Lenihan v LSF Consolidated Golf Holdings Ltd
| Jurisdiction | Bermuda |
| Judge | Kawaley, J. |
| Judgment Date | 28 June 2007 |
| Court | Supreme Court (Bermuda) |
| Docket Number | Civil No. 155 of 2007 |
| Date | 28 June 2007 |
Supreme Court
Kawaley, J.
Civil No. 155 of 2007
Ms. Kiernan Bell, Appleby, for the petitioner.
Mr. Paul Smith, Conyers Dill & Pearman, for the respondent.
Company law - Receiver — Interim appointment — Limited partnership — Winding-up — Whether partnership had already dissolved — Complaints of misconduct — Whether the partnership was validly formed — Application adjourned with liberty to restore upon presentation of additional evidence.
The petitioner applies for the interim appointment of Receivers over the assets of a limited partnership registered under the Limited Partnership Act 1883, LSF Pacific Golf Holdings LP (“the LP”), of which the respondent is purportedly the General Partner and the petitioner purportedly the Limited Partner. By his Petition, he seeks various forms of relief at trial, most importantly cancellation of the registration of the LP, together with its dissolution and winding-up.
The LP was contractually formed on or about March 10, 2005 through a partnership agreement (“the PA”), Article 16 of which contains an arbitration clause, governed by Bermuda law, but providing for arbitration in Japan under ICC rules. The respondent invokes that clause and applies for a stay of the present proceedings, under Article 8 of the UNCITRAL Model Law.
The two applications were heard together because it was common ground that whether or not the respondent was entitled to a stay, the court had jurisdiction to entertain the application for interim relief. Such relief was sought on the grounds that (a) it was likely that the LP would have to be wound–up, and/or (b) that the respondent could not reasonably be trusted to protect the petitioner's interests in the partnership assets before the winding-up process actually commenced. The stay application was opposed on the grounds that the crucial legal and factual issues in controversy were not arbitrable disputes, but matters which this court alone had competence to adjudicate.
The PA provides in Article 1.1 that “‘Acts’ shall mean the Limited Partnership Act, 1883 as amended, of Bermuda, the Partnership Act, 1902 as amended, of Bermuda and the Exempted Partnerships Act, 1992, as amended, of Bermuda.” Article 2.1 provides: “The parties hereby form an exempted limited partnership pursuant to the provisions of the Acts. The rights and liabilities of the Partners shall be as provided in the Acts, except as herein otherwise expressly provided.”
The term “Investment” is defined by article 1.1 of the PA as meaning “all debt, equity or other interests in any member of the Pacific Golf Group held, directly or indirectly, by the Funds…” The “Funds” are four other “Lone Star” limited partnerships, two of which are established in Bermuda and two of which are established in Delaware. The principal purpose of the partnership business, according to Article 2.5 is:
“(a) to buy, sell, exchange or otherwise acquire, hold, trade, or invest, directly or indirectly, in the investment, and to do every other thing incidental or related to such activities as the General Partner may deem appropriate, necessary or advisable to conduct the business of the Partnership and to carry out any of the foregoing…”
The respondent's contributions in its capacity as General Partner are described in Article 3.1 as $338,931,769. Article 3.2 (“Limited Partner Contributions”) provides as follows: “The Limited Partner has not made any Capital Contributions to the Partnership, and no Capital Contribution shall be required of or permitted by the Limited Partner. As of the Effective Date, the Capital Account balance of the Limited Partner shall equal zero.”
Inconsistently with this clause, but not at this stage supported by any other evidence, the LP's Register of Limited Partners as at April 19, 2007 suggests that the petitioner's capital contribution is $240. This document bears a date after the petitioner on March 8, 2007 sent a somewhat intemperate email to the respondent making allegations of misconduct in the management of the partnership and threatening legal action (Pages 730–731 of exhibit “JEL-1” to the petitioner's Affidavit sworn on June 7, 2007.). Prior to this, the respondent's own accounting (forwarded to the petitioner by Michael Thompson, President of the General Partner) had reflected the fact that, as at December 31, 2006, capital “Contributions to date” by the petitioner were nil (Exhibit “JEL-1”, page 725.).
In paragraph 72 of the petitioner's June 7, 2007 Affidavit, he deposes that the Register is “untrue” in stating that he contributed $240 to the LP. As reflected in the PA, he states that he made no contribution. The respondent's response Affidavit, sworn by Michael Thompson on June 18, 2007, does not join issue with this important factual assertion. The petitioner's case that the LP is liable to be dissolved, in significant part because the partnership is not a valid limited partnership, is only apparently challenged on legal grounds:
“The respondent denies that the petitioner is entitled to dissolve the Partnership, not only because the arguments in the Lawsuit are not supportable, but because the Parties' LP Agreement addresses this issue, and he cannot demonstrate the right thereunder to dissolve the Partnership. Moreover, the claims made in Lawsuit are subject to the agreement to arbitrate in the LP Agreement and are thus brought in violation of the LP Agreement.” (Thompson Affidavit, paragraph 19.)
Mr. Smith suggested that the failure to join issue with the assertion that the Limited Partner made no capital contribution was explicable by reference to the obvious haste with which the Affidavit was prepared. But in paragraph 5 of the Thompson Affidavit, the rationale behind the PA is explained and the capital contribution made by the respondent is described. It seems improbable that the failure to assert that a capital contribution was, contrary to the express terms of the PA, in fact made or promised by the Limited Partner was simply an oversight. As Ms. Bell for the petitioner pointed out, Mr. Thompson in his Affidavit (Paragraph 17, Exhibit “MDT-1” page 2.) positively relied on the accuracy of an “Equity Summary Amounts as of 3/31/07” showing the Limited Partner's Capital Contribution as nil.
The important factual issue of whether or not the petitioner actually or contingently made a Capital Contribution is, accordingly, either not disputed or not seriously open to doubt, based on the material presently before this court.
It was also common ground that on March 10, 2005, the LP was registered as an exempted partnership and as a limited partnership under the Exempted Partnership Act, 1992 as amended and under the Limited Partnerships Act, 1883.
It is common ground that the disputes surrounding the parties' respective commercial rights under the PA are caught by the arbitration clause. The respondent's gripe is that, shortly after negotiating the PA which was designed to compensate him for his ongoing employment, the petitioner “abruptly” resigned. They contend that postponing further distributions at this juncture is consistent with the PA and reasonable. The petitioner, very broadly speaking, complains that he is entitled to receive further distributions now, and should not be required to sign loan documentation, in lieu of a distribution, save on a non-recourse basis. Complaint is made that the terms offered to the General Partner for an equivalent loan were far more favourable.
The petitioner deposes that he has lost trust and confidence in the General Partner, in part because the way in which its Capital Contribution was retrospectively increased after the PA, and in part because of (a) his alleged mistreatment while he was employed, which prompted him to resign, and (b) his general suspicions, in effect, that the respondent is not managing the LP (and/or dealing with him as Limited Partner) in good faith. These matters are, to some extent at least, relevant to whether or not Receivers ought to be appointed on an interim basis.
A further potentially controversial factual issue joined by counsel in argument is whether or not the PA may be rectified to cure any legal complications which flow from the agreement that no Capital Contribution is required from the Limited Partner. The presently available evidence exhibited to the petitioner's Affidavit on the course of negotiations between the parties in relation to the PA suggests (a) that the terms of the PA were negotiated and settled without regard to Bermuda counsel and (b) that the parties never considered the issue of a nominal Capital Contribution at all (Exhibit “JEL-1”, pages 171–325.). The first draft of the PA (not exhibited) was seemingly forwarded by Mr. Thompson on behalf of the respondent to the petitioner by email on December 14, 2004. This email attached a diagram explaining the partnership structure, which at the top states: “GP (capital partner)” and “LP (profits partner)”.
At this interim stage, therefore, it seems improbable that the parties averted to the need for at least a minimum Capital Contribution to be made or undertaken by the petitioner as Limited Partner at all. Although this matter was not argued or placed before me in evidence, it appears to be the case under Delaware law that a limited partner is not required to make or commit to make a capital contribution to a limited partnership, and if he does so will become a general partner (Delaware Revised Uniform Limited Partnership Act, sections 17–301 (d), 17–304(a).). This is the converse of the Bermuda law position. American lawyers drafting and reviewing a limited partnership...
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