Demarco Almeida v Opportunity Equity Partners Ltd
| Jurisdiction | UK Non-devolved |
| Judge | Lord Walker of Gestingthorpe |
| Judgment Date | 03 October 2006 |
| Neutral Citation | [2006] UKPC 44 |
| Court | Privy Council |
| Docket Number | Appeal No 48 of 2004 |
| Date | 03 October 2006 |
[2006] UKPC 44
Present at the hearing:-
Lord Hope of Craighead
Lord Steyn
Lord Walker of Gestingthorpe
Baroness Hale of Richmond
Lord Brown of Eaton-under-Heywood
Privy Council
[Delivered by Lord Walker of Gestingthorpe]
On 31 May 2002 Kellock J, sitting in the Grand Court of the Cayman Islands, gave judgment for the defendant Mr Luis Roberto Demarco Almeida ("Mr Demarco") after the trial of an action brought against him by a Cayman exempted company, CVC/Opportunity Equity Partners Ltd ("OEP"). On 24 March 2004 the Court of Appeal of the Cayman Islands (Zacca P and Collett and Taylor JJA) gave judgment setting aside the whole of the judge's order and directing that there should be a new trial. Mr Demarco appeals from the Court of Appeal's order with final leave granted on 5 August 2004.
The principal (although by no means the only) ground of appeal relied on before the Court of Appeal was that OEP had not had a fair trial of its claim against Mr Demarco. The trial before Kellock J certainly had many unsatisfactory features, and some of them (including OEP's failure to comply with its obligations in relation to discovery of documents, and significant changes in its case as pleaded and as put forward in interlocutory affidavits) cannot be laid at the judge's door. In other respects the judge's conduct of the trial is open to fairly severe criticism. The ultimate issue for their Lordships is whether there was (as the Court of Appeal found) "a fundamental failure of justice," and what are the principles on which a new trial should be ordered after a civil trial conducted by a judge without a jury.
The litigation has been fiercely contested at every stage and has involved allegations (by and against both sides) of forgery, theft of documents, bad faith and contempt of court. The best way to approach the issues will be to start with a brief summary of the undisputed facts. It will then be necessary to see how the disputed issues have emerged, and changed, in the course of the litigation. Finally it will be necessary to examine the judge's conduct of the trial.
The undisputed facts in outline
The individuals most closely involved in the matter were engaged in private equity investment in Brazil. There had been extensive privatisations of utilities in Brazil (including telecommunications, transport and sanitation) and these produced many possibilities for profitable investment. A group of companies called the Opportunity Group ("Opportunity") was a prominent player in the financial services market in Brazil and wanted to expand into private equity investment. OEP was a newly-formed company in this group, which was ultimately controlled by a British Virgin Islands company named Opportunity Invest II Inc ("OII"). The leading shareholders in OII were Mr Daniel Dantas ("Mr Dantas") and Mr Persio Arida ("Mr Arida"), a prominent banker.
The financial services offered by Opportunity included several managed investment funds. Some were established in Brazil and some were offshore. Some were closed funds and others were open-ended. In this case three funds call for mention.
(a) The Opportunity Fund is a mutual fund (comprising several different sub-funds) established in the Cayman Islands in 1992. Its investment is managed in Brazil by Opportunity Asset Management Inc ("OAM") but its transfer agents are established and operate in the Cayman Islands. During the relevant period there were three successive transfer agents, a Cayman company within the Midland Bank Group until 1 March 1998, then a Cayman company within the ABN-AMRO Group until 31 July 2000, and then a Cayman company within the UBS Group.
(b) There was an exempt limited partnership called CVC/Opportunity Equity Partners LP ("the limited partnership"). This was established under Cayman law on 3 March 1997 between CVC, a subsidiary of Citibank (which was the limited partner) and OEP (the general partner). It was a close-ended investment vehicle intended to last for a period of eight years (extendable to ten years) and to invest mainly in Brazilian privatised utilities. CVC contributed the funds and OEP contributed the investment expertise. OEP was to be rewarded by periodical management fees and (at the end of the limited partnership) by a share of the final proceeds in excess of Citibank's agreed return (called the "hurdle rate").
(c) The Cayman limited partnership was mirrored by a Brazilian entity called CVC/Opportunity Equity Partners Fundo de Investimento em Acoes ("the Brazilian private equity fund"). It had the same investment managers, CVC/Opportunity Equity Partners Administradora de Recursos Ltda ("CVC Brazil") and followed the same investment policy as the limited partnership. It was open to Brazilian investors and its investors included some Brazilian pension funds.
Mr Dantas was the most powerful man in Opportunity (one of his senior staff described him as "walking on water"). His close associates included his sister Veronica Valente Dantas Rodenburg ("Ms Dantas"), Mr Arida, Mr Arthur Carvahlo (Mr Dantas' brother-in-law), and Mr Rodrigo Andrade. Opportunity employed about 140 people. Its main office was in Rio de Janeiro but it also had an office in Sao Paulo (about half an hour by air from Rio).
Mr Demarco originally trained as a chemical engineer but then took an MBA and (while working for IBM in Brazil) attained other academic qualifications. His success with IBM led to his recruitment in 1997 by a Brazilian investment house called GP Investimentos ("GP"). He worked for GP in Sao Paulo. Through his girlfriend Mr Demarco met the wife of Mr Arida, Ms Elena Landau, who was very interested in football. They discussed an idea, on which Mr Demarco was already working, to turn one or more Brazilian football teams (which were then community-owned) into public companies (on the model of Manchester United). Mr Arida was asked to join in the discussion, and showed interest in it.
In June or July 1997 Mr Arida put forward the idea of Mr Demarco coming to work with Opportunity in its new private equity venture (and in particular, of continuing to develop the football club plan). Discussions continued until October 1997. The main participants on behalf of Opportunity were Mr Arida and Mr Dantas with Mr Andrade (who had himself recently moved from GP to Opportunity) supporting the idea of Mr Demarco's recruitment as a "deal-maker." Most of the meetings were at Mr Dantas' penthouse in Rio or at Mr Arida's apartment in Sao Paulo. No notes were taken at these meetings.
On 11 October 1997 (a Saturday) Mr Demarco delivered to Mr Arida's apartment a short written memorandum ("the Demarco memorandum") which he had prepared at home on his word processor. It set out (in Portuguese) the terms (described as understood to be agreed) on which he was willing to join Opportunity. On 12 October Mr Demarco gave notice to GP (his boss at GP lived in the next apartment block in Sao Paulo; he was seriously displeased but, as Mr Demarco had anticipated, told him not to work out his notice). On 13 or 14 October he attended for work at Opportunity's offices in Sao Paulo.
Mr Demarco set a high price on his talents, as appears from the terms of the Demarco memorandum [949 and in translation 947: note: this and similar subsequent references are to pages in the four volumes (1-4) of the Record, paginated 1-1631, or to pages in the six volumes (VI-XI) of the trial transcript, paginated 2241-4254]. The first two items were as follows:
"Participation:
3.5% initial stake, which may reach 5.0% within one year.
Entry bonus:
Payment of 1 million dollars net, as a signing fee, to compensate the losses with leaving [GP].
Persio [Arida]and Daniel [Dantas] are responsible for the payment."
Then there was an item headed "Six-month term bonus" which contained an obscure reference to "virtual cash generation." The basic salary was to be $300,000. (Throughout this advice all references to dollars are to US dollars.)
It is common ground that from 13 October 1997 (or some other day very close to that date) Mr Demarco had a contract of employment, on some terms, within Opportunity. In the event he was treated as employed by two companies, OEP and CVC Brazil. OEP paid him a basic salary of $240,000, and CVC Brazil paid him the near equivalent (in Brazilian Reis) of $60,000.
Until he started work at Opportunity Mr Demarco had little contact with Mr Dantas's sister, Ms Dantas. Before then she attended some of what were called the more social meetings. But it was Ms Dantas whom Mr Dantas asked to see to the production of a formal contract for Mr Demarco. It is now common ground that two letters embodying proposals for a formal contract were written, one written by Mr Demarco and dated 21 October 1997 [1305 and in English translation 1306] and the other (which in the original Portuguese appears in variant forms, reflecting amendments made in manuscript or on word-processing equipment) dated 22 October 1997 in two versions [1308 and 1314] and 24 October 1997 in another version [1316]. These documents ("the draft contractual letters") attracted little attention at trial (in particular, Mr Demarco was not cross-examined about them at all) but they assumed great importance on the appeal to the Court of Appeal.
It is common ground that none of the draft contractual letters effected a binding variation of the terms (whatever they were) on which Mr Demarco had started his employment. But it is also common ground that Mr Demarco did in one respect modify his requirement for a signing-on fee of $1m. On 31 October 1997 he was paid half that sum, and another $0.5m was invested for him in the Opportunity Fund mentioned in para 5(a) above. It was...
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