Overseas Union Enterprise Ltd v Three Sixty Degree Pte Ltd and another suit

• Jurisdiction: Singapore
• Judge: Vinodh Coomaraswamy JC
• Judgment Date: 28 March 2013
• Neutral Citation: [2013] SGHC 71
• Court: High Court (Singapore)
• Docket Number: Suit No 839 of 2011/Q consolidated with Suit No 840 of 2011/G
• Year: 2013
• Published date: 23 May 2013
• Hearing Date: 13 August 2012,15 August 2012,14 August 2012,22 August 2012,07 August 2012,08 October 2012,17 August 2012,08 August 2012,16 August 2012,21 August 2012,10 August 2012
• Plaintiff Counsel: Melvin Chan and Olivia Low (TSMP Law Corporation)
• Defendant Counsel: Tan Spring (KhattarWong LLP)
• Subject Matter: Landlord and Tenant,Covenants,Implied,Quiet Enjoyment,Termination of leases,Equity,Defences,Equitable set-off
• Citation: [2013] SGHC 71

Vinodh Coomaraswamy JC: Introduction Consolidated suits

These consolidated actions arise out of a dispute under a lease between the plaintiff, Overseas Union Enterprise Limited (“OUE”), and the defendant, Three Sixty Degree Pte Ltd (“Three Sixty”). OUE owns a hotel at 333 Orchard Road, Singapore 238867 known as the Mandarin Orchard Singapore (“the Mandarin”). Under the lease between the parties, OUE let to Three Sixty the whole of the 39th level (“Level 39”) of the Orchard Wing of the Mandarin. OUE retained control of the rest of the Mandarin, including the 38th level of the Orchard Wing (“Level 38”).

Three Sixty is a company incorporated in Singapore in October 2010. It was incorporated for the purpose of operating a “bar/lounge with a royal theme and décor inspired by the princely estate of Rajasthan, India”¹ at Level 39.

Design feature of Level 38 and Level 39 of the Mandarin

Although these proceedings encompass a number of disputes, the root of the dispute lies in a design feature of Level 38 and Level 39. Level 39 is connected to the ground floor by an exit staircase and a service lift. But the public passé nger lifts in the Mandarin do not go all the way up to Level 39. Instead, they stop at Level 38.² The public gains access to Level 39 only from and through Level 38.³ Even then, there is no separate, dedicated passenger lift between the two floors. Public access from Level 38 to Level 39 is only via an internal feature staircase. This staircase is open. That means that the staircase is not protected from fire. It also means that air circulates freely between Level 38 and Level 39.

Because of this design feature, the Singapore Civil Defence Force (“SCDF”) treated Level 38 and Level 39 as one compartment for the purposes of fire safety. The SCDF therefore declined to grant Three Sixty a fire safety certificate (“FSC”) for Level 39 alone. Instead, the SCDF agreed to grant Three Sixty an FSC subject to a condition, amongst others, that the combined occupancy load for both Level 38 and Level 39 taken together should not exceed 120 persons. Without the FSC, Three Sixty could not commence operations. But Three Sixty says it could not accept the SCDF’s condition because OUE retained control of Level 38 and Three Sixty had no control over how many people OUE would let in on Level 38. So Three Sixty abandoned its FSC application. It also abandoned its plans to operate a bar/lounge at Level 39. It claims to have suffered considerable losses. In its counterclaim, it holds OUE responsible for all these losses.

The essence of these proceedings, therefore, is which party bore the commercial risk of this unique design feature in the context of the express and implied obligations under the Lease in light of what was within the reasonable contemplation of the parties at the time when they Lease was entered into and in the context of all the surrounding circumstances.

The Lease Three Sixty’s obligations under the Lease

Under the Lease, OUE let Level 39 to Three Sixty for a period of three years. The Lease commenced on 15 November 2010.⁴ The Lease included a rent free fit-out period of 37 days. The fit-out period ended on 22 December 2010.⁵ Three Sixty therefore became obliged to pay rent to OUE on and from 23 December 2010.

Under the Lease, Three Sixty was obliged to pay the following sums every month to OUE for its lease of Level 39: Base rent of $45,000 per month (plus 7% GST): part 11 of the First Schedule (Particulars of Lease). Service charge of $9,268.88 (including 7% GST) per month for costs incurred by OUE in the upkeep and maintenance of the building: clause 4 and part 12 of the First Schedule of the Lease⁶. Utilities charges: under clause 11.9 of the Lease, Three Sixty covenanted to reimburse and indemnify OUE on demand against all charges imposed in respect of fees for electricity and water supplied to Level 39 (“the Utilities Charges”)⁷.

Material clauses of the lease

The material clauses of the Lease provided as follows⁸: Clause 4.1 of the Lease provided that Three Sixty was obliged to pay the base rent and service charge “without any demand, set off, abatement or deduction whatsoever”. Clause 6.1 of the Lease provided that Three Sixty was obliged to pay to OUE all payments under the Lease – including obviously the sums listed at [7] above – to OUE “promptly as and when due without demand or set-off of any claim . . . whether for non-performance or breach of [OUE’s] obligations hereunder or otherwise”. Clause 6.2 of the Lease provided that Three Sixty was obliged to pay interest to OUE at 18% per annum on any overdue sums under the Lease. The interest was to be calculated daily until OUE actually received payment. Clause 11.33 of the Lease provided that Three Sixty was obliged to, at its own cost and expense, “obtain, maintain and/or renew the necessary licenses, permits, registration, authorities and approvals… and other consents necessary from the relevant authorities for the carrying on of the business stipulated in part 15 of the First Schedule (Particulars of Lease)…”. The license relevant for present purposes action was a FSC from the SCDF. Without an FSC, Three Sixty could not obtain a Public Entertainment License (“PEL”) from the Singapore Police Force (“SPF”). Without either an FSC or a PEL, Three Sixty could not commence its intended business as a bar/lounge. Clause 16.1 of the Lease provided that OUE was entitled to forfeit the security deposit and re-enter upon Level 39 or any part of Level 39 if, amongst other things: the rent or Service Charge remained unpaid for twenty-one days after it had become due and payable under the Lease; Three Sixty committed any breach in the punctual performance of any of the provisions of the Lease; or Three Sixty failed to commence business by the expiry of the fit-out period, ie, on or before 23 December 2010.⁹ Clause 16.3 of the Lease reiterated that Three Sixty was obliged to deliver vacant possession of Level 39 to OUE upon termination of the Lease pursuant to clause 16.1, failing which Three Sixty would be deemed to remain on Level 39 unlawfully. Clause 16.4 of the Lease provided that if Three Sixty failed to surrender or yield up the whole of Level 39 to OUE after the termination of the lease pursuant to clause 16.1 and instead continued to remain in occupation of Level 39, Three Sixty was obliged to pay OUE double the prevailing rent, defined in part 10 of the First Schedule to the Lease as comprising the base rent and the Service Charge including GST. The prevailing rent was $57,418.88 per month (including GST). Double the prevailing rent was 114,837.76 per month (including GST). Clause 16.4 also provided that Three Sixty was to pay indemnity costs of any proceedings which OUE was compelled to bring to secure repossession of Level 39.

Three Sixty pays $415,000 in advance

Pursuant to the Lease and pursuant to a letter of intent dated 3 November 2010 signed as a precursor to the Lease, Three Sixty paid a total of $415,000 to OUE as advance payments comprising the following:¹⁰ A non-refundable good faith deposit of $45,000, being one months’ base rent without GST. Three Sixty paid this pursuant to the letter of intent; Advance rental of $225,000. Three Sixty paid this upon signing the Lease.¹¹ It represented 5 months’ base rent, without GST. Taken together with the good faith deposit paid earlier under the letter of intent, the total payment of $270,000 comprised payment of six months’ base rent in advance, without GST. This advance rent covered the period from 23 December 2010 to 22 June 2011. A security deposit of $135,000. This is the equivalent of three months’ base rent. Three Sixty paid this upon signing the Lease too; and A fit-out deposit of $10,000.

Termination of the Lease

On 15 November 2010, Three Sixty went into possession of Level 39. Disputes arose between OUE and Three Sixty fairly soon after that date.

The most significant of these disputes arises from Three Sixty’s failure to secure an FSC (see [3] above). Apart from the advance payments totalling $415,000, Three Sixty has not paid anything to OUE, whether for base rent, service charge, utilities charges or otherwise.¹² It has, however, retained possession of Level 39 from 15 November 2010 to date.

By a letter dated 2 September 2011 from OUE’s solicitors to Three Sixty’s solicitors, OUE demanded payment by 7 September 2011 of all payments in arrears at that time. Three Sixty did not comply with OUE’s demand¹³.

By a further letter dated 9 September 2011 from OUE’s solicitors to Three Sixty’s solicitors, OUE gave notice that by reason of Three Sixty’s failure to pay the base rent and service charge then due and payable, OUE exercised its right to re-enter Level 39 and to terminate the Lease pursuant to clause 16.1 of the Lease.¹⁴ In the same letter, OUE demanded that Three Sixty deliver up vacant possession of Level 39 to OUE by 14 September 2011. Again, Three Sixty did not comply with OUE’s demand.¹⁵

OUE’s claim

Against that background, OUE commenced two actions against Three Sixty. OUE commenced the first action in the Magistrates’ Court on 10 June 2011, before it terminated the Lease. In the first action, OUE sought payment of the service charge and utilities charges then in arrears. OUE commenced the second action in the District Court on 15 September 2011, after it had terminated the Lease. In the second action, OUE sought to recover the further payments then in arrears and possession of Level 39. Both actions were subsequently transferred to the High Court and consolidated.

In these consolidated actions, OUE claims the following sums against Three Sixty as being due, payable and unpaid under the Lease: Base rent of $122,704.84 for the period on and from 23 December 2010 to 8 September 2011 comprising: $96,300 being base rent of $90,000 for the period on and from 23 June 2011...