M Asset Pte Ltd v Inngroup Pte Ltd [2021] SGCA 54

This is an appeal against the decision of the High Court in Inngroup Pte Ltd v M Asset Pte Ltd [2020] SGHC 197 (the “Judgment”). The dispute concerned a settlement agreement that was signed between the parties at around 2.30am on 27 June 2018 (the “Settlement Agreement”). Inngroup Pte Ltd (the “Respondent”) alleged that M Asset Pte Ltd (the “Appellant”) had acted in breach of the Settlement Agreement and commenced Suit No 405 of 2019 in April 2019, seeking specific performance and other reliefs.

The parties are the owners of adjoining shophouses. The Respondent owns 41 Hong Kong Street and the Appellant owns 42 Hong Kong Street. On 13 September 2016, the Respondent commenced an action against the Appellant relating to the use of their properties. With a view to settling the 2016 action, the parties proceeded to mediation. The successful mediation resulted in the Settlement Agreement and the 2016 action was discontinued by the Respondent subsequently.

At [19] of the Judgment, the trial Judge set out the key terms of the Settlement Agreement as follows:

The contemplated tenancy agreement was not signed. In 2019, the Respondent commenced the present action. The Respondent alleged that the failure to sign the tenancy agreement was caused by the Appellant’s unreasonable refusal to abide by the terms of the Settlement Agreement. One of the unreasonable acts alleged against the Appellant was that it kept putting forward draft tenancy agreements which contained terms that were inconsistent with the terms of the Settlement Agreement.

The Appellant denied the Respondent’s claim. It counterclaimed that the Respondent was in breach of the Settlement Agreement in refusing to consider its numerous proposals for the tenancy agreement and in refusing to have their dispute mediated.

In the trial Judge’s view, there were two issues before her. The first issue was whether the Appellant was in breach of the Settlement Agreement by providing to the Respondent numerous and changing draft tenancy agreements containing terms inconsistent to the thrust of the Settlement Agreement. The trial Judge answered this in favour of the Respondent (Judgment at [166]). The second issue was whether the tenancy agreement that was to be signed between the parties was premised on the Appellant’s property being used solely as a hotel, as alleged by the Appellant. The trial Judge held that there was no such agreement or understanding (Judgment at [166]). Accordingly, the trial Judge held that the Respondent succeeded in its claim and she dismissed the Appellant’s counterclaim.

Based on the evidence at the trial, it is clear to us that the trial Judge was correct in her conclusions as to which party was in breach of the Settlement Agreement. In addition, we agree with the respondent that the appellant had breached clause 6 of the Settlement Agreement. We therefore affirm the trial Judge’s decision on liability.

On the question of reliefs, the Respondent abandoned its claim for specific performance due to the COVID-19 pandemic and the fact that the Appellant had decided to sign a new tenancy agreement with a company called Ink and Pixel Pte Ltd on 21 March 2019 for 24 months with effect from 1 June 2019 in respect of the second storey of the Appellant’s property (which was supposed to be handed over to the Respondent by end June 2019 under the terms of the Settlement Agreement). In addition, the Respondent also held the view that it would be difficult to have to deal with the Appellant for ten years under the “five plus five” tenancy contemplated in the Settlement Agreement. Accordingly, the Respondent elected to claim damages (Judgment at [168]–[169]). The trial Judge considered the Appellant’s decision to sign the new tenancy agreement with Ink and Pixel Pte Ltd to have been made in bad faith (Judgment at [156]).

The Respondent’s head of claim for $170,000 for August 2018 to December 2019, during which period the Respondent asserted it would have been able to use each floor of the Appellant’s property, was dismissed by the trial Judge (Judgment at [170], [177]). The Respondent’s head of claim for loss of opportunity for a collective sale for both properties was also dismissed for being too speculative (Judgment at [172], [173]).

The trial Judge then went on to assess the Respondent’s alternative claims for damages on the assumption that hotel usage on the Appellant’s property would have commenced in February 2020 and ended in July 2028, after the last staggered handover on 31 January 2020 (Judgment at [171], [174]– [176]). This would give the Respondent an operating period of 102 months or eight and a half years.

In 2016, the Respondent’s entered into a tenancy agreement, intending to lease the first storey of its property to a tenant for it to operate a restaurant there (Judgment at [12]). Separately, the Respondent also entered into a lease with a company, intending for the latter to let out rooms on the second to fifth storeys of the Respondent’s property (including the mezzanine floor and the roof terrace) (Judgment at [12]). After the Settlement Agreement was signed, the Respondent and Nuve Holdings Ltd (“Nuve”), a hotel operator, signed a hotel management agreement for the Respondent’s property in February 2019. Nuve has been running a boutique hotel on the Respondent’s property since December 2019 and occupancy was good (Judgment at [86]).

The trial Judge assessed the profits and losses on the basis that the Appellant’s property would have been used either as a boutique hotel or a capsule hotel. Based on the expert evidence before her, if the Appellant’s property was used for a boutique hotel, based on 80% occupancy rate, the Respondent’s loss of profits over the ten-year period of the contemplated tenancy under the Settlement Agreement would be about $4.67m. If it was used for a capsule hotel, based on 75% occupancy rate, the loss of profits would be about $6.89m.

The trial Judge was of the view that the Respondent should be compensated adequately for its loss but it should not obtain a windfall at the expense of the Appellant, however reprehensible the Appellant’s director’s past conduct might have been. She took a pragmatic approach and worked out the average loss of profits by amalgamating the two amounts of about $4.67m and about $6.89m and dividing the total by two. That worked out to be around $5.78m (Judgment at [174]). Bearing in mind the situation caused by the pandemic, she discounted this average by 50% to arrive at a final figure of approximately $2.89m (Judgment at [176]). The trial Judge reasoned that the projected losses were based on occupancy rates of 80% and 75% and that the intended ten-year lease would expire in July 2028. She believed that it could not be the case that the tourism market and the hotel industry would remain in the doldrums for another eight years (her judgment was delivered on 16 September 2020). She opined that there would be recovery somewhere along the way and that would improve room rates beyond the rates discounted by her at 50%.

We accept that there was no guarantee that the Respondent’s application for a licence to operate a hotel on the Appellant’s property would definitely succeed. However, the expert evidence was that it was likely to succeed considering the existing uses on the Respondent’s adjoining property. The trial Judge accepted this and we see no reason to disagree with her. We also think that her approach to computing the Respondent’s damages was a fair and pragmatic one in the circumstances. We therefore affirm her decision on damages.

Let us look at the circumstances of the trial here. It lasted three days and the parties then filed written submissions on 2 June 2020. There were five witnesses for the respondent, with two being experts (a quantity surveyor and a licensed appraiser). The trial was essentially on facts which do not appear particularly complex as the facts concerned breaches of a Settlement Agreement and the expert evidence related mainly to the potential damages. There was a counterclaim involving the same facts about the tenancy agreement with an additional averment that the respondent refused mediation. Judgment was reserved and the Judgment was fairly long at 67 pages. Further, the respondent did not succeed in its claim for $170,000 for the period August 2018 to December 2019 (Judgment at [170] and [177]) or in its claim for the loss of opportunity to effect a collective sale of both properties (Judgment at [172]–[173]). The respondent should not be penalised of course for abandoning its claim for specific performance because the reasons for doing so were not due to its fault. We agree with the trial Judge’s finding that the appellant’s decision to sign the new tenancy agreement with Ink and Pixel Pte Ltd was made in bad faith.