Cayman court grants disclosures to Gulf investors of local limited partnership

Providing further clarity on the breadth of information available to limited partners under Cayman law, a court has granted financial disclosure requests to the limited partners of a Cayman private equity fund whose former directors were convicted of embezzlement and misappropriation in Kuwait.

On 16 June, Justice Raj Parker in the Grand Court of the Cayman Islands’ Financial Services Division granted an order requiring Port Link, the general partner of Cayman private equity fund Port Fund, to hand over certain requested annual reports to its limited partners.

The order followed applications for financial disclosures made by three limited partners of Port Fund under Section 22 of the Cayman Islands’ Exempted Limited Partnership Law (ELPL).

The trio of limited partners include the multinational Gulf Investment Corporation (GIC); the General Retirement and Social Insurance Authority (GRSIA), which manages Qatar’s public and private pensions; and the Kuwait Ports Authority (KPA), which manages Kuwait’s commercial ports. Together, the limited partners’ investments amounted to around 95% of the fund’s total investments.

In their disclosure applications, the three limited partners requested “true and full information on the state of the business and financial condition” of Port Fund under section 22. They said they wanted information about Port Fund’s management of investments and money received, as “they were concerned the financial affairs are not managed in the right way by the general partner”.

They also argued their requests for information had already been outstanding for “more than a year”.

Granting the disclosures, Justice Parker put the decision in the context of both the ongoing winding-down of Port Fund, which has already been underway for five years, and the convictions of two former directors at the general partner: the dual Russian and US citizen Marsha Lazareva, and Kuwaiti citizen Saeed Dashti.

The Dashti family asked Lazareva to set up Port Fund in Kuwait in 2007. At the time, she was the vice president and chief executive of what would be Port Fund’s Kuwait-based investment manager, KGL Investment Company (KGLI), while Dashti was chairman of the KGL group of companies.

Both Lazareva and Dashti are currently implicated in ongoing criminal proceedings in Kuwait.

According to the Cayman court decision, they were both convicted of misappropriation of public funds by a Kuwaiti court and sentenced to imprisonment for 15 years in November 2019. This January, they were also convicted of embezzlement from the KPA’s accounts, with Lazareva being sentenced to seven years in prison and Dashti to 10 years.

Appeals are understood to be pending against both convictions, which have been the subject of a petition to the UN Working Group on Arbitrary Detention. Justice Parker said he had been referred to evidence of “substantial payments” made by Port Fund to public relations and lobbying firms in the US and elsewhere in aid of Lazareva and Dashti’s defence.

Christopher Rowland and Andrew Childe from Cayman-based advisory firm FFP, who were appointed as independent directors to Port Fund in January, told the court there were questions about the Kuwaiti proceedings that caused them concern.

The independent directors said they were concerned the information gathered by the limited partners might be “misused for collateral purposes”, including against service providers to the fund.

But the judge said the three limited partners had “accepted they cannot require or use the disclosures to harm (Port Fund)”. Instead, they would only use the information to consider whether to exercise claims against third parties and release assets for the fund while it was in exit mode.

GIC and GRSIA sought legal advice from Anna Peccarino and Ian Huskisson of Grand-Cayman-based law firm Travers Thorp Alberga. “This was a tremendous victory for our clients in their quest to obtain information about what has happened to their investments,” Huskisson told GRR.

Airport project and the KPA

In December 2019, GIC also requested ex parte discovery from Port Fund in the US under section 1782 of the US Code, as it was “contemplating pursuing litigation in the Cayman Islands” against Port Fund, Port Link and KGLI.

The Cayman litigation would seek to investigate “hundreds of millions” of dollars that allegedly went “missing” after Port Fund’s 2017 sale of its investment in a Philippine airport project called Clark Global City to a third party, according to a memorandum filed by GIC in the discovery action before the US District Court for the Southern District of New York.

In 2017, the acting attorney general in Kuwait told a bank in Dubai to freeze a Port Fund bank account containing the US$496 million sale proceeds from Clark Global City, while the government of Kuwait conducted an investigation into Lazareva and Dashti. Two years later, after correspondence between the Kuwaiti prime minister and the ruler of Dubai, Port Fund’s directors released the sale proceeds and paid the full sum to Kuwait’s government in April 2019.

The FFP directors told the Cayman court in the recent disclosure application they believe the KPA received more than its legal entitlement in the investment proceeds as a result of that transfer, and noted they may need to pursue the KPA for repayment in due course.

GIC’s US discovery application also alleged that five US firms working on behalf of Port Fund and KGLI had been lobbying the American government for sanctions against Kuwait to support the release of the two executives from prison. GIC said there were “concerns” that Port Fund had paid for the lobbying.

Disclosures decision

In court, Travers Thorp Alberga instructed barrister Felicity Toube QC of South Square in London. During the proceedings, Toube said the three limited partners seeking disclosures had a right to the general partner’s information under section 22 of the ELPL.

She cited the Grand Court’s 2019 decision in Dorsey Ventures where limited partner Dorsey Ventures had sought disclosures from its general partner, XIO Limited. In that decision, the judge rejected the idea that the disclosures available were limited to what was in the agreement used to incorporate the fund, the Limited Partnership Agreement (LPA), and found the limited partner had a “general right to information” under section 22 of the ELPL.

Counsel acting for Port Fund and Pork Link’s independent FFP directors, Tom Smith QC of South Square, sought to restrict how much information the general partner provided to what was allowed in the LPA.

Instructed by Dubai partner Barnaby Gowrie at offshore firm Walkers, as well as Cayman-based senior counsel Chris Keefe and associate Blake Egelton, Smith said there were concerns the limited partners might use the information “for purposes other than informing themselves about the affairs of the fund”. He sought an order ensuring that “reasonable safeguards and restrictions be put in place” so the FFP directors and the fund did not become “embroiled in the contentious matters and criminal proceedings in Kuwait or elsewhere”.

Assessing these arguments, the judge contended what was to be decided was whether section 22 of the ELPL was a free-standing and unqualified provision expressed in mandatory terms, or whether the LPA “occupies the field” and governs information provision without resorting to the ELPL.

He held that, as the LPA didn’t address or modify section 22, then Section 22 “occupied the field” rather than the LPA.

The judge also compared section 21 of the ELPL, which obliges general partners to maintain accounting books, contracts and invoices covering money received or spent, purchases of assets and liabilities, and section 22, which gives limited partners “a wide unqualified provision” to access “true and full” information including all of the books and records obliged to be maintained under section 21.

Affirming the limited partners’ rights to “true and full information”, the court declined to “delineate line-by-line which requests should be met, if at all, and by when”, but invited the parties to seek further court guidance if they couldn’t agree.

The judge found that, as to certain working papers requested, there was “nothing” in section 22 of the ELPL or the LPA to suggest there was any limitation on the information required to satisfy its “true and full” requirement.

The only limits on disclosure that carried over from the LPA were “reasonable” restrictions based on the practicalities of allowing access and making copies, rather than limits governing the information’s use, the judge found.

The judge also sided with the three limited partners in saying that they did not need to provide a reason for their disclosure requests. He accepted their submissions that irregularities in the management of the fund were “strictly irrelevant” to the investors’ statutory rights to the information they sought.

Shortly before the hearing, Justice Parker was informed that Port Fund had provided audited accounts for 2017 to the partners, which contained a lot of the information they had been seeking. The judge acknowledged that Port Fund and Port Link expected to follow up with the audited 2018 and 2019 accounts in the next few weeks. “The sooner this can be achieved the better,” he reminded.

“The decision should empower investors in similar situations,” Huskisson told GRR, adding that there is probably “now a mismatch between information rights of an investor in a limited partnership compared to a company”.

“Had the fund in this case chosen to use a company structure rather than a limited partnership then it is unlikely the investors would have been entitled as of right to much or possibly any of the information they wanted. Overall the decision is very positive in terms of investor rights, however,” he added.

Kuwaiti court processes under the spotlight

Lazareva’s case has attracted high-profile attention in the US, where she has hired Crowell & Moring to represent her in an investment treaty arbitration against Kuwait. A January press release from the firm said that a “coalition of human rights and religious organisations” had asked the US government to intervene in the case.

The law firm’s statement includes comments decrying the Kuwaiti proceedings from former FBI Director Louis Freeh and from Cherie Blair QC, the wife of former British prime minister Tony Blair and founder of London-based arbitration law firm Omnia Strategy, which is representing Lazareva in human rights proceedings at the UN. 

GRR’s sister publication, Global Arbitration Review, reported last year that Lazareva had complained to the United Nations that her legal team was facing threats and intimidation from the state.

GAR reports that Crowell & Moring is paying a public relations firm called Marathon Strategies US$18,500 a month to lobby in Lazareva’s favour.

In the Grand Court of the Cayman Islands Financial Services Division

In the matter of Gulf Investment Corporation et al v The Port Fund et al

• Judge Raj Parker

Independent directors of Port Link

• FFP

Christopher Rowland and Andrew Childe in Grand Cayman

Counsel for petitioner GIC and GRSIA

• Travers Thorp Alberga

Partner Anna Peccarino in Cayman Islands

• Felicity Toube QC at South Square in London

Counsel for petitioner the Kuwait Ports Authority

• Ogier

Partners Jennifer Fox and Rachel Reynolds with senior associate Ilona Groark in Grand Cayman

• David Allison QC at South Square in London

Counsel for defendants Port Fund and Port Link

• Walkers

Partner Barnaby Gowrie in Dubai, with senior counsel Chris Keefe and associate Blake Egelton in Cayman Islands.

• Tom Smith QC at South Square in London

In the United States District Court Southern District Of New York

Application for an order to obtain discovery

Counsel for GIC

• Quinn Emanuel Urquhart & Sullivan

Partner Kristin Tahler in Los Angeles and Marc Hedrich in Washington, DC