Controlling Minds: Whose Knowledge Counts?

Federal Republic Of Brazil And Another v Durant International Corporation And Another [2012] JRC 211

1. In Federal Republic of Brazil and Another v Durant International Corporation and Another [2012] JRC 211 the Plaintiffs sought recovery of monies (in the principal sum of US$ 10.5 million) from the Defendant companies on the basis that, inter alia, they had been received with knowledge of their tainted origin.

2. A question of crucial importance for the Royal Court - Commissioner Page QC - was therefore, whose knowledge could be attributed to the acts of the Defendant Companies.

   THE FACTS

3. In order to facilitate the movement and concealment of the diverted monies, Paulo and Flavio Maluf created an offshore asset holding structure which was administered in Jersey. At its apex sat Sun Diamond Limited ("SDL"), of which the Court found that at the times of the material transfers, Paulo Maluf was the sole shareholder. In turn SDL was Trustee of the Sun Diamond Trust ("SDT"), a Jersey trust of which Paulo Maluf was the principal beneficiary. SDT held all the shares in a BVI company, Durant International Corporation ("Durant"), which itself held all the shares in a further BVI company, Kildare Finance Limited ("Kildare"). Kildare held units in six unit trusts created for the purposes of acquiring shares in the family business Eucatex SA with the diverted monies.

4. At all material times Flavio Maluf was the director of Durant and gave all instructions for money movements. The other director of Durant and sole director of Kildare was a Swiss based intermediary who it was asserted acted on the instructions of the Malufs. Notably, Paulo Maluf was never a director of either of the BVI companies.

5. The Plaintiffs maintained that the knowledge of Flavio Maluf and more importantly that of Paulo Maluf, notwithstanding his lack of formal appointment, could be attributed to Durant and Kildare on the following bases:

   1. Paulo Maluf was the ultimate beneficial owner of Durant and Kildare in his capacity as principal beneficiary of SDT;

   2. Paulo Maluf was the settlor of SDT and intimately involved in setting up the corporate structure;

   3. At all material times Paulo Maluf held the bearer shares of SDL;

   4. Flavio Maluf provided instructions for money movements over the companies in his capacity as director of Durant and Kildare.

   THE LAW

6. The issue of attribution of knowledge, in respect of the acts of a corporate entity, is one which is not always easy to resolve...