Shell Eastern Petroleum (Pte) Ltd v Chuan Hong Auto (Pte) Ltd

• Jurisdiction: Singapore
• Judge: Lim Teong Qwee JC
• Judgment Date: 28 April 1995
• Neutral Citation: [1995] SGHC 114
• Docket Number: Originating Summons No 383 of 1993
• Date: 28 April 1995
• Published date: 19 September 2003
• Year: 1995
• Plaintiff Counsel: Thomas Lei and Ng Min Yee (Chor Pee & Co)
• Citation: [1995] SGHC 114
• Defendant Counsel: Ravindran, Chan Fook Meng and Looi Pek Hong (Chan & Ravindran)
• Court: High Court (Singapore)
• Subject Matter: Lease agreements tied to dealership agreements,Whether restraint reasonable,Intention of parties,Illegality and public policy,Contract,Contractual terms,Construction,Whether doctrine applies to transactions involving lease agreements tied to dealership agreements,Restraint of trade

This is a claim for a declaration as to the validity of a lease dated 4 October 1967 and made between Ong Bey Huat and Shell Malaysia Ltd for a term of 25 years from 1 May 1968 and for specific performance of a covenant in the lease to grant a lease of the demised premises for a further term of 20 years from 1 May 1993. I granted the declaration and ordered specific performance as claimed. These are my reasons.

The demised premises comprise an almost trapezoidal plot of land having an area of 1,244.3sq m with a frontage to Yio Chu Kang Rd of about 38m and an average depth of about 30.5m. There are now on this land those buildings and fixtures commonly associated with a Shell service station which is what it is and has been for many years. The plaintiff is the successor in title of the original lessee under a series of assignments the last of which was registered on 24 August 1994 well after the commencement of the hearing and the defendant is the successor in title of the original lessor and entitled to the reversion. Clause 3 of the lease (which I will refer to as the `1967 lease`) provides:

The landlord for himself and for the persons claiming under him hereby covenants with the company as follows:

...

(c) That the landlord will at the written request of the company made three (3) months before the expiration of the term hereby created and if there shall not at the time of such request be any existing breach or non-observance of any of the covenants on the part of the company hereinbefore contained at the expense of the company grant to the company a lease of the demised premises for the further term of twenty (20) years from the expiration of the said term at the same rent and containing the like covenants conditions and provisos as are herein contained with the exception of the present covenant for renewal.

The original term expired on 30 April 1993 and it is not disputed that all the conditions for the grant of a further term of 20 years have been satisfied. The defence is that the transaction between the parties or their predecessors in title is in restraint of trade and the restraint is unreasonable and it follows so the argument goes that the covenant for a further lease is unenforceable. The transaction is said to be in two parts. The first is a lease to Shell. The second is a dealership in Shell motor fuels. The defendant`s case is that the lease and the dealership are two essential parts of one transaction. The agreement for the dealership is said to have been made orally in 1949 between Ong Bey Huat and the plaintiff`s predecessor in title the terms of which included (1) that Ong Bey Huat could only sell petrol and petrol products manufactured and supplied by Shell and (2) that either party could terminate the agreement by one month`s notice. Ong Bey Huat became a Shell dealer under this oral agreement and when the 1967 lease was granted it was an implied term of the dealership agreement that it was to be in force for as long as the lease was in force. In 1970 the dealership agreement was replaced by an agreement in writing called a service station operating (SSO) licence made between another predecessor in title of the plaintiff and Chop Chuan Hong whose business was acquired by the defendant. The SSO licence dated 12 March 1970 was produced but it says nothing about its being in force for as long as the 1967 lease was in force. On the contrary it expressly provides that it is for one month and after that from month to month and further that Shell can terminate the agreement without notice upon payment of an amount representing the dealer`s gross profit on the last month`s sales. If the terms of the SSO licence of 12 March 1970 apply to the parties then the defendant`s alternative case is that it is also an implied term of the SSO licence that it is to be in force for as long as the 1967 lease is in force.

The transaction

Ong Bey Huat bought the land in 1949. The conveyance is dated 18 August 1949 but the 1967 lease was not the first lease granted by him to Shell. There was an earlier lease dated 23 June 1950 (which I will refer to as the `1950 lease`) by which the land was leased to The Shell Co of Singapore Ltd for a term of 25 years from 1 June 1950 with a covenant by the lessor to grant a further lease of ten years from the expiry of the original term. The covenant is in substantially the same terms as cl 3(c) of the 1967 lease. Clause 2 of the 1950 lease provides:

The company for itself and its successors and assigns to the intent that the obligations may continue throughout the term hereby created covenants with the landlord as follows:

...

(e) Not without the consent in writing of the landlord to use or permit the use of the buildings on the demised premises for any purposes other than for the business of storing and retailing petroleum products selling of motor accessories the care maintenance and repair of motor vehicles.

The 1967 lease also contains a clause in substantially the same terms as this. The rent reserved by the 1950 lease was $30 per month payable monthly in advance. It was replaced by the 1967 lease which reserved a rent of $600 per month payable for the first ten years by 31 October 1967 and after that for each succeeding period of five years in advance ie $72,000 at least six months before the term commenced on 1 May 1968 and $36,000 every five years beginning 1 May 1978.

James Quah Ewe Chye who was formerly the reseller market manager of Shell (since recently the public affairs manager) has been employed by Shell since 1956 and his recollection is that the Ong family has held the dealership since the 1950s. He said that the dealership was covered by an SSO licence and a contract called a reseller`s bulk motor fuels (RBMF) contract which provides that the dealer has bought the whole of its requirements of motor fuels for delivery during the current year. He was unable to produce these documents for the 1950s in the case of the service station at the demised premises but he believed the arrangements were similarly covered by these two agreements. That was the way Shell conducted its business. The RBMF contract for these premises dated 12 March 1970 was produced. Just before the last day of the hearing Quah managed to produce an RBMF contract and a filling station operating licence (as the SSO licence was then called) in use in the 1950s. The main provisions were substantially the same as those in the two agreements of 12 March 1970. From the 1980s the SSO licence and the RBMF contract were combined into a single dealership agreement. Tan See Bee the retail development manager of Shell said that dealership agreements were filed when they had been signed and the earlier ones which had been superseded were discarded. The documents produced in respect of the premises were the SSO licence and the RBMF contract both dated 12 March 1970. Tan said the earlier agreements had been destroyed. He himself had not seen any correspondence or document referring to such earlier agreements but Quah produced a copy of a letter dated 24 March 1970 from Shell addressed to Chop Chuan Hong at the address of the premises enclosing the duplicate of the 12 March 1970 agreements and requesting cancellation of the then existing agreements. Quah said that when the combined dealership agreement was introduced some dealers signed the new agreement but some did not and if they did not then the old agreements they had signed would continue to apply.

Ong Ah Chau the managing director of the defendant company and a granddaughter of Ong Bey Huat said that her grandfather had been a Shell dealer since 1932 and the family had a very close relationship with Shell. She corrected herself and said the family had been in this business for the past 45 years. The lease dated 4 October 1967 was granted `in order to firm ties with Shell`. This was said in her affidavit filed well before the 1950 lease was produced. She said she did not believe she was bound by the terms of the SSO licence of 12 March 1970 but she also agreed that the plaintiff was entitled to charge a licence fee under cl 10 and to adjust or change it. She said she refused to sign the new dealership agreement when she was asked to. She admitted that the SSO licence and RBMF contract both dated 12 March 1970 applied to Chop Chuan Hong. Ong Chye Kee the father of Ong Ah Chau and an adopted son of Ong Bey Huat said that his father bought the premises for the purpose of the family business of the Shell dealership. Ong Chye Hin a son of Ong Bey Huat said that his father bought the land in 1949 and then entered into a dealership agreement after negotiating with Shell`s representatives. He said that so far as he was aware the agreement was entered into orally.

The SSO licence by its terms affirms Shell`s ownership of or otherwise (as in this case) its entitlement to possession of the land and the service station situated there. It also affirms Shell`s title to the apparatus listed in an inventory. The inventory referred to in the SSO licence of 12 March 1970 was not produced but it is apparent that so much of the buildings and fixtures of the service station as are part of the freehold Shell is entitled to possession of and so much of the fixtures and equipment as are not part of the freehold are the property of Shell. A right to enter the premises and a licence to use the service station and the apparatus are then given to the dealer. The RBMF contract evidences the sale of motor fuels for delivery at pumps installed at the dealer`s premises and in the case of the RBMF contract of 12 March 1970 the premises were identified as the demised premises. The RBMF contract provides for the ascertainment of the price the dealer pays for the motor fuels and there are provisions for minimum quantities and for termination of the contract on a month`s notice and other provisions as may be expected but there are also three...