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

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J U D G M E N T

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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.