JustCo Singapore loses suit; some contract terms unfair to tenant: court
This might be the first such case that has resulted from pandemic-related measures which could have potential implications on the co-working scene and commercial landlords amid the gaining popularity of flexible leasing and shared workspaces.
Co-working operator JustCo (Singapore) has lost a lawsuit brought by cybersecurity software company Dathena Science, in what might be the city-state's first such case resulting from pandemic-related measures.
And with some of the contract terms - such as the tenant not having the right to terminate the contract - flagged as "grossly unfair" and unenforceable, the case has potential implications for the co-working scene and commercial landlords, especially as flexible leasing and shared workspaces gain popularity, The Business Times understands.
The dispute, involving Dathena's claim of S$286,892 and JustCo's nearly S$2.4 million counterclaim, centred around their membership agreement inked in January last year.
Dathena was to lease units on four floors of the OCBC Centre East building in Raffles Place for two years, from May 1, 2020 to April 30, 2022.
It was also of "paramount importance" to Dathena that the premises could meet its IT requirements and house its servers before the start of the lease because of the nature of the tech firm's business, a Sept 28, 2021 High Court judgment stated.
However, JustCo failed to deliver the OCBC premises on the promised start date, and the server room was not ready by the original timeline. JustCo cited the circuit-breaker measures to explain the halt in construction works in the building and M1's inability to activate the Internet line.
JustCo eventually confirmed that the OCBC premises would become available only in early September 2020, more than four months late.
Although Dathena had issued a notice of termination, JustCo asserted the contract was still in force. Senior Judge Lai Siu Chiu said this assumption that the deal continued was "not credible", and likened the co-working firm's attitude to "that of an ostrich putting its head into the sand".
The cybersecurity company asked for a refund of S$286,892, comprising the S$186,900 security deposit and an advance monthly membership fee of S$99,992. But JustCo rejected the request, saying the delay was "entirely beyond" its control.
JustCo made a counterclaim for S$2.4 million, for membership fees of the entire 24-month lease duration.
The court ruled in favour of Dathena on its claim. In dismissing the counterclaim, Justice Lai said JustCo's explanation that the office was customised for Dathena's use was "a lame and unacceptable excuse for failing to be more proactive in looking for replacement tenants".
On Wednesday, JustCo chief executive Kong Wan Sing told BT that the co-working company's operations were severely affected by the pandemic and resultant measures, and faced overwhelming uncertainty in H1 2020. "Like many businesses, we did our best to safeguard our legal contracts and honour our customer relationships, despite the very difficult circumstances."
He added that JustCo tried its best to offer Dathena alternative premises "in order to preserve the contractual relationship".
Several provisions in the agreement were unenforceable under the Unfair Contract Terms Act (UCTA), Justice Lai said.
She described those terms as "grossly unfair and disadvantageous to Dathena and an affront to the UCTA". The standard terms and conditions were "heavily weighted in favour of JustCo against its members".
For instance, there was no clause enabling a member to terminate the agreement, whereas JustCo could unilaterally do so. "That cannot be right as a matter of contract law in a commercial context," Justice Lai said.
In another example under the standard terms, the co-working operator could unilaterally replace a member's office space with alternative premises, but a member could not transfer its membership to another party without JustCo's consent.
In Dathena's case, although JustCo suggested two alternative premises, those options were not suitable for the company and not comparable to the OCBC office based on size, location and other factors.
Another clause, likewise found to be unenforceable, stated that Dathena could not make any claim against JustCo if its use of the co-working premises was interrupted, disrupted or ceased. And even if JustCo scrapped the contract, Dathena must still pay full membership fees for the rest of the lease term, under one of the other clauses.
Mr Kong told BT that JustCo's "contract terms reflected general market practice and were consistent with the terms of our industry peers". "We have taken note of the judge's comments and will review our contracts accordingly," he added.
The judgment could cast a spotlight on the fairness of contracts in the co-working industry and overall commercial leasing scene.
Smaller companies or individuals who are less familiar with co-working or flexible leases are potentially vulnerable, as they may ink contracts with unreasonable standard terms and lack the resources to seek redress if necessary, sources told BT.
An industry observer noted: "Landlords and co-working operators will have to be more circumspect in how they prepare their contracts now, to ensure they are not one-sided."
Alan Cheong, Savills Singapore executive director of research and consultancy, said such legal tussles may be part of "teething problems" in the remote-working industry.
Nonetheless, "co-working is here to stay as economic uncertainties call for lease tenure flexibility and demographic changes dictate the need to engage millennials with experiential workplace environments", added Mr Cheong.
Whether circuit-breaker measures frustrated the agreement was another issue considered by the court.
A contract is frustrated when an unforeseen intervening event renders it impossible to be fulfilled, or transforms the obligation into a radically, fundamentally different one. Parties are then automatically discharged from the contract, and sums paid under it must be refunded.
Justice Lai found that the lease and the membership agreement were frustrated, given the four-month delay in delivering the OCBC premises and JustCo's inability to provide alternative comparable premises.
For one thing, JustCo knew it could not perform its obligations, the court noted.
Furthermore, its suggested new agreement for either of the two other premises to replace that in the existing contract amounted to a fundamentally different contract than what the parties bargained for.
JustCo had offered Dathena a temporary space at Verizon's space in the Ocean Financial Centre, followed by premises at 51 Bras Basah Road.
Rejecting those options, Dathena said it would have to share the space with other firms, which was not ideal amid safe-distancing requirements. Besides, the Bras Basah property was not in a prime location like the OCBC building, the fees per workstation were higher, and it lacked space to store IT equipment spare parts.
From a legal perspective, this suit has significance as one of the first cases - if not the first - in Singapore in which the Covid-19 situation was established as a frustrating event. After much debate within the legal industry as to whether Covid-19 could frustrate contracts, the judgment now provides some clarity on the topic, BT understands.
Shook Lin & Bok acted for Dathena, and Withers KhattarWong, for JustCo.
Source: Business Times © Singapore Press Holdings Ltd. Permission required for reproduction.