is that the proceedings are a nullity which is incurable (as opposed to an irregularity which might be capable of being cured).
20. In Padma Fund FSD 201 of 2021 (unrep. 8 October 2021), Parker J was considering a winding up petition presented against an exempted limited partnership. He had to consider two separate issues:
(a) First, in the case of a petition presented against an exempted limited partnership, who was the proper respondent to the petition? In particular, was it the general partner or was it the fund?
(b) Second, on such a petition what is the appropriate jurisdictional gateway, the Companies Jurisdiction or the Partnership Jurisdiction?
21. It is only the first issue (proper respondent) that arises on this Strike Out Application. Padma is the only Cayman Islands decision on thatfirst issue. ( XiO Diamond LP unrep. 30 April 2020, FSD 256 of 2019 (IKJ)), for example, is an authority that deals with the second point but not the first.
22. On the proper respondent issue, Parker J held at paragraphs 35 and 36 of Padma that section 33(1) of the ELP Act is determinative of who should be the respondent when the originating process is intended to invoke the court's winding up jurisdiction in relation to an exempted limited partnership:
“35. There is … no provision within the ELP Act or the Partnership Act which provides that legal proceedings may be instituted against an exempted limited partnership in the name of the partnership. This is because it is through the general partner that its debts and obligations are enforced. Section 33(1) of the ELP says in terms proceedings may be instituted against the general partner(s) only.
36. Mr Sherwood relies on Order 81, rule 12 of the Grand Court Rules, 1995 (Revised Edition) which provides that any action by or against an exempted limited partnership may be commenced in the name of the firm. However in my view that does not assist Mr Sherwood because the applicable statutes must take precedence over procedural rules, and the particular rule does not in my view deal with the court's winding up jurisdiction.”
In short, the GP invites this Court to follow its earlier decision in Padma and to hold that the ELP Act only permits legal proceedings to be brought against a general partner of an ELP and not against the ELP itself. While it seems clearly right that the GP has only directly based its strike-out application on the section 33(1) of the ELP Act point, it seems difficult as a matter of preliminary analysis to see how the construction of section 33(1) which was applied by Justice Parker in Padma can be properly assessed by entirely divorcing the construction analysis from the wider legal context in which it is embedded.
The Petitioners' Skeleton Argument firstly made it clear that they were primarily relying upon the winding-up jurisdiction under the Companies Act:
“3. The petition is for a winding up order under the Companies Act 2021 (‘ Companies Act’), as applied to ELPs by section 36(3) of the Exempted Limited Partnership Act (2021 Revision) (‘ELPA’) or, in the alternative, an order for dissolution under the Partnership Act (2013 Revision) (‘ Partnership Act’). The petition has...
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