ALEXINA INVESTMENTS LTD AND ANOTHER v. KEYSBERG LTD AND OTHERS

HCA6359/1992

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO.6359 OF 1992

---------------------

----------------------

-------------------------

J U D G M E N T

-------------------------

1. This is a gross sum assessment which I have this morning directed should be heard notwithstanding the application of the defendants that it should be deferred. The gross sum assessment covers the costs of the trial of the plaintiffs and of the third party for the period from 1 November 2003 up to the end of the trial and therefore it covers also a period of preparation leading to the trial. I make this point clear so that the taxing master, when he is doing the taxation of the whole action, would tax the bill of the various parties up to the end of October 2003 to ensure that there is no duplication.

2. Having provided the framework of the time scale of what the costs covered, I now come to deal with the various matters that had been canvassed. My broad approach, following the practice I have adopted over a number of years covering many gross sum assessments, is to do it on a broad basis without going into a great deal of detail. Obviously what is important is who was the person handling the matter - his seniority, his unit cost - to make sure that those aspects fall within what I will call the broad range for a case of that type. Counsel's fees generally is a little bit less controversial.

3. Let me first start by saying that in my view this has been a heavy piece of litigation. It has not been easy. It has been the subject of huge number of disputes and caused the court to make repeated rulings during the trial. The presence of Mr Griffiths in the trial is perhaps a good indication that this is not an easy case. It is to be noted that on the defendants' side, there were three counsel with a very senior solicitor in the form of Ms Liang's instructing. Against the defendants, the plaintiffs and the third party was each represented by junior counsel although Mr Burns for the plaintiffs is well known to be a very experienced litigator. So it is in that context of a heavy litigation requiring a heavy team that I need to look at the schedule of costs claimed by the plaintiffs and the third party.

4. The total amount claimed by the plaintiffs is $2,185,000. The total amount claimed by the third party is $1,496,000. The third party, of course, does not need to do as much during the trial as the plaintiffs. The plaintiffs were doing most of the running.

5. The first question I would ask is that having regard to the necessity to be properly represented (and the plaintiffs as well as the third party might well be represented by leading counsel and therefore each side's total bill would have been much higher), was each of the bills very much out of line with what I would have expected having regard to my considerable exposure to bills from commercial firms in relation to heavy commercial action? I believe on the whole they are not too far outside the range. It could be said that some of the details of the figures, for example, Mr Laracy's fee of $3,000 per hour might be a little bit high because of his limited seniority in Hong Kong, and it might even be said that counsel's fees on some particular days might have been somewhat unjustified. On the whole I am of the view that the fees are about right except in some minor respects.

6. I therefore propose, taking the broad approach, that so far as the plaintiffs' total bill is concerned to assess it at the figure of $1,950,000. I would take away from that $50,000 that is a figure for the uplift in relation to the extra work that have been done by Ms Liang for the preparation of the trial bundles. There is therefore a setting-off of $50,000. So the total sum I award to the plaintiffs for the trial from 1 November is $1,900,000.

7. In relation to the third party's costs, again adopting the same approach, and I suspect there may be more room for errors, it seems to me that the broad figure that I should assess for the third party's solicitors is a sum of $1,350,000. It has been agreed that those two sums (inclusive of the costs of today's argument for gross sum assessment) will be paid immediately by the defendants into court into two separate interest-bearing accounts.

8. In respect of the gross sum assessment for this morning's hearing in relation to the defendants' application for a stay pursuant to their summons dated 2 March 2004, I order the gross sum of the costs of that summons in the total sum of $124,900, to be paid forthwith by the defendants to the plaintiffs.

9. In respect of the gross sum assessment of the hearing arising out of the application of the defendants to vary the order nisi in respect of the indemnity costs, I order that the defendants should pay to the plaintiffs the gross sum costs in the sum of $9,000 to be paid forthwith, and to the third party in the sum of $45,000, also to be paid forthwith.

Representation:

Mr Laracy of Messrs Jonathan Rostron, for the Plaintiffs

Ms Susan Liang of Messrs Susan Liang & Co., for the 1st to 5th Defendants

Mr Mark Side of Messrs Tanner De Witt, for the Third Party

HCA6359/1992

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO.6359 OF 1992

---------------------

----------------------

-------------------------

J U D G M E N T

-------------------------

1. I have before me an application by the defendant to vary the order of costs nisi that I made in my judgment of 8 January 2004. The order I made in relation to the costs of the action except the costs of the trial is that the costs of the action shall be paid by the defendants to the plaintiffs and to the third party on an indemnity basis. It has been suggested to me that I should vary that costs order, on the basis that it is an unusual order - indemnity costs - and that where there is hostile litigation, which it is suggested this is, the court should not go so far as to make this draconian order. I, of course, accept that indemnity cost is not the usual order of costs in a hostile litigation. It is, however, well accepted and I think the cases cited to me of both Choy Yee Chung v. Born Star Development, as well as Sung Foo Kee v. Pak Lik, amply demonstrate that the court has a wide discretion, an unfettered discretion, to make an indemnity costs order as it thinks appropriate. This principle is set out both in the White Book as well as clearly brought out by a careful reading of those two judgments cited, and that is not seriously in dispute. What however is in dispute is what are the special features in this case which led to the court making indemnity cost nor is it in dispute that some special features must be present in order that the court should exercise that unfettered discretion.

2. Mr Burns, for the plaintiffs, had helpfully referred to, in his skeleton argument, at least three areas where the court has taken into account the special circumstances of this case. The first is the way the case has been conducted, in particular it is only until the very end i.e. until final submissions that many of the defences that had been in the forefront of the case of the defendants have been abandoned and when some new defences were attempted to be raised.

3. Mr Burns referred me to the three issues where I came to the view that the defendants have no merit. I will not elaborate on how I came to the view that I did in my judgment. But perhaps it is instructive to look at a particular paragraph in my judgment, paragraph 37, where I said that there is no merit in the New Novation Issue, I said this argument was new and not pleaded and was simply a last minute desparate attempt to find a viable defence in the face of the collapse of so many other defences. So the first special feature is that the way the defence is conducted so that bad defences were raised which was simply abandoned.

4. The second feature that Mr Burns has referred me to was the character of Mr Chhabria, a man who lacked honour, who abuse the fiduciary relation inherent in the joint venture and in this context, at paragraph 55, is what I said :

"Words of promises of 'milk and honey' by the Chhabria camp were in fact doses of arsenic and poison. Honour has no meaning for Chhabria and I regret having to make this finding against a deceased person but the overwhelming weight of evidence suggests to the Court only one picture, namely of a very shrewd businessman who managed to persuade a young and inexperienced Vijay Mallya into a partnership and took advantage of the government investigations to abuse the partnership and fiduciary relationship. When the danger had disappeared, Chhabria dishonoured the joint venture agreement and reneged on promises made. ... The fact that no payment was made by the plaintiffs after April 1987 was not an indication of abandonment of the joint venture but was the result of the abuse of the joint venture by the defendants." (namely, by all the defendants, not just by Mr Mallya personally.)

5. The third special feature is the elaborate and unmeritoriously defences which were build up by the various teams of the defendants' lawyers and these prolonged proceedings and contributed to the delay in the plaintiffs being able to obtain proper remedies and relief. I do not of course for a minute forget that had the plaintiffs' professional lawyers been more alert and had done their work better, the matter might have come on earlier. But certainly, the various teams of the defendant's lawyers had made sure that they could exploit it to the full of whatever weaknesses there might be in the plaintiffs' preparation of the case.

6. The fourth special feature which I would like to refer to is that the lamentable conduct of the defendants was not limited to only the conduct of the trial. I have been nursing this case from December 2000 until I gave judgment in January 2004 (a three-year period) and in the course of nursing that case, I have to make myself familiar with the case. In fact I have studied the court files. Mr Griffits even accused me of studying the court files, saying that a judge should not be allowed to do that sort of thing. I came to know this case. I have no doubt that this is an extraordinary case - even in my limited exposure in commercial litigation where big and bad points were taken, this is the one of the worst case I have come across, including oppressive satellite litigation. In paragraph 11 of my discovery judgment given on 27 March 2002, I said this :

"This is a litigation which has taken gigantic proportions. The events of the action went back to 1985. The claim started in 1992. By 1996 if my recollection is correct, pleadings had closed and discovery then followed. Discovery fight has taken some six years from 1996 to now and I suspect if the defendants are given the free hand, it can go on for considerably longer period. This is a deplorable state of affairs, satellite litigation of this kind has taken a life of its own and in the John Wu case of Kaplan J, as well as I think in the judgments from the English Courts that I had been referred, there were repeated references to the satellite litigation over discovery which should be put to an end and desirability for early resolution by the most effective means that our system of justice knows and that is a trial."

7. There were repeated resistance by the defendants to a trial and the court had to move through very difficult paths in order to eventually arrive at a position where the trial could take place. All those hurdles were put in front of the plaintiffs and the court to prevent an early just resolution of the case. So I have no hesitation in coming to a view that this case has so many special features that it rightly deserves a very special order and I make no apology for the making of order unprompted by the plaintiffs that there should be an indemnity costs against the defendants. Now Mr Barrie Barlow, for the 1st to 5th defendants, accused the court of being biased because the view taken by the court is all one way. I would however suggest that the court is concerned in ensuring that justice is done that there will be equality of arms as well as fairness being done so that there is an early, just and fair resolution of the dispute. I hope I have done that and if I have not, then I apologise for my shortcoming. But, certainly, in my view, this is a case that warrants a very special order. It is therefore not a case where as Mr Barlow says the defendants have been in the role of letting sleeping dogs lie and that they could not be blamed for the long delay in the proceedings. I believe - and I certainly take that view that what I have seen repeatedly in my court are not sleeping dogs but a little bit of a different kind of salvage canine.

8. The question for me is whether the oppressive conduct "game plan" in the words of Mr Burns, that we have seen justify this special order. The view I have taken overall of the defendants' conduct of the case is that the defendants for a long time perhaps from the beginning right to the end had been fishing to find a defence, any defence, in order to avoid a final judgment that they will have to meet. I therefore come to the same view as I have expressed in my judgment i.e. that there should be an order of costs of indemnity against all the defendants because, it seemed to me, that it is impossible to say that indemnity costs should only be insisted on one particular defendant. Further it seems to me it is also impossible to say that it will be right that there will be indemnity costs only against the defendants vis-à-vis the plaintiffs and not indemnity costs between the defendants and the third party. In fact in relation to the third party, the case for an indemnity costs is even stronger because it was brought late in the day in respect of a claim of a personal contract which they have abandoned.

9. It follows from what I have said that the order I have made on 8 January must be confirmed. The application for a variation of the nisi order is therefore dismissed with costs, the amount of which will be ascertained by gross sum assessment.

Representation:

Mr Ashley Burns, instructed by Messrs Jonathan Rostron, for the Plaintiffs

Mr Barry Barlow, instructed by Messrs Susan Liang & Co., for the 1st to 5th Defendants

Mr Mark Side of Messrs Tanner De Witt, for the Third Party

HCA6359/1992

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO.6359 OF 1992

---------------------

----------------------

-------------------------

J U D G M E N T

-------------------------

1. I have before me an application for a stay of proceedings by the defendants or alternatively for a stay of proceedings relating to the remedies that are still outstanding, the court having by my judgment of 8 January 2004, adjudged that so far as liability is concerned, the defendants are liable.

2. A notice of appeal had been put in, alleging a large number of grounds. The appeal date had been fixed for November 2004. The question now is whether because of an appeal pending that there should be either a stay of proceedings generally or a stay of proceedings partially to stop any further proceedings in relation to the remedies, that is to ascertain what and/or how much should be due by the various defendants to the various plaintiffs.

3. I have heard the detailed argument from Mr Barlow. He first characterised the appeal in relation to the 2nd, 3rd, 4th and 5th defendants (who of course have no contractual relationship with the plaintiffs but who have been sued by reason of breaches of trust) as being strong. The strong appeal is held by Ma J (as he then was) in Star Play Development Limited v. Bess Fashion Management Company Limited, HCA4726/2001, at page 3 under ground (7), as what might constitute a good reason for a stay. I think it is conceded and is agreed also on all sides that the mere fact that there is an appeal by itself does not constitute a good reason for a stay. It is trite law that an appeal does not operate as a stay, and the court does not deprive the successful plaintiffs of the fruit of a judgment or stop the proceedings merely because of an appeal. So it requires a very good reason to order a stay of proceedings.

4. The question that has arisen is, sitting here as I am and being familiar with the matter, whether I can agree with Mr Barlow that so far at least as the 2nd to 5th defendants are concerned that he has what I might call the extreme situations described by Ma J in paragraph 8 on page 3 of the Star Play judgment, that is, a strong appeal or the existence of a strong appeal. In my view, although the grounds in the appeal are arguable, they are no more than what in ordinary way an appellant having a prospect of appeal. I am certainly not persuaded that they fall into the extreme situation of strong appeal.

5. Mr Burns contends that if there is no strong prospect of the appeal being allowed then there are no good reason or no sufficient ground for ordering a stay. I agree.

6. But I am prepared to consider (in case I am wrong) that I need to look at all the circumstances. It seems to me that even if I do it on that basis, Mr Barlow has not made out a case that the remedies aspect should not go ahead.

7. I take on board of course the fact that there would be considerable costs which would be incurred if the court does not order a stay. No doubt directions will have to be given for the further progress of the case in relation to remedies and damages and of course costs would be incurred to take the steps ordered and, no doubt, that if at the end of the day whether in the Court of Appeal or in the Court of Final Appeal the liability against all the defendants are held to be not sustainable then those costs would be wasted, but they are in no way different from costs incurred for quantum in a trial involving both liability and quantum. It seems to me that the fact of cots will be incurred for remedies is not a sufficiently good reason to order a stay of proceedings. The plaintiffs are entitled, having won on liability, to ask the court to continue to go on to complete the process by the appropriate trial on the outstanding aspect of the claim, namely to ascertain the amount payable which in this case is a very large amount, likely in any event to exceed US$20 million. The defendants are largely foreign based with no known assets in Hong Kong. The time that would be wasted if the remedies are not proceeded until everything on appeal have been cleared up could be long.

8. I need to balance all the circumstances into my consideration. I certainly take on board the fact that this matter has taken a long time to come on. I certainly take on board the fact that the plaintiffs may not be substantial companies themselves. It seems to me that balancing all the considerations that it would be wrong to order a stay without at least imposing the condition that money is to be paid into court so that the plaintiffs' position will not be prejudiced by an order of a stay.

9. In all circumstances, I do exercise my discretion by refusing to order a stay unless within 14 days from today the sum of US$20 million is paid into court.

Representation:

Mr Ashley Burns, instructed by Messrs Jonathan Rostron, for the Plaintiffs

Mr Barrie Barlow, instructed by Messrs Susan Liang & Co., for the 1st to 5th Defendants

Mr Mark Side of Messrs Tanner De Witt, for the Third Party

HCA6359/1992

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO.6359 OF 1992

---------------------

------------------------------------

-----------------------

J U D G M E N T

-----------------------

1. This action is concerned with the breakdown of the joint venture agreement entered into by the parties in 1985 relating to the acquisition of the second largest brewery in India. By this action, the plaintiffs claim on the joint venture agreement.

2. At the commencement of the trial of the action, I directed that the question of liability should be tried first and that the matter of what remedies the plaintiffs are entitled to against each defendant to be decided subsequently at a later date, should the Court comes to the conclusion that the plaintiffs have succeeded on liability.

3. At the trial of the action, five witnesses (Mallya, Lalla, Chandrasekhran, Langlois and Beaves) gave oral evidence. Reliance was also placed by the plaintiffs on the witness statements admitted by hearsay notice of three other witnesses (Mathias now deceased, Ramachandra and Suri). The defendants called no live witness and relied solely on the witness statements of five witnesses (Chhabria now deceased, Walawalkar, Davies, Shettiagar and Sakhrani) admitted under the hearsay notices.

History

4. United Breweries Ltd of India ("UBL") was in the mid-1980s the largest brewery in India. It was founded by Mr Vittal Mallya in 1948 who died suddenly in 1983. His son, Dr Vijay Mallya ("Vijay Mallya"), the third party herein, succeeded him in October 1983 and became the head of the UB Group. At the time when Vijay Mallya assumed control of the family empire he was not even 30.

5. As a very young Chairman of a large business empire, Vijay Mallya came to know in 1984 that the control of the second largest brewery in India, Shaw Wallace ("Wallace") might be possible through the purchase of R.G. Shaw ("Shaw"), an English company, which held a controlling block of Wallace share. He was interested in this possible acquisition for two reasons. Firstly, as to what such an acquisition could do for UBL with two large brewery companies in the camp of and/or friendly to UBL. Secondly, to ensure that Wallace would not fall into the hands hostile to UBL. Vijay Mallya therefore set about exploring the possibility of acquiring this Shaw stake in Wallace from its owner, Sime Darby of Malaysia. He was assisted in this endeavour by Langlois, an Englishman much experienced in the business world of the East, Sobri, a Malaysian lawyer with access to Sime Darby, Divechia, who was the senior legal adviser of the UB Group as well as being a much trusted old friend and adviser of Mallya, the Founder of UBL and Morris Mathias, who was the head of United Brewery International ("UBI") based in Singapore.

6. Approach was made to Grindlays Bank in London for finance of the acquisition and Amarante, a Hong Kong company was identified initially as a possible corporate vehicle to make the acquisition. Grindlays on behalf of Amarante, the initial corporate vehicle identified to make the acquisition, made an offer on 17 October 1984 to Sime Darby for the purchase of the Shaw shares.

7. The original idea was for the purchase to be done by Amarante alone without any partner. Grindlays suggested to Vijay Mallya that Mr Manohar Chhabria ("Chhabria"), the 4th defendant herein, a cash rich Indian businessman based in Dubai, could make a good partner for a joint venture to make the proposed acquisition. Vijay Mallya and Chhabria met, and after a few meetings both agreed that an equal partnership joint venture would be feasible.

8. Vijay Mallya was advised by Divecha in December 1984 that the proposed acquisition could not be made by any Indian person or company resident in India. The Shaw shares had to be paid in England in Sterling and Indian foreign exchange laws prohibited any resident Indian from making a foreign acquisition without government permission which would be difficult to obtain. This however was not a problem for Vijay Mallya because the Senior Mallya had set up a Mallya family trust sometime ago and this Golden Eagle Trust ("Mallya Trust") was not resident in India. This Mallya family trust could therefore be behind the company which was to be the 50% joint venture partner in the purchase of the Shaw shares.

9. On the Chhabria side, they have decided to use also a Hong Kong company, Keysberg Ltd ("Keysberg"), the 1st defendant herein, as the other 50% partner in the joint venture. The joint venture corporate vehicle was identified as Carrasco Investments Ltd ("Carrasco"), the 3rd defendant herein, and the shares in Carrasco were to be owned equally by Keysberg and Amarante.

10. In late December 1984 events took a different turn on the financial front because Grindlays dropped out and American Express ("Amex") became a possible source of finance for the joint venture. Bear Stearns, the merchant bank, was engaged to assist the joint venture to find the appropriate finance and by letter dated 31 December 1984, Bear Stearns wrote to Amex and set out in a post-acquisition structure that 50% of the joint venture would be held by Amarante, ultimately owned by a "Discretionary Trust controlled by V. Mallya" and the other 50% would be held by Keysberg controlled by Chhabria.

11. Sime Darby had agreed to the acquisition at a price acceptable to the joint venture when suddenly around 10 January 1985, as result of the senior managers in charge of Wallace (headed by Acharya) objecting to the acquisition by Carrasco at too low a price, Sime Darby opened the sale of its Shaw shares to open tender. The joint venture won the tender but at a higher price of some additional US$3 million and therefore the borrowing by Carrasco from Amex had to be suddenly increased to US$15 million.

12. The purchase of the Shaw shares by Carrasco from Sime Darby was completed on 21 January 1985 when the loan from Amex was drawn down. Apart from the US$ 15 million which came from the Amex loan, the balance of the purchase price was drawn as to some US$4 million from Amarante and some $7 million from Keysberg. Because of the last minute rush to organise the additional finance from Amex to meet the completion deadline, the formal joint venture agreement between Amarante and Keysberg dated 6 February 1985 ("Amarante Agreement") was actually executed on 6 February 1985.

13. On 12 February 1985, the Company Board of India suddenly commenced its investigation of the acquisition of the Shaw shares from Sime Darby. This was brought about by strong opposition to the purchase by the senior management of Wallace led by Acharya who made a formal complaint to the Company Law Board ("Board"). There was widespread report in the Indian newspaper that the purchase of the Shaw shares were done by a partnership of Chhabria and Vijay Mallya. The Board took drastic action and documents of Vijay Mallya, UBL and Chhabria were sought and both Vijay Mallya and Chhabria had to give statements to the Board.

14. Soon after the commencement of the investigation by the Board, the partners of the joint venture agreed that pending the investigation, there should be a distancing of the Mallyas and the UB Group from the joint venture and its business. Chhabria followed this up by declaring publicly and to the Board that he was the only buyer of the Shaw shares and investor in the Wallace business. Various documents were created and steps were taken to enforce this Chhabria assertion of sole involvement of Chhabria in the Shaw purchase.

15. On 8 March 1985, the joint venture agreement dated 8 March 1985 between Alexina Investment Ltd ("Alexina"), the 1st plaintiff herein, and Keysberg ("Alexina Agreement") was signed. Save for Alexina substituting for Amarante, the terms of the Alexina Agreement were almost identical to the terms of the Amarante Agreement. An Alexina Deed dated also 8 March 1985 was also signed about that time.

16. Subsequent to the signing of the Alexina Agreement and Alexina Deed in March 1985, further steps were taken by Chhabria to enforce the Chhabria assertion of sole involvement of Chhabria in the Shaw purchase.

17. Around 18 April 1985, the Mallaya side partner caused to be transferred to Carrasco US$500,000 for the payment of the first instalment of the loan repayment by Carrasco to Amex.

18. By a Declaration of Trust dated 28 May 1985, Keysberg declared that the share held by Keysberg in Carrasco pursuant to the Alexina Agreement and Alexina Deed was held in trust for Roche Nominees Ltd ("Roche"), the 2nd plaintiff herein. Instrument of Transfer and Buy and Sold Note relating to the said share both dated 28 May 1985 were also executed by Keysberg in favour of Roche. These documents are collectively referred to at the trial as "the Roche Documents".

19. Pursuant to the further complaints by the senior management of Wallace led by Acharya, around 10 July 1985, investigation under the Foreign Exchange Regulations Act of India ("FERA") started against various persons and companies, including Chhabria, Vijay Mallya, UBL, UBI and others. Offices of Chhabria, Vijay Mallya and UBL were raised by FERA and the passports of Chhabria and Vijay Mallya were detained.

20. On 18 July 1985, after the commencement of the FERA investigations, US$518,000 was paid by the Mallya side partner to the Chhabria side partner for the second loan instalment repayment to Amex.

21. From August 1985 onwards, both Vijay Mallya and Chhabria gave various statements to FERA. The statements made by Vijay Mallya were to the effect that neither he Vijay Mallya nor UBL was connected with the purchase of the Shaw shares. The statements made by Chhabria were to the effect that the purchase of the Shaw shares was made by Chhabria alone.

22. On 31 October 1985, the Board dropped the investigation of the Board into the purchase of the Shaw shares.

23. On 16 September 1986, without the consent of Amarante or Alexina or Roche, Chhabria caused Carrasco to increase its share capital and to issue 9,998 shares to Keysberg.

24. At the end of March 1987, FERA dropped the investigation and its charges against Vijay Mallya, UBL, UBI and Chhabria. At about the same time Chhabria gained control of the board of Wallace.

25. After the dropping of the charges by FERA, Vijay Mallya and Chhabria met on many occasions starting from May 1987 onwards to discuss their differences over the implementation of the joint venture but as the matter could not be resolved, there was initial mediation of the dispute by Captain Sharma, a senior adviser of the then Prime Minister of India which was followed up subsequently by a business mediation by Lalit Suri in late 1988. The determination of the Lalit Suri mediation was that the Chhabria Group should implement the joint venture agreement or alternatively should pay the sum of US$8 million.

26. Chhabria Group did not implement the joint venture agreement in that it did not allow its joint venture partner any participation in the Wallace business and it did not give any proper account of the joint venture business to its joint venture partner. Nor did the Chhabria Group pay the US$8 million determined by Lalit Suri under the mediation. Eventually in 1992, by the writ issued in this action, the plaintiffs claimed against the defendants for various remedies arising out of the joint venture agreements, alleged to be the Alexina Agreement, the Alexina Deed and the Roche Documents (collectively referred to as "Alexina/Roche Documents").

Issues

27. The pleadings in the action revealed the following issues between the parties :

(1)	Whether the joint venture agreement was between Vijay Mallya and Chhabria personally or between Amarante and Keysberg under the Amarante Agreement.
(2)	Whether the joint venture agreement (whether between Vijay Mallya and Chhabria personally or between the corporate Amarante and Keysberg) was replaced/novated by the Alexina/Roche Documents.
(3)	Whether the Alexina/Roche Documents were sham and not enforceable.
(4)	Whether there was oral agreement between Vijay Mallya and Chhabria for the termination of the joint venture agreement and the abandonment of the joint venture by the Mallya partner/plaintiffs.
(5)	Whether there was termination of the joint venture agreement by reason of the repudiatory breaches by the Mallya partner/plaintiffs.
(6)	Whether there were breaches of the joint venture agreement and breaches of trust by the defendants and knowing assistance of the breaches by the defendants.

The trial up to final submissions was therefore conducted on the aforesaid issues.

28. At the conclusion of the final submissions by the three parties, the Court was faced with three issues relied upon by the defendants :

(A)	Whether there was no binding novation of the Amarante Agreement by the Alexina/Roche Documents on the ground that there was no informed consent by Keysberg to the novation because of the lack of knowledge by Keysberg of the change of the ultimate beneficial ownership of the opposing joint venture partner ("New Novation Issue").
(B)	Whether the Alexina/Roche Documents were sham and not enforceable ("Sham Issue").
(C)	Whether there was abandonment of the joint venture agreement by reason of the prolonged lack of actions or omissions of the plaintiffs in the performance of the joint venture agreement from mid-1985 up to 1992 ("New Abandonment Issue").

29. It is to be observed that of the original six issues in paragraph 27 :

(i) Issues (1), (4), (5) and (6) have been abandoned by the defendants.

(ii) Issue (3) remains unchanged as the Sham Issue.

(iii) Issue (2) has become the New Novation Issue with dispute as to whether it was a pleaded issue.

There was further an argument by the defendants in reply submission that the New Abandonment Issue was not new but was pleaded.

New Novation Issue

30. The case of the plaintiffs is firstly that the Amarante Agreement was replaced by the Alexina Agreement and that Alexina became the joint venture partner of Keysberg. The case of the plaintiffs is secondly that Alexina as a joint venture partner was replaced by Roche as evidenced by the Roche Documents. The defendants disputed both Alexina and Roche as successive joint venture partners of Keysberg. The case of the defendants is that both under the New Novation Issue and under the Sham Issue, the joint venture partner was at all times Amarante which is not a party to this action and that therefore neither Alexina nor Roche has any right of action against the defendants.

31. At the final submission, the New Novation Issue was argued for the first time by the defendants on the basis that when Keysberg signed and agreed to the Alexina/Roche Documents, Keysberg was not aware that the Golden Eagle Trust was the ultimate beneficial owner of Alexina and Roche and that therefore there was no informed consent to the alleged novation.

32. Mr Burns for the plaintiffs objected to this defence as being unpleaded. It is clear that it is not pleaded and Mr Griffiths for the defendants submitted that it is not necessary to plead such defence as the denial of the plaintiffs' pleaded novation was sufficient. I disagree. It is to be noted that even under the Defendants' List of Issues which was submitted to the Court at the beginning of the trial but which the Court did not adopt, this New Novation Issue was not set out. The case now put forward by the defendants under the New Novation Issue is not simply a denial but a positive defence alleging that there was no valid consent by Keysberg because of the lack of knowledge by Keysberg of either :

(1)	the identity of the ultimate beneficial owner of Alexina and Roche being different from the ultimate beneficial owner of Amarante; or
(2)	the identity of the ultimate beneficial owner of Alexina and Roche being not UBL or part of UB Group.

This is a positive defence which has to be pleaded and I hold therefore that this unpleaded New Novation Issue is not open to the defendants as the matter under this New Novation Issue was at no time in this action including the trial properly examined by anyone.

33. On the assumption that I may be wrong and that it is open to the defendants at this stage of the proceedings to take this point, is there any merit in the point now being raised by the defendants.

34. As pointed out by Mr Burns in his final submission, the New Novation Issue argument of the defendants is firstly flawed because it ignores legal corporate identity and seeks to pierce the corporate veil. The corporate persons of Amarante (and its successors Alexina and Roche) and Keysberg are the respective parties to the joint venture agreement. Who was the shareholder or immediate beneficial owner or ultimate beneficial owner of Amarante, Alexina and Roche is wholly irrelevant. The fact that Amarante might be ultimately beneficially owned by the Mallya Trust or by UBL or UBI has no bearing on the validity of the Amarante Agreement, in the absence of any contractual warranty or provision restricting the beneficial ownership of Amarante to specific identified beneficial owner. It is inconceivable that because Chhabria thought that UBL was behind Amarante that the Amarante Agreement would be invalid if Amarante was beneficially owned or ultimately beneficially owned by the Malay Trust and not ultimately beneficially owned by Vijay Mallya or UBL. The notion that the ultimate beneficial ownership of Amarante, Alexina and Roche is relevant to the informed consent of novation was simply a non-starter. The informed consent of Keysberg was evidenced by its signature on the Alexina/Roche Documents and it is as impossible to disown the Keysberg signature as lacking in informed consent in the Alexina/Roche Documents as any attempt to disown the Amarante Agreement with the presence of the signature of Keysberg.

35. The second flaw in the New Novation Issue argument of the defendants is that in fact, the replacing of Amarante by Alexina and Roche did not involve any change of ultimate beneficial ownership (even if that is said to be relevant). In all these cases, the ultimate beneficial owner was the Mallya Trust. So far as the ultimate beneficial ownership of Amarante is concerned, there was abundant evidence that the Mallya Trust was behind Amarante and the joint venture. I need only refer to (a) the corporate structure of the joint venture attached to the letter dated 31 December 1984 of Bears Stearns, (b) the evidence of Vijay Mallya and (c) the witness statement of Morris Mathias. I do not ignore the fact that in the investigations by the Board and by FERA, there was no reference by Vijay Mallya to the Mallya Trust being behind the joint venture. But in the circumstances, having regard to the vulnerable exposure of every person (natural and corporate) connected with Vijay Mallya and the United Brewery, it is only prudent for Vijay Mallya to say as little as possible to the authorities, including the involvement of Mallya Trust in the joint venture. I find as a fact, that Amarante was ultimately beneficially owned by the Mallya Trust which was also the ultimate beneficial owner of Alexina and Roche. It follows therefore that there is no substance in the new defence that there was no informed consent because Keysberg did not know of the difference in the beneficial ownership of the joint venture partner.

36. Finally as to the point that Keysberg looked to the body behind the joint venture partner as being UBL or UB Group with management contribution from the UBL or UB Group, it is to be noted that the Amarante Agreement and the Alexina Agreement was each totally silent on the matter of ultimate ownership of Amarante/Alexina by UBL or UB Group or the obligation of Amarante/Alexina to contribute United Brewery expertise to the joint venture. The suggestion that because Alexina and Roche are not UBL or UB Group companies and that fact would have caused Keysberg to withhold its consent to the novation and would have also caused Keysberg not to sign the Alexina/Roche Documents is simply ridiculous in the circumstances. When these documents were signed in March and May 1985, the investigation into the joint venture was going strong and these documents if not sham (to be considered later) were executed to protect the other joint venture partner. The last thing the Chhabria side would wish to insist is that these companies, Alexina and Roche must be UBL or UB Group companies, which would render the shares of the joint venture (including the Chhabria shares) vulnerable to seizure by the Indian authorities.

37. I am therefore of the clear view that there is no merit in the New Novation Issue raised by the defendants. For me, this argument is simply a last minute desperate attempt to find a viable defence in the face of the collapse of so many other defences.

Sham Issue

38. On the abandonment of the defence of joint venture being personal to Vijay Mallya and Chhabria (Issue (1) in paragraph 27 hereof), the Amarante Agreement was the joint venture agreement which ought to be sued on by Amarante. However Amarante, which had become defunct, did not become a plaintiff in the action. The validity of the Alexina/Roche Documents becomes therefore all important. It is for this reason that the defendants contend that the Alexina/Roche Documents are sham and are not enforceable.

39. The legal concept of a "sham" was described in the classic judgment of Diplock LJ in Snook v. London & West Riding Investments Ltd [1967] 2 QB 786 at 802 :

"I apprehend that, if [the word 'sham'] has any meaning in law, it means acts done or documents executed by the parties to the 'sham' which are intended by them to give to third parties or to the court the appearance of creating between the parties legal rights and obligations different from the actual legal rights and obligations (if any) which the parties intended to create. But one thing, I think, is clear in legal principle, morality and the authorities (see York Railway Wagon Co. v. Maclure and Stoneliegh Finance Ltd. v. Philipps), that for acts or documents to be a 'sham', with whatever legal consequences follow from this, all the parties thereto must have a common intention that the acts or documents are not to create the legal rights and obligations which they give the appearance of creating. No unexpressed intents of a 'shammer' affect the rights of a party whom he deceived."

40. The essential ingredients to establishing that a document is a sham are therefore according to the Snook judgment :

(1) the common intention of;

(2) both parties;

(3) that the document was not to create legal rights;

(4) but to give to the third parties the appearance of the document creating legal rights between them; and

(5) different from the actual legal rights between the parties.

41. What is often overlooked is that ingredient (4) is not necessarily the most telling or crucial feature of sham. Ingredients (1) and (3) are the crucial requirements of proving sham, the burden of which is on the party alleging sham and with proof to a suitably high standard.

42. In many of the authorities cited to me by Mr Burns, it was pointed out that it is not the objectionable purpose or the artificiality of a transaction which determines whether the transaction is a sham or not but it is the genuineness of the transaction. The crucial determination is to ascertain the parties' real intention with the document. And the Court must have proper regard to the fact that there was "a very strong presumption indeed that parties intend to be bound by the provisions of agreements into which they enter, and even more, intend the agreements they enter into to take effect", per Neuberger J in National Westminster Bank v. Jones [2001] 1 BCCL 98 at 115.

43. Without in anyway overlooking the many authorities cited to me in argument by the parties on this Sham Issue, it seems to me that the proper analysis of what the parties' real intention in respect of the crucial Alexina/Roche documents is more significant than a painstaking look at the various documents leading up to these crucial documents.

44. I accept of course, as the skeleton argument of the defendants demonstrate, that many of the documents (specially relating to Carrasco and Amarante) shown to the Court by the defendants at the trial were back-dated and in the case of the January 1985 Carrasco's Amex bank statements not only back-dated but altered as to the contents. I accept that all these were done in an attempt to distance UBL, UB Group and Vijay Mallya from the Wallace acquisition. The purpose of these steps taken was to show that the Wallace acquisition was all done by Chhabria or his Group including Keysberg and not by any joint venture between Chhabria and UBL or Vijay Mallya. The removal of the personnel with UB connection from Carrasco, Amarante and Wallace was for the same purpose of attempting to show to the authorities that the Wallace acquisition was a wholly Chhabria purchase.

45. The Alexina/Roche Documents are by their nature documents showing and evidencing the joint venture between Alexina/Roche with Keysberg/Chhabria, the very exact opposite of showing no joint venture. The Alexina/Roche Documents therefore do not mask any real transaction (in the sense used by Lockhart J in Sharment Pty Ltd v. Official Trustee in Bankrupcy (1988) 82 ALR 530). A production of these Alexina/Roche Documents not only would fail to give the wrong appearance to the authorities but would positively lead to a condemnation of the parties by the authorities. Not surprisingly therefore, these Alexina/Roche Documents were never shown to the authorities. Mr Griffiths in argument sought to say that these Alexina/Roche Documents were created so that they could be shown to the authorities if and when necessary, as a third line or fourth line defence by Chhabria. The submission is not based on evidence and is in fact contrary to the evidence, for example paragraph 63 of Chhabria's witness statement. Furthermore, the submission makes a mockery of the true situation because the reality was that these documents would show that there was a joint venture in the Wallace acquisition which Chhabria was at pains to suggest was not the case. No one could believe that Chhabria would enter into a joint venture with himself. In fact all the evidence shows that Alexina and Roche were Mallya Trust companies or companies with Mallya connection and were not Chhabria companies. As I said earlier, the Alexina/Roche Documents would condemn Chhabria and the Mallya interests and not save them. There could therefore hardly be a common intention that these would deceive the authorities.

46. In my judgment, the common intention of the parties was simply to replace the original joint venture partner Amarante, by firstly Alexina and later Roche. The parties went to considerable trouble to execute the Alexina/Roche Documents and I do not accept that these documents were executed sloppily evidencing that these were not genuine documents. In my view they bear all the hallmarks of genuine documents executed with intention that they created legal relationship and would be relied upon. The retention of these documents (for example, the original Carrasco Share Certificate (Exhibit P8), the original Alexina Agreement (Exhibit P13) and the original Roche Documents (Exhibits P5, P6 and P7)) in the hands of the plaintiffs and their lawyers until trial, demonstrate to me a clear intention that these are to be relied upon as genuine true transactions rather than as sham transactions. Not only was there no contemporaneous documentation to suggest that the parties had a common intention that these Alexina/Roche Documents were not intended to have any legal effect but there was contemporaneous documentation to show that the parties knew that these documents were effective legal documents.

47. In my view, notwithstanding the very elaborate argument addressed to the Court, this Sham Issue defence cannot possibly succeed. It has no merit.

Abandonment

48. The case of the defendants on abandonment of the joint venture agreement was originally on the basis of express oral agreement to terminate the joint venture reached between Vijay Mallya and Chhabria (alleged to be variously in March 1985 (paragraph 19 of the Defence) and January 1985 (Chhabria's witness statement, paragraph 39). That Issue (4) under paragraph 27 was abandoned inevitably, by the defendants at the final submission (there was not even any proper cross-examination of Vijay Mallya on this question) but instead Mr Griffiths relied on a new case of implied agreement of abandonment of the joint venture agreement based on alleged steps taken or not taken by both parties subsequent to July 1985. This New Abandonment Issue defence was objected to by the plaintiffs on the ground that such defence was not pleaded and was not in issue between the parties.

49. The law relied upon by Mr Griffiths on implied agreement of abandonment of the contract was clearly set out by Lord Brandon in Paal Wilson Co. v. Partenreederei Blumenthal Ltd [1983] AC 853 at 914 :

"The concept of the implied abandonment of a contract as a result of the conduct of the parties to it is well established in law ...... there are two ways in which A can put his case. The first way is by showing that the conduct of each as evidenced to the other and acted by him, leads necessarily to the inference of an implied agreement between them to abandon the contract."

50. The case of implied agreement between the parties to abandon the contract relied upon by Mr Griffiths under the New Abandonment Issue was objected to by Mr Burns as an unpleaded new case, which contention was disputed by Mr Griffiths. Mr Griffiths argued that his New Abandonment Issue was covered by the defendants' pleading and referred the Court to paragraph 20 of the Amended Defence (page A54) and to the Further and Better Particulars under paragraph 20 (pages A82-3). Mr Pow, in his reply submission, suggested that paragraphs 19 and 19A of the Amended Defence related to express oral agreement of abandonment whereas paragraph 20 related to implied agreement of abandonment. I do not agree.

51. A fair reading of paragraphs 19, 19A and 20 and the Further and Better Particulars thereunder indicate that the pleadings all relate to a case of express oral agreement to abandon the joint venture agreement and further this express oral agreement related to a time from January 1985 to at the latest September 1985. The very opening of the words in paragraph 20 of the Amended Defence "By about July to September 1985" defined the period of time covered by abandonment under this express oral agreement between Vijay Mallya and Chhabria. The Further and Better Particulars under paragraph 20 at pages A82-3 could not possibly transfer a case of express oral agreement covered by a period up to September 1985 to a case of implied agreement of abandonment covering a period from July 1985 to 1992.

52. What needed to be covered by a defence of abandonment by reason of events for the period from July 1985 to 1992 would be a pleading that :

(a)	conduct of Amarante/Alexina/Roche from July 1985 to 1992 which would clearly and unequivocally be considered as an offer to abandon the joint venture agreement without repayment of any money by Keysberg; and
(b)	an equally unequivocal acceptance by Keysberg (by words or conduct) of that implied offer of abandonment without repayment.

The necessity for a clear and sufficiently particularised pleading is made clear recently in the ADS v. Brothers [2000] 1 HKC 511 case (see Lord Hoffman at page 532). Not only is it necessary to clearly plead such a case, but according to Lord Hoffman it is equally essential for the relevant witness to be properly confronted with such a case. All these were clearly not done by the defendants. In the circumstances, I have no doubt and I hold that the defendants are not entitled to rely on the New Abandonment Issue defence.

53. But even on the assumption that I am wrong about the case being not pleaded, in the circumstances of this case, the facts simply do not support a case of implied agreement of abandonment without repayment. Having regard to the fact that after the initial capital contribution by Amarante, there were payments to Carrasco/Keysberg towards the bank instalment repayment in April 1985 and in July 1985, there was no possibility by July 1985 of any implied agreement to abandon the joint venture agreement without repayment. The question then is what was clearly seen to be the unequivocal intention of Alexina/Roche towards the joint venture agreement after July 1985.

54. In July 1985, the joint venture was suddenly confronted with a new and major threat to its existence, namely the FERA investigation which carried serious criminal consequences for all those involved. The further distancing of the Mallya side partner from the joint venture not only made sense but was entirely prudent and understandable, specially having regard to the understanding which must have been reached earlier between the two partners that Chhabria was to represent to the authorities that the Chhabria/Keysberg Group was the only investor in the Wallace business. The inaction of the Mallya partner/Alexina/Roche in not making any payments (after being so told by the Chhabria camp as emerged from the plaintiffs' evidence which I accept, in particular that of Chandrasekharan), not taking any management role and not participating in the affairs of Wallace/Carrasco was not only reasonable but was certainly not indicative to Chhabria of abandonment of the substantive interest and investment in the Wallace business made by Mallya partner/Alexina/Roche. I do not see how Chhabria/Keysberg could regard the matter otherwise, up to at least the termination of the FERA investigation.

55. After the termination of the FERA investigation in March 1987, the positions of the parties of course changed. It was no longer necessary for Chhabria to continue sole management control of Wallace. The plaintiffs could resume their natural position as fellow investor partner in the joint venture. It was however the defendants which refused to permit the plaintiffs to implement the joint venture agreement. In this respect, I have no difficulty in accepting the evidence of the plaintiffs that from April 1987 onwards, the plaintiffs chased the defendants repeatedly for implementation of the joint venture agreement and subsequently when faced with a wall of procrastinations by Chhabria Group, the plaintiffs chased repeatedly for an alternative appropriate buying-out by the defendants. The defendants dragged out the chasing process and put the plaintiffs through the mediation process with repeated promises of payment as buy-out of the joint venture agreement but failed to keep the promises. Words of promises of "milk and honey" by the Chhabria camp were in fact doses of arsenic and poison. Honour has no meaning for Chhabria and I regret having to make this finding against a deceased person but the overwhelming weight of evidence suggests to the Court only one picture, namely of a very shrewd businessman who managed to persuade a young and inexperienced Vijay Mallya into a partnership and took advantage of the government investigations to abuse the partnership and fiduciary relationship. When the danger had disappeared, Chhabria dishonoured the joint venture agreement and reneged on promises made. These facts certainly suggest that after the FERA investigation had ended it was wholly reasonable for the plaintiffs not to make further payments under the joint venture pending the proper honouring of the joint venture agreement by Chhabria/Keysberg/Jumbo. The fact that no payment was made by the plaintiffs after April 1987 was not an indication of abandonment of the joint venture but was the result of the abuse of the joint venture by the defendants.

56. I accept the submission of Mr Burns that the actions of Chhabria and Keysberg from July 1985 onwards were not unequivocal as acceptance of the alleged implied offer of the plaintiffs to abandon the joint venture agreement without repayment or recourse. The Chhabria actions were equally consistent with :

(a)	a joint actions by both partners to preserve and continue the joint venture and for Mallya partner/Alexina/Roche not to appear in any way to be connected with Carrasco/Wallace joint venture pending the investigation by the Indian authorities; and
(b)	an unilateral decision by Chhabria/Keysberg/Jumbo Group to take advantage of the investigation and to "hijack" the joint venture and the Wallace business for the Chhabria/Keysberg/Jumbo Group.

57. So far as the allegation of abandonment of the joint venture agreement is concerned, having regard to the very large investment of US$4 million made by the Mallya Trust into a good and valuable long term investment in the Wallace business, it is simply impossible to believe that the plaintiffs or any reasonable business persons in their position could just walk away from such investments without any repayment or any appropriate recourse. The mediation process which was incapable of being disputed simply demonstrated in the clearest possible terms that the plaintiffs did not give up the joint venture agreement and the valuable rights thereunder as is now suggested by the defendants. The defendants knew full knew that the plaintiffs did not give up the joint venture agreement and the valuable rights thereunder. The elaborate and unmeritorious defences built up by the various teams of the defendants' lawyers could not assist the defendants in this action. The long legal process only contributed to delay in the plaintiffs being able to obtain proper remedies and reliefs. In the circumstances, I have no hesitation in reaching my conclusion that, even if the defendants are allowed to rely on an unpleaded case of New Abandonment Issue defence, this defence fails.

Credibility of witnesses

58. Having regard to the fact that at the final submission stage, the Court was faced with only three issues under paragraph 28, the question of credibility of witnesses has lost much of its significance. Only very limited areas of disputed facts have any crucial bearing on the determination of the three issues.

59. In so far as there is any outstanding significant dispute of facts, I bear in mind of course the submissions of Mr Griffiths on credibility but I reject any notion of wholesale disregard of the evidence of Vijay Mallya or because the witnesses came from India, that this Court should be at a particular disadvantage in assessing their credibility.

60. I of course accept that contemporaneous documents must be given their proper weight. But this is a somewhat unusual case where many of the documents (even though not the subject of authenticity notice challenge due to lack of professional focus earlier) are clearly unreliable and in this regard I need only refer to, for example, the Amex bank statements and the so-called Walawalkar letter to Chhabria addressed generally to Dubai and the disputed unsigned statements of Vijay Mallya to the Board and to FERA. It seems to me that this is a case where the inherent probabilities play as important a role as documents or oral evidence in the assessment of what happened.

61. In my judgment, there is much to be said for the submissions made to me by Mr Stokes for the third party. In particular I accept and find that the evidence of Vijay Mallya is generally reliable. It is to be observed that his evidence is largely supported by the evidence of the other plaintiffs' witnesses, both orally as well as in the witness statements. Furthermore his evidence is consistent with both common sense and good business sense. On the whole I accept the credibility of all the plaintiffs' witnesses including in particular Langlois, Chandrasekaran and Lally. I further find that Vijay Mallya was on the whole giving truthful evidence with the qualification that he was obviously minimizing his somewhat difficult position in the investigation.

Conclusion

62. I conclude therefore that the three defences relied upon by the defendants in the final submissions have failed. I find in favour of the plaintiffs on liability. I direct that the parties should appear before me within six weeks from this judgment for directions on the matter of remedies.

63. So far as the third party proceedings is concerned, having regard to my findings above, the third party claim by the defendants against the third party must be dismissed.

64. I make the following costs order nisi that the defendants shall pay to the plaintiffs :

(a)	the costs of the action (excluding the trial) on an indemnity basis, to be taxed if not agreed; and
(b)	the costs of the trial before me to be assessed by me by way of gross sum assessment under Order 62, rule 9(4)(b).

65. I make the following costs order nisi that the defendants shall pay to the third party :

(1)	the costs of the third party proceedings (excluding the trial) on an indemnity basis, to be taxed if not agreed; and
(2)	the costs of the trial before me to be assessed by me by way of gross sum assessment under Order 62, rule 9(4)(b).

66. The parties are also given liberty to apply on any matter arising out of this judgment.

Representation:

Mr Ashley Burns, instructed by Messrs Jonathan Rostron,for the 1st and 2nd Plaintiffs

Mr John Griffiths, SC, Mr Jason Pow and Miss Michelle Chui,instructed by Messrs Susan Liang & Co., for the 1st to 6th Defendants

Mr David Stokes, instructed by Messrs Tanner Wit, for the Third Party

HCA6359/1992

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO.6359 OF 1992

---------------------

----------------------

-------------------------

J U D G M E N T

-------------------------

1. This is an application by way of two Summonses for specific discovery made by the plaintiffs in the course of this trial, the trial having started some two weeks ago. The two Summonses seek an order from the court that the defendants should file either a further supplementary list or an affidavit to say what has happened in relation to certain documents. Basically the plaintiffs are seeking the originals of certain documents in the defendants' various lists. The volume of discovery that had been made in this case is very large as can be seen from the ring file containing the Lists of all the parties. The file runs into something like 200 pages, for just the Lists of Documents.

2. At the hearing this morning, Mr Burns has kindly indicated that he has studied the documents sought, the subject matter of the Discovery Summonses. He has decided to reduce them to seven, and they are nos.196, 307, 1338, 1377, 1378, 1379 and what is known as the Alexina Agreement.

3. Discovery had been made a long time ago by the defendants. The plaintiffs' solicitors unfortunately had not prepared the case in the way that this heavy piece of commercial litigation deserves and that has been my observation on many occasions. It is regrettable. In the course of the trial the importance of many documents emerges very clearly and perhaps, as a result of the late realisation of the importance of various documents that this particular application is brought. The court must exercise its discretion, having regard to all the circumstances, and having regard in particular to what is constrained by the authorities as well as by the very words in the rules, namely to relevance as well as to necessity. I think there is not much dispute as to relevance but necessity will be the key. I must be satisfied that it is necessary for the fair disposal of the further hearing of this trial and to enable of course justice to be done.

4. The documents sought are the originals of the seven items I have mentioned. I can fairly quickly dispose of no.1338. It is a copy of a notarised Amarante Agreement. Mr Griffiths told us that the execution of that document is not in dispute, and we have also heard a great deal of evidence about this document. The fact that there is no original has been a feature of this case for some time. I do not see how, having regard to the progress of the trial at this late stage, I can be assisted by an original of the notarised copy of this agreement.

5. The next three documents are in the form of witness statements. I can take them as a group : nos.1377, 1378 and 1379. They are to be found at pages 301-72, 301-75 and 301-76. These are copies and not originals. Again I do not see how I would be assisted by having the originals. These documents are there. I may or may not give any weight to them after I have heard submissions. The people who have given these statements are not here to give evidence and we just have do the best we can. Notwithstanding that the originals may not be in court, I think the originals will be of such marginal value that I cannot possibly consider that they are necessary for the fair disposal of the trial.

6. I turn next to the Alexina Agreement, and in relation to that Alexina Agreement, we have an original which was produced by the plaintiffs as Exhibit P13. We do not have any original from the defendants' side. The defendants have listed in their list of documents, a copy which is a copy of the plaintiff's original. Mr Griffiths has explained to me how that came to be listed. But the fact is that the defendants have not listed an original of the counterpart of the plaintiffs' original. A copy of that original can be seen in the plaintiffs' list of documents as well as in the bundle. We are quite advanced at the trial and a lot of evidence had been given on the Alexina Agreement. There is a continued obligation on the defendants to make further discovery if they happen to come across that original and I would be happy to leave it at that and not put the defendants to the further burden of filing an affidavit to deal with that original.

7. The two remaining items are what I consider to be controversial. First, the Amex bank statement, version 2 at page 741 which is a copy of bank statement dated 31 January 1985 and it is different from version 1 at page 742 (also a copy of an Amex bank statement of 31 January 1985). We know that page 741 containing entries of payments from Mr Chhabria is different from page 742 bank statement with different payment entries. Mr Burns says that the original of page 741, which comes from the defendants' list of documents, should be produced or, at least, if it is not produced, explanation should be given as to what has happened to that original. Much labour would be engaged no doubt in the final submissions on these controversial documents.

8. Although there had been no service of an Order 27, rule 4 notice by the plaintiffs against this document (page 741), I think the reality is that having regard to the delay in focusing on this controversial document, the court would have to take into account all the evidence to decide where the truth lies as to the right version about allegations of back-dating, and altering documents as a result of the various investigations in India. At this late stage, I do not believe I should make an order against the defendants for them to go through their whole system of files in order to produce an affidavit as required by the Summonses. This is specially so having regard to the fact that one of the key persons in the defendants' camp Mr Chandrasekharan who was dealing with documents has now become a key witness for the plaintiffs. I do not think it will be fair in the circumstances to subject the defendants to this further burden.

9. This leads me to the final document, that is Item 307, the letter from Mr Walawalker to Mr Chhabria. This is a key document, undoubtedly important. This is an instance of a reversal in the changing of camps. Mr Walawalkar was a former officer of the plaintiffs' side going over to the enemy defendants' camp. A copy letter written by Mr Walawalkar or purported to be written by him to Mr Chhabria was disclosed. The fact that it is not an original in the defendants' list calls for suspicion already, and the fact that there is no part II explanation in the List as to what had happened to that original again calls for suspicion, but all these are for submissions. For the moment the question for me is whether the progress of the case really calls for the urgent necessity of an order of the court compelling the defendants to swear to this missing original. I do not think I would be too much assisted by it. I think I have got a great deal of material before me and I would not wish to burden the defendants further by the necessity of filing an affidavit as required.

10. So in these circumstances, I do exercise my discretion and I refuse the application on these contested seven documents. The rest of the items in the Summonses has been abandoned. So the order I make is that the two Summonses of the plaintiffs for further discovery are dismissed with costs.

Representation:

Mr Ashley Burns, instructed by Messrs Jonathan Rostron, for the Plaintiffs

Mr John Griffiths, SC, Mr Jason Pow and Ms Mischelle Chui,instructed by Messrs Susan Liang & Co., for the 1st to 5th Defendants

Mr David Stokes, instructed by Messrs Tanner De Witt, for the Third Party

HCA6359/1992

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO.6359 OF 1992

--------------

--------------

-----------------------

J U D G M E N T

-----------------------

1. This is an application by the defendants for further discovery pursuant to a summons which was issued on 12 September 2000 ("the 1st Summons") and pursuant to a second summons ("the 2nd Summons") issued on 7 June 2001 for specified classes of documents set out in the respective schedules. The 1st Summons and 2nd Summons both seek to say that there had been non-compliance of an Unless Order of the court.

2. What happened was that on 16 June 2000, Master Wong made an order for discovery of six categories of documents and this was then followed by an Unless Order of Acting Registrar Chan on 27 July 2000 for the compliance of Master Wong's earlier order of June 2000 and the compliance of the two orders was the subject matter of the present two summonses. In compliance with the two orders of Master Wong and Registrar Chan, two affidavits were filed on behalf of the plaintiffs, one by Teresa Comley on 24 July 2000 and another by Patanjali Subramani on 2 August 2000. The substance of those two affidavits, i.e. of Comley and Subramani, is that in relation to the orders for further discovery as set out in the six categories of documents under the schedule, that they have no further documents in their possession power and control to be disclosed. The defendants took the view that there had been non-compliance of the orders and specially of the Unless Order. By the 1st Summons, the defendants seek in part a declaration from the court that the action pursuant to the Unless Order had been struck out. By my judgment given on 1 December 2000, I dismissed that part of the application because, as I said in my oral judgment, I did not form the view that whatever may be the inadequacy of the affidavits that there they were illusory and therefore non-compliance of the Unless Order and deserving a striking out or guillotine of the action under the Unless Order. The question of whether there was full compliance was left over and the 2nd Summons of the defendants was issued to pursue this further discovery, to contend that there was no proper compliance and that there were further documents that must be disclosed.

3. The position at the hearing adopted by the plaintiffs is that there had been a compliance of the order made because the order required the swearing of the affidavits by the plaintiffs, stating whether the documents or classes of documents refers to the schedule had been in their possession, custody or power and they had complied with that. The case of Reiss v. Woolf was cited and it is said that the court there took the view that the document was not illusory. Here the form of the affidavit is correct. The deponents in the persons of Comley and Subramani were properly authorised by the plaintiffs. There was therefore compliance of the orders and it is said that that should be the end of the matter. It is said in addition by Mr Burns for the plaintiffs that in any event, the principle of discovery is such that the affidavits of the two deponents in answer to the further discovery ordered by the court is conclusive and both of them have said that they have found and have no further documents. The line of authorities that Mr Burns submitted to me is not challenged by Mr Griffiths for the defendants. The line of authorities goes very far back and it rests with the latest authority of Fayed and others v. Lohrho Plc. where the court in looking at the authorities going back to the source of Jones v. The Monte Video Gas Company said why an affidavit in answer to an order for specific discovery that there are no further documents is conclusive and that the court will not sanction or permit further interlocutory steps to be taken such as cross-examination, no matter how improbable the case sworn on affidavit that there are no further documents. There are good rational reasons behind this principle as set out in the judgment of both the Court of Appeal in Fayed as well as the subsequent judgment of Mance J (as he then was) in Cepheus Shipping Corporation v. Guardian Royal Exchange Assurance Plc. ("the Capricorn"). The same sentiment is also expressed in the judgment of Kaplan J in John Baptist Wu v. Tsoi Kay & Anor that affidavits as to the non-existence of documents is conclusive.

4. Mr Griffiths, in his able and tenacious argument, has sought to find a way through this principle not by challenging the principle but by saying that the court, and this is at the end of the day really the crux of the whole discovery fight, can deduce not by admitted breach but from the affidavits sworn as well as from the documents produced by the plaintiffs' side that there are admitted documents still in their possession, power and control which they have not disclosed and therefore, it does not fly against the principle of the finality of affidavit of no further documents. The case as disclosed by the discovery schedule is that there are six items of documents under the order, supplemented by the last seventh item under the 2nd Summons schedule where there are details of what I would call the money flow documents but basically that is of the same category as the first.

5. Before I go on to describe the various categories of documents, I should first set out briefly the background of the case. The background of the case is really this. In 1984-1985, agreement was reached whereby there was an agreement to buy up the controlling stake in a Shaw Wallace Brewery so as to enable the joint venture company Carrasco to have that controlling stake and that the joint venture was to be equally between the interest on the one side, i.e. the defendants' side and the interest on the other side (the plaintiffs' side). The defendants' side was represented by Mr Chhabria and the plaintiffs' side in the discussion was represented by Mallya.

6. The purchase price eventually came to something like US$26 million, some US$15 million was to come from an AMEX loan and the balance was to be contributed equally by each side. Written agreement by the relevant companies on each side was entered into and the court had been shown these agreements, I believe one was by Amarante and the subsequent agreement was in the name of Alexina. The loan was drawn down and completion of purchase took place in January 1985. The documents that the defendants are particularly interested in are the documents relating to the initial purchase payments coming from the plaintiffs' side and the documents are those in Item 1 under the schedule as well as Item 7 under the schedule of the 2nd Summons. The second category of documents are, I believe, Items 2, 3 and 4, in relation to the two quarterly payments that were made, one I believe in April and the other in July 1985 to the bank pursuant to the loan. The third category is the trust documents under Item 6 and the last category of documents is Item 5 of the schedule that is in relation to the setting up of the trust. Those are the four categories of documents which the defendants are interested in relation to what the defendants say is the dispute between the parties concerning whether the beneficial interests of the plaintiffs is the Trust or Mallya. I would have to say something about what are the real important issues in the action a little bit later, but turning back to the narrow dispute now between the parties as to what are the powers open to the court on the present material before the court with one side, i.e. the plaintiffs' side having sworn in pursuance of the order, affidavits to say they have got no further documents and on the other side, the defendants saying there may not be admitted breach but the court can deduce from the affidavits that they have other documents which they are defying the court by not producing them or giving discovery for them.

7. It seems to me, first of all, that one can immediately dispose of the point made by Mr Griffiths that the wrong people have made the affidavits. I have no doubt that Ms Comley having been asked to look expressly by the partner of Sinclair Roche into Item 5 of the schedule, i.e. the files of Sinclair Roche as solicitors for the trust and solicitors company secretary of the plaintiffs in relation to the matter set out therein in the schedule that she was the right person to swear the affidavit she made. I think her affidavit speaks for itself. I have no doubt that she is the right person to make the affidavit.

8. Similarly, in relation to Mr Subramani, again, I have no doubt that he was the right person to make the affidavit as to the possession of the documents for the purposes of answering the order requiring swearing to the existence of the document. The way that the personalities coming to the picture in this piece of litigation is that the central figure on the plaintiffs' side was the person of Mr Divecha. Unfortunately he died in 1992. He would have been, as quite rightly pointed out by Mr Burns, undoubtedly the right person to swear the affidavit of documents. He was the chief legal counsel of the United Breweries Group. He was the protector of the Trust. He was the right-hand man of Mr Mallya. He therefore was deeply involved with everything pertaining to this joint venture. Mr Subramani works in his department and was therefore familiar with this matter and even though he was not a participant at the time when it happened, he was the person, like Mr Divecha, who was the interface, if I may call that, between the UB Group, the Trust, Mr Mallya and the plaintiffs. So, I have no doubt that he was the right person to swear the affidavit. But the main attack, however, of Mr Griffiths (I think the success of that attack is the key to success if any of the present application) is that notwithstanding the affidavit that had been sworn of no documents, there are, and the court can come to the conclusion without cross-examination, that there must still be documents in the plaintiffs' possession, power and control which had not been disclosed.

9. So far as Item 5 is concerned, namely the Sinclair Roche documents, which I think is in a special situation, I have no doubt that Mr Griffiths does not even begin to show the possession of further documents or that the court can go behind the conclusiveness of no further documents. What Mr Griffiths emphasized in reply is that if the court looks at the affidavit of Mr Subramani in relation to the three types of documents : one, the purchase money documents (Items 1 and 7); two, the bank loan instalment payments (Items 2, 3 and 4) and the third category being the trust documents under Item 6, that undoubtedly the court can find sufficient scope to conclude that there is the existence of other documents falling within these categories of the order.

10. If one looks carefully at the affidavit and the material, and one bears in mind the principle that in all the cases of affidavit evidence of non-existence of documents being conclusive, then it seems to me that I can only fairly come to the view that the plaintiffs are saying by way of Mr Subramani that they do not have any more documents. I cannot in all honesty say that the defendants have satisfied me that there was clearly shown on the totality of material other undisclosed documents specially having regarded to paragraph 30 of Mr Subramani's affidavit where he says this :

"Summary

30. By way of summary, other than the documents already discovered in this matter by the Plaintiffs, I believe that there are no further documents in the possession, custody or power of the Plaintiffs or the Trust relevant to matters in dispute in these proceedings. If any further relevant documents were created or received by or on behalf of the Plaintiffs, I do not know whether they might be, or what has happened to them."

I therefore conclude that the main attack of the defendants must fail. The authority that Mr Griffiths relied upon of the case such as Willis as well as The Product Star do not really help him because if the defendants fail to establish that they are the existence of other documents, then that authority about doing justice by ordering of a stay will not be operative.

11. The position therefore is that I am not satisfied that there are the existence of other documents not disclosed and I therefore conclude that the applications must fail. However in case I am wrong and that there is a scope for the fair deduction that there is the existence of other documents, should I exercise my discretion under Order 24, rule 16 at this stage to order further discovery in the way sought by the defendants. I am empathetically of the view that I should not. This is a litigation which has taken gigantic proportions. The events of the action went back to 1985. The claim started in 1992. By 1996 if my recollection is correct, pleadings had closed and discovery then followed. Discovery fight has taken some six years from 1996 to now and I suspect if the defendants are given the free hand, it can go on for considerably longer period. This is a deplorable state of affairs, satellite litigation of this kind has taken a life of its own and in the John Wu case of Kaplan J, as well as I think in the judgments from the English Courts that I had been referred, there were repeated references to the satellite litigation over discovery which should be put to an end and desirability for early resolution by the most effective means that our system of justice knows and that is a trial.

12. In my view, the earlier this trial should take place the better it is for everyone. Discovery fights must come to an end and therefore in my view, even if I have any discretion because by a stretch of subtle analysis that the affidavit of no further documents is not conclusive because some documents could be deduced as still in existence and not disclosed, I would exercise my discretion by declining to order further discovery affidavit.

13. I think one should step back a little bit to look at this piece of litigation that has taken so long and has cost so much money. There is no doubt that there was the joint venture agreement evidenced by written agreements and the loan agreement. There is no doubt that payments were made both towards the initial purchase price as well as towards the first two instalments in April and July 1985. There is no doubt that bankers has advanced money on the basis of a joint venture.

14. There are basically three defences to the action. The principal defence to the action brought by the plaintiffs for an enforcement of the joint venture agreement and/or for the return of the money is that there was termination in early March 1985 by an agreement between Mr Chharbria for the defendants and Mr Mallya for the plaintiffs whereby the defendants allowed the plaintiffs to walk away from their investment and took over their share in the joint venture. The secondary defence is that the written signed agreement of the joint venture by the respective companies is a sham and that the real agreement is between the two persons of Mr Chhabria and Mr Mallya. There is the third defence that there was a breach of the joint venture agreement because of the failure by the plaintiffs to continue to make the bank payments.

15. The key I suspect at the end of the day at the trial will be termination defence. All these defences really do not require too much the assistance of the documents now so strenuously sought. I think these documents at best would be of marginal value and are certainly not necessary to be disclosed now for the fair disposal of the action. It would be quite wrong now at this late stage to further allow indulgence to the defendants to prolong this piece of litigation. I think the court's duty is to ensure that there will be a speedy, expeditious and economic trial as soon as possible and I think that should take place.

16. My order therefore is that the two summonses are dismissed, I will hear the parties as to costs and I will also give directions as to the future progress of the action.

Representation:

Mr Ashley Burns, instructed by Messrs Sinclair Roche & Temperley, for the Plaintiffs

Mr John Griffiths, SC and Mr C.W. Ling, instructed by Messrs Susan Liang & Co., for the Defendants

HCA6359/1992

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO.6359 OF 1992

-------------------------

----------------------

J U D G M E N T

----------------------

1. This is a heavy piece of litigation and it has been on-going for some time. There is an Unless Order made by Master Chan on 27 July 2000 for further discovery, attached to that Unless Order are 6 items in the schedule.

2. In compliance with that Unless Order, two affidavits had been sworn by the plaintiffs' side, one by Teresa Comley on 24 July 2000 and one by Patanjali Subramani on 2 August 2000. There may be inadequacy in these affidavits but I do not form the view as contended by the defendants that the inadequacy are such as to lead to the drastic draconian remedy of the action being struck out as sought by the defendants in the summons which they had taken out dated 12 September 2000. I think looking at the matter overall, I cannot form the view that these affidavits are so illusory and so defiant of the Unless Order as to be deserving of the sanction of having the action struck out.

3. Having regard to the fact that a second part of the application under Order 24, rule 16 would be made by the defendants for further relief, I will refrain from saying too much as to the details of the merits of the discovery or of the affidavits filed in compliance with the Unless Order.

4. My judgment is that the application of the defendants under paragraph 2 of the summons is to be dismissed.

5. So far as the costs of the application are concerned, having regard to the fact that there is a second part of the application to be made, I order that the matter of costs should be reserved until after I heard the further application.