MacarthurCook Property Investment Pte Ltd and Another v Khai Wah Development Pte Ltd

• Judge: Judith Prakash J
• Judgment Date: 15 June 2007
• Neutral Citation: [2007] SGHC 93
• Citation: [2007] SGHC 93
• Court: High Court (Singapore)
• Plaintiff Counsel: Chelva Rajah, SC, (instructed), Tan Chuan Thye and Gitta Satryani Juwita (Wong & Leow LLC)
• Defendant Counsel: Michael Hwang, SC,
• Published date: 20 June 2007

15 June 2007 Judgment reserved.

Judith Prakash J:

1 This is a summons taken out by MacarthurCook Property Investment Pte Ltd and MaccarthurCook Limited (collectively referred to as the “applicants”) under s 4 of the Conveyancing and Law of Property Act (Cap 61, 1994 Rev Ed) with respect to a Put and Call Option Agreement dated 5 December 2006 (“the Option”) with Khai Wah Development Pte Ltd (“the respondent”). The Option relates to the sale and leaseback of the property known as 51 Benoi Road, Singapore 629908 (“the property”). The dispute arises over the true interpretation of the Option and also as to whether the respondent was justified in terminating it.

2 The applicants are seeking, inter alia, the following reliefs in these proceedings:

(a) a declaration that, upon the true interpretation of cl 4 of the Option read with cl 2 of the same, the Option cannot be terminated, whether by the respondent or otherwise, unless the conditions set out in cl 2 read with schedule 5 of the Option are first satisfied;

(b) a declaration that the letter dated 2 February 2007 from the respondent’s solicitors to the applicants’ solicitors does not constitute a valid notice of termination under the provisions of the Option; and

(c) a declaration that the Option is still subsisting and remains valid and binding on the parties thereto.

3 By summons entered no. 1225 of 2007 the applicants also seek an order that HSBC Institutional Trust Services (Singapore) Limited (“the trustee”) in its capacity as the new trustee of the MacarthurCook Industrial REIT under the Deed of Appointment and Retirement of Trustee dated 8 March 2007 be made a party to the proceedings herein and a further order that these proceedings be carried on by the trustee as if it had been substituted for the first applicant.

Factual background

4 The second applicant is a company incorporated under the laws of the Commonwealth of Australia. It is the parent company of the first applicant and is a specialist manager of direct property, real estate securities and mortgages. The second applicant is engaged in the investment in, and development and management of, properties; including those which are wholly or partly used for industrial purposes in Australia and elsewhere in Asia.

5 Through its wholly owned subsidiary, MacarthurCook Investment Managers (Asia) Limited (a company incorporated in Singapore), the second applicant has sought to establish a real estate investment trust in Singapore to be known as MacarthurCook Industrial REIT (“the REIT”). To this end, the second applicant entered into various memoranda of understanding with owners of certain industrial properties in Singapore, including the respondent, expressing its interest in entering into sale and leaseback arrangements with these owners in respect of their properties for the purpose of the REIT.

6 The respondent is a company incorporated in Singapore. It is the owner of a leasehold interest in the whole of the property including the building(s) erected thereon. Jurong Town Corporation (“JTC”) is the owner of the reversionary interest in the property. It is to be noted that the arrangement contemplated between the parties is a sale and leaseback transaction, i.e., the property was intended to be sold to the first applicant (or its nominee, the trustee) in its capacity as trustee for the REIT and thereafter leased back to the respondent.

Structure of the Option

7 In order to understand the arguments, it might be helpful for me to set out a brief summary of the clauses of the Option. The recitals state that the first applicant is the trustee of the REIT and that pursuant to a memorandum of understanding dated 13 June 2006 (“the MOU”) issued by the second applicant and accepted by the respondent, the parties had signified their intention for the respondent to sell, and for the second applicant’s nominee to purchase, the property on the terms and conditions stated therein. The parties acknowledged that the first applicant may be replaced as trustee of the REIT at any time before completion.

8 The first clause contained various definitions and provisions relating to the interpretation of the Option. The word “Conditions” was defined as meaning the conditions set out in Schedule 5 of the Option and “Condition 1” meant the condition set out in item 1 of Schedule 5 whilst “Condition 2” meant the condition set out in condition 2 of Schedule 5. The term “Satisfaction Period” was stated to mean the period from the date of the Option until 31 January 2007 and as being the period in which the conditions were to be satisfied. Sub-clause 1.5 provided that the clause and paragraph headings were inserted for ease of reference only and should not affect construction.

9 By cl 2, application to JTC was to be made for certain consents and confirmations detailed in Schedule 5. These consents and confirmations were to be obtained by the expiry of the Satisfaction Period.

10 By cl 3, the respondent granted a call option (“the Call Option”) to the first applicant or the trustee to require the respondent to enter into a sale and purchase agreement in respect of the property with the first applicant or the trustee. The Call Option was to be exercised by 30 April 2007, three months after the end of the Satisfaction Period.

11 Clause 4 dealt with various matters. First it provided for payment of the Call Option fee (a sum of $30,000 equivalent to less than 0.1% of the intended purchase price of $32,500,000) on execution of the Option. Then, cl 4.2 dealt with circumstances in which there could be an automatic termination of the Option. The true meaning of this clause has been hotly disputed by the parties. The other sub-clauses of cl 4 dealt mainly with the consequences of termination of the Option for any reason.

12 By cl 5, a corresponding put option (“the Put Option”) was granted to the respondent to require the first applicant or the trustee to enter into the contract of sale in the event that the Call Option was not exercised by the Call Option Expiry Date, i.e., 30 April 2007 or such other date as the parties might agree to. The Put Option was to be exercised by 5pm on the date that was one business day after the Call Option Expiry Date. The contract of sale to be signed by the parties was to be in the form provided and attached to the Option as Schedule 2.

13 The parties also agreed that subsequent to the execution of the contract of sale, they would execute a leaseback agreement in the form provided and attached to the contract of sale as appendix 1 thereof. Under the leaseback arrangement, the purchaser under the contract of sale was to lease the property to the respondent for a term of seven years (subject to JTC’s consent) from the completion of the contract of sale.

14 Clause 16 of the Option provided for steps to be taken by the applicants and the respondent in relation to the implementation of the Option. For example, the respondent had to apply for what was described as “the Condition 1 Approvals” at its own cost promptly upon execution of the Option. Copies of applications made by the respondent had to be provided to the first applicant and the respondent was not to submit any applications to JTC unless drafts of the same had been given to the first applicant and the latter had consented to the form and substance of such applications. Further, parties were required to agree by the end of the Satisfaction Period on the amount of service charge to be paid by the respondent under the lease agreement.

15 Under the terms of its lease with JTC, the respondent was required to obtain JTC’s approval before disposing of any interest in the property including by way of sale and leaseback. Such approval was the context in which cl 2, cl 4 and Schedule 5 of the Option were drafted:

(a) cl 2 made the approvals (to the sale and leaseback) of the relevant authorities (i.e., JTC), a condition to the exercise of either of the Options;

(b) cll 2.2 and 2.5 set out the parties’ obligations in respect of the procurement of such approvals within the Satisfaction Period;

(c) under cll 2.4 and 2.7, either party had the right to terminate the Option in accordance with the terms set out therein if, by the expiry of the Satisfaction Period:

(i) JTC refused to approve the proposed sale and/or leaseback; or

(ii) JTC’s approval of the proposed sale and/or leaseback was given on any condition that was considered unsatisfactory by either party.

(d) under cl 4.2 (a), if the Conditions were either not satisfied or waived by the end of the Satisfaction Period, the Option was to terminate immediately upon expiry of the Satisfaction Period and the Option was to cease to have any further effect except for certain specified clauses which would remain in force.

Other relevant facts

16 All events recounted here took place in 2007 unless otherwise indicated. By a letter dated 8 January, the respondent wrote to JTC seeking its consent to the assignment of the property to the trustee and the leaseback by the trustee of the property to the respondent. On 2 February, JTC wrote to the parties granting its approval of the sale and leaseback with certain terms and conditions attached thereto. This letter was sent by fax to both parties on the same day but for some reason only 11 out of the 12 pages of the letter were so transmitted. The original and complete copy of the letter of approval was sent out by post.

17 One of the conditions imposed by JTC was that its approval of the assignment of the property to the trustee was conditional on the REIT being listed.

18 On the same day, 2 February, the respondent’s solicitors wrote to the applicants’ solicitors to state that, as the Satisfaction Period had expired on 31 January without satisfaction of the Conditions, the respondent had instructed them that, pursuant to cll 4.2(a) and (c) of the Option, the Option had been terminated. The applicants rejected this position four days later.

19 Then,...