PARK HOTEL GROUP MANAGEMENT PTE. LTD. v AW ENG HAI & 2 Ors

1 In June 2013, AH-REIT leased a property (the “Property”) to PHCQ, which operated it as a hotel. Under the lease (the “Lease”), which had a tenure of ten years, PHCQ was to pay monthly rent and other charges to AH-REIT.

2 In 2020, PHCQ defaulted on its obligations to pay the rent and other charges under the Lease. AH-REIT eventually repossessed the Property after the outstanding amounts remained unpaid.

3 From 28 August 2021 to 30 September 2022, AH-REIT operated a hotel on the Property and generated income for itself. It did not lease the Property to any tenant. During this period, AH-REIT appointed Ascott International Management Pte Ltd (“AIMPL”), a related entity, to manage the hotel on the Property.

4 From 1 October 2022 onwards, AH-REIT leased the Property to AHBT, another related entity. AHBT paid variable rent to AH-REIT under the lease agreement. AIMPL continued to manage the hotel on the Property after it was leased to AHBT.

5 From March 2023 to September 2023, the hotel on the Property was partially closed for refurbishment.

6 On 19 November 2019, PHCQ was wound up by the General Division of the High Court (“General Division”). AH-REIT filed a POD claiming the amount of $32,066,825.30 against PHCQ. This included a claim for damages in net rent under the Lease for the period from 28 August 2021 to 27 June 2023, in the amount of $20,387,563.30. This sum comprised the rent payable under the Lease for the period from 28 August 2021 to 27 June 2023 less the “income earned” by AH-REIT and AHBT in that period, with goods and services tax added. The 1st and 2nd respondents, who are the liquidators of PHCQ, admitted AH-REIT’s POD in full.

7 The appellant is another creditor of PHCQ. It applied to the General Division to expunge or reduce the POD.

8 The judge below (the “Judge”) dealt with several challenges by the appellant against the POD. She declined to reduce or expunge the claimed amount of $20,387,563.30, finding that AH-REIT had adequately mitigated its loss after the Lease was terminated. The appellant appealed against the Judge’s decision not to reduce or expunge this particular claim.

9 The appellant claimed that:

a. AH-REIT had not taken reasonable steps to mitigate its loss because it appointed a related party as manager of the hotel (AIMPL) and leased the Property to another related party (AHBT).

b. The Judge had erred in relying on certain figures in a profit and loss breakdown (the “P&L Breakdown”) produced by AH-REIT’s representative when determining the amount of income earned by AH-REIT and AHBT in the relevant period.

c. AH-REIT could not claim the full amount of its loss suffered during the period of 1 March 2023 to 27 June 2023, when the hotel on the Property was partially closed for refurbishment during this time.

10 The Court held that the Judge did not err in finding that AH-REIT took reasonable steps to mitigate its loss by appointing AIMPL to manage the Property and by subsequently leasing the Property to AHBT: at [21].

11 The evidence supported the Judge’s assessment that AH-REIT and its related parties, AIMPL and AHBT, had expertise in operating hotels and so could have managed the Property with more than sufficient competence: at [22].

12 The Judge was also entitled to consider that the Lease was terminated at a time when Singapore was emerging from the COVID-19 pandemic. In this context, it was speculative to assume that AH-REIT could have quickly found a more suitable tenant for the Property. The advantage of appointing AIMPL as the hotel manager was also that the hotel was able to generate revenue immediately, or at least very soon, after AH-REIT repossessed the Property: at [23].

13 Moreover, it was significant that, in computing the amount of earned income to deduct from the debt, AH-REIT did not merely attribute to the accounts the variable rent paid by AHBT to AH-REIT; instead, it attributed to its computation all the gross profit earned by AH-REIT and later, AHBT, from operating a hotel on the Property. Nothing in the evidence suggested that PHCQ or an unrelated tenant would have earned more if it had continued operating a hotel at the Property in the period from 28 August 2021 to 27 June 2023: at [24].

14 The Court rejected the appellant’s contention that the Judge had erred in accepting the figures showing the amount of earned income in the P&L Breakdown. The appellant did not point to any evidence that suggested that the figures cited in the P&L Breakdown could be attributed to properties or businesses other than the Property, or that they were inaccurate: at [27]–[29].

15 The Court found that AH-REIT was not entitled to the full amount of damages in net rent it claims from PHCQ for the period when the Property was partially closed for refurbishment: at [30].

16 After AH-REIT repossessed the Property in August 2021, AH-REIT and later, AHBT, were able to operate a hotel on the Property without the need for any refurbishment which would have entailed a closure, partial or otherwise, of the hotel. Against this backdrop, AH-REIT decided in March 2023 to partially close the Property for refurbishment. For the most part, this refurbishment exercise did not comprise necessary repairs or reinstatement works. Rather, they were chiefly undertaken as part of a rebranding exercise. The refurbishment was thus a purely voluntary exercise that did not mitigate the loss arising from PHCQ’s breach of the Lease. PHCQ should therefore not be liable for the reduction of income that resulted from AH-REIT’s decision to partially close the hotel: at [32]–[33].

17 The amount of avoidable loss was not readily quantifiable from the figures in the P&L Breakdown as they only state the profit and loss for the whole period of 1 January 2023 to 27 June 2023, without isolating the period in which refurbishment was undertaken. The Court was thus not able to compute the amount of properly claimable damages in the form of net rent for the period of 1 March 2023 to 27 June 2023 on the notional basis that the hotel had been fully open for business during this time. Instead, the Court decided that it would be appropriate to expunge the claimed amount for damages in net rent for the period of 1 January 2023 to 27 June 2023, which is a figure of $6,202,644.35 that appears in the POD. AH-REIT is at liberty to file a fresh POD for its damages in the form of the net rent for the period of 1 January 2023 to 27 June 2023, which accounts for the net income that could have been earned by AHBT if the hotel had not been partially closed from 1 March 2023 to 27 June 2023. The POD must be supported by documents that would assist in quantifying the reduction of net income resulting from the partial closure of the Property for the refurbishment period. These documents should include (but need not be limited to) the monthly profit and loss statements for the operation of the hotel for each month from January 2023 to June 2023, up to 27 June 2023: at [35]–[37].