Walkers (A Firm) v Arnage Holdings Ltd and Four Others

• Jurisdiction: Cayman Islands
• Judge: Moses,Rix,Martin, JJ.A.
• Judgment Date: 01 February 2021
• Court: Court of Appeal (Cayman Islands)

Walkers (a firm)

and

Arnage Holdings Limited and Four Others

(Moses, Rix and Martin, JJ.A.)

C.A.

Attorneys-at-Law — obligations towards client — lawyer — client relationship — grant of summary judgment against law firm on liability for breach of contractual and fiduciary duties of confidence, trust and loyalty set aside on appeal — could not be said that firm had no reasonable prospect of contesting existence of lawyer — client relationship and causation of loss

Civil Procedure — judgments and orders — summary judgment — judge not to conduct mini-trial — impact of depriving party of trial greater in cases involving serious allegations of misconduct

Held, allowing the appeal against summary judgment; dismissing the appeal against the refusal to strike out the statement of claim:

(1) Summary judgment should not be entered under GCR O.14 unless a defence had no real prospect of success. There should not be an inappropriate mini-trial. English courts had identified a number of indicia of an impermissible mini-trial, including the length of argument, the treatment of contested evidence, the resolution of contested issues before full discovery, and the drawing of inferences on incomplete evidence. The impact of depriving a party of a trial, of the opportunity for cross-examination, was greater in a case such as the present where the respondents made serious allegations of misconduct on the part of a legal firm which, in turn, made serious accusations against the principal respondent, Katia Rabello. The Chief Justice had clearly been concerned to save the courts in the Cayman Islands from a lengthy and heated dispute but it seemed that, having embarked on the process with laudable intention, he became immersed in a lengthy process unsuited to summary resolution (paras. 12–21).

(2) It could not be said that Walkers had no reasonable prospect of success in contesting the existence of a lawyer–client relationship with Katia Rabello and Mr. Toledo. The principles to be applied in identifying a lawyer–client relationship were agreed to have been correctly expressed in Trillium Motor World Ltd. v. General Motors of Canada Ltd. (2015 ONSC 3824). The 12 indicia were: (i) a contract or retainer; (ii) a file opened by the lawyer; (iii) meetings between the lawyer and the party; (iv) correspondence between the lawyer and the party; (v) a bill rendered by the lawyer to the party; (vi) a bill paid by the party; (vii) instructions given by the party to the lawyer; (viii) the lawyer acting on the instructions given; (ix) statements made by the lawyer that the lawyer was acting for the party; (x) a reasonable expectation by the party about the lawyer's role; (xi) legal advice given; and (xii) any legal documents created for the party. Whether a lawyer–client relationship existed was a question of fact which required the court to conduct a careful examination of the evidence in its totality and to weigh all of the relevant facts. It was apparent from the pleadings that there were to be disputed issues of fact as to the relationship between Walkers and the respondents. Apart from a US attorney, Mr. Macaulay, no evidence was heard, there was no cross-examination of witnesses whose credibility might have been in issue, and full discovery had not yet taken place. The affidavit evidence on behalf of Walkers was limited but there was no obligation on Walkers to call evidence which might be available at trial after full discovery and no inferences should have been drawn from the absence of further evidence. There was nothing, on the pleadings or as a matter of law, which showed that the defence was bound to fail or that the disputes could be resolved by examination of some of the evidence and documents. Moreover, a conclusion that a lawyer–client relationship existed had severe consequences for Walkers' professional status. That was not to accord Walkers any higher consideration than any other defendant but the court should be reluctant to reach a conclusion of serious professional misbehaviour without allowing those so condemned a full opportunity to be heard and to challenge and be challenged at trial. In respect of both Katia Rabello and Mr. Toledo, consideration of the Trillium indicia did not establish beyond reasonable doubt that they were clients of Walkers. The Chief Justice referred to other indicia and lifted the corporate veil of the companies which were admittedly clients of Walkers, on the ground that it was appropriate to do so where a lawyer acted for a company knowing that its interests were identical to or closely aligned with the interests of the beneficial owners, who came to depend on the lawyer– client relationship. A decision to lift the corporate veil required an intense scrutiny of the facts. The issue as to the extent of Walkers' knowledge that Katia Rabello was the ultimate beneficial owner of Arnage and Brooklands, and how far it formed a legitimate basis for inferring fiduciary duties and duties of confidence, remained a matter to be determined after an examination of all the evidence and full discovery. The Chief Justice seemed to have likened Walkers' relationship with members of the Rabello family to a “general retainer.” At its lowest, it was arguable whether, as a matter of law, such a general retainer could exist. On the facts, a general retainer could not provide an incontrovertible basis for summary judgment. Bearing in mind the consequences in relation to professional practice liability and standards of conduct, it was difficult to see how it was legitimate to rely on any so-called general retainer. The present case was likely to stand or fall on making good the allegations that the duties for which the respondents contended derived from particular retainers with individual corporate and non-corporate persons. There remained the possibility that the respondents might establish some breach of duty of confidence or a fiduciary duty independent of the conclusion the judge reached that Walkers had been retained by all the respondents and thus owed a continuing duty of confidence. The Chief Justice's view depended, in essence, on his conclusion that all the respondents retained Walkers and had formed a lawyer–client relationship. It was not possible to say that there was no reasonable prospect of rebutting that proposition in relation to Katia Rabello and Mr. Toledo (para. 40; paras. 48–65; paras. 70–83).

(3) The respondents attributed their losses to the Cayman disclosure, which Walkers disputed. The Chief Justice appeared to conclude that there was no reasonable answer to a claim based on the respondents' loss of opportunity to contest the Norwich Pharmacal applications. The Chief Justice concluded that Walkers' breach of duty must have caused some loss. He was satisfied for the purposes of summary judgment on liability that the respondents had suffered pecuniary losses connected to legal fees and disbursements caused by the litigation engendered by the Cayman disclosure. The Chief Justice appeared to have accepted that he could not summarily dismiss Walkers' arguments that losses resulting from the incorporation of Securinvest's assets into the Petroforte bankruptcy were not attributable to the Cayman disclosure. The Chief Justice also appeared to have accepted that he could not give summary judgment in respect of losses attributable to Katia Rabello's personal assets being included in the Petroforte estate. In those circumstances, it was difficult to see how the losses in respect of legal fees and disbursements were distinct and immune from Walkers' arguments as to causation. It was not possible to identify any reason why these losses could properly be distinguished from any other losses claimed. All were susceptible to Walkers' arguments on causation, which arguments could not be dismissed as incontrovertible. The issues of causation were substantial and could not be dismissed without trial. They required findings of fact as to the meaning and effect of the decisions of the Brazilian courts and the consequences which flowed from the incorporation by those courts of Securinvest into the Petroforte estate and the lifting of Securinvest's veil so as to expose Katia Rabello's own assets (paras. 124–155).

(4) Walkers' appeal against the refusal to strike out the respondents' statement of claim would be dismissed. There were two insuperable objections to striking out the respondents' claim without a trial on the grounds of illegality. First, although Katia Rabello admitted attempting to deceive the Brazilian Superior Tribunal de Justiça as to her ultimate beneficial ownership of Securinvest, the essential case against her was that she bore personal responsibility for the fraud which led to the incorporation of Securinvest assets and her personal assets into the Petroforte estate, and her ensuing losses. The decisions of the Brazilian courts and in particular the STJ to lift the corporate veil so as to incorporate the assets of Katia Rabello as the ultimate beneficial owner of Securinvest arguably did not involve a finding of her own personal complicity in the fraud. That was not to say that at a trial her personal responsibility would not be established, but it was not an incontrovertible result of a proper analysis of the decisions in Brazil. Secondly, it was clear that a proper assessment of the defence of illegality required an evaluative judgment of various factors. The court would have to assess the extent and gravity of Katia Rabello's wrongdoing; much would depend on the facts as found at trial. In particular, a court would have to weigh, for the purposes of upholding consistency and coherency in the law, any proven fraud committed by Katia Rabello against any breaches of Walkers' duties to its clients which, if proved, would clearly be damaging to the integrity of the law on the Islands. A court would have to determine whether, in the public interest, it was proportionate to bar her claim on...