Top Ten Entertainment Pte Ltd v Lucky Red Investments Ltd (by counterclaim)

• Jurisdiction: Singapore
• Judge: Tay Yong Kwang J
• Judgment Date: 25 February 2004
• Neutral Citation: [2004] SGHC 40
• Docket Number: Suit No 634 of 2002
• Date: 25 February 2004
• Published date: 01 March 2004
• Year: 2004
• Plaintiff Counsel: Michael Hwang SC and Ginny Chew (Allen and Gledhill)
• Citation: [2004] SGHC 40
• Defendant Counsel: Anthony Bevin Netto and S Maginthran (Netto Tan and S Magin), Peter Pang (Peter Pang and Co)
• Court: High Court (Singapore)
• Subject Matter: Whether landlord agreed to reduce rent payable by tenant during certain period of lease,Apportionment,Agreements for leases,Rent and service charges,Landlord and Tenant,Whether tenancy agreement rendered illegal and unenforceable as fraud on revenue authority,Inclusion of unreasonably high hiring charge for furniture and fittings in rent

25 February 2004

Tay Yong Kwang J:

1 There were essentially two issues in this action. The first was a legal one: when rent for premises included a component for hiring charge for furniture and fittings and the hiring charge was unreasonably high, would the tenancy agreement be thereby rendered illegal and unenforceable as a fraud on the revenue authority? The second, a factual issue, related to whether the landlord here had agreed to reduce the rent payable between January and November 2000.

2 These proceedings concerned the commercial premises at 400 Orchard Road #04-35/36 and #05-18A Orchard Towers, Singapore, originally owned by Premier Theatre Pte Ltd. In 1986, Lucky Red Investments Ltd (“Lucky Red”) purchased the premises from Premier Theatre Pte Ltd. Lucky Red, a company incorporated in Hong Kong, was effectively owned by Loi Kai Meng (“Loi”), a Singaporean. In March 2002, Leivest International Pte Ltd (“Leivest”) became the owner of the premises pursuant to a sale and purchase agreement dated 12 December 2001. Top Ten Entertainment Pte Ltd (“Top Ten”) became the tenant of the premises from 1 December 1984.

3 This action was commenced by Leivest against Top Ten for arrears of rent and for possession. Those claims have since been withdrawn. Top Ten in turn counterclaimed against Leivest, Lucky Red, Loi and his two children for various reliefs. The trial therefore started with Top Ten as the plaintiff by counterclaim. After some negotiations at the start of the trial, Top Ten discontinued its claim against Leivest and the Lois, leaving Lucky Red as the only defendant on record. Lucky Red had its own counterclaim against Top Ten for shortfall in the payment of rent and for contractual interest and costs.

The case for Top Ten

4 The premises were originally fitted out and used as a cinema. Top Ten first became the tenant of the premises between 1 December 1984 and 1 December 1987 pursuant to a lease dated 1 January 1985. The intention was to operate a discotheque on the premises. The monthly rent was $32,000, out of which $28,000 was the rent for the premises and $4,000 was the hiring charge for the furniture and fittings listed in a schedule. The inventory in the schedule included an air-conditioning plant, stage fittings, electrical fittings, furniture (such as a safe, cabinets, dressing table with 18 lockers, desks and chairs) and fire safety equipment.

5 A second lease for the period 1 December 1987 to 1 December 1990 was granted to Top Ten although the draft lease agreement was neither dated nor signed. The rent was apportioned as $33,800 and $4,600 respectively. The inventory remained essentially the same as in the first lease.

6 In the third lease dated 4 May 1990 for the period 1 December 1990 to 30 November 1993, the rent was apportioned as $46,600 for rent of the premises and $9,400 as the hiring charge for the things listed in the inventory. In June 1990, Top Ten’s Managing Director, Peter Bader, told Loi that many of the items in the inventory were no longer on the premises. Loi then sent a fax to Top Ten to confirm that Lucky Red did not require the items crossed out in a copy of the inventory to be returned.

7 The fourth lease was for the period 1 December 1993 to 30 November 1994 with the rent apportioned as $58,000 and $12,000 respectively. However, the inventory attached to the lease remained unaltered, listing out even the items which had been crossed out earlier.

8 There was no written agreement for the fifth lease between 1 December 1994 and 30 November 1996 but the parties carried on as landlord and tenant pursuant to the terms of the fourth lease.

9 The sixth lease was by way of a letter dated 1 August 1996 from Lucky Red to Top Ten, covering the period from 1 December 1997 to 30 November 2000. The rent was apportioned as $55,000 and $15,000 respectively, with the inventory remaining unchanged.

10 The seventh lease, dated 4 August 1998, was for the period from 1 December 2000 to 30 November 2003. The rent was apportioned as $51,000 and $11,000 respectively, with the inventory again remaining unchanged.

11 Due to the good relationship between Peter Bader and Loi, Lucky Red never insisted on its strict legal rights. Loi agreed with Peter Bader that the rent could be paid within the first ten days of the month. On many occasions, rent was paid late and on a number of occasions, the rent was reduced. However, in September 2001, Lucky Red’s solicitors demanded payment for arrears of rent and claimed possession of the premises. Top Ten’s solicitors contended that the hiring charge of $11,000 was not payable as it was a fraud on the revenue authority and claimed that Lucky Red was liable to refund Top Ten the hiring charges paid over the last six years. Top Ten found out that the Property Tax Department had assessed the annual value of the premises as $612,000, which worked out to be a rental of $51,000 per month. The hiring charge of $11,000 was not taken into account.

12 At all material times, the apportionment of the rent for the premises and the hiring charge was done at Loi’s direction. Top Ten had no say or choice in the matter and did not know why Loi had directed that the rent be apportioned in that manner.

13 Top Ten therefore claimed a declaration that the provision pertaining to the hiring charge in the lease agreement was null and void as being against public policy and as being a fraud on the revenue authority. It claimed it was not liable to pay the hiring charge of $11,000 per month “by reason of there being no consideration or a partial/total failure of consideration”. It also claimed against Lucky Red the return of a total of $803,400 paid as hiring charges over the six years between April 1995 and March 2001 on the basis of money paid by mistake, as money had and received or on the ground of total or partial failure of consideration and/or frustration.

14 Two witnesses testified for Top Ten. The first was Robert Chan Mun Hon of Asset Appraisers & Auctioneers Pte Ltd, a licensed appraiser and auctioneer with more than 25 years of experience. He was asked to provide an opinion on the rental value of the items in the inventory as at 4 August 1998 and 1 December 2000. He visited the premises in April 2003 before making his report dated 10 September 2003. After a detailed search, he was able to identify only the air-conditioning system (comprising a 60-ton cooling tower, condenser water pumps, motors, a reciprocating water-cooled package unit and a control panel), two office tables, two cabinets, venetian blinds, one fire extinguisher which was last serviced in 1986 and one which was last serviced on 7 April 2003. He opined that the inventory must be at least 19 years old since it existed from the time of the first lease agreement in December 1984.

15 He noted that the air-conditioning system had exceeded the industry’s accepted lifespan of ten years and that it was an inefficient consumer of electricity although it was still functioning. The model of the system had been obsolete since some ten years ago. He estimated the original cost of the system at $126,800.

16 The electrical fittings would have exceeded their lifespan of ten years. Robert Chan was informed by Top Ten that the premises were renovated in 1999 and 2001 and all the lights had been changed. Lights should have been considered as consumables and should not have been included as fittings and fixtures. They could not have lasted for more than two years in commercial use at any rate.

17 The report then discussed the accepted methods of depreciation in the determination of equipment rental. It stated that in determining the rental of an asset, one first considers the period one wishes to recover one’s capital outlay and the practice is to recover the capital over a period which is invariably shorter than the accepted lifespan of the asset. Despite the various accounting methods adopted by organizations in depreciation of their assets, the accepted lifespan for depreciating fire and security equipment is 20 years, that for air-conditioning and lighting equipment is ten years, that for furniture is five years while that for computers and electronic equipment is three years.

18 In his calculations, Robert Chan proceeded on the basis that the landlord would recover its capital in half the expected lifespan of the items in the inventory and that any collectable rental after that would be pure profit. On the assumption that the said items were installed or purchased in 1984 (the start of the tenancy), he opined that the market rental to be paid for the inventory items should have remained at $4,000 for both 4 August 1998 and 1 December 2000.

19 Robert Chan’s evidence was not challenged by Lucky Red.

20 Peter Bader, a Swiss national and the managing director of Top Ten, has been working in Singapore since 1982. He negotiated the first lease with the then owner of the premises. The rent was agreed at $32,000 per month. Top Ten also had to pay the monthly service charge to the management corporation of Orchard Towers. There was no discussion on how the rent was to be apportioned and he had no idea why the apportionment was done. The lease agreement was drawn up by the landlord’s solicitors with the apportionment already done and he executed it before his solicitors. It was the first time he rented commercial premises in Singapore.

21 Renovations were then carried out to convert the erstwhile cinema into a discotheque. The electrical fittings were removed as the lighting was not suitable for a discotheque. Some of the items of office furniture were used by Top Ten but the majority outlived their usefulness a long time ago. All the items in the inventory were already many years old when Top Ten became the tenant of the premises. The fire and security equipment had passed its expiry date and most of it was discarded. Over the years, Top Ten purchased new equipment to replace the things discarded.

22 Lucky Red...