Kuwait Court of Cassation principle number 325

Summary: - Simple limited partnership. Its subjection, in respect of limited partners, to the rules prescribed for general partnerships as regards formation and management, as well as dissolution and liquidation. Its necessary consequence. Decisions that would amend the memorandum of association or its articles. They must be unanimous among the partners, and none of its managers may be removed except by a majority of the partners’ votes or by a judicial judgment at the request of a partner if there is reasonable cause justifying removal. Articles 5, 9, 16, 21, 42, 44, 46 of Law 15 of 1960 promulgating the Commercial Companies Law. Applicable to the facts. - Regard is had to the reality, nature and purpose of acts, not to the description bestowed upon them by their parties. - Contradiction of what is established in the documents. Its meaning. The court of merits basing its judgment on an understanding it formed contrary to what is established in the documents. Its effect. Invalidity of the judgment. Example. Error in understanding the facts of the case led the judgment into an error in applying the law, rendering it defective and requiring its cassation. Rule: The provision in Article Five of Law No. 15 of 1960 promulgating the Commercial Companies Law—applicable to the facts—that a general partnership must have a memorandum of association containing the following particulars: .............. 5- The managers authorised to manage and sign on behalf of the company, whether partners or others. And in Article Nine thereof that “The partners may draw up articles for the company, recorded in an official instrument and containing the detailed provisions they agree upon for managing the company, and a copy of these articles shall be attached to the memorandum of association”; and in Article Sixteen thereof that “If there are multiple managers and the memorandum of association or the company’s articles do not contain a specific provision, decisions shall be issued by an absolute majority unless there is an objection by a manager based on the act being contrary to the company’s objects stipulated in the memorandum of association, in which case the matter may be referred to the court to decide that objection. Decisions that would amend the memorandum of association or the company’s articles, however, may only be made unanimously by the partners”; and in Article Twenty-One thereof that “No manager of the company shall be removed except by a majority of the partners’ votes. In addition, any manager may be removed by a judicial judgment at the request of a partner if there is reasonable cause justifying that removal. The removal of the manager, as well as the appointment of any new manager, must be publicised in accordance with the provisions of the Commercial Register Law”; and in Article Forty-Two thereof that a limited partnership comprises two categories of partners: 1- The category of general partners, who alone manage the company and are jointly and severally liable for all its obligations out of their personal assets. 2- And the category of limited partners, who confine themselves to contributing funds to the company, and each of whom is liable for the company’s obligations only to the extent of his contribution. The company must be entered in the commercial register in accordance with the provisions of the law”. And in Article Forty-Four thereof that “A simple limited partnership shall, even in respect of limited partners, be subject to the rules prescribed for general partnerships as regards the company’s formation, management, dissolution and liquidation, subject to the following provisions” .... And in Article Forty-Six of the same Law that “A limited partner may not intervene in the management of the company, even under a power of attorney; otherwise, he becomes jointly and severally liable with the general partners for the obligations arising from his management acts, and he may be held liable for all or some of the company’s obligations according to the seriousness and repetition of the acts and according to the trust placed in him by third parties because of those acts. However, monitoring the acts of the company’s managers, opinions submitted to them, and authorising them to perform acts exceeding the limits of their authority shall not constitute acts of intervention”. This means that the legislator subjected a simple limited partnership, even in respect of limited partners, to the rules prescribed for general partnerships as regards the company’s formation, management, dissolution and liquidation. It necessarily follows that decisions that would amend the memorandum of association of a simple limited partnership or its articles may only be made unanimously by the partners, and that none of its managers may be removed except by a majority of the partners’ votes or by a judicial judgment at the request of a partner if there is reasonable cause justifying that removal. It is established in the jurisprudence of this Court that regard is had to the reality, nature and purpose of acts, not to the description bestowed upon them by their parties, and that if the court of merits bases its judgment on an understanding it formed contrary to what is established in the case documents, its judgment is invalid. That being so, it is apparent from the case documents and the deed of amendment of the first respondent company dated 4/9/2002, authenticated under No. 4324, volume/1, that it is a simple limited partnership comprising two categories of partners, some general partners, including the first and second appellants and the second and third respondents, and others limited partners. They all agreed in Article Eight of the deed that the company should be managed permanently, throughout its duration and the currency of its contract, by four managers, two from the agnatic line of the family of ... and two from the agnatic line of the family of ..., and that the company should be represented and signed for by two of those managers jointly, one being from the family of ... and the other from the family of .... It is established by the certificate of the Commercial Register Department at the Ministry of Commerce and Industry dated 5/6/2013, a copy of which was submitted among the documents, that pursuant to the judgment rendered in Appeal No. 2528 of 2006 Commercial/9—a copy of which was submitted among the documents—the management clause in the company’s contract was amended by appointing the first and second appellants and the second and third respondents as managers, with two of the aforementioned managers signing jointly on behalf of the company, one being from the family of ... and the other from the family of .... It is established from the general meeting of the first respondent company dated 16/4/2012, the subject of the action, that it resulted in excluding the first and second appellants from managing the first respondent company and entrusting them with management duties relating to subsidiaries of the latter company, while entrusting the second and third respondents with the management duties of the first respondent company. These decisions, although taking the appearance of a distribution of functions and powers among the aforementioned company managers, in reality entailed removing the first and second appellants from managing the first respondent company and vesting the management of that company exclusively in the second and third respondents, that is, appointing them as its sole managers. This means that these decisions became a single coin with two sides: one was the removal of the first and second appellants from managing the first respondent company, for the approval of which a majority of the partners’ votes suffices pursuant to Article (21) of Law No. 15 of 1960 promulgating the aforementioned Commercial Companies Law; the other side was the second and third respondents’ exclusive management of that company, that is, their appointment as its sole managers, necessarily requiring a corresponding amendment to its memorandum of association, for the approval of which a majority of the partners’ votes does not suffice; rather, the partners must agree unanimously pursuant to Article (16) of the same aforementioned Law. It is worth noting in this regard that these two sides cannot be separated, meaning that they have become inseparable, requiring the partners’ unanimity on both, which was not established in the documents. Since the challenged judgment departed from this view and concluded that those decisions were valid on the basis that they did not entail removing the first and second appellants from managing the first respondent company and that their purpose was merely to organise internal matters in all the companies comprising the first respondent and its subsidiaries, it erred in understanding the facts of the case, which led it into an error in applying the law, rendering it defective and requiring its cassation.