1. Arnage Holdings Ltd 2. Brooklands Holdings Ltd 3. East Farthing Holdings Ltd 4. Ms. Katia Rabello 5. Mr. Fernando Toledo Plaintiffs v Walkers (A Firm) Defendant

JurisdictionCayman Islands
JudgeThe Hon. Anthony Smellie
Judgment Date29 July 2016
Judgment citation (vLex)[2016] CIGC J0729-1
Docket NumberCAUSE NUMBER: FSD 105 of 2014 (ASCJ)
CourtGrand Court (Cayman Islands)
Date29 July 2016
1. Arnage Holdings Ltd.
2. Brooklands Holdings Ltd.
3. East Farthing Holdings Limited
4. Ms. Katia Rabello
5. Mr. Fernando Toledo
Walkers (A Firm)
[2016] CIGC J0729-1


The Hon. Anthony Smellie, CHIEF JUSTICE

CAUSE NUMBER: FSD 105 of 2014 (ASCJ) (Formerly 14 of 2014)

Bankruptcy proceedings in Brazil — plaintiffs claim against their former Cayman Islands lawyers for breach of fiduciary duty related to the disclosure of their confidential information in the Brazilian proceedings — whether the plaintiffs claim should be struck out for dishonest abuse of process of the court — principles applicable to striking out on grounds of dishonest abuse.


The Plaintiffs are companies and individuals who represent the interests of the Rabellos, a prominent Brazilian family.


The Defendant is a local law firm who formerly advised the Plaintiffs (or at least some of them) and represented their interests within the Cayman Islands over the course of many years.


The Plaintiffs' case against the Defendant relates to alleged ‘catastrophic’ loss and damages caused by decisions of the Brazilian Courts1 by which the effects of the bankruptcy proceedings of a Brazilian group of companies — the Petroforte Group — were extended to Securinvest Holdings S.A (‘Securinvest’), an important corporate § interest of the Rabello family. The extension of the Petroforte bankruptcy was on grounds of fraudulent attempts at stripping away certain assets of the Petroforte Group to the detriment of its creditors, said to have been perpetrated by Ari Natalino de Silva, the former head of the Petroforte Group, acting in collusion with the Rural Group, controlled by Sabino Rabello2, then patriarch of the Rabello family. The Rural Group was found to have acted in turn through Securinvest, which is incorporated in Brazil and whose shares are held by the First and Second Plaintiffs, Cayman Islands companies which are themselves owned and controlled by the Rabellos through the Fourth Plaintiff, Katia Rabello.


The First and Second Plaintiffs (together with Trade Link Bank-a licensed Class B bank), are the Cayman Islands entities which — along with Securinvest, Banco Rural and other entities — comprise the Rabello's Rural Group of companies. The fifth Plaintiff, Mr. Toledo, is a trusted associate — described as a ‘de facto member’—of the Rabello

family and acted as director and later managing director of Trade Link Bank. In those capacities he too claims to be a client of the Defendant and joins in the family's claims against the Defendant.

The extension of the Petroforte Bankruptcy to Securinvest (and hence to other Rabello interests), proceeded on the basis of Brazilian legal theory that Securinvest and Petroforte had become, by dint of their collusive and fraudulent actions, a ‘common economic group’.


On the Plaintiffs' case, of pivotal importance to the decision finally to extend the Petroforte Bankruptcy to the Rabello interests through Securinvest, was confidential information obtained in this jurisdiction by the Defendant, then acting on behalf of the Brazilian trustee-in-bankruptcy of the Petroforte Group, Dr Alfonso Alves Braga (‘Dr Braga’). It was this information that revealed the hitherto undisclosed connection between the Rabellos and Securinvest, as will be further explained below.


The Plaintiffs claim in this action that by acting on behalf of Dr Braga in obtaining extensive disclosure of their confidential information, the Defendant breached the fiduciary, contractual and tortious duties which it owed to them.


Damages are claimed by the Plaintiffs in the order of hundreds of millions of dollars, said to represent the losses they sustained as a result of the extension of the Petroforte Bankruptcy to Securinvest and to the assets of other entities of the Rural Group.


Personal and reputational damage is also claimed to have been sustained, most directly by Katia Rabello who claims to have suffered loss of reputation and the value of hershares in Banco Rural as the result of her involvement with Securinvest having been made public in Brazil3.


The allegations against her in the bankruptcy proceedings pivoted most tellingly around her attempts to hide from the Brazilian courts, the fact that through her ownership or control of the First and Second Plaintiffs, the ultimate beneficial ownership (‘UBO’) of Securinvest was held by her family. This was the connection which Dr Braga had been mandated specifically by the STJ to investigate and, if possible, establish.


And it was this investigation that led him to this jurisdiction and resulted in his engagement of the Defendant on instructions to obtainNorwich Pharmacal4 orders of disclosure from this court — the disclosure which revealed to the Brazilian courts Katia Rabello's status as the beneficial owner of Securinvest.


The propriety of Dr Braga's actions in this jurisdiction was brought into question however, when on his instructions, the Defendant made further applications for disclosure and obtained further orders pursuant to theBankers' Trust5 principle, resulting in the wholesale disclosure of confidential information about the Rabellos' corporate and other interests held in this jurisdiction and elsewhere.


As that breadth of disclosure had not been authorized by the STJ (which was at that time seized only of the extension of bankruptcy case as against Securinvest); the

Bankers Trust disclosure was deemed improper by this Court6 and those orders set aside for being ‘premature, unjustified and impermissibly wide’. This Court, by Order issued on 25th July 2011, (‘the Retrieval Order’) also directed Dr Braga to take all possible measures to retrieve the unauthorized Bankers Trust disclosure and have it removed from the public domain in Brazil, including from the records of the Brazilian courts.

TheNorwich Pharmacal disclosure was however, not impugned and the reliance upon it by the Brazilian Courts in arriving at their decision to extend the Petroforte Bankruptcy was therefore not affected by the Retrieval Order.


Much is said now by Mr. Simpson QC to turn upon this fact, in his prosecution of an application on behalf of the Defendant to strike out the Plaintiffs' claim for being a‘deliberate and dishonest’ abuse of the process of this court. In essence, he alleges that the Plaintiffs have contrived to conceal from this Court the fact that the Bankers Trust disclosure had either not yet been placed before the Brazilian courts or had been successfully retrieved by Dr Braga in keeping with the Retrieval Order. And therefore, that it was not available to nor relied upon by the Brazilian courts when their respective decisions to extend the effects of the Petroforte Bankruptcy or to refuse appeals against its extension, were taken in relation to Securinvest and Katia Rabello.


This allegation arises against the background of (and is alleged to be contextualized by) the Defendant's defence which is, in essence, that as the obtaining of theNorwich Pharmacal disclosure was authorized by the STJ for the purposes of discovering the

UBO of Securinvest and held by this Court to have been properly obtained, any other attorney instructed by Dr Braga would have obtained it if the Defendant had not acted for him in doing so. Thus, the Plaintiffs — who were through Katia Rabello under a legal and moral obligation imposed by the STJ to disclose it — are unable to establish a causal link between the Defendant's actions in that regard and any loss or damage they sustained.

But it would of course follow — and the Defendant implicitly recognises and is concerned — that the obtaining of theBankers Trust disclosure may be regarded differently from the Norwich Pharmacal disclosure as a basis for the Plaintiffs' claim. It went beyond the scope of what was authorized by the STJ and beyond what was specifically necessary for revealing the UBO of Securinvest and so this Court's approval of the Norwich Pharmacal disclosure, would provide no defence to the extent that the Bankers Trust disclosure played a part in the detrimental outcomes in Brazil.


It is in this regard that the Defendant's application now to strike out the Plaintiffs' claim on grounds of abuse of process focuses upon theBankers Trust disclosure — alleging that the Plaintiffs have attempted to misrepresent the true state of the Brazilian court files by false averments that the Bankers Trust disclosure was available to and relied upon by the Brazilian courts in arriving at their crucial decisions against Securinvest and Katia Rabello.


This would further set the stage, asserts Mr Simpson, for the Plaintiffs' claim — based upon latter averred amendments7 to their pleaded case — that it was the conduct of the

Defendant in obtaining not only the Norwich Pharmacal disclosure but also the unwarranted Bankers Trust disclosure, that resulted in the loss and damages suffered by them. In light of the condition of the Brazilian court files as it was known to the Plaintiffs at the relevant times, that claim is dishonest and should therefore be struck out.

This premise for the abuse of process/ strike out application, upon which I must now rule, arose in the further circumstances which I must now describe in some necessary detail.


On 1 March 2016, this Court had been presented with opposing applications. First, that of the Plaintiffs for summary judgment against the Defendant8 on the basis that, on the face of the pleadings and undisputed evidence, the Defendant had no realistic prospect of a successful defence. For its part, the Defendant cross-summonsed9 to strike out the Plaintiffs' case on the basis that it had no prospect of success, relying fundamentally, on this Court's approval of the Norwich...

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