Asia Hotel Investments Ltd v Starwood Asia Pacific Management Pte Ltd and Another

JurisdictionSingapore
Judgment Date20 September 2004
Date20 September 2004
Docket NumberCivil Appeal No 143 of 2003
CourtCourt of Appeal (Singapore)
Asia Hotel Investments Ltd
Plaintiff
and
Starwood Asia Pacific Management Pte Ltd and another
Defendant

[2004] SGCA 37

Yong Pung How CJ

,

Chao Hick Tin JA

and

Judith Prakash J

Chao Hick Tin JA

and

Judith Prakash J

Yong Pung How CJ

(dissenting)

Civil Appeal No 143 of 2003

Court of Appeal

Contract–Breach–Loss of chance–Whether respondent's breach of contract causing appellant to lose chance in acquiring shares sold by third party–Contract–Breach–Nominal damages–Issue before trial judge concerning liability for breach of contract–Whether trial judge's award of nominal damages amounting to assessment of damages payable by respondent–Evidence–Proof of evidence–Onus of proof–Whether respondent's breach of contract causing appellant to lose chance in acquiring shares sold by third party–Whether evidential burden shifting to respondent to show its actions did not cause appellant's loss–Whether evidential burden discharged–Evidence–Proof of evidence–Standard of proof–Loss of chance contingent upon hypothetical action of appellant–Standard of proof required of appellant to prove own inaction did not cause loss of chance–Evidence–Proof of evidence–Standard of proof–Loss of chance contingent upon hypothetical action of appellant–Whether appellant having to prove hypothetical action on balance of probabilities or show “real and measurable chance”

The appellant wanted to invest in Grand Pacific Hotel (“the Grand Pacific”) which was owned by PS Development (“PSD”). PSD was, in turn, owned by the Lai Sun group of companies (“Lai Sun”) and one Pongphan. If Lai Sun wanted to sell its shares, Pongphan (as minority shareholder) had the right of first refusal.

In order to achieve its investment plan, the appellant had to accomplish a few interrelated tasks. First, it had to acquire Lai Sun's majority shares in PSD (“the Lai Sun stake”). Second, it had to enter into arrangements with financial institutions for a loan. Third, it had to secure a management contract with a hotel operator. Fourth, it had to obtain Pongphan's waiver of his right of first refusal.

On 7 November 2001, the appellant entered into a Memorandum of Understanding (“MOU”) with Lai Sun to purchase the Lai Sun stake. The appellant had until 14 December 2001 to enter into a contract with Lai Sun for the purchase of the shares.

The first respondent (“Starwood”) owned and managed international hotel chains. On 4 December 2001, the appellant signed a non-circumvention agreement with Starwood under which Starwood undertook not to “solicit any source introduced by the other party” or enter into any agreement with such a source for 12 months.

The appellant could not put in place the necessary financial arrangements to conclude the deal before the MOU expired. A request by the appellant for an extension of the MOU was turned down by Lai Sun because the appellant did not want to pay a fee in exchange for the extension. There was also evidence that after the lapse of the MOU, the appellant retreated in its negotiations with the financial institutions for a loan. Its negotiations with Starwood also did not get very far as the appellant had asked for US$2m in key money from Starwood who turned down the request.

After the MOU with Lai Sun lapsed, the Narula family expressed interest in the Lai Sun stake. Lai Sun entered into an MOU with the Narulas on 5 February 2002. Under this second MOU, the Narulas had up to 28 February 2002 to enter into a contract to purchase the Lai Sun stake. On 19 February 2002, Lai Sun extended the second MOU indefinitely in favour of the Narulas.

On or after 15 February 2002, Starwood showed a clear interest in co-operating with the Narulas. Further contact was made between Starwood and the Narulas despite the appellant's e-mails to Starwood reminding Starwood of its obligations under the non-circumvention agreement.

Eventually, the Narulas entered into an agreement with Lai Sun to purchase the Lai Sun stake on 22 March 2002. Three days later, Starwood, through a nominee, signed a letter of intent for the management of the Grand Pacific with the Narulas and Pongphan. The transaction was completed on 22 May 2002 when the Narulas secured a loan from DBS Thai Danu Bank.

At the trial below, the appellant claimed damages for loss of chance to purchase the Lai Sun stake. The trial judge found that Starwood had breached the contract, but found that the breach did not cause the loss. Consequently, he awarded nominal damages of $10 to the appellant.

Held, allowing the appeal (Yong Pung How CJ dissenting):

(1) The trial judge erred in treating the appellant's lack of progress in its negotiations with Lai Sun and with the financial institutions as important in determining whether the loss by the appellant of the chance to acquire the Lai Sun stake was caused by the breach. The appellant knew that to successfully wrap up the deal to purchase the Lai Sun stake, the most critical factor was an international hotel operator with a five-star brand. Having locked Starwood for a year up to 4 December 2002 through the non-circumvention agreement, the appellant knew that it had up to the same day to sew things up. Hence, the appellant was not as anxious as it should have been when Lai Sun refused to extend the MOU and when it knew that the Narulas would be a competitor: at [120] and [122].

(2) The objective facts showed that the Narulas needed Starwood as the operator of the hotel. Starwood's acts helped the Narulas to acquire the Lai Sun stake. The evidential burden of disproving that shifted to Starwood to show that the Narulas could have proceeded with the acquisition without the help of Starwood and Starwood did not discharge this evidential burden: see [124] and [126].

(3) Once causation was established for loss of a chance, all that was needed to be shown was that the chance which was lost was real or substantial. What would constitute a real or substantial chance need not be proved on the balance of probabilities: at [135] and [137].

(4) Two questions should be asked and answered. First, did the breach on the part of the defendant cause the plaintiff to lose a chance to acquire an asset or a benefit? Second, was the chance lost a real or substantial one; or, putting it another way, was it speculative? While, as a rule, the plaintiff always had the burden of proof, the question as to who had to prove a particular fact, and whether in a particular fact situation the evidential burden shifted, were matters dependent wholly on the circumstances: at [139].

(5) The trial judge did not award the nominal damages as part of an assessment of damages, but because he took the view that the issue of causation had not been established in the context of a trial on liability: at [143] and [144].

Per Yong Pung How CJ (dissenting):

(6) An innocent party in a breach of contract was entitled to nominal damages even if he did not suffer loss as a result of the breach. The trial judge had awarded nominal damages because causation had not been proved, not because he went on to assess the appellant's damages: at [41].

(7) The appellant's chance of securing the Lai Sun shares depended on a combination of four factors. Any loss of chance was contingent not just upon Starwood's breach, but also on the appellant's own actions (or lack thereof) and those of Lai Sun. The important question was to determine which test (ie balance of probabilities or “real or measurable chance”) applied to which of those factors: at [45].

(8) Where the alleged loss was contingent upon the hypothetical acts of the plaintiff, the plaintiff had to prove that he would have acted in such a way as to put himself on track to obtain the benefits of the chance. The plaintiff had to prove this on a balance of probabilities, and not (as the appellant contended) on a mere “loss of real or measurable chance” standard. One could not take the plaintiff's word alone as proof of this intention. The surrounding facts and objective evidence had to be scrutinised to see if he would have proceeded to take that necessary step or steps to put himself on course to secure the chance which he had allegedly lost. The fact that his claim was for a loss of chance should not place him on a better footing compared to plaintiffs for other claims: at [60].

(9) By finding that “what would constitute a real or substantial chance need not be proved on the balance of probabilities”, the majority of the court may have conflated the legal issues. That statement was only true to the extent that it was the formula to be used when the court had to assess the hypothetical conduct of third parties, who were not privy to the legal proceedings. That could not be equated with the threshold required of a plaintiff when he had to prove his case: at [63].

(10) There was ample evidence to show that the appellant had not crossed the high threshold that the law required. Despite the appellant's claim that it had “every intention” of securing the deal with Lai Sun, the facts revealed a completely different picture. On the available evidence, the appellant did not have the intention to recommence negotiations with Lai Sun and/or the financial institutions which were necessary to proceed with the deal: at [64] and [84].

(11) The approach of the majority of the court, that the appellant was entitled to “stay by the sidelines” and wait till the deal with the Narulas fell through, was speculative and unnecessarily indulgent towards the appellant. It was impossible to say that the breach had caused the appellant to lose a real and substantial chance to acquire the Lai Sun stake without indulging in unnecessary speculation: at [85] and [88].

Allied Maples Group Ltd v Simmons & Simmons [1995] 1 WLR 1602 (refd)

Bank of Credit and Commerce International SA v Ali (No 2) [1999] 4 All ER 83 (folld)

Bank of Credit and Commerce International SA v Ali (No 2) [2002] 3 All ER 750, CA...

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