Court vacates $7.7 million award in lease dispute, orders new determination

Palau Koror — The Palau Supreme Court of Appeal has overturned a trial court ruling in a high-profile lease dispute between a Palau landowner and China Tourism Development Group. The lower court had ordered China Tourism Development Group and its partner Zheng Xinwu to pay nearly $7.7 million in damages to landowner Francisca Blailes for breaching the lease agreement by failing to demolish buildings on the leased land within the agreed-upon time frame.

The appellate panel, chaired by Associate Judges Fred M. Isaacs, Daniel R. Foley, and Kevin Bennardo, found that the trial court had materially erred in its conclusions regarding the validity of the notice of default and the termination of the lease agreement. The appellate court ruled that the notice of default issued by Blailes to appellant was legally inadequate and that the subsequent termination of the lease agreement was improper.

In their opinion, the judges stressed that the notice of breach of contract issued by Blailes on March 5, 2021, did not adequately describe the nature of the breach and did not clearly require the appellant to cure the breach. Therefore, the court ruled that the notice did not meet the legal requirements set out in the lease agreement, thereby invalidating the termination of the contract.

In addition, the court found that even if the notice was valid, Blairs failed to follow the correct procedures for terminating the lease, including giving the appellant 90 days to vacate the premises. The court noted that Blairs prematurely cut off water and electricity and took other actions that constituted an unlawful termination of the lease.

Based on these findings, the appellate court vacated the damages and attorney fees awarded to Blailes and remanded the case back to the trial court for further proceedings in accordance with their opinion. This ruling leaves open the possibility of a very different outcome at retrial based on the trial court’s new findings.

The case is being closely watched in Palau because of its implications for foreign investment and land use in the island nation, particularly in light of the hardships caused by the COVID-19 pandemic, which prevented the appellant from fulfilling its obligations under the lease.

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