I was fighting trolls down in the basement for XP when suddenly a 'patrol' with two luggald torturers spawned right near me. The gnome prisoner with them kept walking after they attacked me, but when I killed the second escort he despawned and re-appeared as Traxil. The dialog is as above, and as for the event itself:
The individual torturers will file into the room and stand towards the front of it. Important note: The 3 spawns in the room keep spawning during the 'event.'
As long as you haven't aggroed them(I was 65 at the time, so not too hard), you can wait and heal up between engagements. After killing 4 waves, when I killed the first torturer of wave 5 the pain master immediately spawned in the room's doorway. I decided to engage him first instead of the second torturer of wave 5, but it may have been a bad idea - he dropped nothing. The torturer didn't depop though so I killed him thinking maybe the last enemy of the 'event' would have loot, but no.
A bit of a shame as the zone is otherwise pretty well put together.