HSBC Institutional Trust Services (Singapore) Ltd, (trustee of Starhill Global Real Estate Investment Trust) v Toshin Development Singapore Pte Ltd

• Jurisdiction: Singapore
• Judge: Lai Siu Chiu J
• Judgment Date: 13 January 2012
• Neutral Citation: [2012] SGHC 8
• Court: High Court (Singapore)
• Docket Number: Originating Summons No 376 of 2011
• Year: 2012
• Published date: 09 April 2013
• Hearing Date: 29 August 2011,02 September 2011
• Plaintiff Counsel: Ang Cheng Hock SC, William Ong, Magdalene Sim (Allen & Gledhill LLP)
• Defendant Counsel: Cavinder Bull SC, Yarni Loi, Gerui Lim, Adam Maniam (Drew & Napier LLC) defendant.
• Subject Matter: Land,Landlord and Tenants,Duration of Tenancy,Periodic Tenancies
• Citation: [2012] SGHC 8

Lai Siu Chiu J: Introduction

This dispute revolved around the operation of the tenancy by Takashimaya department store of its current premises at Ngee Ann City, Orchard Road, Singapore. The holding company of Takashimaya is Toshin Development Singapore Pte Ltd (“the defendant”). The rent payable under the terms set out in the lease in question was subject to review pursuant to a particular rent review mechanism. HSBC Institutional Trust Services (Singapore) Ltd (“the plaintiff/lessor”) on behalf of Starhill Global Real Estate Investment Trust alleged that the defendant/lessee had acted in such a manner as to render the rent review mechanism inoperable. The plaintiff filed Originating Summons No. 376 of 2011 (“the Originating Summons”) on 13 May 2011 for declarations that the rent review mechanism was inoperable, that this was so because of the defendant’s action; and prayed for an order that there be an inquiry as to the prevailing market rental value of Takashimaya’s premises.

After hearing lengthy arguments from the parties, I dismissed the plaintiff’s application on 2 September 2011. As the plaintiff has appealed against my decision (in Civil Appeal No.108 of 2011), I now set out my grounds for dismissing its application.

The background

The plaintiff is a locally incorporated company and is the trustee of Starhill Global Real Estate Investment Trust (SG REIT). SG REIT has an interest in the building known as Ngee Ann City, situated at No. 391 Orchard Road, Singapore where Takashimaya is located. SG REIT is managed by a company known as YTL Starhill Global REIT Management Limited (“YSGRM”).

The defendant is also a Singapore company and is in the business of developing and managing shopping centres. It is a wholly owned subsidiary of Toshin Development Co Ltd (Toshin Japan), a Japanese company which is in turn part of the Takashimaya group based in Japan.

At issue between the plaintiff and defendant was the operation of a lease of premises Lot No U5785V of Town Subdivision 21 at Ngee Ann City (“the Premises”). In 1993, Toshin Japan leased the Premises from a company known as Orchard Square Properties Private Limited. In 2005, Orchard Square Properties assigned its interest in the lease to the plaintiff, and in 2010, Toshin Japan transferred its interest in the lease to the defendant. As it stands, the plaintiff is the current lessor and the defendant the current lessee of the Premises.

The terms of the lease between the parties are contained in Lease Instrument No IA/138539R as varied by Variation of Lease Instrument No IA/139624V and Transfer Instrument No. IB/700860B. (The various lease instruments will collectively be referred to as “the Lease Agreement”).

The Lease Agreement was to endure for a period of twenty years, commencing on 8 June 1993. These twenty years were divided into several Rental Terms, each lasting for a successive period of three years, except for the final Rental Term which would last for two years. Pursuant to cl 2.4 of the Lease Agreement, the amount of rent payable by the defendant to the plaintiff for the rental of the Premises was subject to review every three years for each new forthcoming Rental Term. The amount of rent for the Rental Term immediately preceding the rent review exercise was referred to as the “Current Annual Rent”, and the amount of rent for the forthcoming Rental Term was referred to as the “New Annual Rent”.

Clause 2.4 of the Lease Agreement set out the three-step mechanism by which the amount of rent was to be reviewed. The steps were structured as successive redundancies, such that it was only if the first step failed that the second step would be engaged, and only if the second step failed that the third step would be engaged as a last resort. The first step was contained in cl 2.4(c)(i) which provided that: “the Lessor and the Lessee shall in good faith endeavour to agree on the prevailing market rental value of the [Premises]... for purpose(sic) of determining the New Annual Rent for the relevant Rental Term.”

Clause 2.4(c)(iv) clarified that the “prevailing market rental value” would be adopted as the New Annual Rent, subject to the conditions that (i) if this amount was less than the Current Annual Rent, the latter value would prevail as the New Annual Rent and (ii) that if this amount exceeded 125% of the Current Annual Rent, then the New Annual Rent would be fixed at 125% of the Current Annual Rent.

If no agreement was reached by three months before commencement of the forthcoming Rental Term then the first step would have failed and only then would the second and possibly the third steps be engaged. This mechanism was set out in cl 2.4(c)(ii). Since the storm clouds of controversy were largely gathered around this clause, it is necessary to set it out in full:

If by three (3) months (time being of the essence) before commencement of the relevant Rental Term the parties have not reached agreement on the New Annual Rent, the parties shall appoint three international firms of licensed valuers (the “licensed valuers”) on the basis that each of the licensed valuers shall proceed to separately determine the prevailing market rental value of the [Premises]. The licensed valuers shall be nominated by agreement between the Lessor and the Lessee or in absence of agreement by the parties on any one of the licensed valuers by a date ten (10) weeks (time being of the essence) before commencement of the relevant Rental Term, such of the licensed valuers as have not been agreed upon shall be nominated by the President for the time being of the Singapore Institute of Surveyors and Valuers... All costs and expenses of and in connection with the appointment of the licensed valuers shall be borne by the Lessor and the Lessee in equal shares. The licensed valuers shall act as experts and not as arbitrators and their respective decisions shall be binding and conclusive on the parties.

To briefly summarise, the first step envisioned the lessor and lessee agreeing on the prevailing market rental value. If they could not agree, then the second step required that they appoint three valuers to identify this value. If they could not agree on the identities of the valuers then the third step required that the President of the Singapore Institute of Surveyors and Valuers (SISV) appoint the valuers. Crucially, the expenses involved in engaging these valuers no matter how appointed, were to be borne equally by the lessor and the lessee; this meant that the valuers were to be jointly appointed by the parties.

A New Rental Term for the Premises was scheduled to commence on 8 June 2011; in the months before this date, the parties sought to conduct the rent review exercise beginning negotiations sometime in January 2011.

The dispute

The point of contention between the plaintiff and defendant centered on the second and third steps of the mechanism. These steps involved valuers drawn from international firms of licensed valuers, of which only eight such firms in Singapore could qualify. The plaintiff claimed that the defendant had acted in such a manner as to render the second and third steps inoperable, by unilaterally hiring seven out of the eight firms to conduct a valuation of the Premises for the defendant’s own purposes over a period stretching from July 2010 to February 2011, before the joint conduct of the rent review exercise by the parties for the New Rental Term commencing on 8 June 2011. It should also be noted that the defendant had actually approached the eighth firm, Savills (Singapore) Pte Ltd (“Savills”) but Savills had declined engagement by the defendant.

The reliefs claimed by the plaintiff in the Originating Summons consisted of first, a declaration that the rent review mechanism had been rendered inoperable; second, a declaration that the defendant’s actions in unilaterally engaging seven of the eight valuation firms had rendered the mechanism inoperable; and third, an order that there be an inquiry as to the prevailing market rental value of the Premises with this court to issue directions as to the proper conduct of the inquiry.

The plaintiff’s basis for its claim started off with a resolute allegation that if any of the seven valuers that had been engaged by the defendant were to participate in the rent review exercise, then their findings would be tainted by conflicts of interest. As the proceedings progressed, the precise basis of the plaintiff’s claim wavered from an allegation of a conflict of interest to allegations of bias and improper influence. Notwithstanding the uncertain nature of the plaintiff’s unhappiness, it was clear that the plaintiff sought to convince this court that something was not proper about the defendant’s behaviour in unilaterally engaging seven out of the eight qualifying valuers, with these same valuers being potentially involved in a rent review exercise that was due to commence soon.

Counsel for the plaintiff Ang Cheng Hock (“Mr Ang”) submitted four arguments at the hearing on 29 August 2011 in support of the plaintiff’s claim. First, that appointed valuers must act independently and impartially. Mr Ang submitted that it was implied in cl 2.4(c)(ii) that the valuers were not expert witnesses, but someone who had to make a rental determination that would bind the parties. Second, that the valuers would want to abide by their previous valuations. Third, that the defendant might have disclosed certain information to the valuers which the plaintiff would not be aware of. Fourth, that the defendant’s conduct suggested that they would know in advance which valuers would provide low valuations of the prevailing market rental value. Since this was to its advantage, the defendant could then support the appointment of these valuers during the joint rent review exercise.

Two concerns seemed to emerge from plaintiff’s counsel’s above submissions. The first and second...