Defu Furniture Pte Ltd v RBC Properties Pte Ltd

• Jurisdiction: Singapore
• Judge: Vinodh Coomaraswamy JC (as he then was)
• Judgment Date: 02 January 2014
• Neutral Citation: [2014] SGHC 1
• Court: High Court (Singapore)
• Docket Number: Suit No 726 of 2011
• Published date: 15 January 2014
• Year: 2014
• Hearing Date: 22 March 2013,25 March 2013,26 March 2013,21 March 2013,20 March 2013,27 March 2013,04 November 2013
• Plaintiff Counsel: Mr Kirindeep Singh, Ms June Hong and Mr Ravin Periasamy (Rodyk & Davidson LLP)
• Defendant Counsel: Mr Nicholas Narayanan (Nicholas & Tan Partnership LLP)
• Subject Matter: Contract,Misrepresentation,Misrepresentation Act,Rescission,Breach,Repudiatory Breach
• Citation: [2014] SGHC 1

Vinodh Coomaraswamy J:

In these proceedings, the plaintiff lessee seeks rescission of a lease it entered into with the defendant lessor for misrepresentation or common mistake in equity. The defendant counterclaims damages, saying that the plaintiff has breached the lease by wrongfully purporting to rescind it.

The defendant is the sub-lessee of a building. It was looking for a sub-tenant to rent the ground floor of that building (“the Premises”). It advertised the Premises as a “warehouse showroom”. The plaintiff, a furniture company, was looking for a showroom to rent. The plaintiff viewed the Premises twice, signed a letter of offer, paid a deposit, and eventually signed a lease for the Premises.

After the plaintiff commenced fitting out works but before it could complete those works and move in to the Premises, the defendant’s lessor – who held the State lease on the building – gave notice that the Premises could not be used as a showroom unless it was paid a substantial premium. The defendant attempted to pass this premium on to the plaintiff. As a result, the parties’ agreement fell through. The plaintiff stopped its fitting out works, reinstated the Premises and returned possession of them to the defendant. The plaintiff never moved in to the Premises and so never got to use them as its showroom.

The plaintiff now seeks a refund from the defendant of the security deposit and advance rent it paid the defendant under the sub-lease. The plaintiff also seeks damages equivalent to the sums it paid third parties in anticipation of using the Premises as its showroom under the sub-lease. These sums include stamp duty, utilities charges, its wasted fitting out costs, its reinstatement costs and interest on a bank loan it took out to finance the fitting out works. The defendant rejects the plaintiff’s claim entirely. Instead, the defendant says that the plaintiff has breached the sub-lease and counterclaims damages for the loss it has suffered as a result.

For the reasons which follow, I find that the defendant made a misrepresentation to the plaintiff which induced it to enter into the sub-lease. The plaintiff was therefore entitled to rescind the sub-lease and did so when it returned the keys to the reinstated Premises to the defendant on 9 January 2012. Rescission entitles the plaintiff to recover the sums it paid to the defendant under the sub-lease. Further, I find that the defendant is unable to prove that its representation was not made negligently within the meaning of s 2(1) of the Misrepresentation Act 1967 (c 7) (UK) (“the Act”), which has direct application in Singapore. The plaintiff is therefore entitled under that section to recover damages from the defendant for the loss it suffered because of the misrepresentation. The measure of the damages made available by that subsection is the same measure applicable to the recovery of loss caused by a fraudulent misrepresentation.

The necessary consequence of these findings is that the defendant’s counterclaim fails in its entirety. The plaintiff’s rescission of the sub-lease means that it was never subject to any contractual obligations to the defendant under the sub-lease, including the obligation to pay rent.

Background facts The Building Agreement

Pursuant to a building agreement dated 16 August 2006 (“the Building Agreement”), a company known as RLG Development Pte Ltd (“RLG”) took the land at 11 Bedok North Avenue 4, Singapore 489949 under a 30-year lease¹ from the President of the Republic of Singapore. RLG erected upon that land a building now known as Richland Business Centre (“RBC”). The Premises comprise the whole ground floor of RBC.

The planning regulation then in force was the Master Plan Written Statement 2003 (“the Master Plan”), issued under the Planning Act (Cap 232, 1998 Rev Ed) (“the Planning Act”). The Urban Redevelopment Authority (“URA”) is the competent authority designated to administer the Planning Act. Under the Master Plan, the URA zoned this land for Business 2, or B2, use. This meant that this land could be used only for clean industry, light industry, general industry, warehouse, public utilities and telecommunication uses and other public installations. But the URA also permitted not more than 40% of this land to be used for uses which are not B2 uses but which it views as uses ancillary to B2 use. These approved ancillary uses support the predominantly industrial B2 zoning in force for this land. Where the URA permits part of land which is subject to B2 zoning to be used as a showroom which supports the underlying B2 use, that part of the land is said to be used as an “ancillary showroom”.

According to URA guidelines, an ancillary showroom must have a minimum unit size of 150 square metres and may not be used as for pure retail activities, including cash and carry transactions. It may be used only to display bulky items to be delivered separately. That restriction presumably establishes the link with the underlying B2 use of the land. A showroom which is not subject to the restrictions imposed on an ancillary showroom is known as a “commercial showroom”.

Before RLG commenced construction of RBC, it submitted to the URA for approval its plans to erect RBC as a “5-storey single-user light industrial development comprising showroom at 1st storey and warehouse from 2nd to 4th storey and ancillary office at 5th storey”² [emphasis added]. Although RLG did not specify that the 1st storey was to be an ancillary showroom, that was the clear intention given the underlying B2 use of the land. RLG’s 1st storey plan therefore amounted to seeking the URA’s permission to build and use the Premises as an ancillary showroom.³ On 24 April 2007, the URA granted RLG planning permission under s 14(4) of the Planning Act to erect RBC based on RLG’s plans as submitted. This meant that the URA approved use of the 1st storey as an ancillary showroom. RLG thereafter commenced construction of RBC and completed it in 2008.

The State lease

On 22 August 2008, RLG executed lease number 26784 with the President of the Republic of Singapore (“the State Lease”) pursuant to s 4(1) of the State Lands Act (Cap 314, 1996 Rev Ed) (“the State Lands Act”). Under s 2 of the State Lands Act, the Singapore Land Authority (“SLA”) was the caretaker and approving authority for the State Lease. If RLG or any of RLG’s tenants wished to seek approval under a provision in the State Lease or to depart from any of its provisions, it was the SLA who would have to agree on behalf of the President. The SLA was therefore the de facto lessor under the State Lease. I will therefore refer to it as such.

Clause 2(i) of the State Lease expressly provides that RBC can be used only for “. . . uses that may be permitted by the [URA] under the Planning Act (Cap 232) for a ‘Business 2’ zoning in accordance with the Master Plan Written Statement”. The SLA’s view is that this provision of the State Lease permits RBC to be used only for pure B2 use and not for any purpose ancillary to B2 use, even if the ancillary use is approved by the URA. The State Lease further permits SLA to charge a differential premium if, during the currency of the State Lease, there is an approved change of use of RBC which enhanced the value of the land.⁴ This reflects the fact that the SLA set the premium and ground rent under the State Lease by reference to B2 use. If RBC or any part of it is put to more lucrative use which goes beyond B2 use, then SLA reserves to itself the right to draw some of that enhanced economic benefit upwards by imposing a differential premium. The differential premium is a contractual payment to SLA representing, in essence, the net present value of a share to the lessor under the State Lease of the additional economic benefit accruing from the enhanced use of RBC.

The Head Lease

RLG and the defendant are both subsidiaries of Ramba Energy Limited (“Ramba”). The defendant is therefore RLG’s sister company.

On 24 April 2008, RLG granted the defendant a lease (“the Head Lease”) of RBC for a term of 10 years and 4 months. The Head Lease is subject to the obligations of RLG under both the Building Agreement and the State Lease. Clause D18 of the Head Lease obliges the defendant to ensure that all of its sub-tenants observe and comply with all the terms and conditions of the Building Agreement and of the State Lease.⁵

On 16 September 2008, RLG assigned its interest in RBC to Prologis Changi South 1 Pte Ltd (“Prologis”). Prologis therefore stepped into the shoes of RLG. It became the SLA’s lessee under the State Lease and the defendant’s lessor under the Head Lease.

The defendant looks for a new tenant

In early 2010, the defendant decided to market the Premises for letting. Letting the Premises as a showroom commands higher rent than letting it as a warehouse. So the defendant wanted to let the Premises as a showroom. To make sure that it could do so, the defendant’s commercial executive, Mr Siebren Kamphorst (“Mr Kamphorst”), wrote to the URA on 8 April 2010 to ask whether the Premises were approved for use as a warehouse showroom. Mr Kamphorst, who gave evidence, did not elaborate in his testimony on what the URA’s answer was or, indeed, whether the URA gave any answer at all. But the response must have been favourable because the defendant indeed held the Premises out in its advertisements as a “warehouse showroom” to let.

The defendant finds a potential tenant but it falls through

In April 2010, a company known as Furniture and Furnishings Pte Ltd (“F&F”) expressed interest in leasing the Premises from the defendant as a furniture showroom. In June 2010, F&F paid a booking fee of $54,600 and began negotiating the terms of a sub-lease of the Premises for 5 years from 1 August 2010 for use as a “showroom for furniture and furniture accessories”.⁶ The defendant wrote to Prologis to seek its permission under the Head...