22 August, 2015
HSBC Trustee (Singapore) Ltd v Lucky Realty Co Pte Ltd [2015] SGHC 93 (Singapore, High Court, 13 April 2015)
The case of HSBC Trustee (Singapore) Ltd v Lucky Realty Co Pte Ltd [2015] SGHC 93 (Singapore, High Court, 13 April 2015) concerned the construction of a lease. It provides a useful illustration of how important it is to ensure that the drafting of a lease accurately and expressly captures the parties’ intentions.
Facts
The property in question comprised “the whole of Lot 3041… together with the buildings in the course of construction thereon” (“Land”). Lucky Realty Co Pte Ltd (“lessee”) obtained a 60-year lease of the Land from the lessor. The lease commenced on 1 March 1977. At that time, the Land was undeveloped. The lease provided for payment of a yearly rent of S$3,877.15 with no provision for increases. Parts of the Land were subsequently acquired by the State and the remaining Land was renumbered as Lot 5245N.
The lessee built four buildings on the Land, and obtained a strata subdivision of the Land. It sold off its remaining leasehold in most of the strata units in three of the blocks and kept the remaining units and the remaining block for itself. The strata units were sold for a single lump sum and the lessee did not reserve a right to charge the sub-lessees ground rent for the Land the buildings were on.
In 1994, a dispute arose between the lessee and the lessor and, in order to settle the dispute, they agreed to vary the obligation to pay rent under the lease. They entered into a Deed of Variation which varied the payment terms of the lease. This provided for an immediate increase of the rent to S$120,000 per annum. It also provided that the lessor had the right to, every five years, increase the yearly rent “to the market rent prevailing at the time” or by 10% of the existing rent, whichever was higher. The Deed also provided that, save as varied by it, all other express and implied terms of the original lease remained in full force and effect.
The rent was subsequently increased twice pursuant to the rent increase clause: first to S$132,000 per annum and then to S$150,000 per annum. In 2009, the lessor gave notice that it intended to increase the rent from S$150,000 per annum to S$1.3 million per annum. The lessor supported the increase by showing that the market rent for the Land (the whole of Lot 5245N and all four buildings) was indeed S$1.3 million. The lessee objected on the basis that the lessor was only entitled to charge rent for the single building that it occupied and not the entire lot and four buildings.
The matter was brought to the Singapore High Court. The lessor argued that the Deed of Variation should be construed such that the right to increase the rent should be understood as referring to the rent for the entire lot plus four buildings. The lessee argued that it referred only to the market rent for the single building and units kept by the lessee. It sought to rely on extrinsic evidence to establish this construction.
Decision
The Singapore High Court held that the only term of ambiguity in the lease (as amended by the Deed of Variation) for the purposes of the claim was the term “Lot 3041”. This was because at the time the Deed of Variation was entered into there was no longer a “Lot 3041”. The Court held that the rules of construction and extrinsic evidence only supported the construction of “Lot 3041” as referring to Lot 5245N comprising the whole of the land and the buildings constructed thereon. The Court then held that, once that had been determined, there was no remaining ambiguity as to the extent of the lessee’s rights and obligations in respect of the land: it was clear on the face of the lease that the lessee took on lease the whole of Lot 5245N and all of the buildings then in the course of construction on it.
The Court noted that under both Zurich Insurance (Singapore) Pte Ltd v B- Gold Interior Design & Construction Pte Ltd [2008] 3 SLR 1029 (SGCA) (“Zurich Insurance”) and Sembcorp Marine Ltd v PPL Holdings Pte Ltd [2013] 4 SLR 193 (SGCA), extrinsic evidence of subjective intent is excluded as an aid to construction unless there is an ambiguity and unless that ambiguity is also latent. Here, there was no remaining ambiguity as to the meaning of the term “Lot 3041”. Accordingly, the Court could not look at evidence of the parties’ subjective intent.
Leaving aside the subjective intent of the parties, the extrinsic evidence of the negotiations was entirely ambiguous. Under Zurich Insurance, the Court could only accept the extrinsic evidence if, among other things, it related to a clear and obvious context.
For example, the Court considered the fact that the rent agreed at the time of the Deed of Variation was S$120,000. It noted that one explanation for the amount was that the obligation to pay rent was referable to the single building only. However, another explanation could be that the fixed sum of S$120,000 was agreed on a commercial basis as a gross figure, representing no more
than what the lessee was prepared to pay from 1994 to 1999 to avoid litigation and no less than the lessor was prepared to accept from 1994 to 1999 to avoid litigation, with the ground rent thereafter to be calculated and paid for the whole of Lot 5245N. In the view of the Court, there was no reason why one meaning should, in this context, be clear or obvious and the other not. Other items of extrinsic evidence were also considered by the Court as not supplying a clear or obvious context and will not be dealt with here.
The Court therefore held that there was no admissible evidence that would allow the Court to read down the term “Lot 3041” as referring only to the building and units retained by the lessee.
For further information, please contact:
Dorothy Marie Ng, Partner, WongPartnership
dorothymarie.ng@wongpartnership.com
