HSBC Trustee (Singapore) Ltd v Lucky Realty Co Pte Ltd

• Jurisdiction: Singapore
• Judge: Vinodh Coomaraswamy J
• Judgment Date: 13 April 2015
• Neutral Citation: [2015] SGHC 93
• Plaintiff Counsel: Edwin Tong, Lee Bik Wei and Lee May Ling (Allen & Gledhill LLP)
• Docket Number: Originating Summons No 391 of 2014
• Date: 13 April 2015
• Hearing Date: 25 July 2014
• Subject Matter: Contractual terms,Rules of construction,Contextual approach to contractual interpretation,Contract,Equity,Estoppel by convention
• Year: 2015
• Citation: [2015] SGHC 93
• Defendant Counsel: Julian Tay and Mark Cham (Lee & Lee)
• Court: High Court (Singapore)
• Published date: 19 January 2017

Vinodh Coomaraswamy J:

In 1975, a lessor let a parcel of land on a 60-year lease. In exchange, the lessee agreed to pay a fixed yearly rent. In 1976 and 1977, the lessee erected upon the land a strata development comprising four buildings. The lessee then retained all of the strata units in one of the buildings for itself and sold virtually all of the strata units in the other three buildings to third parties. In 1995, to compromise a dispute, the lessor and lessee varied the lease to permit the lessor to increase the rent every five years to the prevailing market rent or by 10%, whichever was higher. The two first rent increases were uncontentious. The parties have, however, been deadlocked since the time for the third rent increase in 2009. The lessor’s position is that the lessee is obliged to pay rent under the lease for the entire parcel of land demised to it under the lease. The lessee’s position is that it is obliged to pay rent only for the one building that it retains. In these proceedings, the lessor seeks as its primary relief a declaration that its position is correct and that the lessee’s position is wrong.

The facts The parties

The lessor and plaintiff is HSBC Trustee (Singapore) Limited, a trust company and a member of the HSBC group.¹ The lessee and defendant is Lucky Realty Company Pte Ltd, a property developer and a member of the Far East Organisation.² The parcel of land demised under the lease is in Bedok. At the time of the lease, it was registered as Lot 3041 of Mukim 27. The freehold of Lot 3041 was owned by one Mr Koh Sek Lim until he passed away in 1948.³ Clause 1 of Mr Koh’s will settled Lot 3041 on certain trusts.

In 1975, the trustee of Lot 3041 was the Public Trustee. In 1991, OCBC Trustee Limited took over as the trustee.⁴ In 2006, HSBC Trustee (Singapore) Limited took over as the trustee. The change of trustees over the years is of no legal relevance to the dispute before me. I shall therefore refer to the trustee of the demised land at any given time simply as “the Trustee”.

The lease

On 25 February 1975, the Trustee demised Lot 3041 to Lucky Realty for a term of 60 years commencing 1 March 1977 and ending on 28 February 2037.⁵ The lease obliged Lucky Realty to pay a yearly rent of $3,877.15 for the demise. This rent is in fact a ground rent in that it was to be paid solely for the use of the land. The rent was fixed at that annual figure for the entire 60-year term of the lease: it contained no provision for the rent to be increased nor, for that matter, for it to be decreased.

The operative part of the lease provides as follows:⁶

I, THE PUBLIC TRUSTEE ... the proprietor of the land hereinafter described HEREBY LEASE unto LUCKY REALTY ... all such my estate or interest in the said land ...

DESCRIPTION OF LAND

Reference to Land-Register	Mukim	Lot	Description of Land (whether whole or part)
Volume	Folio
102	138	XXVII	3041	The whole of Lot 3041 of Mukim XXVII together with the buildings in the course of construction thereon.

TO BE HELD by the Lessee as tenant for the term of sixty (60) years commencing from the 1st day of March One thousand nine hundred and seventy-seven (1977) YIELDING AND PAYING therefor on the 19th day of March 1975 for fifty-nine (59) years and on the same date [on every] succeeding year during the said term at the office of The Public Trustee the yearly rent of $3,877-15 (Dollars Three thousand eight hundred and seventy-seven and cents fifteen only) SUBJECT to the covenants conditions and powers implied by law in instruments of lease (or to such of them as are not hereinafter expressly negatived or modified) AND SUBJECT also to the covenants and conditions hereinafter contained.

The land is developed and subdivided

Clause 1(iii) of the lease obliged Lucky Realty to develop Lot 3041 by erecting buildings upon it. In 1976 and 1977,⁷ Lucky Realty duly erected four two-storey buildings on the land. The buildings are known as Blocks A to D. The position of these four blocks in Lot 3041 can be seen in the diagram set out at [7].

Compulsory acquisition

Lot 3041 was eventually subdivided in two ways. First, Lot 3041 was subdivided into one large lot and two smaller lots.⁸ A diagram showing this subdivision is set out below.

Lot 3041 after subdivision and showing Blocks A to D

The entire shaded area is Lot 3041 as it stood at the time of the lease. Lot 5247L, halfway up the left side of the shaded area, was then the location of a septic tank and sewage works. The State compulsorily acquired this lot for a sewage treatment plant. Lot 5246X at the bottom of the shaded area was a road. The State compulsorily acquired this lot also. The remainder of Lot 3041 was known after the subdivision as Lot 5245N.

The subdivision and compulsory acquisition reduced the area of the demised land by 2,042.8 square metres, or about 11%, from 18,947 square metres to 16,904.2 square metres. But the rent under the lease, being a fixed rent, did not change. Lucky Realty continued to be obliged to pay the Trustee $3,877.15⁹ yearly. It duly did so.

Strata development

The second subdivision was carried out to enable Lucky Realty to realise a capital sum from its development of the land. It divided Lot 5245N into a strata subdivision comprising a total of 119 strata units: (i) 33 strata shops on the first storey of Blocks A, B and C; (ii) 33 strata flats on the second storey of those three blocks; (iii) a single strata market on the first storey of Block D; and (iv) 52 strata shops on the second storey of that block.¹⁰

Lucky Realty eventually sold 64 out of the 66 strata units in Blocks A, B and C to third party purchasers. It effected the sale by assigning to the purchasers the benefit of its remaining term under its 60-year lease over those units.

Lucky Realty did not sell the 53 units in Block D or the two remaining units in the other blocks.¹¹ Instead, it retained these 55 strata units for itself, preferring to generate a recurring income from them rather than a one-off capital sum.

The 1995 variation

In February 1994, a dispute arose between the Trustee and Lucky Realty.¹² The Trustee discovered that Lucky Realty was redeveloping Block D from a two-storey market with shop units above into a two-storey shopping centre.¹³ The Trustee considered this to be a breach of cl 1(vi) of the lease. That clause prohibits Lucky Realty from making any alterations or additions to any of the buildings on the demised land without the prior consent in writing of the Trustee. Solicitors appointed by the Trustee wrote a letter before action to Lucky Realty.¹⁴ Lucky Realty took the position that it was not in breach of the lease; alternatively, that any breach was, at the very most, a technical breach.¹⁵

The Trustee and Lucky Realty then entered into negotiations to resolve their dispute. The negotiations were protracted but ultimately resulted in a binding compromise. By an exchange of letters ending on 23 September 1995,¹⁶ the Trustee and Lucky Realty agreed to vary the obligation to pay rent under the lease. This variation is today evidenced by a Deed of Variation signed, sealed and delivered by lessor and lessee on 17 December 1996.¹⁷

The 1995 variation effected only one textual change to the original lease. It deleted the existing habendum and replaced it with a new and more detailed one comprising three limbs. The last of these three limbs expressly provides that, save as varied by the 1995 variation, all other express and implied provisions of the original lease remain in full force and effect.

The result of the new habendum was two-fold. First, Lucky Realty accepted an immediate increase in the rent from $3,877.15 per annum to $120,000 per annum backdated to take effect from 15 June 1994. Second, Lucky Realty granted the lessor the right,¹⁸ on 15 June 1999 and on that date every five years thereafter, to increase the yearly rent “to the market rent prevailing at the time” or by 10% of the existing rent, whichever was higher. It is the scope of this right of the Trustee to increase the rent to the “market rent” which lies at the heart of this dispute.

The Trustee reviews and increases the rent

The first two rent increases – for the five year periods from 1999 to 2004 and from 2004 to 2009 – were uncontentious. With effect from 1999, the Trustee increased the rent by exactly 10%, from $120,000 per annum to $132,000 per annum. The Trustee relied for this increase on the minimum 10% increase specified in the rent escalation clause.¹⁹ With effect from 2004, the Trustee increased the rent by 13.6%, to $150,000 per annum. The Trustee based this increase “on the market rental value of the said property in 2004”.²⁰ Lucky Realty has duly paid all rent as claimed by the Trustee right up to 2009.²¹

The third rent increase was to take place in 2009. The Trustee, by now having changed to the plaintiff, took the view that the lease entitled the Trustee to charge rent – and obliged Lucky Realty to pay rent – for the entirety of Lot 5245N. On this basis, about a month before the rent increase in 2009 was due to take effect, the Trustee gave notice that it intended to increase the rent from $150,000 per annum to $1.3m per annum.²² The Trustee supported this figure with a valuation²³ showing that $1.3m was indeed the prevailing market rent for the whole of Lot 5245N.²⁴ Astonished,²⁵ Lucky Realty contended in response that it was obliged to pay rent only in respect of Block D. It presented a valuation showing that the prevailing market rent for Block D alone was only $168,000 per annum.²⁶

Each party has doggedly maintained its position since 2009. Lucky Realty has in the meantime continued paying $150,000 per annum to the Trustee, being the rent fixed at the last uncontentious rent increase.

The Trustee...