Case Details
- Citation: [2012] SGCA 48
- Case Title: HSBC Institutional Trust Services (Singapore) Ltd (trustee of Starhill Global Real Estate Investment Trust) v Toshin Development Singapore Pte Ltd
- Civil Appeal No: Civil Appeal No 108 of 2011
- Court: Court of Appeal of the Republic of Singapore
- Date of Decision: 27 August 2012
- Coram: Chan Sek Keong CJ; Andrew Phang Boon Leong JA; V K Rajah JA
- Judgment Author: V K Rajah JA (delivering the judgment of the court)
- Appellant: HSBC Institutional Trust Services (Singapore) Ltd (trustee of Starhill Global Real Estate Investment Trust)
- Respondent: Toshin Development Singapore Pte Ltd
- Nature of Proceedings: Appeal from the High Court decision in HSBC Institutional Trust Services (Singapore) Ltd (trustee of Starhill Global Real Estate Investment Trust) v Toshin Development Singapore Pte Ltd [2012] SGHC 8
- Key Legal Areas: Contract; Civil Procedure; Landlord and Tenant
- Counsel for Appellant: Alvin Yeo SC, Sim Bock Eng, Tan Mei Yen, Lawrence Foo and Lim Shiqi (WongPartnership LLP)
- Counsel for Respondent: Cavinder Bull SC, Gerui Lim, Adam Maniam (Drew & Napier LLC)
- Judgment Length: 25 pages, 14,963 words
- Core Contractual Clause: Clause 2.4(c) of the Lease Agreement (rent review mechanism including “good faith endeavour to agree” and expert valuation by licensed valuers)
- Dispute Focus: Whether the tenant’s unilateral approach to valuation firms (without notifying the landlord) rendered the rent review mechanism inoperable, and the legal effect of breaching a “good faith endeavour to agree” clause
Summary
This Court of Appeal decision addresses the legal effect of a contractual clause requiring parties to “in good faith endeavour to agree” on market rent, within a structured rent review mechanism. The dispute arose under a lease of six floors in Ngee Ann City, where the lease provided that the new rent for each rental term would be determined first by agreement between landlord and tenant, and failing agreement, by reference to three “international firms of licensed valuers” appointed through a staged process culminating in nomination by the President (or other designated officer) of the Singapore Institute of Surveyors and Valuers (SISV).
The tenant, Toshin Development Singapore Pte Ltd, approached valuation firms unilaterally and obtained valuation reports for the relevant review date without notifying the landlord. The landlord, HSBC Institutional Trust Services (Singapore) Ltd (as trustee of Starhill Global Real Estate Investment Trust), commenced proceedings seeking a declaration that the rent review mechanism had been rendered inoperable. The High Court dismissed the landlord’s application, and the landlord appealed.
The Court of Appeal upheld the High Court’s decision. While the Court accepted that the “good faith endeavour to agree” obligation is legally relevant, it concluded that the tenant’s conduct did not, on the facts, deprive the mechanism of its operation. The mechanism remained capable of being implemented through the contractual appointment stages, and the valuation process could still proceed in accordance with the lease. The Court’s reasoning emphasised that contractual machinery for expert determination should not be treated as automatically defeated by imperfect or non-compliant conduct unless the breach goes to the root of the mechanism or makes performance genuinely impossible.
What Were the Facts of This Case?
The appellant was the trustee of Starhill Global Real Estate Investment Trust, which managed the shopping centre premises known as Ngee Ann City. The demised premises comprised six floors (Basement 2 to Level 4) within the shopping centre managed by the respondent tenant. The lease had a 20-year term expiring on 7 June 2013, with the tenant holding an option to renew for a further 12 years. The 20-year term was divided into successive three-year rental terms, except for the last rental term, which ran from 8 June 2011 to 7 June 2013. The rent review dispute concerned the last rental term.
The lease contained a rent review mechanism in clause 2.4(c). For each rental term after the first, the landlord and tenant were required to determine the prevailing market rental value of the demised premises (excluding service charge and disregarding fixtures and fittings installed by the tenant). The mechanism was structured in stages. At Stage One, the parties were to “in good faith endeavour to agree” on the market rental value prior to the commencement of the relevant rental term. If agreement was not reached by a specified date (three months before commencement, time being of the essence), Stage Two required the parties to appoint three international firms of licensed valuers, either by joint nomination or, failing agreement on any one of the valuers, by nomination by the President (or other designated officer) of SISV.
Under Stage Two, the appointed valuers were to separately determine the market rental value, and the average of the three valuations would constitute the new annual rent. The clause further provided that the valuers were to act as experts and not as arbitrators, and that their decisions would be binding and conclusive. If the parties could not agree on the three valuation firms, Stage Three would be triggered, allowing the SISV President (or designated officer) to nominate the remaining valuers. The clause also imposed a rent floor and cap: the new rent could not fall below the existing rent, and could not exceed 125% of the existing rent.
Between July 2010 and early 2011, the respondent tenant approached all eight international firms of licensed valuers present in Singapore (CBRE, Chesterton, Colliers, Cushman & Wakefield, DTZ Debenham Tie Leung (SEA) Pte Ltd, Knight Frank, Jones Lang LaSalle, and Savills). The tenant did so without notifying the landlord. The tenant requested valuations of the market rental value of the demised premises as at 8 June 2010, which was exactly one year before the commencement of the next rental term (8 June 2011). Seven of the firms agreed and prepared valuation reports; Savills declined to act for the tenant. The landlord discovered the tenant’s unilateral approach and became concerned that the rent review mechanism would be compromised, particularly because the clause contemplated a structured appointment process and the valuers’ impartiality.
What Were the Key Legal Issues?
The Court of Appeal identified several interrelated legal questions. The central issue was whether a contractual clause directing the parties to “in good faith endeavour to agree” is valid in law, and if so, what its legal content should be. This required the Court to consider whether such language creates an enforceable obligation with legal consequences, and whether breach automatically renders the contractual mechanism inoperable.
A second issue concerned the practical effect of the tenant’s conduct on the rent review mechanism. The landlord argued that by unilaterally approaching valuation firms and obtaining valuations, the tenant had undermined the mechanism’s staged appointment process and thereby made it impossible (or at least inappropriate) to proceed under the lease. The Court had to decide whether the mechanism remained capable of being implemented notwithstanding the tenant’s prior dealings with the valuers.
Third, the Court considered whether there were any consequences for the expert/valuer appointment process arising from potential conflicts or compromised impartiality. The judgment’s introduction flagged the question whether an expert or adjudicator, before accepting appointment, is obliged to inform all parties involved in the appointment process of any prior relationship with any appointer that might be viewed as compromising impartiality. Although the dispute was framed primarily around the rent review mechanism’s operation, the Court’s analysis necessarily touched on the integrity of the expert appointment process.
How Did the Court Analyse the Issues?
The Court of Appeal approached the case by focusing on the contractual architecture of clause 2.4(c). The rent review mechanism was not a single step but a multi-stage process designed to ensure that, if agreement could not be reached, an objective determination could still be made through expert valuation. The Court treated the mechanism as a contractual “machinery” intended to operate even when parties failed to agree. Accordingly, the question was not whether the tenant’s conduct was desirable, but whether it prevented the mechanism from functioning as intended.
On the enforceability and content of the “good faith endeavour to agree” obligation, the Court recognised that such clauses are legally meaningful. A party cannot simply ignore the obligation and proceed in a manner that defeats the purpose of the negotiation stage. However, the Court also avoided treating the clause as creating an automatic forfeiture of the mechanism. Instead, it assessed the breach’s legal consequences by reference to the contract’s overall scheme: whether the breach went to the root of the mechanism or rendered performance impossible, and whether the mechanism could still be implemented consistently with the lease’s staged appointment and valuation requirements.
In applying these principles, the Court analysed the tenant’s unilateral approach to valuation firms. The Court accepted that the tenant’s conduct occurred without notifying the landlord and that it potentially created concerns about the appointment process and the valuers’ independence. Nevertheless, the Court concluded that the lease did not require that the parties refrain from contacting valuers before the formal appointment stage, nor did it expressly provide that prior contact by one party would invalidate the subsequent appointment process. The mechanism contemplated that the parties would either agree on the three valuers or, failing agreement, the President of SISV would nominate the valuers. Therefore, even if the tenant had already engaged some firms, the contractual process could still be followed to appoint the designated valuers in accordance with the lease.
The Court also considered the binding nature of the valuers’ determinations and the clause’s express characterisation of the valuers as experts rather than arbitrators. This mattered because the lease itself allocated the role of expert determination to the valuers and provided that their decisions would be binding and conclusive. While impartiality concerns are relevant in many expert determination contexts, the Court’s reasoning indicated that the appropriate inquiry was whether the contractual appointment and valuation process could still be carried out in a manner consistent with the lease. On the facts, the Court found that the mechanism was not rendered inoperable by the tenant’s conduct.
Finally, the Court addressed the question of disclosure and impartiality in the appointment process. The judgment’s framing suggested that where an expert’s impartiality might reasonably be questioned due to prior relationships, disclosure obligations may be relevant. However, the Court did not treat the tenant’s prior contact with valuation firms as automatically establishing that the expert determination stage could not proceed. Rather, it treated the issue as one to be assessed within the contract’s appointment framework, including the role of SISV nomination and the fact that the valuers were to act as experts whose determinations were contractually binding.
What Was the Outcome?
The Court of Appeal dismissed the landlord’s appeal and affirmed the High Court’s decision that the rent review mechanism remained operable. The Court therefore did not grant the declaration sought by the landlord that clause 2.4(c) had been rendered inoperable by the tenant’s unilateral conduct.
Practically, the decision meant that the parties could still proceed with the rent review process under the lease’s staged mechanism, including the appointment of the designated valuers and the determination of the new annual rent subject to the contractual floor and cap. The Court’s outcome preserved the contractual machinery for expert valuation rather than allowing one party’s non-ideal conduct to defeat the mechanism entirely.
Why Does This Case Matter?
This case is significant for landlords, tenants, and practitioners drafting or litigating rent review clauses and other expert determination mechanisms. It confirms that contractual obligations to “endeavour” in good faith are enforceable in principle, but that breach does not necessarily invalidate the entire contractual machinery. Courts will look closely at the contract’s structure and purpose, and will generally avoid construing a breach as automatically rendering a multi-stage mechanism inoperable unless the breach defeats the mechanism’s core function or makes performance genuinely impossible.
For practitioners, the decision provides guidance on how to frame arguments about “inoperability” of contractual machinery. A party alleging that a mechanism has been defeated must show more than procedural unfairness or non-compliance; it must demonstrate that the mechanism cannot operate as intended. This is particularly relevant in expert valuation clauses where the contract itself provides fallback appointment procedures (such as nomination by a professional institute’s President) to ensure that disputes can be resolved even when parties cannot agree.
The case also highlights the importance of impartiality and disclosure in expert appointment contexts, but it suggests that such concerns must be analysed in light of the contractual appointment framework. Where the contract provides safeguards—such as staged appointment and institutional nomination—courts may be reluctant to treat prior unilateral contact as automatically fatal to the process. Accordingly, lawyers should consider drafting clearer provisions on disclosure, conflicts, and consequences of prior engagement if they want those issues to have a direct contractual effect.
Legislation Referenced
- (Not provided in the supplied extract.)
Cases Cited
- [2010] SGHC 92
- [2012] SGCA 48
- [2012] SGHC 8
Source Documents
This article analyses [2012] SGCA 48 for legal research and educational purposes. It does not constitute legal advice. Readers should consult the full judgment for the Court's complete reasoning.