Thứ Ba, 18 tháng 6, 2013

Groupon sues small Singapore merchant for USD 1.6 million, company fights back

June 18, 2013 by    

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1838f groupon logo 280x FERNLOFT HOSTELGroupon is currently embroiled in a legal wrangle with Villas International, a small Singapore-based company that brokered between tourist accommodations and group buying companies.


In a series of twists, what began as a SGD 2M (USD 1.6M) lawsuit has now become a SGD 290K  counterclaim by the merchant against the world’s largest daily deals site.


Founded by Mira Hamza and Feroz Ghulam, Villas earned a small fee from advertising vacation stays on various daily deals sites. While the business model is straightforward, trouble started a year into operations. In September 2011, they began running into cashflow problems and in subsequent months started defaulting in their payments to villas in Indonesia and Thailand.


Customers began pouring their grievances on at least two threads in TripAdvisor about how they would book a flight to Bali after purchasing a deal, only to realize upon arrival at the hotel that there was no room because they didn’t receive any payments from Villas. Calls to the company were often left unanswered. A Facebook page was even created by troubled customers looking to compare notes.


‘Not our fault’


Mira and Feroz says it wasn’t their fault. In an interview with SGE, they blamed the daily deals sites, claiming they were unable to pay clients because the majority of the sites they dealt with had not paid them despite repeated reminders.


This, in addition to salaries for its nine employees, rental costs, and a contract clause with hotels stating that the company must pay them in the event of no-shows, drove the company into unsustainability in a short span of time.


According to Villas’ lawyers, Groupon was contractually obliged to pay the company within seven to ten days from the time of deal redemption.


The delayed payments signaled the beginning of the end for Villas, whose owners estimate that between SGD 500K and SGD 1M has been owed to them by various daily deals sites. The company had listed deals en masse in dozens of daily deals sites without knowing that most of their payments would be withheld.


“Groupon did eventually pay us for three redemptions eight months late, and that was only during the court proceedings. Only one deal went through,” said Mira.


The business was dealt a death blow in April 2012 when 13 Groupon companies filed a claim in the Singapore Supreme Court for  USD 2M in damages due to losses arising from money paid to defendants, customer refunds, relocations of customers to new hotels, and damage to international reputation.


Part of that lawsuit was a Mareva Injunction on Villas. This meant that while the defendants could continue running the business, they could not withdraw cash from the bank account or liquidate their assets.


With the business essentially dead in the water, Mira and Feroz engaged law firm Colin Ng Partners to appeal against the injunction. It took six months for the legal team to prepare their case. They had to sort out the financial accounts and dig up correspondences between Groupon and Villas to refute the plaintiff’s claims.


They successfully lifted the injunction on April 2013. The judge found no basis for the asset freeze as the evidence presented by Groupon was highly inconsistent. The court was then prepared to hear arguments for the damages.


An unexpected turn


According to Villas’ lawyers, since the plaintiffs were all foreign and Groupon Singapore was not a party in the case, the judge ordered th daily deals business to pay SGD 50k in security for costs to the defendants. This is a common practice since enforcement against foreign parties are difficult and expensive.


The orders were given on three occasions, once before the arguments to lift the injunction was heard, once when the court sided with the defendant in its ruling, and once more on 22 May this year when Groupon’s injunction claims were dismissed.


But the deadline on the 5th June passed by without a word from Groupon.


As a result, the court entered an interim judgment against the daily deals company, essentially ruling that Groupon would have to pay the company SGD 290K according to what was filed in the counterclaim, unless they succeed in appealing.


The sum covers the monies due and owing to them for the vouchers sold and redeemed to consumers.


Groupon has appealed the decision, but it has yet to be heard by the court.  The NASDAQ-listed company has declined to comment on this story.


This may not the first time Groupon has delayed paying merchants or used legal threats to bring them in line with its policies.


VentureBeat writer Rakesh Agrawal claims to have receive many emails from small businesses alleging that Groupon had not paid them for weeks and that the sales rep had threatened to sue.


“But filing a lawsuit would be suicidal for Groupon,” he wrote, “merchants won’t want to take that risk, and it will only increase Groupon’s adverse selection problems.”


Rakesh notes that he has not heard of a single case where Groupon actually sued a merchant. If true, the case with Villas could very well be the first.


Since its initial public offering in 2011, Groupon’s stock price has tumbled from a high of USD 26.11 to less than ten times the value last year. In Q3 2012, it reported a revenue of USD 586.6M, barely missing estimates.


Following founder and CEO Andrew Mason’s ouster however, it beat expectations by posting a revenue of USD 601.4M, an 8 percent year-on-year increase. Share prices have climbed to a one-year high.



Find out more about SGE’s research arm: SGE Insights, providing customized in-depth research reports to help you navigate the business of technology in Asia.


About The Author


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Terence LEE – Editor

Terence writes mainly about technology trends and startups in Asia. He believes in crafting smart content: Not just a regurgitation of text, but well thought-out pieces that serve the reader using a combination of data, design, narratives, analysis, and visual impact. His articles have been published on Venturebeat, Yahoo!, Straits Times, Today, and The Online Citizen. He also co-founded NewNation.sg, a satirical news site covering Singapore affairs. Engage him on LinkedIn and Twitter.


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Groupon sues small Singapore merchant for USD 1.6 million, company fights back

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