Beyond the contract: The modern reach of equity in corporate relationships

Introduction

Like the English Insolvency Act 1986¹, and in common with multiple jurisdictions across the common law world, including Australia², New Zealand³, Hong Kong⁴, Singapore⁵, Malaysia⁶, India⁷, Ireland⁸, Bermuda⁹ and the Cayman Islands¹⁰, section 162(1)(b) of the BVI Insolvency Act 2003 empowers the Court to order the winding up of a company on the just and equitable ground, on the application of, among others, a member.

Against this backdrop, the Privy Council’s decision in Aquapoint LP (in Official Liquidation) v Xiaohu Fan¹¹ marks a significant development in the jurisprudence surrounding the 'just and equitable' winding up jurisdiction. While the case concerned an exempted limited partnership (ELP) under Cayman law, the shared statutory foundation which makes the 'just and equitable' jurisdiction a central feature of company law across these leading common law jurisdictions, means that the decision will resonate beyond the four corners of the Cayman Exempted Limited Partnership Act.

This short article looks at the facts, legal framework, reasoning, and implications of the Aquapoint decision, within the broader context of authorities such as authorities such as Ebrahimi v Westbourne Galleries Ltd¹², O’Neill v Phillips¹³, and Chu v Lau¹⁴.

Factual background

Aquapoint LP was formed in 2017 as an ELP to hold approximately 15% of the shares in Legend Biotech Corporation, a Cayman company listed on the NASDAQ. Dr Fan had been promised a 10% shareholding in Legend Nanjing, the predecessor entity, as an incentive to remain with the business. In 2017, he entered Aquapoint as a limited partner based on assurances made outside the governing documents from Genscript’s controllers (Dr Zhang and Ms Wang) that his entitlement would remain intact and that he could withdraw his shares six months post-IPO.

After the IPO and lock-up period, Dr Fan sought to withdraw his shares, but Genscript, as general partner, declined to consent, relying on its contractual right in clause 7.7 of the Limited Partnership Agreement (LPA), which granted absolute discretion to the general partner to withhold consent for any reason or none. Dr Fan petitioned for winding up on the just and equitable ground, arguing that the refusal breached the assurances given to him and frustrated his legitimate expectations. Both the Grand Court and Court of Appeal upheld his petition; Aquapoint’s appeal to the Privy Council was dismissed.

Legal framework and principles

Section 36(3)(g) of the Cayman ELP Act expressly empowers the court to wind up an ELP if it is 'just and equitable' to do so. The Privy Council confirmed that principles developed in company law apply by analogy, given the statutory cross-reference to the Companies Act and the functional similarities between ELPs and companies in this context.

The leading authority remains Ebrahimi v Westbourne Galleries Ltd. Lord Wilberforce’s speech in that case is the foundation for the modern approach: the 'just and equitable' jurisdiction allows courts to subject the exercise of strict legal rights to equitable considerations, especially where the relationship between the parties is akin to partnership or involves mutual trust and confidence. Lord Wilberforce warned against reducing the jurisdiction to rigid categories, emphasising its flexibility and the importance of context.

This approach was endorsed and refined in O’Neill v Phillips, where Lord Hoffmann stressed that fairness may require looking beyond strict legal rights when legitimate expectations are frustrated. He explained that the jurisdiction is not unfettered, but that equity may intervene where the exercise of legal rights is contrary to good faith or unconscionable in the circumstances.

Chu v Lau⁴ reaffirmed that in quasi-partnership companies, an irretrievable breakdown of mutual trust and confidence can justify winding up. Lord Briggs, delivering the judgment, made clear that the focus is on the relationship between the parties and the presence of legitimate expectations, not merely on the formal legal structure.

Although Aquapoint did not involve a classic quasi-partnership (as Dr Fan was not involved in management), the Board clarified that such a finding is not a prerequisite; equity’s reach is broader and may apply wherever personal assurances or understandings underpin the contractual relationship.

Reasoning of the Privy Council

The Board rejected Aquapoint’s argument that detailed contractual terms and entire agreement clauses precluded equitable intervention. The Board acknowledged that, in a corporate context, equitable considerations as regards the exercise of legal rights will not generally apply, but found that whether they do apply and the relevance of the contractual arrangements between the parties is to be decided on the facts and circumstances of the particular case and, following Ebrahimi v Westbourne Galleries Ltd, equitable considerations may restrain the exercise of legal rights where insisting on them would be unconscionable. This leads to the conclusion that the 'just and equitable' jurisdiction is not ousted by the presence of entire agreement clauses or by the fact that the parties have negotiated a detailed contract.

In the case before it, the Board held that Dr Fan would not have entered the LPA were it not for the assurances that his 10% entitlement would be preserved. Even if those assurances were unenforceable in contract, they engaged equitable principles. The Board distinguished Re Virginia Solution SPC Ltd¹⁵, where comprehensive agreements and subsequent conduct displaced equitable considerations. In that case, the parties’ relationship had evolved from informal arrangements to a comprehensive contractual framework, and the court found no room for equitable intervention. In Aquapoint, by contrast, the assurances formed the very basis of the contractual relationship, and there was no evidence that the parties intended to exclude those assurances from consideration.

Case law discussion

Ebrahimi v Westbourne Galleries Ltd remains the cornerstone, establishing that equitable intervention is fact-sensitive and not confined to rigid categories. Lord Wilberforce’s analysis of the 'just and equitable' ground has been repeatedly cited for its emphasis on the personal relationships and legitimate expectations that may arise in closely held companies or partnerships.

O’Neill v Phillips refined the approach by linking fairness to 'legitimate expectations'. Lord Hoffmann explained that the jurisdiction is not to be characterized as a general power to intervene whenever a party feels aggrieved, but is engaged where the conduct complained of is contrary to the basis on which the parties agreed to associate.

Chu v Lau is particularly significant in the context of quasi-partnerships. Lord Briggs confirmed that an irretrievable breakdown of trust in a quasi-partnership context may justify winding up. The Privy Council in Aquapoint cited Chu v Lau as authority for the proposition that the breakdown of trust and confidence may justify winding up, but clarified that the principle is not confined to quasi-partnership cases. The Board expressly addressed the argument that equitable intervention is only available in quasi-partnership scenarios. It rejected this as a proposition, stating that the existence of a quasi-partnership is not a prerequisite for the application of equitable considerations. In this, the Board referred back to Lord Wilberforce’s speech in Ebrahimi v Westbourne Galleries Ltd, emphasising that the jurisdiction is deliberately broad and not limited to rigid categories. Accordingly, whilst quasi-partnership features are common triggers for equitable intervention, they are not essential. The fundamental principle is that the court may intervene where the exercise of legal rights would be inequitable, based on the personal relationship and legitimate expectations between the parties.

Significance and future implications

Aquapoint is a valuable waymarker for company lawyers. Its significance lies in its clear message that the courts are not confined to a literal or mechanical application of contractual terms when considering whether it is 'just and equitable' to wind up a company or partnership. Even where parties have entered into detailed, professionally drafted agreements—complete with entire agreement clauses and explicit limitations on withdrawal or exit—equity retains a supervisory role. The court will look beyond the four corners of the contract to examine the true nature of the parties’ relationship, the context in which the agreement was made, and any personal assurances or understandings that may have induced a party to enter into the arrangement.

This approach is particularly important in modern commercial practice, where sophisticated structures are often used to hold investments, manage risk, or facilitate joint ventures. Aquapoint demonstrates that the presence of a comprehensive legal framework does not, in itself, immunise parties from equitable intervention if the exercise of strict legal rights would be unconscionable or contrary to the legitimate expectations arising from the parties’ dealings.

For practitioners, this means that when advising on or litigating petitions under section 122(1)(g) of the Insolvency Act 1986 (or analogous provisions in offshore jurisdictions), it is essential to consider not only the express terms of the contract but also the broader relational context. Courts will be alert to situations where one party seeks to rely on contractual powers in a manner that defeats the spirit of the original bargain or undermines assurances that were fundamental to the relationship. This is especially so where there is evidence of trust, reliance, or inducement based on personal promises, even if those promises are not reflected in the final written agreement.

Aquapoint thus reinforces the principle that the 'just and equitable' jurisdiction is a flexible remedy, designed to prevent injustice in circumstances where the strict application of legal rights would be unfair. It serves as a reminder that, in company law as in equity more broadly, substance will prevail over form where justice so requires.