Between: Carlos Magno, Nery E Medeiros Sociedade De Advogados (as Judicial Administrator of The Insolvent Estates of Sam Industrias SA, Boulder Participaçöes Ltda & Mr Daniel Birmann) Plaintiff v BT Global Investments Defendant

• Jurisdiction: Cayman Islands
• Judge: Chief Justice Anthony Smellie
• Judgment Date: 27 October 2021
• Court: Grand Court (Cayman Islands)
• Docket Number: CAUSE NO: FSD 183 OF 2020 (ASCJ)

Between:

Carlos Magno, Nery E Medeiros Sociedade De Advogados (As Judicial Administrator of The Insolvent Estates of Sam Industrias SA, Boulder Participaçöes Ltda & Mr Daniel Birmann)

Plaintiff

and

BT Global Investments

Defendant

BEFORE:

THE HON Chief Justice Anthony Smellie

CAUSE NO: FSD 183 OF 2020 (ASCJ)

IN THE GRAND COURT OF THE CAYMAN ISLANDS

FINANCIAL SERVICES DIVISION

Headnote

Cause began by way of originating summons — failure to meet requirements for particulars of pleading pursuant to GCR Order 7.r.3—claim governed by both Cayman and Brazilian law — conflict of laws — reliance on Brazilian judgment—applicable law — whether “default rule” applies — whether striking out is appropriate remedy where claim is arguable even if unparticularised—directions for cause to proceed as if begun by writ.

REPRESENTATIONS:

SS: Nicholas Craig QC FOR THE PLAINTIFF INSTRUCTED BY PAUL KENNEDY AND NIENKE LILLINGTON OF CAMPBELLS

Charles Samek QC FOR THE DEFENDANT INSTRUCTED BY NICHOLAS DUNNE, ANDREW GIBSON AND DAISY BOULTER OF WALKERS

1 By originating summons instituting this cause on 14 August 2020 ( “OS” or “Cause”), the Plaintiff Carlos Magno (“CM”) in his capacity as Judicial Administrator of the Bankruptcy Estates of Sam Industrias SA, Boulder Participacoes Ltda and Daniel Birmann, seeks to recover assets now held in the name of the Defendant (“BTG”), on the basis that those assets belong to the said Bankruptcy Estates.

2 By way of its amended summons dated 15 June 2021 (the “Amended Summons”), BTG seeks four alternative forms of relief from the Court relating to the OS. These are, as set out in the Amended Summons, that:

• 2.1. The O.S. be struck out pursuant to Grand Court Rules (“GCR”) Order 18, rule 19(1)(a), (b), (c) and/or (d) and/or pursuant to the inherent jurisdiction of the Court (“Strike Out”); or

• 2.2. the Cause be stayed pending the final determination by the Brazilian Courts (after exhausting all appeals) as to whether CM has locus standi to seek the relief sought in the OS (“Stay”); or

• 2.3. the Cause proceed by way of writ pursuant to OCR 0.28 r.8(1); and consequential directions be given but including an order that notice of the proceedings be served on Miriam Birmann pursuant to OCR 0.15, r. 13 A on the grounds that although she is not a party to the Cause, she will or may be affected by any judgment given therein (“Writ Action”); or

• 2.4. pursuant to OCR 0.3 r.5, that the date upon which BTG is required to file and serve its affidavit in response pursuant to OCR 0. 28 r. 1A (4) be extended to 28 days after the date of this Order (made hereunder); the date upon which CM is required to file further affidavit evidence in reply (if any) be extended to 14 days thereafter; and that the Cause be listed for a directions hearing on the first mutually convenient date on or after 28 days thereafter with a time estimate of half a day (“Extending Time”).

3 At the outset of the hearing, I proposed that I should take the arguments on Stay as the first order of business. This was because it raises the fundamental question of CM's locus standi to bring this action, having regard to BTG's argument that he lacks authority from the Brazilian Court to do so.

4 This particular question of standing or lack of authority arises because CM, having been originally appointed in 2017 (replacing an entity called “Braslight”), was subsequently purportedly replaced as trustee in bankruptcy by a judge (Judge Rucker) whose order was itself subsequently overruled by an appellate court in Brazil. The matter did not end there however, because yet another judge (Judge Mesquita) by order on 12 February 2021, again purported to replace CM with another appointee. That order also was appealed and on 4 March 2021, the State Court of Appeals in Brazil granted an injunction to stay the effects of Judge Mesquita's ruling pending the determination of CM's appeal against it.

5 In response to my proposed order of proceeding, Mr Samek QC on behalf of BTG, conceded that the aforesaid injunction did indeed have the effect of staying Judge Mesquita's ruling such that, unless and until CM's replacement is ultimately confirmed, he remains the duly appointed trustee in bankruptcy and Judicial Administrator (“JA”) On that basis, it was agreed that the determination of the Stay issue (ground 2) of the Amended Summons, should be deferred pending the final determination of the appeal in Brazil and, as a matter of better case management, I proceeded to hear the arguments first on ground 1, Strike Out.

6 This is therefore the judgment on StrikeOut.

7 To set the stage for the analysis of the arguments on Strike Out, it is necessary to set out CM's claim as stated in the OS:

“By this Summons, which is issued on the application of the Plaintiff, Carlos Magno, Nery e Medeiros Sociedade de Advogados (as Judicial Administrator of the Insolvent Estates of SAM Industrias SA, Boulder Participacoes Ltda & Mr Daniel Birmann (collectively, the “Birmann Estate”)) the Plaintiff applies for the following orders:

• 1. A declaration that the Birmann Estate, represented by the Plaintiff, is the lawful owner and/or has an equitable propriety interest in the following shares or interests in the/allowing entities:

  • 1.1 CBCAmmo LLC (formerly Brookmont Trading Corporation and Brookmont Trading LLC)

  • 1.2 South America Logistics LLC;

  • 1.3 Anaconda Group LLC;

  • 1.4 Charquin LLC;

  • 1.5 Rayvera LLC;

  • 1.6 Rogerdale International LLC;

  • 1.7 BR Realty LLC; and

  • 1.8 CBC Europe SARL; (together the “Birmann Assets”).

• 2. A declaration that the Defendant holds such property [(ie: the Birmann Assets)] and/or its traceable proceeds on trust for the Plaintiff as Judicial Administrator of the Birmann Estate, which trust is governed by Cavman Islands law.

• 3. An order that the Defendant do execute such documents and deeds as shall be required to vest legal ownership of the Birmann Assets, and/or equitable compensation and all other necessary accounts and enquiries.

• 4. An account of profits, including but not limited to any and all dividends or distributions paid to the Defendant in respect of the Birmann Assets, and/or equitable compensation and all other necessary accounts and enquiries.

• 5. Costs.

• 6. Such further or other relief as the Court thinks appropriate, including as to any of these or any related proceedings.

Dated the 14//, day of August 2020.” [emphasis added at 2. above].

8 The basis of BTG's Strike Out argument is that the OS, in its terms as set out above, does not comply with the rules of pleading, most especially GCR Order 7 rule 3(1); in that it fails to disclose a cause of action and is therefore an embarrassing pleading, as it is impossible for the Defendant to determine with clarity what cause or causes of action CM relies upon.

9 GCR Ord.7 r. 3(1) must therefore be considered and provides as follows:

“Every originating summons must include a statement of the questions on which the plaintiff seeks the determination or direction of the Court or, as the case may be, a concise statement of the relief or remedy claimed in the proceedings begun by the originating summons with sufficient particulars to identify the cause or causes of action in respect of which the plaintiff claims that relief or remedy” [emphases added].

10 BTG's criticism is that while the OS claims the relief which it describes (viz: declaratory, mandatory injunctive and an account), it fails to state, in particulars as required by Ord 7 r. 3(1), why CM is entitled to that relief.

11 While simply from a reading of the O.S. itself this will appear to be fair criticism, an analysis of whether it justifies striking out requires an understanding of the circumstances of the case.

Background to the case

12 The case arises in the context of long-running litigation, principally in Brazil but also in the United States and elsewhere, relating to SAM Industrias SA's bankruptcy and its extension to the assetsof Mr Birmann himself.

13 Mr Birmann is a Brazilian businessman engaged in the munitions industry. He gained control of SAM Industrias SA (“SAM”) in 1992. In October 1997, he incorporated Boulder Participacoes Ltda (“Boulder”) as an investment holding company, to hold the shares in SAM and a number of other entities.

14 On 27 February 2008, the Brazilian Bankruptcy Court granted applications by two creditors (Fundac;ao de Seguridade Social Braslight (the aforementioned Braslight) and Senso Corretora de Cambio e Valores Mobiliarios S.A.) to declare SAM bankrupt and to “extend the bankruptcy effects” to Mr Birmann and to Boulder (the “Bankruptcy Order”).

15 The Bankrnptcy Order was unsuccessfully appealed and so it appears, as CM asserts, is therefore to be regarded as a final and conclusive order as against Mr Birmann, SAM and Boulder. The effect of the extension of the bankruptcy to Mr Binnann is apparently such that (and is not disputed in these proceedings), under Brazilian law, Mr Birmann and Boulder are rendered liable for SAM's obligations to its creditors and Mr Binn ann's and Boulder's assets may be used to satisfy SAM's debts to the extent that these cannot be repaid from SAM's assets.

16 The extension of SAM's bankruptcy to Mr Birmann was granted on the basis of allegations of fraud made by the creditors, to the effect that Mr Birmann and Boulder had fraudulently transferred most of SAM's assets (to the value of some BRL 243 million or USO 93 million) out of SAM to themselves and had done so to defeat their claims. For the present purposes of Strike Out, it is relevant that CM asserts however, that the allegation of fraud is not relied upon. That it is not necessary to do so, as he relies instead upon the effects of the Bankruptcy Order itself.

17 It is also uncontroversial however, that CM's role as the JA includes consolidating the general list of creditors and collecting the...