HSBC v Toshin: Good Faith, Rent Review, and Valuer Independence

HSBC Institutional Trust Services (Singapore) Ltd, the appellant and trustee of Starhill Global Real Estate Investment Trust, appealed against the High Court's decision that a rent review mechanism in a lease agreement with Toshin Development Singapore Pte Ltd, the respondent, remained operable. The dispute arose over the respondent's unilateral engagement of multiple valuers before the rent review exercise. The Court of Appeal dismissed the appeal, finding that while the respondent initially breached its duty to negotiate in good faith by concealing the valuations, this breach was remedied by subsequent disclosure. The court directed the parties to jointly request the President of the Singapore Institute of Surveyors and Valuers (SISV) to appoint three valuation firms to determine the new rent for the last rental term.

1. Case Overview

1.1 Court

Court of Appeal

1.2 Outcome

Appeal Dismissed

1.3 Case Type

Civil

1.4 Judgment Type

Grounds of Decision

1.5 Jurisdiction

Singapore

1.6 Description

Appeal regarding a rent review mechanism. The court considered the validity of a 'good faith' clause and the independence of valuers.

1.7 Decision Date

2. Parties and Outcomes

Party NameRoleTypeOutcomeOutcome TypeCounsels
HSBC Institutional Trust Services (Singapore) Ltd (trustee of Starhill Global Real Estate Investment Trust)AppellantTrustAppeal DismissedLost
Toshin Development Singapore Pte LtdRespondentCorporationAppeal DismissedWon

3. Judges

Judge NameTitleDelivered Judgment
Chan Sek KeongChief JusticeNo
Andrew Phang Boon LeongJustice of the Court of AppealNo
V K RajahJustice of the Court of AppealYes

4. Counsels

Counsel NameOrganization
Alvin YeoWongPartnership LLP
Tan Mei YenWongPartnership LLP
Sim Bock EngWongPartnership LLP
Lawrence FooWongPartnership LLP
Lim ShiqiWongPartnership LLP
Cavinder BullDrew & Napier LLC
Gerui LimDrew & Napier LLC
Adam ManiamDrew & Napier LLC

4. Facts

  1. Appellant and Respondent entered into a lease agreement for commercial property.
  2. The lease agreement contained a rent review mechanism for subsequent rental terms.
  3. Respondent unilaterally approached multiple valuers for valuation reports before the rent review.
  4. Respondent did not initially disclose these valuations to the Appellant.
  5. Appellant discovered the valuations and claimed the rent review mechanism was inoperable.
  6. The lease agreement contained a clause requiring the parties to 'in good faith endeavour to agree' on the new rent.
  7. The SISV advised that valuation firms should be perceived as fair and equitable.

5. Formal Citations

  1. HSBC Institutional Trust Services (Singapore) Ltd (trustee of Starhill Global Real Estate Investment Trust) v Toshin Development Singapore Pte Ltd, Civil Appeal No 108 of 2011, [2012] SGCA 48
  2. HSBC Institutional Trust Services (Singapore) Ltd, (trustee of Starhill Global Real Estate Investment Trust) v Toshin Development Singapore Pte Ltd, , [2012] SGHC 8

6. Timeline

DateEvent
Respondent approached valuers for valuation reports
Parties met to discuss new rent
CBRE informed Appellant of prior appointment by Respondent
Appellant wrote to SISV regarding CBRE
SISV replied with opinion
Appellant met with Respondent
Appellant claimed Rent Review Mechanism inoperable
Appellant asserted further breach of Lease Agreement
Respondent provided copies of valuation reports
Appellant filed OS 376
Commencement date of the Last Rental Term
Judgment reserved

7. Legal Issues

  1. Breach of Contract
    • Outcome: The court found that while the Respondent initially breached its duty to negotiate in good faith, the breach was remedied by subsequent disclosure.
    • Category: Substantive
    • Sub-Issues:
      • Failure to negotiate in good faith
      • Breach of express contractual term
    • Related Cases:
      • [1992] 2 AC 128
  2. Good Faith Obligation
    • Outcome: The court held that the express 'good faith' term in the lease agreement was valid and enforceable, requiring the parties to observe reasonable commercial standards of fair dealing.
    • Category: Substantive
    • Sub-Issues:
      • Content of good faith obligation
      • Validity of good faith clause
      • Duty of disclosure
    • Related Cases:
      • [1992] 2 AC 128
      • (1999) 153 FLR 236
      • [2006] 1 Lloyd’s Rep 121
  3. Independence of Valuers
    • Outcome: The court found that the independence of the valuers was not irretrievably compromised by the Respondent's prior engagement of the valuers.
    • Category: Substantive
    • Sub-Issues:
      • Conflict of interest
      • Apparent bias
      • Confirmation bias
    • Related Cases:
      • [2002] 1 BCLC 65
  4. Operability of Rent Review Mechanism
    • Outcome: The court held that the Rent Review Mechanism remained operable despite the Respondent's initial breach of its 'good faith' obligation.
    • Category: Substantive
    • Sub-Issues:
      • Impact of breach of good faith
      • Disqualification of valuers

8. Remedies Sought

  1. Declaration that the Rent Review Mechanism was inoperable
  2. Court determination of the new rent

9. Cause of Actions

  • Breach of Contract
  • Breach of Duty of Good Faith

10. Practice Areas

  • Commercial Litigation
  • Real Estate Litigation
  • Lease Agreements
  • Rent Review

11. Industries

  • Real Estate
  • Retail

12. Cited Cases

Case NameCourtAffirmedCitationJurisdictionSignificance
Walford and Others v Miles and AnotherHouse of LordsYes[1992] 2 AC 128United KingdomCited regarding the inherent repugnancy of a duty of good faith in negotiations and the unenforceability of an agreement to negotiate.
Ng Giap Hon v Westcomb Securities Pte Ltd and othersCourt of AppealYes[2009] 3 SLR(R) 518SingaporeCited for the observation that the doctrine of good faith is a fledgling doctrine in Singapore contract law and that there is no general implied duty of good faith derived from the common law.
Sundercan Ltd and another v Salzman Anthony DavidHigh CourtYes[2010] SGHC 92SingaporeCited for the principle that an agreement to negotiate is unenforceable because it lacks the necessary certainty.
Aiton Australia Pty Ltd v Transfield Pty LtdSupreme Court of New South WalesYes(1999) 153 FLR 236AustraliaCited for the principle that an obligation of good faith relates to the performance of an agreement and is different from negotiating a substitute agreement.
Ong Khim Heng Daniel v Leonie Court Pte LtdHigh CourtYes[2000] 3 SLR(R) 670SingaporeCited for upholding 'best endeavour' clauses, which are similar in nature to 'negotiate in good faith' clauses.
Justlogin Pte Ltd and another v Oversea-Chinese Banking Corp Ltd and anotherHigh CourtYes[2004] 1 SLR(R) 118SingaporeCited for upholding 'best endeavour' clauses, which are similar in nature to 'negotiate in good faith' clauses.
Travista Development Pte Ltd v Tan Kim Swee Ausgustine and othersCourt of AppealYes[2008] 2 SLR(R) 474SingaporeCited for approving and applying the decisions in Leonie Court and Justlogin, regarding 'best endeavour' clauses.
Ng Eng Ghee and others v Mamata Kapildev Dave and others (Horizon Partners Pte Ltd, intervener) and another appealCourt of AppealYes[2009] 3 SLR(R) 109SingaporeCited for the core meaning of 'in good faith' as honesty and observing accepted commercial standards of fair dealing.
Petromec Inc, Petro-Deep Societa Armamento Navi Appogio Spa v Petroleo Brasileiro SAEnglish Court of AppealYes[2006] 1 Lloyd’s Rep 121United KingdomCited for holding that the decision in Walford did not invalidate an express term of a contract which employed the language of good faith.
Director General of Fair Trading v First National Bank plcN/AYes[2002] 1 AC 481United KingdomCited for the requirement of good faith in consumer contracts as one of 'fair and open dealing'.
Compass Group UK and Ireland Ltd (trading as Medirest) v Mid Essex Hospital Services NHS TrustEnglish High CourtYes[2012] EWHC 781United KingdomCited for the principle that what constitutes reasonable commercial standards of fair dealing in the context of an express contractual duty of good faith will depend heavily on the commercial nature and purpose of the contract in question.
Re Benfield Greig Group plc, Nugent and another v Benfield Greig Group plc and othersEnglish Court of AppealYes[2002] 1 BCLC 65United KingdomCited regarding a valuation made by auditors of shares in a company held by the executors of a minority shareholder who had died in a helicopter crash.
Strzelecki Holdings Pty Ltd v Cable Sands Pty LtdCourt of Appeal of the Supreme Court of Western AustraliaYes[2010] WASCA 222AustraliaCited for suggesting that while it is difficult to define precisely what good faith entails, this is not an insurmountable obstacle to enforcing an obligation to negotiate in good faith.

13. Applicable Rules

Rule Name
No applicable rules

14. Applicable Statutes

Statute NameJurisdiction
No applicable statutes

15. Key Terms and Keywords

15.1 Key Terms

  • Rent Review Mechanism
  • Good Faith
  • Licensed Valuers
  • Prevailing Market Rental Value
  • Designated Valuers
  • Toshin Valuations
  • SISV
  • Lease Agreement
  • Demised Premises

15.2 Keywords

  • Rent review
  • good faith
  • valuers
  • lease agreement
  • commercial property
  • Singapore
  • contract law

17. Areas of Law

Area NameRelevance Score
Good Faith90
Rent Review85
Contract Law75
Valuation60
Real Estate25
Arbitration15

16. Subjects

  • Contract Law
  • Real Estate
  • Leases
  • Rent Review
  • Good Faith
  • Valuation