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

• Jurisdiction: Singapore
• Judge: Tan Lee Meng J
• Judgment Date: 27 November 2003
• Neutral Citation: [2003] SGHC 289
• Plaintiff Counsel: Alvin Yeo, SC and Tay Peng Cheng (Wong Partnership)
• Published date: 08 December 2003
• Court: High Court (Singapore)
• Defendant Counsel: Tan Kok Quan, SC and Marina Chin (Tan Kok Quan Partnership)
• Subject Matter: Contract,Breach,Non-circumvention agreement,Parties agree that they will not enter into a contract with any source introduced by the other party,Defendants enter into a contract with a third party which provides that the contract may be transferred to a source introduced by the plaintiffs,Whether such agreement constitutes a breach of the agreement.,Remedies,Remoteness of damage,Plaintiffs enter into negotiations with defendants,Defendants agree not to contract with any party introduced by the plaintiffs as part of the negotiations,Defendants breach their agreement with plaintiffs,Whether plaintiffs have shown that the defendants' breach caused them to lose a reasonable and measurable loss of a chance,Whether plaintiffs entitled to substantial damages.

1. The plaintiffs, Asia Hotel Investments Ltd (“Asia Hotel”), are in the business of investing in luxury hotels and golf courses in South East Asia. The first defendants, Starwood Asia Pacific Management Pte Ltd (“Starwood Asia”), provide hotel management and consultancy services. Starwood Asia’s parent company, the second defendants, Starwood Hotels & Resorts Worldwide Inc (“Starwood Hotels”), own brands such as St Regis, Westin, Sheraton and Four Points and are one of the largest hotel managers and owners in the world. Asia Hotel alleged that they suffered loss as a result of Starwood Asia’s breach of a confidentiality and non-circumvention agreement (“non-circumvention agreement”) in relation to their proposed acquisition of the majority stake in a company that owned a hotel in Bangkok, an allegation that was denied by Starwood Asia.

2. In their statement of claim, Asia Hotel also sought damages from Starwood Asia and Starwood Hotels for conspiracy and for unlawful interference with their economic interests. However, during the trial, Asia Hotel agreed to drop all their claims against Starwood Hotels and confine their claim to damages for Starwood Asia’s alleged breach of contract in return for Starwood Hotel’s undertaking that whatever damages or costs ordered in favour of Asia Hotel would be paid. For convenience, both Starwood Asia and Starwood Hotels will be referred to as “Starwood” in the rest of this judgment.

A. BACKGROUND

3. The facts in this case, shorn of details, are as follows. In the last quarter of 2001, Asia Hotel wanted to invest in the Grand Pacific Hotel (“Grand Pacific”), a well located four-star hotel at 259 Sukhumvit Road, Bangkok. This hotel was then owned by PS Development (“PSD”), which is now known as Grande Asset Development Public Co Ltd. PSD’s majority shareholders were Lai Sun Development Co Ltd, whose affiliated companies and nominees, Studyhome Holdings Limited and Upton Company Ltd (collectively referred to as “Lai Sun”) held 54.25% of the shares. The remaining 45.75% of the shares were held by PSD’s chairman, Mr Pongphan Samawakoop (“Pongphan”), and his nominees. By agreement, Lai Sun could not sell their stake in PSD to another party unless Pongphan waived his right to buy it.

4. Lai Sun wanted to sell their 54.25% stake (“the Lai Sun shares”) in PSD. Asia Hotel wanted to acquire the Lai Sun shares and upgrade the Grand Pacific from a four-star hotel to a five-star hotel run by an international hotel management company. On 7 November 2001, Asia Hotel, through their nominees, Siam Hotel Properties Co Ltd, entered into a Memorandum of Understanding (“MOU”) with Lai Sun for the acquisition of the latter’s stake in PSD for US$7.5m. Under the MOU, Lai Sun undertook not to enter into any binding agreement for the sale of their stake in PSD with any other entity until after 14 December 2001. Asia Hotel had until that date to sign the sale and purchase agreement for the Lai Sun shares and pay a deposit of US$500,000.

5. Asia Hotel’s next task was to secure a loan from a financial institution and to persuade an international hotel management company to run the Grand Pacific. The loan required by Asia Hotel was rather complicated as it envisaged the borrowing of 1.3m baht to restructure PSD’s massive debts as well. Asia Hotel’s president, Mr Gary Murray (“Gary”), negotiated with a number of financial institutions, including Lehman Brothers and Ekachart Finance, but no agreement was concluded with them or with any other financial institution at the material time.

6. Gary also had discussions with a number of international hotel management companies, including the Hyatt Group, Mariott International Inc, Six Continents Hotels, the Raffles Group, Shangri-la and Starwood, regarding the management of the Grand Pacific. As the 1.3m baht loan sought by him from a financial institution was only sufficient for the restructuring of PSD’s debts and for the payment of a large portion of the purchase price of the Lai Sun shares, Asia Hotel required a hotel manager who could offer them not only management services but also a huge loan for the renovation of the Grand Pacific. He decided to focus his attention on Starwood as he sensed that they were very keen to have a Westin hotel in Bangkok.

7. On 4 December 2001, Asia Hotel signed a Confidentiality/Non-Circumvention/Non-Disclosure Agreement (“non-circumvention agreement”) with Starwood without informing the latter that the deadline under their MOU with Lai Sun was fast approaching. Under this agreement, the parties undertook not to solicit any source introduced by the other party or enter into any agreement with such a source for a period of 12 months. This agreement was subject to Starwood resolving an outstanding issue with the Narula family (the “Narulas”), which owned the Sheraton Grande Sukhumvit, a five-star hotel managed by Starwood. There was a restrictive covenant prohibiting the management of another hotel within a one kilometre radius and the Grand Pacific was just across the road. In due course, this issue was resolved after Starwood agreed to compensate the Narulas if they managed a hotel within the affected area but not if such a hotel is owned by the Narulas.

8. On 13 December 2001, Asia Hotel, which had not finalised any arrangement with a financial institution or hotel management company, asked Lai Sun to extend the deadline under their MOU by 45 days. However, Lai Sun replied on 15 December 2001 that they “did not wish to tie [themselves] down to one potential purchaser without receiving any assurances or at least compensation for an extension”. The termination of the MOU was a setback for Asia Hotel as they lost their exclusive right to purchase the Lai Sun shares. Asia Hotel never went back to Lai Sun to make any offer for the acquisition of the Lai Sun shares.

9. PSD’s minority shareholder, Pongphan, who had been supportive of Asia Hotel’s efforts to acquire the Lai Sun shares thus far, was rather concerned about the termination of the MOU. His unchallenged evidence is that he informed Gary that he would have to look for alternative partners and that Gary told him to go ahead. Pongphan’s friend, Mr Kirin Narula (“Kirin”), had indicated to him earlier on that the Narulas would be interested in acquiring the Lai Sun shares if Asia Hotel failed to conclude a deal with Lai Sun. When told that Asia Hotel’s MOU with Lai Sun had lapsed, the Narulas stepped into the picture immediately.

10. Gary, who knew about the Narulas’ moves, thought that the latter lacked the financial muscle to acquire the Lai Sun shares. Without informing Starwood that his MOU with Lai Sun had already lapsed or that Pongphan was looking for another partner, Gary continued his discussions with them. Initially, he also did not disclose to Starwood that he required a loan of US$5m for the renovation of the Grand Pacific. It was only at a meeting on 4 January 2002 with Mr Tom Monahan, Starwood’s Vice-President of Acquisitions and Development, Asia Pacific, that he sought not only a US$5m renovation loan but also an ex gratia payment of between US$1m to US$2m, which was termed “key money”. Starwood’s witnesses claimed that they were shocked that Gary wanted a personal gift but the latter insisted that the key money was not a personal bribe as it was intended for his company. Gary’s request for key money was rejected but on 22 January, Starwood sent Asia Hotel a sweetener in their draft letter of intent, which included an offer of US$6m for a renovation loan, which was $1m more than what Gary had asked for. In the face of the threat from the Narulas, Gary should have made a concerted effort to conclude a deal with Starwood. Instead, he made further demands for more money in the form of a gift or loan from Starwood. Gary’s protracted negotiations with Starwood came to nought because, contrary to what he had expected, the Narulas did not fail in their bid to acquire the Lai Sun shares.

11. In the meantime, the Narulas acted with a great sense of urgency. On 18 January 2002, Kirin Narula had discussions with Lai Sun. Not surprisingly, Pongphan agreed to waive his right to purchase the Lai Sun shares. Shortly thereafter, on 5 February 2002, the Narulas entered into an MOU with Lai Sun, which gave them the exclusive right until the expiry of the MOU to enter into an agreement for the sale and purchase of the latter’s 54.25% stake in PSD for US$7.7m. On 19 February 2002, Lai Sun effectively shut out other persons who might have had an interest the Lai Sun shares by extending the expiry date of the MOU indefinitely.

12. On 22 March 2002, the Narulas entered into an agreement with Lai Sun for the sale and purchase of the Lai Sun shares. On 28 March 2002, they paid Lai Sun US$1.2m. The Narulas arranged for a massive loan from DBS Thai Danu Bank and on 22 May 2002, the sale of the Lai Sun shares was completed.

13. As for the management of the Grand Pacific, the Narulas, like Gary, also had discussions with a number of international hotel management companies, including Six Continents Hotels, Mariott International Inc, Accor and the Starwood group, and received proposals from a number of them. For instance, Six Continents Hotels offered to manage the Grand Pacific as a Crowne Plaza Hotel and also offered a renovation loan of US$3m in exchange for a management contract of 15 years. Although the Narulas thought that the offer from Six Continents Hotel was good enough for them to work on, they and Pongphan finally decided to have the Starwood group manage the Grand Pacific. On 15 May 2002, Starwood’s affiliated company, Westin Asia Management Co, entered into a management agreement, not with PSD, but with the shareholders of PSD, namely the Narulas and Pongphan. Another company in the Starwood stable, Starwood Hotels (Thailand) Co Ltd, agreed to furnish a US$5m loan for the renovation of the Grand Pacific.

14. Although Asia Hotel never got their own act in...