Jersey Unreported Judgments

[2011]JRC091

royal court

(Samedi Division)

27^th April 2011

Before     :

H. W. B. Page, Q.C., Commissioner, sitting alone.

 

Application by Plaintiffs for further clarification of Defendant's Amended Answer.

Advocate E. L. Jordan for the Plaintiffs.

Advocate D. S. Steenson for the Defendants.

judgment

the commissioner:

1.        On 25^th February this year, in response to an application by the plaintiffs for further and better particulars of the defendants' answer, I ordered the defendants to amend their pleading in order to provide further details of certain aspects of their case and to remove a number of ambiguities.  On 15^th March, 2011, the defendants served an amended answer, but the plaintiffs understandably complained that it falls short of what was required by the 25^th February order and still leaves the defendants' case unclear in important respects.  Following a hearing on 19^th April I ordered the defendants to serve further particulars of parts of their case as set out in the schedule to this judgment.  I now give my reasons for so ordering. 

2.        As explained in this Court's judgment dated 25^th February, the action is essentially a claim by The Federal Republic of Brazil and The Municipality of Sao Paulo to certain funds, of the order of US$10.5 million plus interest, held in bank accounts in Jersey in the name of the defendants, Durant International Corporation ("Durant") and/or Kildare Finance Limited ("Kildare") and currently the subject of a freezing order granted by the Royal Court on 13^th March, 2009.  The funds are said to represent the traceable proceeds of certain bribes, secret commissions or otherwise fraudulent payments received by Sr Paulo Maluf ("Paulo Maluf") and/or his son Sr Flavio Maluf ("Falvio Maluf") in early 1998 in connection with a major public works contract in Sao Paulo for the construction of the "Avenida Agua Espraiada", the main contractor for which was a company by the name of Mendes Junior Engenharia S/A ("Mendes Junior").  Durant and Kildare are alleged by the plaintiffs to be owned or controlled by Paulo Maluf and/or Flavio Maluf. 

3.        The chain of payments that is said by the plaintiffs to link the Brazilian project with the funds in Jersey is as follows (where the various schedules referred to are those appended to the order of justice and the amounts shown are the totals of certain transfers or payments made, for the most part, in January and February 1998):-

(i)        From The Municipality of Sao Paulo (through its public works agency "EMURB") to Mendes Junior: Schedule 1.

(ii)       From Mendes Junior to Paulo Maluf and/or Flavio Maluf (account unspecified): Schedule 2.

(iii)      From (semble) an account operated by a Brazilian currency exchange broker, Sr Vivaldo Alves, on instructions of Paulo Maluf and/or Flavio Maluf) to an account in the name of "Chanani" at Safra Bank of New York: Schedule 3.

(iv)      From the Chanani account with Safra Bank NY to an account in the name of Durant with Deutsche, Morgan Grenfell (C.I.) Limited ("DMG") in Jersey: Schedule 4.

(v)       From  Durant's account to an account in the name of Kildare with DMG in Jersey: Schedule 5.

4.        Paragraph 19 of the order of justice concerns the Schedule 2 payments.  It alleges that Paulo Maluf and/or Flavio Maluf procured that a proportion of the monies received by Mendes Junior from the Municipality of Sao Paulo (the Schedule 1 payments) was wrongfully paid over to them (the Malufs).  In their original answer, Durant and Kildare said:-

"19. Paragraph 19 of the order of justice is denied.  It is admitted and averred that Paulo Maluf participated in various legitimate business deals, as a businessman and not as a serving politician, as particularised in a letter from Messrs.  Schellenberg Wittmer dated 9 June, 2000, for which he received the payments particularised in Schedule 3.  Specifically it is denied that the said payments particularised in Schedule 3 amount to bribes and/or secret commissions relating to, and or the proceeds of, the alleged fraud or any fraud".  

5.        Subsequently it was explained that the reference to "Schedule 3" should have been to Schedule 2.  But even with this correction, for the reasons given in paragraphs 10 to 13 of the judgment of 25^th February, it was impossible to make sense of the defendants' pleading, which was both confused and confusing.  Among other things, the pleaded letter from Schellenberg Wittmer, a firm of Geneva lawyers, sought to explain that the source of the funds in the Jersey bank accounts was commission earned by Flavio Maluf (rather than Paulo as pleaded).  The defendants were, accordingly, ordered to serve an amended answer giving a further and better statement of their case in response to the several elements of paragraphs 19 to 21 of the order of justice taking account of the Court's observations and giving specified particulars in relation to both the Schedule 2 payments and those in Schedule 4. 

6.        In the event, the amended answer, when served, amends the former paragraphs 19 (now 20) and 21 (now 22) as follows.  The original reference to "Schedule 3" is once again changed, this time to "Schedule 4"; it is said that the reference to Flavio in the Schellenberg Wittmer letter is a mistake for Paulo; the Schedule 4 payments are said to represent brokerage commission earned by Paulo Maluf in connection with a transaction which (it is implied) had nothing to do with the Avenida Agua Espraiada project and a modest measure of particulars as to how those commissions were earned is given; and it is admitted that the Schedule 4 payments received by Durant came from the Chanani account at Safra National Bank of New York.  

7.        So far as the Schedule 2 payments are concerned nothing is now said other than "Paragraph 19 of the order of justice is denied" - a wholly unsatisfactory plea, given that that paragraph contains a number of allegations of fact, that the defendants were ordered to serve an amended answer "giving a further and better statement of their case in relation to the several elements of paragraph[s] 19 and 21 of the order of justice", and that the defendants' blanket denial does not even condescend to make it clear whether there is any real dispute that payments in the amounts averred by the plaintiffs were in fact made by Mendes Junior to Paulo and/or Flavio Maluf on the dates specific (accepting that, on any view, it is vigorously denied by the defendants that any such payments were corrupt or otherwise improper).  

8.        The other main respect in which the defendants' pleading remains unsatisfactory is the way in which it responds to the plaintiffs' allegation in paragraph 25 of the order of justice that "Durant and Kildare are controlled, whether directly or indirectly, and/or beneficially owned, whether directly or indirectly, by Paulo Maluf and/or Flavio Maluf".  Having originally pleaded "it is admitted that Paulo Maluf, inter alia, had an interest, directly or indirectly in the defendants" (and having been ordered to give, in their amended answer, a further and better statement of their case in response to the several elements of paragraph 25 of the order of justice including a specific response to the allegations of (a) control and (b) ownership of each of the defendants, a statement of the nature and extent of the interest of Paulo Maluf in each of the defendants (including, so far as not immediately apparent an explanation of how such interest was held), and an equivalent statement of any interest of Flavio Maluf in such companies), the amended answer now served

(i)        deletes the previous admission that Paulo Maluf had an interest in the defendants; and

(ii)       introduces an averment that Flavio Maluf was, at the material time a beneficiary of Sun Diamond Trust (BVI) which owned Durant (as well as being a director of Durant and Sun Diamond Limited (BVI), the company by which Sun Diamond Trust (BVI) was managed). 

9.        Commenting on the first of these points in their letter of 28^th March, 2011, Walkers, representing the defendants wrote "The position, contrary to what was previously admitted, is that there is no admission on behalf of Mr. Paulo Maluf that he has an interest in the defendant companies.  There is nothing further to particularise in this respect."  And in oral argument Advocate Steenson, on behalf of the defendants, likewise repeatedly asserted that there was "no admission" of any interest on the part of Paulo Maluf.  Given that there should, prima facie, be no difficulty in the defendants knowing and being able to state unambiguously and positively one way or the other whether Paulo Maluf did or did not have an interest in them, directly or indirectly, at the material time, this halfway house "non admission" begins to look like a calculated evasion of a very simple point.  Add to that the unexplained change from the original admission that he did have such an interest and the defendants' current pleading is no more satisfactory than the original one. 

10.      The net result is that some five months on from the conclusion (in November last year) of the defendants' challenge to the exercise of this Court's jurisdiction over the dispute in this matter, the defendants' case remains elusive in certain important respects, partly because of the minimalist approach of pleading little more than a string of denials and non admissions (the passage quoted in paragraph 4 above was almost the only positive statement in the whole of their original answer) and partly because a number of conspicuous but unexplained changes of pleading has resulted in concern whether, even now, such positive averments as are pleaded in the amended answer accurately and finally reflect the defendants' real case.  Advocate Steenson strenuously insisted that his clients were under no obligation to plead any more than they had done: that a defendant is fully entitled to limit his pleadings to bland denials and non-admissions if he chooses to do so. 

11.      But such a stance reflects an out-dated view of the proper function of pleadings.  As recorded in the judgment that I gave on the occasion of the last hearing in February this year, Advocate Nicholls (who on that occasion appeared on behalf of the defendants) accepted that the purpose of pleadings is to enable the parties to know what case they have to meet, to identify the matters in real dispute at an early stage, and thus to ensure as far as possible that the action proceeds to trial in an orderly manner without unexpected disruptions; he also accepted that the days of trial by ambush in civil litigation are long since gone and that it is incumbent on a litigant in this Court to set out his cases openly and straightforwardly.  Courts in this jurisdiction have on a number of occasions in recent years emphasised that paramount importance of all involved in civil litigation facilitating the effective, expeditious progress of proceedings at the interlocutory stage as well as at trial: see for example the observations of the Court of Appeal in In re Esteem Settlement [2000] JLR N 41 and of Bailhache, Bailiff in Sinel-v-Goldstein [2003] JLR N 20.  The Court will, moreover, in the exercise of its case management functions make such orders as regards pleadings as may be necessary in order to pin down the real issues between the parties, if necessary of its own motion. 

12.      In view of the continuing equivocations and uncertainties in the defendants' current pleading, it is therefore only right and proper that the they should at the very least be required to state their case with greater particularity as regards not just the Schedule 2 payments but also those listed in Schedule 3, so that there can be no doubt about whether they (the defendants) intend at trial to advance a positive case of any kind by way of explanation or justification for those payments.  For similar reasons, while granting leave for the defendants to amend their answer as regards the plaintiffs' allegation that Paulo Maluf had an interest in Durant and/or Kildare at the material time (that is, at the time when payments were received by Durant and Kildare), I take the view that, as a matter of elementary fairness and transparency, they should be required to state their case more fully than at present.  I accordingly ordered, on 19^th April, that they serve the particulars set out in the accompanying Schedule.  So far as the second of these is concerned (the defendants' response to the plaintiffs' averment of Paulo Maluf's interest(s) in Durant and Kildare), I made it clear at the hearing on 19^th April and now confirm that the repetition of a mere non-admission will not be acceptable in the absence of an explanation on affidavit of why a simple averment of facts that should, prima facie, be within the ready knowledge of the defendants cannot be unequivocally admitted or denied. 

13.      Advocate Steenson also acknowledged that he needs to amend the reiterated but obviously incorrect references to "paragraph 20 of the order of justice" in paragraphs 24 onwards of his clients' amended answer. 

14.      In setting the deadline that I have for the service of these particulars by 18^th May, I have acceded to Advocate Steenson's request to be allowed longer than I had originally indicated that I was minded to allow, on the ground that he will, he says, be travelling to Brazil in the near future, primarily for the purpose of discovery of documents, and would want to take the opportunity to ensure that whatever further particulars are served correctly reflect his clients' case.  

15.      As regards costs, the defendants' approach to their pleadings so far comes very close to deserving an order against them for indemnity costs, but I shall allow them one final chance to put their house in order.  The plaintiffs will accordingly be entitled to recover their costs of their summons on the standard basis. 

Authorities

In re Esteem Settlement [2000] JLR N 41.

Sinel-v-Goldstein [2003] JLR N 20.

SCHEDULE

 

Under paragraph 20 of the amended answer

1.        As regards the denial of paragraph 19 of the order of justice, stating whether the defendants' case is:-

(i)        that they deny that payment in the amounts and on the dates specified in Schedule 2 to the order of justice were received by Paulo Maluf or Flavio Maluf (irrespective of the nature or purpose of such payments); or

(ii)       that they admit that such payments were received by Paulo Maluf or Flavio Maluf but deny that such payments derived from monies received by Mendes Junior and advance a positive case that they came from some other source (and if so stating what that source was); or

(iii)      that they are in no position to admit or deny such payments because they have no knowledge of such matters; or

(iv)       something else and if so what. 

Under paragraph 21

2.        As regards the denial of paragraph 20 of the order of justice, stating whether the defendants' case is:-

(i)        that they deny that payments in the amounts and on the dates specified in Schedule 3 to the order of justice were received into the Chanani account (irrespective of the nature or purpose of such payments); or

(ii)       that they admit that such payments were so received but deny that they derived from monies received by Mendes Junior and advance a positive case that they came from some other source (and if so stating what that source was); or

(iii)      that they are in no position to admit or deny such payments because they have no knowledge of such matters; or

(iv)      something else and if so what. 

Under paragraph 26

3.        As regards Paulo Maluf, stating whether the defendants' case is:-

(i)        that he had no interest, direct or indirect, in Durant or Kildare at any time; or

(ii)       that he had no interest, direct or indirect, in Durant or Kildare at any material time; or

(iii)      something else and if so what.