Acts of Hindrances Amounting to Breach of Implied Term of Expeditious Renewal for Commercial Tenancy

The Singapore High Court in iHub Solutions Pte Ltd v Freight Links Express Logisticentre Pte Ltd [2017] SGHC 06* held that the Defendant landlord had breached an implied term of expeditious renewal and an implied term of quiet enjoyment, by inter alia committing various acts of hindrances against the tenant to pressurise the tenant to agree to a higher rate for the renewal of the commercial tenancy.

A. FACTS

The Plaintiff (“iHub”) is a limited exempt private company in the business of providing various services including supply chain and warehouse services. The Defendant (“Freight Links”) is a limited company, and is a wholly owned subsidiary of Vibrant Group Limited (formerly known as Freight Links Express Holdings Limited), which is a company listed on the Singapore Exchange Ltd. Freight Links is in the business of general warehousing.

Jurong Town Council (“JTC”) had leased 51 Penjuru Road (with a building thereon) to Freight Links. In turn, by way of a Service Agreement dated 10 August 2005 (the “SA”), Freight Links agreed to let iHub use certain warehouse spaces on the second and third floors of 51 Penjuru Road totaling about 39,380 square feet (“51” or “the Spaces”) with the service charge at the rate of S$0.70 per square foot (“psf”). Under the SA, Freight Links also agreed to provide logistic services to iHub referred to as automated storage and retrieval services (“ASRS”), which were performed in the same building but outside the Spaces.

The SA was renewed twice, by way of a 1st Addendum dated 27 June 2008 (service charge increased to S$0.756 psf) and a 2nd Addendum dated 9 July 2010 (service charge increased to S$0.82 psf). Under the 2nd Addendum, iHub had an option to extend or renew the SA for yet another 3 years with any increase in the service charge capped at a 10% increase, i.e. no more than S$0.902 psf.

iHub gave notice as early as 23 April 2013 (which was more than 6 months before the 2nd Addendum expired on 31 October 2013) that it wanted to renew the agreement for 51 for a further 3 years from 1 November 2013 to 31 October 2016. iHub’s case was that Freight Links did not take steps to confirm the renewal within a reasonable time, but instead committed various acts from 24 July 2013 onwards to hinder iHub in its operations in order to persuade iHub to agree to a higher rate of S$1.30 psf, which was more in line with the market rate in 2013 for the new term of 3 years.

iHub also alleged that Freight Links’ tactics to delay confirming the renewal as well as to hinder iHub caused iHub to be uncertain whether Freight Links was going to confirm the renewal at all, and that accordingly, iHub looked for alternative premises in case Freight Links refused to renew the SA and to also allow iHub to operate without hindrances from Freight Links in the meantime. In early September 2013, iHub accepted an offer for alternative premises at 46A Tanjong Penjuru (“46A”), executed a formal agreement for 46A on 16 October 2013, and began shifting its fast moving cargo from 51 to 46A from around mid-September 2013. In the meantime, iHub continued pressing for its 3-year renewal for 51, together with ASRS.

Eventually, Freight Links informed iHub in December 2013 that it would grant a sub-tenancy agreement to iHub for 51 for the next 3 years. This agreement, however, was to be in the form of a sub-tenancy agreement instead of a service agreement because JTC had learned that iHub was in exclusive possession of 51 and that Freight Links did not provide iHub with any service inside 51. After further protracted discussions, the sub-tenancy agreement was finally signed by the parties on 9 December 2014 (more than 13 months after the expiry of the 2nd Addendum).

B. MAIN ISSUES

There were 3 main issues for the Court’s consideration:

(1) Whether there was an implied term of expeditious renewal and an implied term of quiet enjoyment;

(2) If so, whether Freight Links had breached either of these terms, or both;

(3) If so, whether Freight Links was liable in the circumstances for the various heads of damages claimed in respect of iHub’s acquisition of 46A.

C. COURT’S DECISION

In this article, we will focus mainly on the first two issues.

C.1 Whether there were implied terms of expeditious renewal and quiet enjoyment

The Judge held that, under the SA, both implied terms existed.

Implied term of expeditious renewal: Freight Links, through its counsel, accepted on the first day of trial that it was to take reasonable steps to comply with its obligations under Clause 11.4 of the SA (which provided that Freight Links was to confirm the renewal if iHub gave not less than 3 months’ notice before 31 October 2013 and if the JTC gave its consent (if required) and there was no subsisting breach by iHub of any of its obligations under the SA). This concession meant that Freight Links was accepting that there was an implied term for it to revert reasonably expeditiously to confirm the renewal, unless there was valid reason not to do so.

Implied term of quiet enjoyment: As for the implied term of quiet enjoyment, the Judge took the view that the SA was in substance a tenancy agreement. It was drawn up as a service agreement because of the way Freight Links had originally described (to JTC) the services it rendered to iHub. Once the air was cleared, JTC said that it should be a sub-letting agreement in accordance with the true nature of the agreement. There was, therefore, no dispute that there was an implied term of quiet enjoyment for iHub under the SA in the circumstances.

C.2 Whether Freight Links had breach either or both of these implied terms

As will be explained below, the Judge held that Freight Links had breached both implied terms.

In terms of the key dates and submissions pertaining to the renewal:

(1) iHub submitted that because Clause 11.5 of the SA required parties to agree on the revised charge for the renewal not later than 4 weeks from the date of iHub’s written notice to renew, and because the maximum cap was S$0.902 psf which iHub was prepared to agree to, Freight Links should have confirmed the renewal within 4 weeks of iHub’s first notice to renew dated 23 April 2013;

(2) On the other hand, Freight Links submitted that since iHub was supposed to give not less than 3 months’ notice to renew before the SA expired on 31 October 2013 (i.e. notice to be given no later than 30 July 2013), the question of expeditious renewal should be considered from the date of 30 July 2013, and not from the date of the first renewal notice on 23 April 2013. Freight Links submitted that as it had formally informed iHub on 6 September 2013 that it would apply to JTC for approval to sublet 51 to iHUB at S$0.902 psf, it had acted more than reasonably expeditiously to confirm the renewal in the circumstances;

(3) The Judge took the view that Freight Links’ submission ignored the fact that the written notice of renewal could be given even before 30 July 2013, and that even if the timeframe to revert starts from 30 July 2013, the 4 weeks for parties to agree on the revised amount (under Clause 11.5) would be until 27 August 2013, and not 6 September 2013;

(4) Moreover, the question of reasonably expeditious renewal should not be considered solely in the context of when Freight Links reverted but “all the circumstances of the case”, e.g. did Freight Links take steps towards confirming the renewal in the meantime.

The Judge took the view that there was “no genuine attempt” by Freight Links in the interim period to try and agree on the revised charge for the renewal subject to the cap mentioned. As mentioned above, iHub was prepared to accept the maximum service charge but Freight Links was “trying to get it to agree to more”.

The alleged acts of hindrances also shed light as to whether Freight Links was taking steps to confirm the renewal or the opposite. The Judge elaborated on a few of the alleged acts of hindrances.

Cessation of lorry parking: First, on 1 August 2013 (which coincided with the time when iHub was seeking the renewal of the SA), Freight Links ceased allowing iHub to park its lorry in the grounds of 51 with effect from the very same day. iHub asked for one month’s grace to find an alternative location. Freight Links replied by email within only 5 mins to say that “[a]fter careful consideration, we are unable to further extend the service term” and required the removal of the vehicle from the grounds. Freight Link’s excuse for ceasing this facility was that there was no proper documentation for it. However, instead of proceeding to have this facility properly documented, Freight Links stopped it with immediate effect.

Freight Link’s main witness on the hindrances was Mr. Sim Ee Huey (“Sim”), an assistant vice-president. Even he had to admit during cross-examination that Freight Link’s conduct was “hasty and perhaps not reasonable” to iHub. He reiterated that it was unreasonable and agreed that this step was directed at iHub and not other occupants of other spaces in the building.

Restriction of car park spaces: Second, on 2 August 2013 (by way of email/letter), Freight Links reduced the allocation of parking facilities to only one parking lot for iHub’s staff (previously iHub had been using two car park lots). When iHub sought an explanation for the computation logic for allocating one car park lot, no elaboration was given by Freight Links then. Sim accepted during cross-examination that one of iHub’s staff, Andrew Tng, was denied entry by the security guards to park at the grounds after Freight Link’s letter. Sim also agreed during cross-examination that Freight Links’ letter to restrict the car park lots for iHub was unreasonable but disagreed that it was done in bad faith.

Miscellaneous: Third, by way of various emails from 16 August 2013 to the morning of 2 September 2013, Freight Links had asked iHub to provide inter alia (1) risk assessment forms for the conduct of loading and unloading activities at the common areas and also for iHub’s sub-contractors to provide similar forms for evaluation; (2) documentation for the parking of the disposal bin by iHub on the grounds; (3) a copy of its public liability insurance.

However, each of the above requests was withdrawn by Freight Links in the night of 2 September 2013. This was after a meeting that Freight Link’s Charles Chan (“Chan”), the chief operating officer, had with iHub’s Koh San Joo (“Koh”) and his wife earlier that day on 2 September 2013.

Sim gave evidence that Chan had been upset with him for sending those emails which were dated before 2 September 2013 and had called him on 31 August 2013 to withdraw them but he had no time to do so until the night of 2 September 2013. However, despite the alleged lack of time, Sim nevertheless sent two emails in the morning of 2 September 2013 to require iHub to provide some more documentation. Such additional requirements were inconsistent with any alleged prior instruction to stop what he was doing. The Judge agreed that “Sim had not been truthful and he was trying to give the impression that [Freight Links] was acting in good faith with Chan giving such instructions even before the 2 September 2013 meeting”.

The Judge held that in any event, there was never really a need for the documentation which Sim was requiring. The Judge agreed that “Sim required them to pressurise [iHub] to agree to a higher rate for the service charge”. The timing of these requirements was not to ensure proper compliance with formalities as suggested by Freight Links. The fact that such requirements were not reinstated after they were withdrawn spoke for itself.

The 2 September 2013 meeting and admissibility of transcript: An interesting point arose about the transcript of a recording of the 2 September 2013 meeting (attended by Chan for Freight Links, and Koh and his wife for iHub). The recording was done secretly. Freight Links argued that the transcript was inadmissible in evidence as it was a “without prejudice” meeting.

Based on case law, there must in fact be a dispute which the parties are trying to settle in order for the “without prejudice” privilege to apply. In addition, the privilege does not apply if, for example, the discussion was to discuss repayment of an admitted liability rather than to negotiate and compromise a disputed liability.

In the present case, the Judge held that there was no dispute that the maximum service charge payable by iHub for the new term was S$0.902 psf. Freight Links was simply trying to get iHub to agree to pay more in that meeting as well as in earlier discussions. This was similar to the situation where a debtor does not dispute a debt but is asking for more time to pay. Accordingly, “there was no dispute which the parties were trying to compromise”.

The Judge also agreed that the transcript “showed that Chan had admitted that [Freight Links] was trying to put pressure on [iHub] to agree to a higher rate and that it was [Freight Link’s] Eric Khua, the chief executive officer, who had instructed that this be done.”

Hence, the transcript was admissible in evidence.

Breached implied term of expeditious renewal: The Judge held that even if the transcript was not admissible in evidence, it was clear to him from other evidence that Freight Links “had engaged in acts of hindrances to pressurise [iHub] to agree to a higher rate instead of taking reasonably expeditious steps to confirm the renewal.” As such, the Judge found that Freight Links had breached the implied term to act reasonably expeditiously to confirm the renewal.

The Judge went on to say, “Unfortunately, it is all too often the case that economic interests trump commercial probity. To make matters worse, [Freight Links’] witnesses gave untrue excuses to try and justify its conduct instead of admitting what it was trying to do.”

Breached implied term of quiet enjoyment: Finally, the Judge also found that the acts of hindrances amounted to a breach by Freight Links of the implied term of quiet enjoyment by iHub. This implied term applied even to iHub’s use of common property (and is not confined to the direct use of the Spaces only, as argued by Freight Links).

C.3 Whether Freight Links was liable for the heads of damages claimed

iHUB claimed for various heads of damages which are associated with its acquisition of and operations at 46A. However, the Judge held that if iHub had elected to terminate and move out of 51, then “it might in principle be entitled to claim some or all of the various heads of damages”. However, as it decided not to terminate and did in fact obtain the use of 51, the Judge took the view that it is not entitled to claim such heads of damages notwithstanding Freight Link’s “wrongful conduct”.

In the circumstances, the Judge granted iHub judgment against Freight Links for a nominal sum of S$100. The parties subsequently submitted on the issue of costs, and the Judge ordered that parties are to bear their own costs.

D. COMMENTS

Three quick comments on the legal and commercial implications of this decision.

First, the implied term of expeditious renewal is a novel one under Singapore law. Such an implied term requires the landlord or lessor to act reasonably expeditiously to confirm the renewal of the tenancy, unless there is valid reason not to do so. This obligation is not considered solely in terms of when the landlord reverted, but “all the circumstances of the case”. The lack of a “genuine attempt” by the landlord to try and agree on the revised charge subject to the cap and/or acts of hindrances done to pressurise the tenant to accept a higher rate than the maximum agreed in the contract, would amount to a breach of such an implied term.

Second, such acts of hindrances would also amount to a breach of the implied term of quiet enjoyment, which extends to the tenant’s use of common property and is not solely confined to the direct use of the space leased.

Third, the scope or application of the “without prejudice” privilege was further clarified in this decision. Labelling a meeting “without prejudice” and then proceeding under that label to pressurise a party to agree to pay more than what (and the parties do not dispute) is contractually allowed, does not attract the protection of such privilege, since there is no dispute which the parties are trying to settle.

Seen in totality, it is submitted that this decision would go far in setting and upholding the standards of commercial fairness and good faith in future similar cases. It prevents a landlord from: (1) delaying a renewal of a lease, by engaging in acts with the motivation to secure a higher rate than the contractually agreed cap, and (2) attempting to use “privilege” to exclude from evidence, communications to pressurise the tenant to accept the higher rate. With the above points in mind, landlords and tenants now have a better understanding of their mutual rights and obligations towards each other, whether in relation to renewal of the tenancy or in relation to the quiet enjoyment of the tenanted space extending even to the common property. In short, they must behave reasonably towards each other, and, it is submitted, with good faith, such that “commercial probity” would trump “economic interests”.

The usual disclaimer: All opinions expressed on www.singaporelitigationlawyer.com are entirely my own. Importantly, my opinions do not constitute legal advice and you should definitely formally engage a lawyer to confirm, vary or refute my views.

To Sue or Not to SueDemystifying Litigation in Singapore@www.singaporelitigationlawyer.com © Dominic Chan, a Singapore litigation lawyer. All rights reserved.

* Dominic Chan and Melvyn Foo from Characterist LLC acted for the Plaintiff (iHub) in this matter.

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