PT Prima v Kempinski: Illegality, Force Majeure & New Management Contract in Hotel Management Dispute

In a dispute between PT Prima International Development (Prima), an Indonesian company, and Kempinski Hotels SA (Kempinski), a Swiss company, the Singapore Court of Appeal heard four appeals arising from an arbitration regarding a hotel management contract. Prima terminated the contract, leading Kempinski to seek remedies, including damages and specific performance. Prima counterclaimed, alleging the contract became illegal under Indonesian law. The arbitrator issued multiple interim awards, which were challenged in the High Court. The High Court set aside the Third Award, Fourth Award, and Costs Award. Prima appealed, and Kempinski cross-appealed. The Court of Appeal allowed Prima's appeals, reinstating the arbitrator's awards and ordering Kempinski to pay costs.

1. Case Overview

1.1 Court

Court of Appeal

1.2 Outcome

Appeals allowed; the Third Award, the Fourth Award and the Costs Award are reinstated.

1.3 Case Type

Civil

1.4 Judgment Type

Grounds of Decision

1.5 Jurisdiction

Singapore

1.6 Description

Singapore Court of Appeal addresses illegality and force majeure in a dispute between PT Prima and Kempinski Hotels over a hotel management contract.

1.7 Decision Date

2. Parties and Outcomes

Party NameRoleTypeOutcomeOutcome TypeCounsels
PT Prima International DevelopmentAppellant, RespondentCorporationAppeals allowedWon
Kempinski Hotels SARespondent, AppellantCorporationCross-appeal dismissedLost

3. Judges

Judge NameTitleDelivered Judgment
Chan Sek KeongChief JusticeYes
Andrew Phang Boon LeongJustice of the Court of AppealNo
Belinda Ang Saw EanJudgeNo

4. Counsels

Counsel NameOrganization
Nicholas NarayananNicholas & Tan Partnership LLP
Michael HwangMichael Hwang Chambers
Ernest WeeMichael Hwang Chambers
Jansen ChowRajah & Tann LLP
Adrian WongRajah & Tann LLP
Andrea BakerRajah & Tann LLP

4. Facts

  1. Prima and Kempinski entered into an Operating and Management Contract on 15 April 1994, for Kempinski to manage Prima's hotel for 20 years.
  2. Prima terminated the Management Contract on 6 February 2002, alleging Kempinski failed to perform its obligations.
  3. Kempinski commenced arbitration on 20 May 2002, seeking damages and specific performance.
  4. Prima argued the Management Contract became illegal under Indonesian law due to regulatory changes.
  5. The arbitrator issued multiple interim awards, including findings on illegality and the possibility of lawful performance.
  6. Kempinski entered into a new management contract on 28 April 2006, to manage another hotel in Indonesia.
  7. The arbitrator found Kempinski's new contract inconsistent with its obligations under the original Management Contract.

5. Formal Citations

  1. PT Prima International Development v Kempinski Hotels SA, Civil Appeals Nos 94, 95, 96 and 98 of 2011, [2012] SGCA 35
  2. Kempinski Hotels SA v PT Prima International Development, , [2011] 4 SLR 633
  3. Kempinski Hotels SA v PT Prima International Development, , [2011] 4 SLR 669
  4. Kempinski Hotels SA v PT Prima International Development, , [2011] 4 SLR 670

6. Timeline

DateEvent
Operating and Management Contract signed
Kempinski commenced managing the Hotel after its soft opening
Indonesian Ministry of Tourism issued a decision changing regulatory conditions
Indonesian Ministry of Tourism issued a decision changing regulatory conditions
Indonesian Ministry of Tourism issued a decision changing regulatory conditions
Prima gave Kempinski written notice of termination of the Management Contract
Prima entered into another management contract with a different company
Kempinski commenced the Arbitration
Prima filed its Points of Defence and Counterclaim
Arbitrator gave leave to Prima to amend its pleadings
Arbitrator issued Procedural Order No 1
Prima filed its Points of Re-Amended Defence and Counterclaim
First tranche of arguments on the issue of illegality heard
Arbitrator published his first interim award
Second tranche of the oral hearing on the issue of illegality
Kempinski entered into a contract to provide hotel management services in respect of another hotel in Indonesia
Arbitrator published his second interim award
Prima’s solicitors wrote to the Arbitrator to seek clarification of the Second Award
Conference held to decide how the Arbitration should proceed
Arbitrator published the Third Award
Arbitrator directed the parties to file submissions
Kempinski filed Originating Summons No 903 of 2008
Prima tendered its submissions as directed by the Arbitrator
Arbitrator published the Fourth Award
Kempinski filed Originating Summons No 121of 2009
Arbitrator issued the Costs Award
Kempinski filed Originating Summons No 766 of 2009
High Court judge issued decisions setting aside the Third Award, the Fourth Award and the Costs Award
Judgment reserved

7. Legal Issues

  1. Breach of Contract
    • Outcome: The court found that Kempinski's conduct in entering into a new management contract was inconsistent with its obligations under the original management contract, impacting its claim for damages.
    • Category: Substantive
    • Sub-Issues:
      • Wrongful termination
      • Failure to perform obligations
      • Breach of exclusivity clause
  2. Force Majeure
    • Outcome: The court considered whether the Three Decisions and Kempinski's subsequent actions constituted force majeure, impacting the validity of the management contract.
    • Category: Substantive
    • Sub-Issues:
      • Impossibility of performance
      • Supervening illegality
  3. Illegality
    • Outcome: The court examined whether the Indonesian Ministry of Tourism's decisions rendered the management contract illegal and the impact on Kempinski's ability to perform.
    • Category: Substantive
    • Sub-Issues:
      • Supervening illegality
      • Compliance with regulatory conditions
  4. Jurisdiction of Arbitral Tribunal
    • Outcome: The court addressed whether the arbitrator exceeded their jurisdiction by deciding issues not properly pleaded or within the scope of the submission to arbitration.
    • Category: Jurisdictional
    • Sub-Issues:
      • Scope of submission to arbitration
      • Pleadings
      • Functus officio
  5. Natural Justice
    • Outcome: The court considered whether the arbitrator exhibited apparent bias or denied Kempinski the right to be heard, particularly regarding cross-examination of expert witnesses.
    • Category: Procedural
    • Sub-Issues:
      • Apparent bias
      • Right to be heard
      • Cross-examination of expert witnesses
  6. Public Policy
    • Outcome: The court assessed whether awarding damages to Kempinski would be contrary to the public policy of Indonesia, given the circumstances of the case.
    • Category: Substantive
    • Sub-Issues:
      • Enforcement of awards
      • Violation of mandatory law

8. Remedies Sought

  1. Declarations
  2. Injunction
  3. Specific Performance
  4. Monetary Damages
  5. Interest
  6. Costs

9. Cause of Actions

  • Breach of Contract

10. Practice Areas

  • Commercial Litigation
  • Arbitration
  • International Commercial Arbitration

11. Industries

  • Hospitality
  • Tourism

12. Cited Cases

Case NameCourtAffirmedCitationJurisdictionSignificance
Kempinski Hotels SA v PT Prima International DevelopmentHigh CourtYes[2011] 4 SLR 633SingaporeReports the Judge’s decisions setting aside the Third Award.
Kempinski Hotels SA v PT Prima International DevelopmentHigh CourtYes[2011] 4 SLR 669SingaporeReports the Judge’s decisions setting aside the Fourth Award.
Kempinski Hotels SA v PT Prima International DevelopmentHigh CourtYes[2011] 4 SLR 670SingaporeReports the Judge’s decisions setting aside the Costs Award.
PT Asuransi Jasa Indonesia (Persero) v Dexia Bank SACourt of AppealYes[2007] 1 SLR(R) 597SingaporeCited for observations on the jurisdiction of an arbitral tribunal.
London and North Western and Great Western Joint Railway Companies v J H Billington, LimitedHouse of LordsYes[1899] AC 79United KingdomCited for the principle that an arbitral tribunal has no jurisdiction to decide any issue not referred to it for determination by the parties.
Ng Chin Siau v How Kim ChuanHigh CourtYes[2007] 2 SLR(R) 789SingaporeCited for the principle that an arbitrator is bound to decide the case in accordance with the parties’ pleadings.
Al-Medenni v Mars UK LimitedEngland and Wales Court of Appeal (Civil Division)Yes[2005] EWCA Civ 1041United KingdomCited for the principle that the parties should clearly identify the issues that arise in the litigation, so that each has the opportunity of responding to the points made by the other.
Loy Chin Associates Pte Ltd v Autohouse Trading Pte LtdHigh CourtYes[1991] 1 SLR(R) 740SingaporeCited for the principle that the court cannot dismiss the claim on the ground that there is no contract unless that ground is raised by way of an amended defence.
Esso Petroleum Co Ltd v Southport CorporationHouse of LordsYes[1956] AC 218United KingdomCited for the principle that the function of pleadings is to give fair notice of the case which has to be met.
Loveridge, Loveridge v HealeyEngland and Wales Court of Appeal (Civil Division)Yes[2004] EWCA Civ 173United KingdomCited for the principle that where departure from a pleading will cause prejudice, it is in the interests of justice that the other party should be entitled to insist that this is not permitted unless the pleading is appropriately amended.

13. Applicable Rules

Rule Name
SIAC Rules (2nd Ed, 22 October 1997)
Rule 25(e) of the SIAC Rules (1997 Ed)
Rule 22.1 of the SIAC Rules (1997 Ed)
Rule 34.1 of the SIAC Rules (1997 Ed)

14. Applicable Statutes

Statute NameJurisdiction
International Arbitration ActSingapore
Art 1245 of the Indonesian Civil CodeIndonesia

15. Key Terms and Keywords

15.1 Key Terms

  • Management Contract
  • Arbitration
  • Illegality
  • Force Majeure
  • New Management Contract
  • Intervening Period
  • Three Decisions
  • PMA company
  • SIAC Rules
  • Points of Claim
  • Points of Defence and Counterclaim
  • Supervening Illegality

15.2 Keywords

  • arbitration
  • contract
  • hotel management
  • illegality
  • force majeure
  • Singapore
  • Kempinski
  • Prima
  • Indonesia
  • management contract

17. Areas of Law

Area NameRelevance Score
International Commercial Arbitration90
Arbitration90
Contract Law70
Breach of Contract70
Contractual discretions30
Frustration30
International Commercial Law20
Estoppel20
Illegality and public policy20

16. Subjects

  • Arbitration
  • Contract Law
  • Hotel Management
  • International Commercial Law