In a recent ruling (Gulf Investment Corporation et al v The Port Fund LP et al, 16 June 2020, Parker J), the Grand Court has provided guidance on the information rights which limited partners have against the general partner of a Cayman Islands exempted limited partnership. In this article we consider how this decision develops those rights and we contrast them with the rights of shareholders in a Cayman Islands company.
Gulf Investment Corporation concerned an application by a limited partner in the Port Fund for disclosure of information by the general partner under section 22 of the Exempted Limited Partnership law (2018 Revision) (the “ELPL”). Section 22 provides as follows: “Subject to any express or implied term of the partnership agreement, each limited partner may demand and shall receive from a general partner true and full information regarding the state of the business and financial condition of the exempted limited partnership.” According to the judgment, section 22 gives limited partners an entitlement to demand and receive true and full information regarding the business and financial affairs of the partnership as partners in the business whose financial affairs are managed on their behalf. As Parker J says, the limited partners have in effect paid for all of the activity undertaken on their behalf pursuant to which they require true and full information.
This finding follows and upholds the Grand Court’s decision in Dorsey Ventures v XiO GP 2019 (1) CILR 249. The general partner in Dorsey argued that the Amended Limited Partnership Agreement (LPA) in that case expressly conferred on the limited partner the rights to receive audited accounts and unaudited quarterly accounts from the general partner and so it was argued the parties had impliedly excluded any more general right to information which might otherwise exist under section 22 ELPL. This argument was rejected by Mangatal J who held that there was nothing in the wording of the LPA which was inconsistent with an overriding general right to information under section 22 ELPL. In particular the fact that a clause in the LPA required the provision of the accounts to the limited partners could not be said to modify the obligation under section 22.
Section 21 of the ELPL imposes an obligation on the general partner to keep proper books of account and material underlying documentation including contracts and invoices, with respect to (a) all sums of money received and expended by the exempted limited partnership and matters in respect of which the receipt or expenditure takes place; (b) all sales and purchases of goods by the exempted limited partnership; and (c) the assets and liabilities of the exempted limited partnership. A general partner will not be deemed to have complied with that obligation unless the records kept are sufficient to give a “true and fair view of the business and financial condition” of the partnership. The court in Gulf Investment Corporation ruled that section 22 of the ELPL goes further still and imposes “a very wide unqualified” obligation on the general partner which requires “information” to be provided, not just documents, and the information needs to be ‘true and full’, not simply ‘true and fair’ as is the case under section 21.
The Limited Liability Companies Law (“LLCL”) also provides members with a right to true and full information regarding the state of the business and financial condition of the limited liability company. This can be contrasted with the position under the Companies Law (the “CL”). Section 59 of the CL is in materially the same terms as section 21 of the ELPL as regards the maintenance of accounts. However, unlike the ELPL, there is no provision in the CL imposing a requirement on an exempted company to provide information to its shareholders and any such entitlement can therefore only arise by contract such as in the articles of association or a shareholders agreement. This is clearly a marked difference between the rights of investors in the Cayman Islands’ most popular forms of investment vehicles.
This may result from the preservation in the ELPL of the rules of equity and common law as modified by the Partnership Law (2013 Revision) which defines the relationship of “partnership” as that “relation which subsists between persons carrying on a business in common with a view to profit”. The nature of “partnership” is therefore arguably different to that relationship which exists as between a shareholder and company. However, that distinction has not been maintained in the LLCL and otherwise there would not appear to be any policy justification for this difference in legislative treatment. Indeed, in both cases the investors have, as Parker J found, in effect paid for all the activity undertaken on their behalf so they arguably have a legitimate expectation of true and full information.
The general partner in Gulf Investment Corporation also submitted that it was concerned that the information sought would be misused by the limited partners. However, the court adopted the plaintiffs’ submissions that their entitlement under section 22 is not dependent on their motive or, indeed, on proof of wrongdoing.
The general partner also objected to the production of proprietary working papers in response to the request and to the production of any papers which would contain privileged material. The court also dismissed these objections finding that there is no qualification or condition in the ELPL, or indeed in the Port Fund Limited Partnership Agreement (LPA) relating to either of those matters.
These aspects of the decision further demonstrate the wide-ranging and unqualified nature of the limited partners’ rights under section 22 of the ELPL. Typically working papers are excluded from many forms of compulsory disclosure since they are considered the property of professional advisors such as directors and auditors rather than of the company or partnership. However, unlike, for example a disclosure request by a company in liquidation, section 22 of the ELPL does not have a proprietary basis. It is not limited to documents but includes information and it is therefore a distinctive form of information request under Cayman Islands law. In addition, it is settled law that a general partner cannot assert privilege against a limited partner unless the legal advice itself concerns a dispute with a limited partner. The latter principle has also been held to apply as between a shareholder and a company.
While the relief available pursuant to section 22 of the ELPL is itself unqualified it is nevertheless the case that the parties to an LPA can modify or cut down the general partner’s obligations. Counsel for the general partner sought to argue that the provisions of the LPA which dealt with the keeping of accounts and with confidentiality together provided a comprehensive scheme for the provision of information and left no room for the application of section 22. The court disagreed that this was the case and held that those clauses in the LPA did not qualify section 22. Indeed, following Gulf Investment Corporation it would appear that any such carve-outs from the application of section 22 will need to be in clear and unambiguous terms in order to be effective.
It is clear from Gulf Investment Corporation and the Grand Court’s previous decision in Dorsey that the Grand Court considers there to be limited scope for arguments which seek to curtail investors’ information rights pursuant to section 22 of the ELPL. The court has affirmed that the parties to an exempted limited partnership can contract out of these provisions, however, in most cases limited partners will be anxious to preserve rather than modify their section 22 rights. Whilst general partners may be able to successfully curtail investor information rights in buoyant fundraising markets, the economic environment following the Covid-19 global pandemic might be such that this balance is shifted in limited partners’ favour. This judgment, and the comparisons set out above, highlight the sharply contrasting position whereby shareholders in Cayman Islands exempted companies have no statutory rights to information from the companies themselves.