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 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.