Aquapoint: Investor Disputes Concerning the Winding Up of an ELP

In a Nutshell

The Privy Council (“PC”), addressing how equitable considerations may constrain the exercise of contractual rights, upheld a decision to wind an exempted limited partnership (“ELP”) up on just and equitable grounds in circumstances where the general partner (“GP”) had invoked an unfettered discretion in the limited partnership agreement (“LPA”) to block the withdrawal of a limited partner (“LP”). It was not equitable to rely on such contractual provisions where representations had been made to the LP that he would be entitled to withdraw his investment six months after an IPO took place.

While the PC stressed that the application of equitable principles that cut across contractual rights will be fact-specific and not confined to rigid categories, the guidance provided will likely be important in the context of ELP disputes and applications to wind up an ELP on just and equitable grounds. GPs may not be able to rely on the LPA to defeat reasonable expectations that they have created. The decision could also be seen as strengthening investor protection by recognising that meaningful informal assurances can trigger equitable rights including to have the ELP wound up on just and equitable grounds.

Background

Aquapoint LP (“Aquapoint”) was an ELP formed to hold shares in Legend Biotech Corporation (“Legend Biotech”), a Nasdaq-listed company involved in developing treatments for cancer. Dr Fan held a majority limited partnership interest in Aquapoint, which equated to approximately 10% of the shares in Legend Biotech.

Dr Fan had previously entered into an agreement entitling him to a 10% shareholding in the business of Legend Biotech. When the corporate structure was reorganised to use Legend Biotech as the listing vehicle for a future initial public offering (“IPO”), the GP of Aquapoint gave Dr Fan assurances that his entitlement to the 10% interest would be preserved and that he would be entitled to withdraw his investment six months after any IPO took place. In reliance on these assurances, Dr Fan agreed to become an LP in Aquapoint.

Following the IPO and the expiry of the six months lock up period, Dr Fan requested access to the 10% shareholding in Legend Biotech held by Aquapoint. The GP refused this request and sought to rely upon a provision in the Aquapoint LPA, which provided that the GP could withhold its consent to the withdrawal of an LP “for any reason (or no reason at all) in the sole and absolute discretion” of the GP. Following this refusal, Dr Fan petitioned to wind up Aquapoint on just and equitable grounds.

Issue on Appeal

The central question was whether the just and equitable winding up jurisdiction could be invoked where the parties had entered into a comprehensive contractual framework to govern their relationship, namely the LPA and related agreements, which expressly governed the matter complained of by Dr Fan. Aquapoint argued that its refusal of the withdrawal request was not subject to any equitable constraints because it had an unfettered contractual right to refuse any such request.

The PC rejected that argument, upholding the winding up order against Aquapoint. It concluded that the relationship between Dr Fan and the GP and its representatives was “a personal relationship of a type that brings equitable considerations into play”. Given the assurances that had induced Dr Fan to become an LP, it was inequitable for the GP to refuse its consent to the withdrawal.

Key Guidance

The nature of the just and equitable jurisdiction: The PC reaffirmed that the just and equitable winding up jurisdiction is not constrained by rigid categories, noting that “[i]t would be impossible, and wholly undesirable, to define the circumstances in which these considerations may arise”. Thus, the existence of a relationship which can lead to the imposition of equitable constraints on the exercise of legal rights will be a fact sensitive enquiry and the court is entitled to look at all the circumstances of the case.

Quasi-partnership not essential: The PC rejected the argument that equitable considerations only apply where a “quasi-partnership” exists i.e. a business which is closely held by a small number of parties and is operated on the basis of mutual trust and informal understandings like a traditional partnership. The normal indicia of a quasi-partnership – personal relationships involving mutual confidence, agreements for participation in management, and restrictions on share transfers – are examples, not prerequisites.

Contractual rights not always decisive: While acknowledging that in most cases contractual arrangements will exhaustively define the parties’ rights, the PC held that contractual provisions (including entire agreement clauses) are highly relevant but not decisive in determining whether equitable considerations apply.

Alternative remedies: The PC rejected arguments that alternative remedies were available instead of a winding up order. A breach of contract claim was unavailable to Dr Fan given Aquapoint’s position that there was no such breach, and a derivative action would not provide any personal remedy for Dr Fan.

¹ [2025] UKPC 56