Overseas Union Enterprise Ltd v Three Sixty Degree Pte Ltd

• Jurisdiction: Singapore
• Judgment Date: 28 March 2013
• Date: 28 March 2013
• Docket Number: Suits Nos 839 and 840 of 2011
• Court: High Court (Singapore)

Overseas Union Enterprise Ltd

Plaintiff

and

Three Sixty Degree Pte Ltd and another suit

Defendant

[2013] SGHC 71

Vinodh Coomaraswamy JC

Suits Nos 839 and 840 of 2011

High Court

Equity—Defences—Equitable set-off—Whether tenant entitled to assert equitable set-off against landlord—Whether express clause of lease effective to exclude right of equitable set-off arising from breach of both express and implied terms of lease

Landlord and Tenant—Covenants—Implied—Quiet enjoyment and non-derogation from grant—Whether landlord's failure to assist tenant's application for fire safety certificate amounted to breach of these covenants

Landlord and Tenant—Covenants—Implied—Whether lease contained implied term that premises would be fit for tenant's purposes—Whether premises not fit for tenant's purposes because of existing design feature which rendered it more difficult for tenant to obtain approval necessary to carry on business

Landlord and Tenant—Termination of leases—Tenant breached obligations to pay sums under lease—Whether tenant's right of equitable set-off excluded by express terms or clear words in lease—Whether landlord was entitled to terminate lease and retake vacant possession

The plaintiff let to the defendant the 39th floor of its hotel under a lease (‘the Lease’). The plaintiff did not let the 38th floor of the same hotel to the defendant. The public gained access to the 39th floor only through an open internal staircase from the 38th floor. This design feature created difficulties for the defendant when it applied for a fire safety certificate (‘FSC’). As a result, the defendant subsequently abandoned its FSC application and its plans to operate its business on Level 39.

Despite this, the defendant retained possession of Level 39 but failed to pay to the plaintiff any of the sums due under the Lease. The plaintiff therefore exercised its right of re-entry, terminated the Lease and demanded vacant possession of Level 39. When the defendant failed to comply, the plaintiff commenced action to recover possession of Level 39, the payments in arrears, double rent for the defendant's holding over, contractual interest on all sums due under the Lease and damages for the defendant's breaches.

The defendant contended that the plaintiff had breached its covenants under the Lease and caused the defendant to suffer loss, thereby entitling the defendant by way of equitable set-off to withhold payments under the Lease to the extent of its claimed losses and to claim the balance from the plaintiff. The covenants which the defendant alleged the plaintiff to have breached were (a)the covenant that the defendant would have quiet enjoyment of Level 39; (b)an implied term that Level 39 would be fit for the purpose for which it was leased; and (c)an implied covenant against the plaintiff's derogation from its grant of the lease. The defendant claimed that the plaintiff breached the latter covenant by failing to assist the defendant in obtaining the FSC. The plaintiff denied these allegations and argued that the obligation lay with the defendant to obtain and maintain the licences and approvals necessary to operate its business.

Held, allowing the claim and dismissing the counterclaim:

(1) Equitable set-off was a substantive rather than procedural defence, enabling a person lawfully to withhold payments which were contractually due to his counterparty even in the absence of legal proceedings to establish the validity of the equitable set-off. In the context of a lease, a tenant might assert a right of equitable set-off against his landlord if the tenant's cross-claim against the landlord was so closely connected to the landlord's claim for rent as to go to the root of that claim. However, a provision requiring payment ‘without any deduction or set off whatsoever’ was sufficiently clear to exclude the right of equitable set-off, even for an equitable set-off said to arise from a breach of the implied terms of a lease: at [35] to [37] .

(2) The express words of the Lease in this case were effective to exclude the defendant's right of equitable set-off. The defendant was therefore in unqualified breach of the Lease. This triggered the plaintiff's right to the remedies for breach stipulated under the Lease, including the right to terminate the Lease, to retake vacant possession of Level 39 and to claim double rent from the defendant. The most that the defendant was entitled to do was to bring a separate counterclaim against the plaintiff in respect of the plaintiff's alleged breaches of covenants under the Lease: at [42] and [115] .

(3) There was considerable overlap between the covenants of quiet enjoyment and that of non-derogation from grant, both of which were implied into every leasehold agreement. However, the latter covenant was distinct from the former in that it was of general application and not confined to contracts concerning real property, it could give rise to proprietary rights in some circumstances, and it could operate in favour of a lessor where a lessor reserved rights for himself under a lease: at [58] .

(4) Five principles concerning the covenants of quiet enjoyment and non-derogation from grant could be distilled from case law: (a)The covenant against non-derogation from grant did not amount to an implied obligation on the landlord to underwrite the profitability of the tenant's business; (b)the landlord had no obligation to take measures outside the reasonable contemplation of the parties with regards to the leased premises unless these measures were specifically bargained for under the lease; (c)even non-physical interference could constitute substantial interference with the ordinary enjoyment of premises under the covenants of quiet enjoyment and non-derogation from grant; (d)the existing use of adjoining premises was always a material consideration in considering whether either the covenant of quiet enjoyment or that of non-derogation from grant had been breached; and (e)the covenants of quiet enjoyment and non-derogation from grant were both prospective in nature: at [60] .

(5) The defendant failed to prove on the facts that the plaintiff breached the covenants of quiet enjoyment and non-derogation from grant by reason of its failure to provide the defendant with certain documents for its FSC application, its refusal to give the defendant an occupancy load of 120 persons for Level 39, or its failure to remedy numerous serious defects at Level 39. The defendant was entirely responsible for the difficulties which plagued its FSC application. Further, there was no term implied in fact or in law that Level 39 would be fit for the defendant's purposes - the defendant inspected Level 39 and took the Lease subject to the design feature and the uses to which OUE put Level 38 at the date of the Lease. Level 38 could not be allocated a zero occupancy load: at [73] to [75] , [100] , [107] and [113] .

(6) Clause 16.4 of the Lease, which provided for the payment of double rent in the event of the tenant's holding over, was not a penalty clause. It was similar in effect to s28 (4) of the Civil Law Act (Cap 43, 1999 Rev Ed) save that it enabled the landlord to double not only the base rent but also the service charge. The inclusion of the service charge did not make the total sum stipulated by Clause 16.4 of the Lease ‘extravagant and unconscionable in amount in comparison with the greatest loss that could conceivably be proved to have followed from the breach’: at [118] .

Altonwood Ltd v Crystal Palace FC (2000) Ltd [2005] EWHC 292 (Ch) (refd)

Batshita International (Pte) Ltd v Lim Eng Hock Peter [1996] 3 SLR (R) 563; [1997] 1 SLR 241 (refd)

British Anzani (Felixstowe) Ltd v International Marine Management (UK) Ltd [1980] QB 137 (refd)

Cold Storage Singapore (1983) Pte Ltd v Management Corp of Chancery Court [1989] 2 SLR (R) 180; [1989] SLR 804 (refd)

Cold Storage Singapore (1983) Pte Ltd v Management Corp of Chancery Court [1991] 2 SLR (R) 992; [1992] 1 SLR 521 (refd)

Connaught Restaurants Ltd v Indoor Leisure Ltd [1994] 1 WLR 501 (refd)

Creative Technology Ltd v Aztech Systems Pte Ltd [1996] 3 SLR (R) 673; [1997] 1 SLR 621 (refd)

Dunlop Pneumatic Tyre Co Ltd v New Garage and Motor Co Ltd [1915] AC 79 (refd)

Edler v Auerbach [1950] 1 KB 359 (refd)

Federal Commerce & Navigation Co Ltd v Molena Alpha Inc [1978] QB 927 (refd)

Forefront Medical Technology (Pte) Ltd v Modern-Pak Pte Ltd [2006] 1 SLR (R) 927; [2006] 1 SLR 927 (refd)

Harmer v Jumbil (Nigeria) Tin Areas Ltd [1921] 1 Ch 200 (refd)

Hart v Windsor (1843) 12 M & W 68; 152 ER 1114 (refd)

Hong Leong Finance Ltd v Tan Gin Huay [1999] 1 SLR (R) 755; [1999] 2 SLR 153 (refd)

Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896 (refd)

Norman; Re Forest Enterprises Ltd v FEA Plantation Ltd [2011] FCAFC 99 (refd)

O'Cedar Ltd v Slough Trading Co Ltd [1927] 2 KB 123 (refd)

Pacific Rim Investments Pte Ltd v Lam Seng Tiong [1995] 2 SLR (R) 643; [1995] 3 SLR 1 (refd)

Progressive Mailing House Pty Ltd v Tabali Pty Ltd (1985) 157 CLR 17 (refd)

Robinson v Kilvert (1889) 41 Ch D 88 (refd)

Sheng Siong Supermarket Pte Ltd v Carilla Pte Ltd [2011] 4 SLR 1094 (refd)

Southwark London Borough Councilv Tanner [2001] 1 AC 1 (folld)

Star Rider Ltd v Inntrepreneur Pub Co [1998] 1 EGLR 53 (refd)

Wee Siew Bock v Chan Yuen Yee Alexia Eve [2012] 3 SLR 1053 (refd)

Wheeldon v Burrows (1879) 12 Ch D 31 (refd)

Zurich Insurance (Singapore) Pte Ltd v B-Gold Interior Design & Construction Pte Ltd [2008] 3 SLR (R) 1029; [2008] 3 SLR 1029 (refd)

Civil Law Act (Cap 43, 1999 Rev Ed) s 28 (4)

Melvin Chan and Olivia Low (TSMP Law Corporation) for the plaintiff

Tan Spring (Khattar Wong LLP) for the defendant.

Judgment reserved.

Vinodh Coomaraswamy JC

Introduction

Consolidated suits

1 These consolidated actions arise out of a dispute under a lease between the...