High Court · Decided 10 April 2007

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

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[2007] SGHC 50Case no. Suit 961/2002

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Evidence Act 1893

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Lai Siu Chiu J:
Introduction
[1] This is the third but by no means the final chapter in the litigation between the parties herein. In this chapter, the court’s task was to assess the plaintiff’s chances of acquiring a hotel in Bangkok, which opportunity it lost due to the defendants’ breach of an agreement signed between the parties.
[2] The plaintiff, Asia Hotel Investments Ltd, was incorporated in the Channel Islands in 1998 for the purpose of investing in luxury hotels and golf courses in South East Asia. What the plaintiff did was to secure a hotel and put together a programme whereby the hotel would be renovated and/or refurbished, rebranded and repositioned under the brand of an international chain of hotels. The plaintiff’s president and its alter ego is one Gary Murray (“Murray”) who is a Canadian national but who has resided for many years now in Bangkok, Thailand and is married to a Thai citizen. (References to the plaintiff in this judgment in effect are a reference to Murray.) Prior to coming to Asia in 1998, Murray worked for Larco Enterprises Ltd (“Larco”), one of Canada’s largest privately-owned hotel investment and property development firms. During his ten-year tenure with Larco, Murray developed, or helped to develop, the Holiday Inn at Whistler, British Columbia, and the Marriott Hotel at Vancouver Airport.
[3] The first defendant, Starwood Asia Pacific Management Pte Ltd, is in the business of providing hotel management and consultancy services whilst the second defendant, Starwood Hotels & Resorts Worldwide Inc, is the parent company of the first defendant. Amongst the hotel brands owned by the second defendant are, inter alia, Westin, St Regis, Sheraton, W Hotels and Four Points.
The background
[4] The plaintiff wanted to invest in a four-star hotel known as Grand Pacific Hotel (“GPH”) situated along the prestigious Sukhumvit Road in the central business district of Bangkok. At the material time GPH was owned by PS Development Co Ltd (“PSD”). PSD was in turn owned by a Hong Kong company, Lai Sun Development Co Ltd, and two of its associates, Studyhome Holdings Limited and Upton Company (collectively referred to as “Lai Sun” henceforth), together with a Thai gentleman, Pongphan Samawakoop (“Pongphan”), in the ratio of 54.25% and 45.75% shares respectively. (Henceforth, the 54.25% interest of Lai Sun in GPH will be referred to as “the Lai Sun stake” where appropriate.) Pongphan was also the chairman of PSD.
[5] In the last quarter of 2001, Lai Sun wanted to sell its stake in GPH. Under a shareholders’ agreement, Pongphan had the right of first refusal to the Lai Sun stake but he did not wish to buy the same as PSD was heavily indebted to its creditors (and Pongphan had guaranteed PSD’s loans from its bankers). The plaintiff, however, was very interested to buy over the Lai Sun stake, convert GPH into a five-star hotel and also restructure PSD’s debts. In 2001, the plaintiff had purchased the four-star Melia hotel situated at Hua Hin in the Gulf of Thailand and after renovations, had turned it into the five-star Hilton Hua Hin Resort & Spa (“HHH”), a top resort in the Hilton chain. As Murray so proudly put it, HHH was the “jewel” in the plaintiff’s crown. In seeking to buy over the Lai Sun stake and rebrand GPH, the plaintiff intended to repeat its success with HHH. According to Murray, the plaintiff had bought and sold the Merlin Hotel (in Pattaya) as well as another hotel prior to the HHH deal.
[6] With Pongphan’s approval, the plaintiff (through its nominee, Siam Hotel Properties Co Ltd (“SHP”)) entered into a memorandum of understanding dated 7 November 2001 (“the first MOU”) with Lai Sun to buy over the Lai Sun stake for US$7.5m (“the purchase price”). Under the first MOU, the plaintiff had until 14 December 2001 to enter into a contract to buy over the Lai Sun stake and pay a deposit of US$500,000. Lai Sun on its part undertook not to sell the Lai Sun stake to any third party during that period.
[7] The plaintiff then looked for an international hotel operator to manage GPH. It also tried to secure loans from financial institutions to fund the purchase price, to pay for the upgrading of GPH and to restructure the debts of PSD. After approaching and holding discussions with various hotel operators including the first defendant, Hyatt International, Marriott International Inc, Six Continents Hotels (who owns the Crowne Plaza brand), the plaintiff decided to focus its attention on the defendants; Murray sensed that the defendants were keen to have a Westin Hotel in Bangkok, having recently lost the management of the Bangkok Banyan Tree Hotel/Resort under the Westin brand.
[8] The first defendant offered the plaintiff its Westin brand. On 4 December 2001, the plaintiff and the first defendant signed a confidentiality cum non-circumvention agreement (“the NCA”) under which each party 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. The NCA was backdated to 9 November 2001. The NCA was subject to the defendants resolving with Kirin Narula (“Kirin”) and his family (“the Narulas”), who owned the Sheraton Grande Sukhumvit (a five-star hotel situated across the road from the GPH and managed by the first defendant), the issue of a restrictive covenant which prohibited the management by the first defendant of another hotel within a one-kilometre radius of the Sheraton Grande Sukhumvit.
[9] In regard to financing, the plaintiff approached Lehman Brothers and Ekachart Finance but concluded no agreement with either institution. Upon expiry of the first MOU on 14 December 2001, the plaintiff did not have any financial arrangements in place. Neither did it pay the US$500,000 deposit required by Lai Sun. The plaintiff sought an extension of 45 days of the deadline to pay this deposit. Lai Sun rejected the request, as Lai Sun did not wish to be tied down to one potential buyer with no guarantee that the plaintiff would be able to conclude the deal.
[10] Shortly thereafter, Kirin (who was acquainted with Pongphan) indicated to Pongphan that the Narulas were interested in buying the Lai Sun stake. After discussions with Lai Sun on 28 January 2002, a memorandum of understanding was concluded on 5 February 2002 (“the second MOU”) between Lai Sun and the Narulas whereby the latter would be given, until 28 February 2002, the exclusive right to negotiate and purchase the Lai Sun stake. On 19 February 2002, Lai Sun extended the second MOU indefinitely.
[11] On 22 March 2002, the Narulas entered into an agreement with Lai Sun to purchase the Lai Sun stake. The transaction was completed on 22 May 2002 with a loan from DBS Thai Danu Bank.
[12] Although the plaintiff was aware that the Narulas were negotiating to buy the Lai Sun stake, Murray nevertheless continued to negotiate with the first defendant regarding a renovation loan of US$5m for GPH. He further sought to obtain an ex-gratia payment of US$2m termed “key money” from the defendants.
[13] On 18 January 2002, the defendants forwarded their first draft letter of intent (“LOI”) to the plaintiff. This was followed by a second LOI on 22 January 2002 and a term sheet. Although the defendants were not prepared to pay Murray the “key money”, they increased the amount of the renovation loan requested by the plaintiff from US$5m to US$6m. The negotiations between the plaintiff and the defendants were inconclusive.
[14] On and after 15 February 2002, the defendants showed their interest in assisting the Narulas to acquire the Lai Sun stake and in turn GPH. The Narulas’ representative contacted the first defendant to explore the possibility of entering into an arrangement under which the first defendant would manage GPH on the Narulas’ behalf. The first defendant reverted to the Narulas on 28 February 2002 on the basic terms of a management contract and offered the latter a US$5m renovation loan to upgrade GPH to a five-star hotel of Westin standard.
[15] Despite the plaintiff’s reminder to the first defendant of its obligations under the NCA, the first defendant continued its contacts and negotiations with the Narulas until 18 March 2002. On 16 March 2002, the plaintiff was informed by Lai Sun that the Narulas had not yet secured the deal.
[16] Three days after the Narulas had signed the sale and purchase agreement to buy the Lai Sun stake, on 25 March 2002, the defendants signed (through their nominee, Westin Asia Management Company) with the Narulas and Pongphan, an LOI to manage GPH. This was followed by the execution of a management contract between Westin Asia Management Company and the shareholders of PSD on 15 May 2002. The defendants agreed to grant a US$5m loan to the shareholders for the upgrading of GPH. The Narulas paid US$7.7m for the Lai Sun stake.
The previous litigation
[18] The plaintiff’s claim was dismissed by Tan J (at [2003] SGHC 289). Although he found that the first defendant had breached the NCA as early as 15 February 2002, he held that the plaintiff’s alleged loss of a chance to acquire the Lai Sun stake was too remote and was not caused by the first defendant’s breach of the NCA. It was the judge’s view (at [43] of his judgment) that the plaintiff was in no position to conclude any deal with Lai Sun before the Narulas ended its dream of owning GPH. He was not convinced that Murray had an “almost done” deal with Lai Sun before the Narulas came onto the scene, noting that when the MOU expired on 14 December 2001 (and was not extended), the plaintiff had not yet resolved the twin issues of financial arrangements and a hotel manager for its purchase of GPH. The judge found at [42] that the plaintiff had failed to establish that the Narulas could not have completed their deal with Lai Sun without the defendants’ agreement to manage GPH and offer a renovation loan. Accordingly, Tan J awarded nominal damages of $10.00 to the plaintiff.
[19] The plaintiff appealed against Tan J’s decision (in Civil Appeal No 143 of 2003). By a majority decision (Yong Pung How CJ dissenting), the Court of Appeal allowed the plaintiff’s appeal (see report at [2005] 1 SLR 661) and held:
(a) Tan J had erred in treating the plaintiff’s lack of progress in its negotiations with Lai Sun and with financial institutions as important in determining whether the loss by the plaintiff of the chance to acquire the Lai Sun stake was caused by the breach. The plaintiff 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 the defendants in for a year up to 4 December 2002 through the NCA, the plaintiff knew that it had up to that same day to sew things up. Hence, the plaintiff was not as anxious as it should have been when Lai Sun refused to extend the first MOU and when it knew that the Narulas would be a competitor.
(b) The objective facts showed that the Narulas needed the defendants as the operator of GPH. The defendants’ acts helped the Narulas to acquire the Lai Sun stake. The evidential burden of disproving that shifted to the defendants to show that the Narulas could have proceeded with the acquisition without the help of the defendants and the defendants did not discharge this evidential burden.
(c) Once causation had been established for loss of a chance, all that was needed to be shown was that the chance which was lost was real and substantial. What would constitute a real or substantial chance need not be proved on a balance of probabilities.
[20] After Tan J’s judgment was delivered, PSD was renamed Grande Asset Development Public Company Ltd (“GAD”) by the Narulas and listed on the Stock Exchange of Thailand (“SET”) on 10 February 2004. Murray alleged that the initial public offering (“IPO”) share price was THB4.85. According to Murray, the public float was 24.9% of the issued shares and raised about THB722m. Based on this calculation, Murray contended[note: 1] that PSD at 100% would be worth THB2,888m. There is an error in his calculation. If 24.9% of the shares is valued at THB722m, then at 100%, the value ought to be approximately THB2,899m (THB722m ÷ 24.9%) and not THB2,888m. Murray then proceeded to contend that if PSD was worth THB2,888m (or more accurately, THB2,899m), the stake held by the Narulas (at 54.25%) would be valued at THB1,566,740,000 (or THB1,573,032,000 based on my calculation). If the original investment of the Narulas was THB100m for those shares, that meant (according to Murray’s calculation) that the Narulas had made a profit of THB1,466,740,000 or US$37,179,000. Based on my calculation, the alleged profit ought to be THB1,473,032,000 or US$36,825,800 (at THB40 to US$1.00). It is my view that this argument is overly simplistic as, at the time of its flotation, PSD owned other assets (including the Crowne Plaza in Bangkok and the Hua Hin Blue Lagoon Resort) apart from GPH.
The assessment
[21] In the light of the plaintiff’s successful appeal, the question of assessing its loss of chance to acquire the Lai Sun stake had to be determined. The assessment exercise before me took a total of 25 days, far longer than the initial trial to determine the defendants’ liability for breach of the NCA. A total of 15 witnesses testified, which included eight witnesses for the plaintiff – four experts and four witnesses of fact, while the defendants called seven witnesses – four experts and three witnesses of fact including Thomas Monahan (“Monahan”), who is a director of the first defendant.
[22] In the closing submissions tendered on the plaintiff’s behalf after the assessment concluded, it was argued that the plaintiff had more than a 50% chance of acquiring GPH. It was further submitted that the plaintiff could have reaped substantial profits in the region of THB1.15bn had it acquired GPH, which sum is equivalent to US$28,750,000. The plaintiff initially claimed US$36,766,307.00 in Murray’s affidavit of evidence-in-chief filed for the assessment. The defendants on the other hand submitted that the plaintiff had less than a 2.5% chance of acquiring the Lai Sun stake and quantified the plaintiff’s loss at US$121,690.97. The gulf between the parties’ figures is an irreconcilable 47.5% (or some US$36.6m), if not more.
[23] Before I turn to the proceedings before me, it would be useful to look at the qualifications laid down by the majority judges of the Court of Appeal (at [130]) vis-à-vis assessing the plaintiff’s loss, when it held that the defendants’ breach had caused the plaintiff to lose a real chance of acquiring the Lai Sun stake and in turn GPH:
[24] I should add that subsequently the Court of Appeal qualified the emphasised statement further as follows (at [141]):
It is too speculative to determine whether another contender for the Lai Sun stake would or would not have appeared on the scene had the Narulas not clinched the deal.
[25] The assessment exercise required a two-fold analysis; the first pertained to the extent of the plaintiff’s chance in procuring the Lai Sun stake while the second part related to the value of GPH. The quantum of the plaintiff’s claim fell to be determined based on a function of those two values, namely, the percentage of chance multiplied by the value of GPH.
Evaluating the plaintiff’s chance
[26] Before I address the arguments and counter-arguments raised by the parties, I have a preliminary observation to make on a point raised in the plaintiff’s closing submissions[note: 2] where it stated:
[27] In the same vein, the plaintiff then submitted that because the Court of Appeal had held that it had a “real and substantial chance”, that meant that this court should find that it had more than a 50% chance of securing the Lai Sun stake.
[28] What then is a “real and substantial” chance? Does it mean, as the plaintiff contended, that the chance, as found by the Court of Appeal, has to be more than 50%? I think not. To come to such a conclusion ignores the following passage at [139] of the majority judgment of the Court of Appeal:
[29] In my view, the phrase “real and substantial” was used or raised as a formula for suggesting that the chance that the plaintiff had alleged that it had lost must not have been merely speculative. It cannot however be interpreted as saying that the Court of Appeal must have meant that the chance was numerically substantive or more than 50%, as was suggested in the plaintiff’s closing submissions. To do so would be to undermine if not contradict the earlier Court of Appeal decision in Straits Engineering Contracting Pte Ltd v Merteks Pte Ltd [1996] 1 SLR 227 (“Straits Engineering”). There, in one of the other rare cases in Singapore which involved evaluating the quantum of chance, the Court of Appeal saw no hesitation in evaluating the chance at 2.5% even though liability had been established. To accept the plaintiff’s argument would be tantamount to a finding that the decision of the Court of Appeal in Straits Engineering was wrong. In any event, I am fortified in my view by another passage in the majority judgment of the Court of Appeal in the present case (at [135]):
[30] Hence, the context in which the phrase “real and substantial” was raised is, in my view, no more than a means to contrast against a situation where the chance was negligible or practically zero. It cannot or should not be a means to tie the hands of the judge assessing the quantum of that chance.
[31] In the same vein, I cannot endorse without reservations the defendants’ view that the plaintiff’s chance was no more than 2.5%. It seemed to me that that figure was most probably plucked out of the decision in Straits Engineering. To do so would be to turn a blind eye to the facts and circumstances which were unique to this case; each case of assessing chance is wholly dependent on its own set of facts. All the material facts have to be examined thoroughly and rigorously, in order to achieve a fair assessment of compensation. Against that backdrop, I move on to formulating a framework for determining the plaintiff’s chance.
Framework for analysing the chance
[32] In my view, there are three main components that the plaintiff must achieve in order to have acquired the Lai Sun stake:
(a) obtain sufficient cash and financing for the acquisition (“the financing element”);
(b) obtain Lai Sun’s and Pongphan’s concurrence for the sale of the Lai Sun stake (“the shareholder element”); and
(c) obtain the defendants’ approval to conclude the hotel management agreement (“the management element”).
[33] The crux boils down to the interaction between the three elements above. What weight should be ascribed to each of those three elements? It is only after the issue of the relative weight of the three elements is determined, that one is better able to determine the extent of the chance. Without determining the proportion to be ascribed to each of these three elements, there is a risk of placing undue emphasis on one of the elements, at the expense of the others. It also bears remembering that assessment of damages is an art, never an exact science.
[34] Having evaluated the evidence, I am of the view that an appropriate apportionment of weight between the three elements would be:
(a) financing element – 40%;
(b) shareholder element – 30%; and
(c) management element – 30%.
[35] As the Court of Appeal (both majority and dissenting decisions) have rightly identified, all three elements are inextricably interlinked. One cannot be assessed in isolation from the others. Hence, I have apportioned roughly similar percentages to the three elements, resulting in them hovering between 30% and 40%. However, the financing element stood out from the other two because it had a greater force in determining whether the plaintiff was going to clinch the Lai Sun stake. It was also the one element on which Murray had to do the most work in order to seal the deal with Lai Sun. To that end, I thought it was fair and reasonable to place on it a greater weight, albeit only slightly more, than the other two elements.
[36] Ultimately, the extent of the chance which I will eventually determine will be the sum total of the product between the weights attached to each of the three elements (eg, 40% for the financing element) and my assessment of the likelihood of the plaintiff’s securing that particular element. Lest parties think such an approach is arbitrary or unprecedented, authority to support my methodology can be found in case law: see Harrison v Bloom Camillin [2001] PNLR 7. In that case, the plaintiffs brought an action against a firm of accountants. The plaintiffs alleged that as a result of the accountants’ negligence in failing to issue proceedings against a third party within the relevant time period, they lost the opportunity to pursue the action. Consequently, they sought damages from their lost chance or opportunity to bring an action against the third party.
[37] In the course of coming to his judgment, Neuberger J in the English High Court laid down the following principles at [88] of the report:
[38] Thus, a nuanced approach towards the application to discounts arising out of different factors or elements, such as the framework I had proposed above, is not unfounded in the authorities. In fact, Neuberger J’s decision has been cited with approval by Harvey McGregor, McGregor on Damages (Sweet & Maxwell, 17th Ed, 2003) at para 8-058:
Whether the award should be in US dollars or Thai baht
[39] Another preliminary issue relates to the issue of whether the award should be in US dollars or in Thai baht. Counsel for the defendants did not explicitly submit on this issue, though in their submissions, figures in both US dollars and Thai baht were presented. On the other hand, counsel for the plaintiff submitted in the plaintiff’s closing submissions[note: 3]that “the appropriate currency of assessment should be the Thai Baht”.
[40] On this issue, I agree with the plaintiff’s submissions. The case law in Singapore on this issue is fairly well established. In Tatung Electronics (S) Pte Ltd v Binatone International Ltd [1991] SLR 204, the Court of Appeal varied the orders of the trial judge and awarded the damages in pounds sterling instead of converting them to Singapore dollars. Yong Pung How CJ, in delivering the judgment of the court, opined at 210–211, [16]:
[41] Following from the above decision, Michael Hwang JC in Indo Commercial Society (Pte) Ltd v Ebrahim [1992] 2 SLR 1041, gave a rather thorough summary of the position of the law on this issue. Hwang JC came to the conclusion that the plaintiff had no right of election between the foreign currency and the Singapore dollar and noted the following reasons at 1053–1054, [36] of his judgment:
[42] The reasoning summarised by Hwang JC is applicable to the present facts. It is clear that the relevant currency in this case is the Thai baht. The plaintiff’s loss of chance lies in the profits which could have been made through the purchase in the Lai Sun stake. The entire transaction would have been conducted using Thai baht. Hence, there was no doubt in my mind that the relevant currency on the present facts is the Thai baht. Further, I take judicial notice of the fact the Thai baht has appreciated by about 20% between 15 February 2002 (ie, the date of breach) and the present (the Thai baht has appreciated from THB43.5 to one US dollar as at 15 February 2002 to THB34.8 to one US dollar as at 31 January 2007). Any argument that an award in Thai baht will be unfavourable to the plaintiff cannot be sustained. I also agree with Hwang JC’s observation that any plaintiff with a judgment theoretically has six years to enforce his judgment and, therefore, it may be premature for the court to come to any conclusion on whether there is a loss to begin with. In short, an award in Thai baht is both supported by the authorities and also one which would be favourable to the plaintiff.
The financing element
[43] It was undisputed that the plaintiff needed to secure:
(a) US$500,000 as the initial deposit to pay to Lai Sun;
(b) a loan of THB1.3bn to finance the Lai Sun stake and to restructure PSD’s debts (this could be obtained from Lehman Brothers); and
(c) US$2.5m (THB100m) for the sponsor cash equity to be paid to Lehman Brothers to secure the term loan.
[44] The plaintiff relied on its correspondence with Lehman Brothers as evidence to show that it had a good chance of securing the financing element through Lehman Brothers. However, in my view and contrary to the plaintiff’s submissions, Lehman Brothers’ term sheets (four versions collectively referred to hereinafter as “the term sheets”) did not represent a firm commitment to lend to the plaintiff. Further, the terms proposed in the term sheets never reached the stage of final approval, which approval had to come from Lehman Brothers’ Tokyo office. There was always a possibility that the Tokyo office might not have approved the proposed financing. The defendants referred to an e-mail from Blake Olafson (“Olafson”), the vice-president of Lehman Brothers Thailand at the material time, dated 31 January 2002.[note: 4]His e-mail suggested that the changes proposed by the plaintiff to the term sheets would not have been acceptable. In that e-mail to the plaintiff, Olafson had said:
In the documents produced in court and in Olafson’s oral testimony, it was clear that Lehman Brothers would not have been prepared to reduce its origination fee of 2% of the loan amount amounting to THB26m or US$650,000.
[45] However, when he was cross-examined, Olafson said that there was always room for negotiation.[note: 5] The defendants criticised Olafson’s testimony. Although Olafson’s role was to testify on whether the plaintiff could have secured financing for GPH (according to the plaintiff’s application for leave to call him as an additional witness), the defendants pointed out that Olafson endeavoured to give favourable evidence for the plaintiff on unrelated aspects of the plaintiff’s case. Instances cited by the defendants included Olafson’s statements that the plaintiff renovated HHH for less than the original budget, that HHH’s performance was in line with projections provided to Lehman Brothers and that the plaintiff could refinance the debts of HHH in mid-2003. In my view, these points raised by the defendants were red herrings and unhelpful for the purposes of assessing the financing element because the relevant time frame for determination is 2002 and not 2003, which was when the events raised in these submissions occurred. Hence, I found it unnecessary to attach much weight to what Olafson had to say with regard to these events which took place outside the material andrelevant time.
[46] It should be noted too that under the term sheets, the plaintiff was required to inject “sponsor cash equity” of THB100m (US$2.5m) into GPH, pledge 100% of the shares in PSD to Lehman Brothers and inject US$2m (or THB80m) into PSD. Under the term sheets, a maximum sum of THB1bn from the loan amount of THB1.3bn was to be allocated for repayment of PSD’s debts with Bangkok Bank and Bank Austria Creditanstalt. The plaintiff would therefore have to fund the shortfall of THB480m (THB300m + THB100m + THB80m) from other sources.
[47] The defendants pointed out that at the trial before Tan J, Murray had admitted he only had US$250,000 (THB1m) in his bank account. It was also in evidence from the defendants’ witness, Monahan, that Murray made no less than six attempts to procure “key money” from the defendants. Additionally, it was revealed that the plaintiff tried and failed to borrow THB100m from another bank (HSBC).
[48] The defendants were equally critical of the report of Keith Andrew Rowley (“Rowley”) from KPMG Thailand. In his written testimony, Rowley[note: 6] deposed he was an expert appointed by the plaintiff to analyse and review the cash and other assets of the plaintiff in 2002 as well as the proceeds from refinancing activities in 2003. At the hearing, counsel for the plaintiff conceded that the scope of Rowley’s evidence was to show that the plaintiff had some cash in the bank and not to identify the funds available for procuring the Lai Sun stake.
[49] At the assessment hearing before me, it was Murray’s assertion that he had previously borrowed THB90m (US$2.25m) from his brother Scott Murray (“Scott”) and could borrow again from his brother. Murray added he had repaid Scott’s loan by relying on a statement[note: 7]of the plaintiff’s Citibank account which showed a payment of THB97m. That statement, however, did not show to whom the payment was made and why it was made. Neither was Scott called as a witness. As far as I was aware, there was no impediment in calling Scott to testify. There was therefore no credible or any evidence that the plaintiff borrowed and returned US$2.25m to Scott, let alone that Scott could have lent further sums to the plaintiff when the need for funding arose.
The defendants’ arguments
[50] The defendants argued that refinancing of HHH in 2003 could not have been achieved in 2002 for the following reasons:
(a) There were several external factors according to the evidence of Vipoota Trakulhoon (“Vipoota”), the managing director of Turnaround Co Ltd, a financial advisory company, and formerly the head of capital markets with HSBC Thailand, who had been engaged for the refinancing of HHH.
(b) The income and consequently the cash flow of HHH did not stabilise in 2002. Indeed, HHH’s performance deteriorated from January 2002 to November 2002 and it failed to meet its budget for a number of months.
(c) No reliance could be placed on Andrew Langdon’s valuation of HHH which was done in November 2002.
(d) The factors which led to the refinancing by Lehman Brothers of HHH were absent if the refinancing had taken place in 2002. A primary factor was the increase by THB36m to THB100m of the guarantee from Hilton International (“Hilton”) of the gross earnings before tax (hereinafter referred to as “EBITDA”) of HHH in June 2003.
[51] It was further argued by the defendants that financing could not have been completed within the period of the NCA. Further, that the proceeds of the financing could not have gone to the plaintiff to secure the Lai Sun stake.
[52] The defendants contended that the plaintiff’s ability to meet its obligations under the financing by Lehman Brothers was highly questionable.
The plaintiff’s arguments
[53] Olafson had testified that he never expected Murray to accept all the terms in the 15 January 2002 draft term sheet because he knew Murray to be a “typical hard-nosed negotiator”. Olafson said he expected the term sheets to have been finalised around April to May 2002. He maintained that there was still leeway and flexibility for both sides to finalise acceptable terms, namely the origination fee, debt service coverage, cash sweep, securitisation for the defendants’ US$5m renovation loan and THB100m for “sponsor cash equity”. Olafson was confident that his Tokyo office would “typically” give final approval in such matters and he considered the outstanding issues to be “minor”.
[54] What was striking was Murray’s silence after Olafson’s e-mail of 31 January 2002 (see quotation in [44] above). In response to this, counsel for the plaintiff submitted that Murray did not chase Lehman Brothers for a binding commitment after his 4 February 2002 e-mail because the plaintiff thought that the financing was in good shape.
The court’s analysis
[55] With regards to Olafson’s testimony, I reject the plaintiff’s argument in [54] above. The plaintiff was attempting to sweep Olafson’s inconsistencies under the carpet. The various inconsistencies between contemporaneous documents and Olafson’s written testimony as well as oral testimony undermined his credibility. It is difficult to believe Olafson’s claim that his Tokyo office would “typically” give final approval, given what was said in his e-mail to Murray quoted in [44] above. It was also illogical that, on the one hand, Olafson would describe Murray as a “hard-nosed negotiator” and, on the other hand, claim that the deal was close to finality. I cannot overlook the fact that none of the provisions in the term sheets (including Lehman Brothers’ 2% origination fees) were agreed, or came close to agreement, by the time the second MOU was signed on 5 February 2002. This was the state of affairs even when the Narulas signed the sale and purchase agreement on 22 March 2002.
[56] Equally, I reject the submission of plaintiff’s counsel that there was only an excess of THB61m to be funded by his client, after obtaining the loan of THB1.3bn from Lehman Brothers. By my calculations at [46] above, the plaintiff needed to fund THB480m, not THB61m. By his own admission at the earlier trial, Murray said the plaintiff only had cash in hand of US$250,000. His claims of being able to obtain a loan from his brother are, for the reasons already given above, incapable of substantiation. Consequently, I cannot accept that the plaintiff could (as Murray said under cross-examination[note: 8]) “have come up with the money by the end of the expiration of the [NCA]”. I accept the defendants’ submission that there is no credible evidence at all of THB97m having been borrowed from and/or returned to Scott. Scott could and should have been called to testify but was not.
[57] Now for Vipoota’s[note: 9] evidence. In his affidavit of evidence-in-chief, Vipoota deposed that he was engaged by the plaintiff in October 2002 to refinance its debt of THB921m for HHH which Vipoota did, to THB1.25bn in June 2003, thereby enabling the plaintiff to obtain THB329m (or US$8.2m) for investment purposes, one of which was to buy out the minority interest (25%) of Tipco Hua Hin Hotel Co Ltd (“Tipco”) in HHH. Vipoota testified that had he been engaged earlier by the plaintiff, he could have raised the requisite additional funds in the last quarter of 2002.
[58] Vipoota said the tourist market had started recovering in the second quarter of 2002. As such, the performance of HHH improved from the second quarter of 2002 onwards and correspondingly its earnings and cash flow.
[59] During cross-examination,[note: 10]Vipoota revealed that in December 2002 Murray told him the refinancing was to include the Hilton Kingdom, the hotel in Bangkok which Murray was then negotiating to buy from its owners, CNC Co Ltd. The Hilton Kingdom was then known as the Plaza Hotel and was managed by the Mandarin Hotel chain. It was Murray’s intention to rebrand and reposition the hotel after its acquisition.
[60] According to the affidavit filed by Khun Boontuck Wungcharoen (“Boontuck”) from Thai Farmers’ Bank, there was plenty of liquidity in the capital markets in 2002. This evidence is to be contrasted with Murray’s letter dated 18 April 2003 to CNC Co Ltd where he said, “As you can appreciate, hotel funding in Asia is extremely difficult at the present time (due to SAR’s [sic] and the Iraq War)”, seeming to suggest that in a matter of six months (October 2002 to April 2003), the liquidity in capital in Bangkok had dried up due to extraneous factors. I should point out that Boontuck was not called to testify and therefore I could place no reliance on what was stated in his affidavit.
[61] It was the plaintiff’s case that it would have taken three to four months for the refinancing of HHH. This was based on Vipoota’s testimony that lenders he procured were willing to lend THB1.25bn which was 66% of the valuation of HHH done by Andrew Langdon (“Langdon”) amounting to THB1.9bn. Vipoota’s testimony contained an inherent weakness which will be elaborated upon later when I deal with Langdon’s valuations.
[62] I find Murray’s explanation as to why he did not chase Lehman Brothers around February 2002 for a binding commitment as too incredible to be true. On my overall assessment of the contemporaneous evidence around the material time, and contrary to his bold claims, he did not have a “done deal” or even a nearly “done deal”.
[63] While it is true that Murray had until 4 December 2002 to resolve outstanding issues relating to the term sheets, one has to assess the likelihood of his securing financing, in the light of his inaction and complete lack of progress with Lehman Brothers as of February 2002. The fact that he tied the defendants by the NCA did not mean he could literally wait until the last day of the NCA, viz 4 December 2002, to obtain financing. As of February 2002, there were too many elements then that were not resolved. Yet, Murray, the self-proclaimed “hard-nosed negotiator”, who pressed for “key money” on no less than six occasions with the defendants, was content to let the negotiations with Lehman Brothers – his only probable source of funding – come to such an abrupt and sudden halt after 4 February 2002. If he had indeed thought (as he had testified during the trial before Tan J) that he was waiting by the sidelines to see the deal between Lai Sun and the Narulas fall through, why did he not take a single step with Lehman Brothers post-4 February 2002? His deafening silence and inaction speaks for itself. To grant Murray the benefit of the doubt (as the Court of Appeal did) by saying that he had up to the very last day (14 December 2001) under the MOU to secure the necessary loans and therefore he had a good chance of securing financing, would, in my opinion, be overcompensating Murray for his inaction and his lack of seriousness in pursuing this element.
[64] The plaintiff’s evidence with regard to certain important issues was also unsatisfactory. I cite, in this connection, Lehman Brothers’ requirement of sponsor cash equity amounting to THB100m. There was no clear commitment from Olafson that there was scope for further negotiations on this requirement and/or on the amount.
[65] In addition, the contemporaneous documentary evidence seemed to suggest that Lehman Brothers’ requirement of a full pledge by the plaintiff of all the shares in PSD would have been another real obstacle. In an e-mail from Lehman Brothers’ Charles Rubin (“Rubin”), Olafson’s superior in the Tokyo office, to Murray dated 24 January 2002,[note: 11] Rubin informed Murray that a partial pledge of shares “won’t cut it for several reasons” before proceeding to set out the reasons in his e-mail. Under cross-examination, Olafson tried to explain away this e-mail by saying that Rubin (who did not testify) was not saying that a 100% share pledge was the only way forward.[note: 12] Such an explanation is lame, to say the least. In the absence of Rubin as a witness, I find it impossible to give any weight to Olafson’s alleged explanation of what Rubin intended to say. Simply put, I do not accept Olafson’s explanation.
[66] One also cannot overlook the fact that Lehman Brothers appeared to be the only financier willing to lend, following the plaintiff’s failed attempt to borrow THB100m from HSBC (reflected in a fax from Murray to HSBC dated 16 January 2002[note: 13]).
[67] THB1.3bn is not an insignificant sum. Granted, Murray could have looked elsewhere for funding, but what was the chance of his procuring the same during the relevant time frame?
[68] I do not place any weight on Murray’s statement that the plaintiff “had the wherewithal to come up with the money”. Self-corroboration is simply no corroboration. Attempted self-corroboration, in the light of contemporaneous documents which point the other way, is worse. What is clear is, on top of the US$500,000 deposit to be made to Lai Sun, THB100m sponsor cash equity was required by Lehman Brothers. Against that, the plaintiff (according to Murray) only had US$250,000 or THB1m.
[69] Earlier at [48] above, I had already discounted the possibility of the plaintiff taking a loan from Scott. Even if I am wrong in my finding and Scott did previously lend US$2.25m to the plaintiff, there was no indication that Scott would have been able and willing to extend a similar or larger loan to his brother, if he had been approached.
[70] I turn now to the second aspect of the financing element – an aspect which the plaintiff placed heavy reliance on, namely the valuation done by Langdon, who was not called as a witness either in these proceedings or at the trial on liability.
[71] In the plaintiff’s final submissions, it was submitted that Langdon had a good and valid reason not to testify, viz, the imminent delivery of his first child coupled with his Thai wife suffering from a rare form of blood disease which could be passed onto the baby if she went into unplanned labour. Counsel had produced a letter from Mrs Langdon’s doctor, which relevant extracts state:
[72] The defendants, on the other hand, had submitted that the court should draw an adverse inference for Langdon’s absence, citing Cheong Ghim Fah v Murugian s/o Rangasamy [2004] 1 SLR 628 as the authority. The facts of that case, however, are easily distinguishable from our case. I can appreciate the medical predicament faced by Mrs Langdon and her baby. Nevertheless, I found it strange that a gynaecologist was asked to provide an assessment of her husband’s psychological state of mind. Even so, I am prepared to accept that there was a reasonable explanation for Langdon’s inability to travel to Singapore for cross-examination. Therefore, in my view, an adverse inference should not be drawn against his absence under s 116(g) of the Evidence Act (Cap 97, 1997 Rev Ed).
[73] However, that is not the end of the matter. The court still has to determine what weight, if any, should be placed on Langdon’s valuation. Even if a valid reason was given for his inability to fly to Singapore from Bangkok to testify, there was no reason why Langdon could not have done so by video-link. Indeed, this alternative was proposed by counsel for the defendants. Given the present state and prevalence of video conference technology, and the state-of-the-art facilities in the Supreme Court, the practice of foreign witnesses providing testimony by way of video-link has become fairly commonplace in the Singapore High Court. Video-linking from Bangkok would have enabled Langdon to remain close to his wife and yet assist this court with his evidence. Counsel even offered to interpose Langdon’s evidence at and after the close of the defendants’ case. Both offers were not taken up by counsel for the plaintiff. Instead, the constant refrain from counsel for the plaintiff was simply that Langdon was not in a proper frame of mind to be cross-examined.
[74] The rules of evidence and procedure are very clear. Under O 38 r 2(1) of the Rules of Court (Cap 322, R 5, 2006 Rev Ed), if a proposed witness fails to appear in court, his affidavit of evidence-in-chief is to be disregarded unless the opposing party is willing to admit it as evidence without the need for cross-examination. In our case, not only did Langdon not appear for cross-examination, his valuation report appeared in the plaintiff’s bundle of documents.[note: 14] These reports were not even part of the agreed bundle of documents, for which formal proof would have been dispensed with. Further, his affidavit of evidence-in-chief, prepared for the trial on liability which took place about four years prior to this assessment hearing, did not exhibit his valuation of the HHH; it merely exhibited his valuation of the renamed Westin Grande Sukhumvit as at 1 January 2006.
[75] Counsel for the defendants had highlighted that no application was made by the plaintiff to admit the 21 November 2002 valuation of HHH.[note: 15] On the other hand, counsel for the plaintiff submitted that his client did not have to make an application for admission of Langdon’s valuation of the HHH because O 38 r 2 only applies to the evidence-in-chief of a witness. Since Langdon’s valuation of the HHH did not form part of his evidence-in-chief, there was no requirement for the plaintiff to make an application to admit the valuation.
[76] The plaintiff’s argument was an exercise in semantics. The rationale behind O 38 r 2 of the Rules of Court is clear: it embodies the age-old principle behind the adversarial process that a person should not be allowed to put forth evidence if such evidence cannot be challenged by the opposing side. It was well within the plaintiff’s right and capability to make an application for Langdon’s valuation of the HHH to be admitted when it became clear that he was unable to be cross-examined, even via video-link; the application was simply not made. It is also noteworthy that Langdon’s report was dated 21 November 2002. As Langdon was not a witness, there was no primary evidence of the valuation of HHH, nor any explanation of the discrepancy between the date of his valuation (23 August 2002) and the date of his report (21 November 2002).
[77] For the same reason, the court cannot attach any weight to the success of the HHH project. On the facts, it is pertinent to note that HHH was the only jewel in Murray’s crown, not the plaintiff’s. Further, the HHH project was not on the same scale as GPH. Murray had testified that HHH was purchased in the year 2000 for THB1bn with a deposit of only US$1m. The quantum of financing required in that project paled in comparison to that required for GPH. There were also fewer complications in terms of the shareholding element, an issue which I will address below.
[78] In any event, one past success, however resounding, does not necessarily mean that Murray would have been equally successful with GPH. As a matter of law, the arguments on the success of HHH are akin to asking the court to draw inferences from similar fact evidence. While similar fact evidence may be generally admissible in civil cases, it was not appropriate to do so here. As the saying goes, one swallow does not make a summer. Further, fate can always take a hand, in the best-laid plans of mice and men.
[79] I had touched on Vipoota’s testimony briefly at [59] above. I now return to his evidence to address the inherent weakness I referred to earlier. Vipoota’s testimony on the refinancing exercise he carried out for Murray for HHH was based on Langdon’s valuation of THB1.9bn as at 23 August 2002. I would add that during cross-examination, Vipoota vacillated when he was questioned as to whether he was told by Murray of the purpose for which the refinancing was required.[note: 16]
[80] I had other difficulties in relation to Vipoota’s testimony on the refinancing of the HHH. First, it bears remembering that Vipoota was engaged as early as October 2002 for the refinancing of HHH but it was only completed in June 2003. Those dates were provided by Vipoota and I have no reason to doubt them. This meant that the plaintiff took eight months to put through the refinancing.
[81] More importantly, the plaintiff attempted to rely on Vipoota’s cross-examination, Murray’s testimony[note: 17] and Boontuck’s affidavit[note: 18] to assert that there was plenty of liquidity in the Thai financial market around April/May 2002 because the market was picking up from the September 11, 2001 incident.[note: 19] Its counsel then sought to rely on this to assert that it would have taken the plaintiff only three to four months to refinance HHH. There is no logical or evidential basis to suggest that just because the market was recovering around April/May 2002, the plaintiff could have commenced the refinancing of HHH for the purposes of financing the Lai Sun stake. There is also no logic for the assertion that if the plaintiff had commenced refinancing around April/May 2002, it could have completed the refinancing within three to four months. On the contrary, even as late as October 2002 when the Thai economy demonstrated stronger signs of recovery, the plaintiff still took eight months to complete the refinancing.
[82] Even if I were to accept the plaintiff’s argument at face value, that it could have refinanced HHH from around April/May 2002 and completed the exercise within three to four months thereafter, the court is still faced with the difficulty of what value to put on HHH, bearing in mind that Langdon’s valuation was not admissible evidence.
[83] The matter did not end there. In the plaintiff’s closing submissions,[note: 20] counsel went on to provide four reasons why it was not necessary for the plaintiff to call Langdon to testify on the HHH valuation. First, the valuation of HHH as at 23 August 2002 was relied on in carrying out the refinancing in 2003 and, therefore, counsel submitted that it could not be disputed. This argument is misconceived – just because the valuation had been relied on for the purpose of the refinancing does not mean that it cannot be challenged by the defendants or that it was beyond dispute. There were any number of reasons (some of which may be irrelevant for this litigation) as to why the debenture holder of HHH chose to accept Langdon’s valuation. The defendants were not a party to that decision. Just because the debenture holder was willing to accept Langdon’s valuation did not mean that the defendants were obliged to accept the same for the purpose of determining whether the plaintiff could have raised sufficient funds to secure the Lai Sun stake. There was nothing on record to show that the defendants had at any time accepted or relied on Langdon’s valuation.
[84] Second, counsel submitted that Murray, Olafson and Vipoota had all testified that the market and lending conditions in the second quarter of 2002 would not have been markedly different from the last quarter of 2002. This argument conflates the general (ie, the general market and lending conditions surrounding the Thai economy) with the specific (ie, the specific valuation done by Langdon, of HHH in Hua Hin, as of 23 August 2002 but dated 21 November 2002). The testimony of the other witnesses as to the general state of the Thai economy cannot be used to plug the hole caused by the lack of an opportunity to cross-examine Langdon on his very specific valuation of HHH.
[85] Third, counsel argued that the plaintiff had produced (and Murray had been cross-examined on) HHH’s monthly summary statement of income from January 2001 to December 2003. Again, this argument is fallacious because it conflates the basis of, or “raw material” for, Langdon’s valuation (viz the income statement) with the final product which was the valuation. Various assumptions and theses appeared to have gone into Langdon’s valuation of HHH. Counsel for the defendants has the right under our adversarial system to cross-examine and challenge those assumptions and theses.
[86] Finally, counsel argued that the defendants could not complain about the lack of opportunity to cross-examine Langdon because their counsel had earlier given up an opportunity to adduce further evidence from the defendants’ valuer, Chee Hok Yean, in the form of an updated valuation, to challenge Langdon’s valuation. This tit-for-tat argument is unhelpful and has no merit. A party’s fundamental right to challenge the testimony of a witness is not extinguished merely because it chooses not to challenge the evidence by putting forward a positive case.
[87] Therefore, I am unable to agree with the arguments put forth by counsel for the plaintiff as to why the court should admit Langdon’s evidence and valuations. I am fortified in my view on this issue by the recent Court of Appeal decision in Jet Holding Ltd v Cooper Cameron (Singapore) Pte Ltd [2006] 3 SLR 769 at [76]–[78], [80] and [81]. In that case, the trial judge Belinda Ang Saw Ean J (see report at [2005] 4 SLR 417) found at [149] that the documents in the damages bundle had not been properly admitted in evidence because the plaintiff in that case failed on at least two counts: (a) to adduce primary evidence of the documents or prove that the exceptions for adducing secondary evidence applied; and (b) to prove the truth of the contents of these documents through admissible evidence that was not hearsay. Accordingly, the trial judge refused to consider any part of the damages bundle when assessing the extent of the loss caused by the defendants’ breaches.
[88] The Court of Appeal provided a loose framework for consideration of such issues. First, the court should consider whether there had been an agreement on the authenticity of the documents. Even if there was no agreement, the court had to determine if there were objections raised by the other side as to the documents’ authenticity. Next, even if there was no objection as to authenticity, and the documents had been placed into an agreed bundle, the court had to determine whether the truth of their contents were nevertheless in issue. On the facts in that case, the Court of Appeal found that the damages bundle contained hearsay evidence and that the requirements to prove an exception against the hearsay rule had not been met.
[89] Translating those principles to the facts of the present case, Langdon’s valuation of HHH formed part of the plaintiff’s bundle of documents and not the agreed bundle of documents. Therefore authenticity was not even admitted by the defendants let alone the truth of Langdon’s valuation report. I can find no exceptions to the hearsay rule in this regard which, under the Evidence Act, would assist the plaintiff. Section 32(b) of the Evidence Act would not help. It reads:
I find that the plaintiff has not provided sufficient evidence to show that Langdon’s attendance in court “cannot be procured without an amount of delay or expense which under the circumstances of the case appears to the court unreasonable”.
[90] Even if I am wrong on the issue of admissibility, I am unable to attach any weight to Langdon’s valuation of HHH dated 21 November 2002 as I entertain considerable doubt on the methodology employed by Langdon in arriving at his valuation.
[91] Even if the court were able to attach some weight to Langdon’s valuation report, it would be an irrelevant piece of evidence. In order to show that the plaintiff had the means and capacity to complete the financing element by refinancing HHH (and given that the exercise took eight months to complete), a reasonable date for the valuation of the hotel would have been about eight months from the expiry of the NCA, viz, eight months before 4 December 2002. This would mean that a valuation should have been done in or around April 2002; no such evidence was available. Without Langdon’s taking the stand, there was no expert testimony to explain or support the plaintiff’s argument that the market conditions – in so far as the property market in the hotel industry was concerned – would have remained largely the same or, if it differed, to what extent it would have differed. Langdon’s valuation of HHH did not assist the plaintiff in showing that it could have secured financing to purchase the Lai Sun stake. As I mentioned earlier at [78] above, one past success does not prove that the plaintiff or Murray would necessarily be successful in the present project.
[92] There is another factor which would have affected the plaintiff’s abilities to secure financing for GPH. The management contract for the Hilton Kingdom was only entered into on 24 December 2002. One of the terms of the debenture for HHH was that Hilton had to provide a guarantee of THB100m for the EBITDA. It was Vipoota’s evidence that the guarantee was intended to address the creditors’ and/or the lenders’ concerns about the ability of HHH to meet its debt servicing. He also said that this assisted the plaintiff in securing the refinancing. According to Vipoota, the guarantee had a bearing of about 10% to 20% in the refinancing and “a little bit more”[note: 21] if the refinancing was sought in the first half of 2002 when HHH’s cash flow had yet to stabilise. The plaintiff did not produce any evidence to show Hilton would have extended a guarantee of equal quantum in year 2002 or that the plaintiff would have been able to secure the refinancing without the benefit of the guarantee.
[93] Far more important is the fact that the increase in the Hilton guarantee to THB100m was given because of the Hilton Kingdom. The importance of the Hilton Kingdom to the refinancing of HHH is evident from the fact that its post-renovation valuation was THB1.43bn. Accepting at face value Langdon’s valuation (only for the sake of analysis and argument) of the HHH at THB1.9bn, the two hotels would have represented a total value of THB3.33bn. The financing and refinancing proposed for both hotels was then THB1.85bn. However, the Hilton Kingdom could only have been offered by the plaintiff as collateral after 24 December 2002, which date is after the expiry of the NCA, when Hilton agreed to manage the hotel and to provide the guarantee of THB100m. In this regard the plaintiff produced no evidence to prove that the refinancing of HHH could have proceeded in 2002 without the Hilton Kingdom.
[94] I am aware (and the plaintiff relied on it heavily in its closing submissions[note: 22]) that I had ruled that the defendants were not entitled to discovery of documents relating to Hilton Kingdom on the basis of irrelevancy. My above findings do not contradict my ruling made in Summonses Nos 3692 of 2005 and 3607 of 2005 and in Registrar’s Appeals Nos 178 of 2005. The documentation proper on the Hilton Kingdom would be irrelevant to the assessment exercise but the Hilton Kingdom itself had an impact on the financing of HHH as set out above.
[95] In addition there was no evidence (save for Murray’s word) that Tipco would have agreed to the refinancing of HHH in 2002. It was Murray’s evidence that Tipco sold HHH because it needed money in 2002 to put into its asphalt business and its business in China. Without any corroborative evidence, what Murray said was pure hearsay and I accordingly reject it as inadmissible.
[96] Even if HHH could have been refinanced in 2002, the plaintiff would not have been entitled to the full proceeds because Tipco then owned 25% of SHP (see [6] above). Rowley’s report[note: 23] stated that the plaintiff had available funds of THB259m for investment in PSD. However the figure of THB259m included the plaintiff’s then alleged cash balance of THB86m as of 11 June 2003. Even if this cash balance was correct, it would not have been available to the plaintiff in 2002 and the plaintiff could not have relied on this sum for its acquisition of the Lai Sun stake. Further, Rowley reached his conclusion that the plaintiff would have had net current assets of THB2m as of 31 December 2002 without taking into consideration and deducting therefrom the plaintiff’s purchase of Tipco’s 25% share in SHP.
[97] Rowley’s report further overlooked and failed to take into account the repayment of long-term loans and interest items. That being the case, his report gave an incorrect picture of the amount of funds that would have been available to the plaintiff for investment in PSD. Consequently, I do not accept his figure of THB173m as being the available cash balance for investment purposes. It is noteworthy that in his engagement letter addressed to the plaintiff, Rowley stated:
In other words, Rowley relied solely on the plaintiff for information and figures as the basis of his report. At the risk of stating the obvious, any inaccuracies in whatever information he received from the plaintiff would be carried over into his report.
[98] Finally on this topic, it bears mentioning that Murray could only have afforded one option; he could have:
(a) refinanced HHH to buy out the minority interest of Tipco; or
(b) refinanced HHH to buy the Lai Sun stake.
The plaintiff could not possibly do both. In or around October 2002, when Murray appointed Vipoota to assist him in the refinancing exercise, it was clear that Murray would have preferred to pursue the Hilton Kingdom deal and Tipco’s minority share. My finding is that, based on Murray’s level of interest at the material time, the plaintiff would have proceeded with the Hilton Kingdom deal and would have bought out Tipco’s share in SHP as opposed to purchasing the Lai Sun stake. It bears mentioning that when Monahan spoke to Murray on or about 21 February 2002[note: 24] to say that the Narulas would be taking over the Lai Sun stake, Murray did not even seem surprised. His only comment was that he did not think the Narulas had the financial muscle to pull off the deal, but he did nothing. Against this background, I find it exceedingly hard to accept that the plaintiff could have put together a financing package by the expiry date of 14 December 2001 under the MOU. Murray’s conduct was uncharacteristic of someone who was anxious to complete the deal, especially after he found out there was a rival bid.
[99] Based on my above analysis, I am of the view that the financing element would work out at best to 10% based on the following computation:
Likelihood of securing
Weightage
Percentage of chance
10%
40%
4% (10% x 40%)
The shareholder element
[100] The shareholder element, viz, obtaining the approval of Lai Sun and Pongphan, is the second component (see [32] above) that the plaintiff must secure in order to acquire the Lai Sun stake.
[101] I should first make some observations on Pongphan’s evidence. While he did testify for the defendants at the assessment hearing, Pongphan[note: 25] did not take the stand at the trial on liability. Having checked the notes of evidence of the trial below, I noted that Pongphan’s written testimony was admitted as part of the evidence before the court but the plaintiff chose not to cross-examine him at all on his affidavit (an omission noted by Tan J at [30] of his judgment ([18] supra)). Instead, counsel for the plaintiff informed Tan J that he would make submissions on Pongphan’s evidence at the close of the case.
[102] In its closing submissions,[note: 26] the plaintiff criticised Pongphan, pointing out that his objections to the shareholding and financial terms proposed by the plaintiff and the purported mistrust of Murray as his partner (which the defendants contended would have resulted in Pongphan deciding against dealing with the plaintiff) were never raised in Pongphan’s affidavit of evidence-in-chief at the trial below. The plaintiff further asked that the court should disregard Pongphan’s comments on what Lai Sun’s purported position would have been as they were hearsay and inadmissible, since Lai Sun’s representative did not testify.
[103] I accept the second objection on Pongphan’s testimony as valid. Whatever Pongphan said in relation to Lai Sun was hearsay. However, I reject the plaintiff’s first criticism. It did not lie in the mouth of the plaintiff to make adverse comments on the alleged omissions in Pongphan’s trial affidavit when the plaintiff’s counsel made a conscious choice not to cross-examine Pongphan on the same. It may well be that had he been questioned, Pongphan could have given a perfectly acceptable and/or valid explanation for the alleged omissions in his trial affidavit.
[104] In any event, the two affidavits of evidence-in-chief filed by Pongphan served different purposes. For the trial on liability, Pongphan narrated how Murray failed to secure the Lai Sun stake, because he failed to make payment of the deposit required by Lai Sun and how the Narulas came to step into the plaintiff’s shoes as the purchaser. What Pongphan deposed to in his affidavit of evidence-in-chief for the assessment before me was irrelevant to the trial on liability but very relevant for my purpose – would he have dealt with Murray and accepted him as a fellow shareholder in PSD? For this consideration, the personal relationship between Pongphan and Murray was critical and Pongphan’s unhappiness with Murray’s conduct[note: 27] when they were in Hong Kong for the purpose of introducing Murray to the then Senior Vice President of Lai Sun, Simon Szeto, was a relevant factor for my consideration.
[105] It was the defendants’ case (corroborated by Pongphan) that Murray’s desire to have board control of PSD would have prompted Pongphan to refuse to agree to the plaintiff’s purchase of the Lai Sun stake. This too was disputed by the plaintiff who pointed to the fact that the Narulas too originally wanted board control of PSD. Indeed, the Narulas’ request for majority representation on the board went further than Murray’s request to have one director representing each side and unanimity on the board. The Narulas also wanted management control of the company, which had previously been undertaken by Lai Sun. The Narulas’ negotiation for control on their initial terms did not prevent them from eventually reaching an agreement with Pongphan. Consequently, the plaintiff’s original proposals would not have been a deal breaker.
[106] One of Pongphan’s complaints was that Murray lied to him and/or told him half truths. It was the defendants’ submission that once these lies and/or half truths were uncovered, they would have affected Murray’s ability to continue and to conclude negotiations with all parties necessary for the deal and that would include Pongphan. The defendants submitted that Pongphan had the first right of refusal in respect of the Lai Sun stake, which he did not waive in the plaintiff’s favour. Instead, by 18 January 2002, Pongphan was unhappy enough with the plaintiff as to waive this right in favour of the Narulas.
[107] The defendants added that the first seeds of distrust in Pongphan against Murray were sown when the duo visited Hong Kong in November 2001 for the purpose of introducing Murray to the Lai Sun group. Murray had gone off on his own to meet Simon Szeto even though Pongphan had arranged for them to go together to the meeting.
[108] Another incident cited by the defendants to prove that Pongphan was unlikely to agree to having the plaintiff as his co-shareholder in PSD and in the hotel was Murray’s apparent attempt to mislead Pongphan into thinking that the plaintiff’s related company, Asia Hotel Investment Fund Ltd, was jointly owned by the plaintiff and Apollo Real Estate Advisors LP (“Apollo”). Murray had also misrepresented to Miguel Ko (the second defendant’s president) in November 2001 about a joint venture with Apollo.
[109] The plaintiff not surprisingly took a contrary stand. The plaintiff pointed out that it was Pongphan who had initially invited Murray to acquire the Lai Sun stake, provided Murray with the documentation to enable the plaintiff’s lawyers to do due diligence, accompanied Murray to meetings with Lai Sun representatives and then joined Murray at meetings with potential financiers (AIG and Lehman Brothers).
[110] The plaintiff contended there was therefore no truth in the defendants’ allegation that Pongphan was not kept informed of developments by Murray. The plaintiff had forwarded to Pongphan all the draft term sheets of Lehman Brothers. Consequently, Pongphan’s volte-face (that Murrray’s failure to pay the deposit by the deadline of 14 December 2001 meant that Murray could not be trusted and Murray could not be his fellow shareholder) was clearly an afterthought.
[112] The plaintiff sought to draw a fine distinction between Pongphan’s right to waive his first right of refusal to the Lai Sun stake in favour of the Narulas and Pongphan’s transfer or assignment of that right to the Narulas. With respect, I do not appreciate the fine distinction the plaintiff attempted to highlight.
[113] Counsel for the plaintiff had suggested to Pongphan in cross-examination,[note: 28] but which Pongphan denied, that Pongphan was testifying for the defendants because he had agreed to indemnify the defendants against any damages payable to the plaintiff, under cl 6 of the defendants’ LOI dated 25 March 2002[note: 29] addressed to Kirin and Pongphan. For that reason, the plaintiff submitted, it was in Pongphan’s (and the Narulas’) interest to have as low as possible the damages awarded to the plaintiff. I do not accept this unfounded submission.
[114] The one submission of the plaintiff which I do accept is that even if Pongphan mistrusted and/or disliked Murray, the fact remained that Pongphan did not have the financial wherewithal to purchase the Lai Sun stake himself. Accordingly, I believe his first right of refusal was meaningless to him. However, given a choice between the Narulas and Murray, there is no doubt in my mind that Pongphan would have chosen to deal with the former, as the Narulas were a respected and reputable family in Thailand.
The decision on shareholding element

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

Laws this judgment relies on

Grounds of decision

Introduction

The background

The previous litigation

The assessment

Evaluating the plaintiff’s chance

Framework for analysing the chance

Whether the award should be in US dollars or Thai baht

The financing element

The defendants’ arguments

The plaintiff’s arguments

The court’s analysis

Likelihood of securing

Weightage

Percentage of chance

10%

40%

4% (10% x 40%)

The shareholder element

The decision on shareholding element