Koror, Palau — The Appellate Division of the Supreme Court of Palau has reversed a trial court’s decision in a high-profile lease dispute involving a Palauan landowner and a Chinese tourism development group. The lower court had awarded nearly $7.7 million in damages to the landowner, Francisca Blailes, after ruling that the China Tourism Development Group and its associate Xinwu Zheng had breached their lease agreement by failing to demolish buildings on the leased property by the agreed deadline.
The appellate panel, presided over by Associate Justices Fred M. Isaacs, Daniel R. Foley, and Kevin Bennardo, found significant errors in the trial court’s conclusions regarding the validity of the default notice and the termination of the lease agreement. The appellate court determined that the notice of default issued by Blailes to the appellants was legally insufficient and that the subsequent termination of the lease agreement was improper.
In their opinion, the justices highlighted that the March 5, 2021, default notice sent by Blailes did not adequately specify the nature of the breach, nor did it provide a clear demand for the appellants to cure the breach. As a result, the court ruled that the notice did not meet the legal requirements set forth in the lease agreement, thereby invalidating the termination of the contract.
Moreover, the court found that even if the notice had been valid, Blailes failed to follow the proper procedures for lease termination, including providing the appellants with a 90-day period to vacate the premises. The court noted that Blailes prematurely cut off utilities and took other actions that constituted a wrongful termination of the lease.
As a result of these findings, the appellate court vacated the damages and attorney’s fees awarded to Blailes and remanded the case back to the trial court for further proceedings consistent with their opinion. The ruling leaves open the possibility of a significantly different outcome upon retrial, depending on the trial court’s new findings.
The case has been closely watched in Palau due to its implications for foreign investment and land use in the island nation, especially in light of the difficulties posed by the COVID-19 pandemic, which had prevented the appellants from fulfilling their obligations under the lease.