Afonso Henrique Alves Braga (in his capacity as Administrator) Plaintiff v 1. Equity Trust Company (Cayman) Ltd 2. CIBC Bank and Trust Company (Cayman) Ltd 3. Commerce Management Services Ltd 4. Commerce Corporate Services Ltd 5. Commerce Advisory Services Ltd Defendants 1. Arnage Holdings Ltd 2. Brooklands Holdings Ltd 3. Securinvest Holdings S.A. 4. Banco Rural S.A. 5. Katia Rabello Applicants

JurisdictionCayman Islands
JudgeThe Hon. Anthony Smellie
Judgment Date20 May 2011
CourtGrand Court (Cayman Islands)
Docket NumberCAUSE NO. FSD. 025 OF 2011 (ASCJ)
Date20 May 2011
Between
Afonso Henrique Alves Braga (In his capacity as Administrator)
Plaintiff
and
1. Equity Trust Company (Cayman) Limited
2. CIBC Bank and Trust Company (Cayman) Limited
3. Commerce Management Services Limited
4. Commerce Corporate Services Limited
5. Commerce Advisory Services Limited
Defendants
1. Arnage Holdings Limited
2. Brooklands Holdings Limited
3. Securinvest Holdings S.A.
4. Banco Rural S.A.
5. Katia Rabello
Applicants
[2011] CIGC J0520-1
Before

The Hon. Anthony Smellie, CHIEF JUSTICE

IN CHAMBERS

CAUSE NO. FSD. 025 OF 2011 (ASCJ) (Formerly Causes G0209, G0216, and G0257 of 2010)
IN THE GRAND COURT OF THE CAYMAN ISLANDS
1

By their summons the applicants seek orders to set aside earlier orders made by this Court on 27th May 2010 (per Justice Cooke); on 1st July 2010 (per Justice Henderson) and further ancillary orders made pursuant to section 4 of the Confidential Relationships (Preservations) Law (‘the CR(P)L’) on 16th June 2010 (‘the CR(P)L Order’).

2

By the Orders of 27th May and 1st July 2010, the Plaintiff, Dr. Braga, obtained directions to the Defendants for disclosure of confidential information held by them in respect of the affairs of the 1st and 2nd Applicants and which information relates also to and affects the interests of the 3rd to 5th Applicants.

3

These Orders were made by the invocation of the principles laid down in theNorwich Pharmacal case (on the basis that the Defendants — all corporate service providers in the Cayman Islands — had become innocently ‘mixed up’ in the wrong-doing of the Applicants: see Norwich Pharmacal Co. v Customs and Excise Commis. [1974] A.C. 133 (hereinafter ‘the Norwich Pharmacal Orders’).

4

The CR(P)L Order was made in furtherance of the Norwich Pharmacal Orders on the basis of the requirement under section 4 of the CR(P)L, that confidential information obtained during the course of a professional relationship, may be disclosed without the consent of the beneficiaries for the purpose of being given into evidence in judicial proceedings, only after the seeking and obtaining of directions from this Court for those purposes. The CR(P)L Order thus came to contain provisions by which Dr. Braga was required to give certain undertakings for the protection of the confidential information before it was released to him forevidential purposes in Brazil. It is on the basis of his alleged breach of those undertakings that the Applicants seek the setting aside of the CR(P)L Order and the making now of consequential orders. For the further reason also of Dr. Braga's alleged misrepresentations and non-disclosures upon his applications for the Norwich Pharmacal Orders, the Applicants also seek the setting aside of those Orders.

5

This application is in no sense an appeal against the making of the Norwich Pharmacal or CR(P)L Orders. Having been made ex parte, all those orders are now susceptible of review, variation and even being set aside on the basis that the Applicants, as persons whose interests they affect, are now able for the first time to challenge the bases upon which they were made; including challenges as to the fulfillment of the duties of full disclosure and good faith on the part of the Plaintiff when seeking disclosure. SeeIn C. Corporation v P [1994] CILR 89 as authority for that well settled proposition and in which is discussed the leading case authorities on the duties of disclosure and good faith. These include Dubai Bank Ltd. v Galadari and Others [1990] Vol. 1 Lloyds Rep. 120 and Brink's Mat v Elcombe 1 WLR 1350 in the latter of which it was held that:

‘…on any ex parte application it was imperative that the applicant should make full and frank disclosure of all facts known to him or which should have been known to him had he made all such inquiries as were reasonable and proper in the circumstances; but that, notwithstanding proof of material nondisclosure which justified or required the immediate discharge of an ex parte order, the court had a discretion to continue the order or make a new order…’ (as taken from the head note at page 135).

6

Dr. Braga accepts the full meaning and effect of the duties which were upon him as the applicant but seeks to rely nonetheless on thelocus poenitentiae to be afforded by the discretion mentioned in the latter aspect of that dictum, in the event it is found that he failed in any aspect of his duties as applicant.

The Factual Background
7

I will, of course, come to examine and decide upon the allegations of Dr. Braga's failure to make full disclosure, of his alleged misrepresentations and breaches of undertakings but, before so doing, the factual context of this complex matter must be explained. It arises from amidst allegations of the fraudulent stripping away of the assets of the Petroforte Group of companies which are in bankruptcy in Brazil, by the former principal of the group Ari Natalino de Silva (now deceased), in collusion with another large group of companies called the Rural Group, whose principals are the Rabello family. I preface the findings and observations made in this judgment about the allegations raised by Dr. Braga against Securinvest, its affiliates and beneficial owners in this way: all such allegations are, for the purposes of this judgment to be regarded only as allegations, as yet unproven. This judgment proceeds on the basis that it is for the Brazilian Courts and not this Court, to decide upon the factual merits or lack of merits of all such allegations.

8

The allegations of asset stripping are said to have involved five companies in particular, used in varying degrees by the Natalino and Rabello interests for the purpose of alienating some of the Petroforte Bankruptcy's most valuable assets — assets which include an ethanol plant and a sugar cane plantation valued by Dr. Braga in the order of US200 million.

9

The corporate structure allegedly employed pivoted around the use of the third Applicant — Securinvest Holdings S.A. (‘Securinvest’) — a Brazilian company inwhich the shares are held by the first and second Applicants (‘Arnage’ and ‘Brooklands’ respectively) which are Cayman Islands companies. It is this corporate connection that causes the train of enquiry to come to this jurisdiction and before this Court.

10

It must be squarely recognised and understood, that the information obtained by Dr. Braga through the Norwich Pharmacal Orders in this jurisdiction, is firstly the identity of the ultimate beneficial owner of Securinvest, as well as information that arguably shows that the Superior Court of Brazil (‘the STJ’) was provided with false information by Securinvest as to its real beneficial ownership. This happened in response to an order of 22 September 2009 by which the STJ stayed bankruptcy proceedings which had been instituted against Securinvest. While there is controversy before me now as to its meaning and effect, it is clear at least that that order was specifically made to allow Securinvest to provide that Court with proof of its true beneficial ownership, the issue that was central to Securinvest's appeal to the STJ.

11

The information obtained here is described by Dr. Braga as proof that representations were made to the STJ as to the ownership of Securinvest which were untrue, such representations supported by false certificates which showed a structure of purported ownership (per certain Costa Rican entities and individuals) only brought into existence on 4 December 2009 and so some two months after the 22 September 2009 STJ stay order was made.

12

Unattractive a proposition as it would be that such potentially relevant and probative information must be recalled and once again cloaked with the mantle ofconfidentiality; that would be the result if, in particular, the Applicants” primary allegation — that Dr. Braga was not authorised under Brazilian law to seek and obtain it in this jurisdiction and that he misled this Court in that regard — is proven.

Case Summary
13

The case arises from investigations by Dr. Braga who is the Judicial Administrator ofPetroforte Brasileiro de Petroforte Ltda (‘Petroforte’), a Brazilian company, and approximately 369 others which make up the Petroforte Group (together the ‘Petroforte Bankruptcy Estate’). The Petroforte Group was owned by the now deceased Ari Natalino de Silva (‘Mr. Natalino’), against whom wide-ranging allegations of criminal conduct were made involving the Petroforte Group, including the alleged use of “front” companies designed to conceal the true beneficial ownership of assets. It is the Applicants” position that they are innocent of and have no direct knowledge of those allegations and their position in respect of them and their purported relevance to these and the proceedings under way in Brazil, is wholly reserved. Dr. Braga was appointed as Petroforte's Judicial Administrator by the Brazilian Courts in 2003. Dr. Braga's assessment is that the Petroforte Bankruptcy Estate has been fraudulently deprived of hundreds of millions of dollars in assets which will result in a significant shortfall to creditors. The Petroforte Bankruptcy Estate has approximately US$1.16 billion in debts owed to creditors

The SOBAR Transaction
14

Dr. Braga alleges that Rural Leasing S.A. (‘Rural Leasing’) — one of the companies of the Rural Group which includes Banco Rural (a mid-size Brazilian retail bank), Securinvest and others — were involved in a sham leaseback transaction (or series of transactions) involving a Brazilian company called Sobar S.A. Alcool e Derivados (‘SOBAR’) (formerly part of the Petroforte Group); whereby value was concealed and removed from the Petroforte Bankruptcy Estate to the ultimate prejudice of its creditors.

15

In this respect, SOBAR owned and operated the ethanol plant in Brazil, which Dr. Braga estimates by itself has a present day value of US$60-120 million.

16

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