Carpe Diem Holdings Pte Ltd v Carpe Diem Playskool Pte Ltd and others

• Jurisdiction: Singapore
• Judge: Kannan Ramesh J
• Judgment Date: 21 February 2018
• Neutral Citation: [2018] SGHC 37
• Docket Number: Originating Summons No 360 of 2017
• Date: 21 February 2018
• Published date: 21 November 2018
• Plaintiff Counsel: Loh Kia Meng and Francis Wu Wenbang (Dentons Rodyk & Davidson LLP)
• Defendant Counsel: Wu Xiaowen (Lexton Law Corporation),Magdalene Chew Sui Gek and Edwin Cai Jianye (AsiaLegal LLC)
• Court: High Court (Singapore)
• Hearing Date: 25 September 2017,25 October 2017,10 October 2017
• Subject Matter: Land,Sale of land,Disclaimer of onerous transactions,Insolvency Law,Avoidance of transactions

Kannan Ramesh J: Introduction

At the heart of this application was the plaintiff’s attempt to assert ownership over a lease of a Housing and Development Board shop-unit which had expired before the commencement of these proceedings. The lease had been assigned by the first defendant to the fourth defendant pursuant to a sale and purchase agreement between the two parties. Shortly after the execution of the sale and purchase agreement, the first defendant was placed in creditors’ voluntary liquidation. The first defendant and the fourth defendant were not related parties. The second defendant stepped in first as provisional liquidator and then as liquidator of the first defendant. The plaintiff did not challenge the assignment on any of the grounds for vitiating transactions in an insolvent liquidation set out in the Companies Act (Cap 50, 2006 Rev Ed) (“the Act”).

In Originating Summons No 360 of 2017 (“OS 360”), the plaintiff sought leave pursuant to s 299(2) of the Act to commence proceedings against the first defendant and second defendant. The plaintiff sought leave in relation to proposed applications under s 310 and s 315 of the Act. In relation to s 310, the plaintiff sought the determination of two questions arising in the liquidation of the first defendant. In relation to s 315, the plaintiff sought to: (a) reverse the decision of the second defendant as liquidator to complete the assignment of the lease to the fourth defendant on the ground that the assignment was wrongful; or (b) modify the decision of the second defendant by seeking payment from any of the defendants of its loss of profits for breach of its contract with the first defendant. Having heard the parties’ submissions, I dismissed OS 360 with costs. The plaintiff has appealed my decision. I now give my reasons.

Facts The parties

The plaintiff, Carpe Diem Holdings Pte Ltd, is a Singapore incorporated company engaged in the business of providing childcare services for pre-school children through franchising.

The first defendant, third defendant and fourth defendant are Carpe Diem Playskool Pte Ltd, Genesis Child Care Pte Ltd and Genesis Child Care (TJ) Pte Ltd respectively. They are also Singapore incorporated companies engaged in the business of providing childcare services for pre-school children. The first defendant was the franchisee of the plaintiff until 31 December 2015, operating a pre-school at 153 Yung Ho Road, #01-41, Singapore 610153 (“the Premises”) under the Carpe Diem brand and trademark. The second defendant, Chee Fung Mei, is the liquidator of the first defendant. Thefirst defendant was placed in creditors’ voluntary liquidation on 16 January 2016.

Background to the dispute The contractual relationship between the plaintiff and the first defendant

The present dispute stemmed from a decade-long relationship between the plaintiff and the first defendant. In November 2005, the plaintiff and the first defendant entered into a Unit Franchise Agreement (“the First Agreement”) with the plaintiff as the franchisor and the first defendant as the franchisee. Pursuant to the First Agreement, the first defendant obtained a lease from the Housing and Development Board (“the HDB”) for the Premises. Thereafter, the first defendant began to operate a pre-school centre at the Premises.

The First Agreement expired on 1 November 2010. Upon its expiry, the plaintiff and the first defendant entered into a second Unit Franchise Agreement dated 1 November 2010 (“the Franchise Agreement”). Under the Franchise Agreement, the first defendant was granted franchise rights to operate a childcare and child development centre under the name “Carpe Diem”. At the material time, “Carpe Diem” was a registered trademark in Singapore in the name of the plaintiff.

The lease with the HDB was subsequently renewed for three-year terms on January 2008, January 2011 and January 2014. The last renewal in January 2014 was for the period 1 January 2014 to 31 December 2016 (“the Lease”). It was this lease that was the subject of the tussle between the parties. The assignment of the Lease by the first defendant to the fourth defendant was the source of the plaintiff’s dissatisfaction. The plaintiff asserted that it enjoyed rights superior to the fourth defendant’s over the Lease.

The following clauses of the Franchise Agreement were pertinent (the plaintiff being referred to as “the Franchisor” and the first defendant being (referred to as the Unit Franchisee”): 11. OBLIGATIONS OF THE UNIT FRANCHISEE (C) Option to assign. The Unit Franchisee shall use its best efforts to cause any Lease it enters into to contain a provision giving the Franchisor the option to obtain an assignment of the Lease in the event that the Unit Franchisee should for whatever reason decide that it wants to surrender the Lease or should this Agreement expire or be terminated for whatever reason.

…

28. EFFECT OF TERMINATION (A) Upon the expiry or termination of this Agreement: -

… (8) Transfer of Lease. the Franchisor shall have the option which shall be exercised within thirty (30) days from the date of termination or expiry by written notice to the Unit Franchisee to obtain a lease of the premises of the Centre or a transfer or assignment of the existing Lease of the Centre from the Unit Franchisee so as to continue the Business there whether by itself or through its nominee and the Unit Franchisee shall:- (a) if it owns the premises of the Centre, grant a lease to the Franchisor or its nominee at market price and subject to such terms and conditions as are usual in leases of the same nature; or (b) if the premises of the Centre are leased from another party, use its best endeavours to procure from the landlord a transfer or assignment of the lease for the premises of the Centre to the Franchisor or its nominee within a reasonable time. [emphasis added]

Clause 28(A)(8) (“the Option Clause”) was crucial to the plaintiff’s case. The plaintiff asserted an equitable interest in the Lease on the basis of the exercise of the Option Clause. The plaintiff further asserted that the interest which resulted trumped any interest that the fourth defendant acquired in the Lease. It is important to note the plaintiff did not contend that the Option Clause per se conferred an interest in the Lease, ie, the exercise of the Option Clause conferred rights in the plaintiff.

Separately, despite cl 11(C) of the Franchise Agreement requiring the first defendant to use its best efforts to ensure that the Lease would contain a provision that granted the plaintiff an option for the assignment of the same, this was not in fact incorporated into the Lease. To the contrary, the Lease prohibited assignment or subletting of the Premises without approval by the HDB. The relevant clause read as follows: 3 The Tenant hereby covenants with HDB as follows:- 3.3 Not to (unless with prior written consent of HDB):- (a) Transfer, assign, sublet or part with the actual or legal possession of the said premises or any part thereof; (b) enter into any Agreement whether verbal or written with any person corporation firm or company where the effect of the said Agreement will be a defacto sub-letting assignment licensing or parting with legal or physical possession of the premises or any part thereof to the person corporation firm or company.

[emphasis added]

This was important for reasons discussed below (see [63]–[64] below). Termination of the Franchise Agreement

The Franchise Agreement was for a term of five years commencing on 1 November 2010. Accordingly, the Franchise Agreement would have terminated on 1 November 2015. However, parties agreed to extend the term to 31 December 2015.

By a letter dated 22 December 2015, the plaintiff’s solicitors notified the first defendant that unless renewed, the Franchise Agreement would terminate on 31 December 2015. In the same letter, the plaintiff’s solicitors demanded confirmation by 28 December 2015 that the first defendant would transfer the Lease to the plaintiff in the event the first defendant did not intend to renew the Franchise Agreement. The plaintiff did not rely on this letter as constituting an exercise of the Option Clause. This must be correct as the plaintiff would only be able to exercise the Option Clause upon termination of the Franchise Agreement on 31 December 2015. In any event, it would be difficult to construe the letter as exercising the Option Clause as its focus was on renewal of the Franchise Agreement. As will be seen, this remained the focus of the plaintiff until 26 January 2016. On 29 December 2015, the first defendant responded by email and sought “a month to a month and half” to evaluate its options.

On 4 January 2016, the plaintiff’s solicitors replied to the first defendant’s email of 29 December 2015 to state that the Franchise Agreement had terminated (“the 4th January letter”). Notwithstanding this, the plaintiff’s solicitors demanded that the first defendant respond by 14 January 2016 on, amongst other things, whether it intended to extend the Franchise Agreement. On 14 January 2016, Connie Lim (“Connie”), the sole director of the first defendant, informed the plaintiff’s solicitors by email that the first defendant would consider renewing the Franchise Agreement but needed details before making a decision.

On 18 January 2016, the plaintiff’s solicitors rejected the first defendant’s request for details. The plaintiff’s solicitors demanded that the first defendant sign by 22 January 2016 an extension to the Franchise Agreement of five years. A copy of the agreement that was to be signed was enclosed in the letter. As no response was received from the first defendant, the Franchise Agreement came to an end with effect from 31 December 2015.

The Sale and Purchase Agreement between the first defendant and the fourth defendant. ...