Cathay Theatres Pte Ltd v LKM Investment Holdings Pte Ltd

• Jurisdiction: Singapore
• Judge: Lee Seiu Kin JC
• Judgment Date: 29 June 1999
• Neutral Citation: [1999] SGHC 171
• Court: High Court (Singapore)
• Published date: 06 March 2013
• Year: 1999
• Plaintiff Counsel: C R Rajah & WJM Ricquier (Tan Rajah & Cheah)
• Defendant Counsel: Michael Hwang & Christine Chan (Allen & Gledhill)
• Citation: [1999] SGHC 171

JUDGMENT

1. The Plaintiffs are the lessees of the Regal Theatre at number 3501 Bukit Merah Road ("the Property") under the terms of a 99-year lease ("the Head Lease") from the Housing and Development Board ("the HDB") which commenced on 1 February 1977. On 17 May 1996 the Defendants contracted to purchase the lease on the Property from the Plaintiffs for $16.5 million, the completion date being 16 August 1996. Completion did not take place on 16 August 1996 and has still not taken place. In this action the Plaintiffs seek an order for specific performance and interest for late completion or, in the alternative, damages for breach of contract.

2. In their Defence the Defendants say that (i) the Plaintiffs have made certain misrepresentations which would entitle them to rescind the contract, which they did; and (ii) there is a defect in the title of the Property. The Defendants counterclaim for the refund of the $1.65 million deposit and certain ancillary reliefs, as well as damages for breach of contract.

Background

3. Sometime in 1995 the Plaintiffs put the Property up for sale. The Defendants were one of the interested parties but eventually another party was granted the option. However that sale fell through and the Plaintiffs continued with their efforts to sell the Property. The Defendants’ interest was revived as a result of a chance encounter sometime in March or April 1996 (the parties do not agree on the exact date). The Plaintiffs’ Manager for Marketing and Leasing, Peter Boo ("Boo") met the Defendants’ Business Development Manager, Low Heng Yuen ("Low") when Low happened to attend a meeting at the Plaintiffs’ offices on an unrelated matter. Boo mentioned to Low that the Property was still available. Low said that he would inform the Defendants’ Managing Director, Steven Lek ("Lek") about it. After that meeting, Low had several telephone conversations with Boo in which he obtained certain information from Boo about the Property. They also discussed the price and Boo informed Low that the Plaintiffs wanted $16.5 million. On 16 April 1996 Low faxed a letter to Tan Nguan Teck ("Tan"), a Director of the Plaintiffs. Low referred to their telephone conversation on 12 April and offered to purchase the Property for $16.5 million, but subject to certain conditions. The Plaintiffs did not reply to this letter but a meeting was arranged for 17 April 1996.

4. Around noon on 17 April Lek and Low went to the Plaintiffs’ office to meet with Boo and Tan. After some discussion Lek agreed to purchase the Property for the asking price. An option was prepared by the Plaintiffs’ legal department and signed by Tan. Lek then handed over a cheque for $165,000 being 1% of the purchase price. One month later, on 17 May 1996, the Defendants exercised the option by payment of a further $1,485,000, being 9% of the price. The sale and purchase agreement ("the Agreement") provides that the sale is subject to the Singapore Law Society’s Conditions of Sale 1994 unless otherwise varied. It also states that the Property is sold subject to seven leases in respect of part of the Property granted to McDonald’s Restaurants Pte Ltd ("McDonald"), the last of which would expire on 20 May 2008.

5. Following the exercise of the option, the parties exchanged letters with each other, mostly through their solicitors. M/s Tan Rajah & Cheah ("TRC") acted on behalf of the Plaintiffs and M/s Prem & Co ("PC") on behalf of the Defendants. The solicitors dealt with a number of issues during the period leading up to the completion date. Two of these featured more prominently and one caused the parties to resort to litigation prior to the present action. The two issues are: (i) the issue of HDB approval for the sale to the D; and (ii) the McDonald caveat. I now set out the relevant correspondence.

6. The first issue is the question of whether the HDB had consented to the sale by the Plaintiffs to the Defendants. TRC wrote to the HDB on 20 May 1996 to seek consent for the sale. HDB replied on 4 July stating that they had "no objection" to the proposed assignment of the lease subject to the payment of a "non-refundable administrative fee of $515 … for [HDB’s] consent to the proposed assignment". They also asked for a copy of the draft transfer for their approval. TRC forwarded a copy of this letter to PC, as well as their letter of 20 May to the HDB making the request. PC wrote directly to the HDB on 20 July, forwarding the Defendants’ cheque for $515 "being the non-refundable administrative fee … for [the HDB’s] consent to the proposed assignment." On 26 July TRC forwarded to HDB for their consent the engrossed Transfer duly executed by the Plaintiffs. However on 8 August PC wrote to TRC to state that they have not seen "HDB’s official consent to the sale". PC said that they were going to seek clarification from the HDB about this, which they did by way of a letter on the same day. In that letter PC asked the HDB whether their "no objection" letter of 4 July to TRC was the official consent. TRC responded to this in their letter to PC of 12 August in which TRC pointed out that HDB had given their consent in their letter of 4 July. PC replied on the same day, saying that the Defendants was of the view that the "official consent from HDB" had not been received. This prompted an immediate response from TRC in the form of their letter of 13 August which stated that:

"… there is no doubt that HDB has already consented to the sale. HDB’s letter to us of 4^th July 1996 states that it has no objections to the assignment provided its administrative fees for the consent are paid. Your clients have paid the administrative fees. What more do your clients expect? What else could the words "no objections to the assignment" mean?"

PC replied to this on 14 August, stating their disagreement that the HDB had given their consent. They also said that the HDB had not replied to their letter of 8 August seeking clarification of this point. To which TRC replied on the same day, saying that they understood from the HDB that they were, "not surprisingly, perplexed" by the inquiry. However in their letter of 15 August, PC said that they had also contacted the representatives of the HDB. They understood from them that the HDB were not "perplexed" by the inquiry as TRC had claimed and that they would be replying to that letter. However, the HDB apparently never replied to PC’s letter of 8 August. On 15 August the HDB sent a letter to TRC enclosing the Instrument of Transfer duly executed by them. The Defendants did not raise this issue after this.

7. I now turn to the second issue, viz. the McDonald caveat, which resulted in a great deal of problems. One of the terms of the sale was that, subject to certain conditions, any deposits paid by McDonald to the Plaintiffs would, on completion, be transferred to the Defendants if McDonald agreed in writing to release the Plaintiffs from all obligations in respect of the deposits. McDonald required the Defendants to agree to be bound by the leases before they would give such a release. On 4 June, TRC wrote to PC forwarding the form of the letter that McDonald required the Defendants to provide. PC replied on 6 June to ask to look at the leases referred to in the form of letter. TRC wrote on 8 June, forwarding the seven McDonald leases to PC. On 29 June, PC wrote to TRC to ask if a caveat lodged by McDonald on the Property would be withdrawn upon completion. On 20 July, TRC replied to this letter in the following manner:

"McDonald’s requires the Transfer by our clients to yours to be subject to their Caveat. The Caveat will not be withdrawn. Hence, our amendment to your draft Transfer to mention the Caveat in the Prior Encumbrances box."

In their reply dated 24 July, PC stated as follows:

"The Option agreement provides for a sale subject to McDonald’s leases. In the leases, there’s provision for termination in the event of breach. "Subject to the leases" is not the same as subject to caveat. However , we’ll take our clients’ instructions on your telefax and shall revert to you in due course."

On 12 August, PC wrote to TRC and one of the matters was the question of the leases. PC said as follows:

"4. As for the sale "subject to caveat", our clients do not agree to this unilateral change of term of the Option agreement. According to our clients Mr Lek, he agreed to the price of $16.5 million and all the terms of the Option which included that sale is subject to tenancies only and thus to all intents and purposes the title would be a clean title.

5. Hence in this other issue of sale "subject to caveat", please inform your clients of our clients’ objection and revert to us as early as possible."

In their reply of 13 August, TRC responded in this manner:

"… with regard to the McDonald’s Caveat, we would respond as follows:

1. You have sent us the engrossment of the Transfer for our clients’ execution, with details of the Caveat inserted in the Prior Encumbrances box.

2 The interest claimed by McDonald’s under the Caveat is consistent with their interest as tenant to which the sale of the building by our clients to yours is subject."

8. PC replied on 14 August, saying that the Defendants would not have agreed to purchase the Property if the sale was subject to the caveat because there would be a problem in obtaining financing if the caveat was not removed. On the same day, in a second letter to TRC, PC stated that the caveat had to be withdrawn and required TRC’s confirmation that the Plaintiffs would procure its removal upon completion. TRC replied on the same day and pointed out that the interest claimed under the caveat was the same interest which McDonald had under the tenancies and which the Defendants had purchased the Property subject to. To this PC replied on 15 August saying that the Defendants’ position on this remained unchanged. PC also said that their concern was real as the financial institution from which...