N K Rajarh & Ors v Tan Eng Chuan & Ors

• Jurisdiction: Singapore
• Judge: Belinda Ang Saw Ean J
• Judgment Date: 08 April 2013
• Neutral Citation: [2013] SGHC 76
• Court: High Court (Singapore)
• Docket Number: OS No 1199 of 2012
• Published date: 09 April 2013
• Year: 2013
• Hearing Date: 26 March 2013,08 April 2013,03 April 2013,08 March 2013
• Plaintiff Counsel: David De Souza and Kevin De Souza (De Souza Lim & Goh LLP)
• Defendant Counsel: Lim Seng Siew (OTP Law Corporation),Lai Swee Fung (Unilegal LLC)
• Subject Matter: Land,Strata titles,Collective Sales,Equity,Fiduciary relationships,Words and Phrases
• Citation: [2013] SGHC 76

Belinda Ang Saw Ean J:

The essential facts in the Originating Summons No 1199/2012/C (“OS1199/2012”) are relatively simple, though I cannot say the same for the issues raised here.

This application vide OS 1199/2012 is to approve the collective sale of a 3-storey walk-up block of flats known as Harbour View Gardens (Strata Title Plan No. 927) comprised in Land Lot No. 1789M of Mukim 3 (“the Development”). The Development is a small residential development of 14 residential units of different sizes with different share values.

The Collective Sale Committee (“CSC”) was appointed on 10 September 2011. The CSC put up the Development for a collective sale by public tender between 18 April 2012 and 16 May 2012. The reserve price was $34m. No offers to purchase the Development were received at the close of the tender. Subsequently, on 19 July 2012, an offer was received to purchase the Development at the price of $33m. The defendants opposed the collective sale throughout.

On 17 September 2012, the plaintiffs applied to the Strata Title Board (“STB”) to approve the collective sale. Mediation by the STB proved unsuccessful. On 26 November 2012, the STB issued a Notice to Stop Order under s 84A(6B) of the Land Titles Strata Act (Cap 158 Rev Ed 2009)(“LTSA”). The defendants did not withdraw their objections. Consequently, the STB issued a s 84A stop order on 6 December 2012. The plaintiffs filed OS 1199/2012 on 19 December 2012.

Several points were advanced in arguments by counsel for the plaintiffs, Mr David De Souza (“Mr De Souza”), counsel for the first and second defendants, Mr Lim Seng Siew (“Mr Lim”), and counsel for the third defendant, Mr Lai Swee Fung (“Mr Lai”). The points are comprehensively set out in all the written submissions and reiterated in oral submissions. Essentially, the defendants object to the sale on the grounds of lack of good faith.

In the present case, it is common ground that the subsidiary proprietors of unit 217, Han Min Juan (“Mr Han”) and Jee Meng Tu (collectively referred to as “the Hans”) signed the Collective Sale Agreement (“CSA”) and a Supplemental Agreement (agreeing to the collective sale at a price below the reserve price) after they were promised an incentive payment of $200,000. The defendants contended, and it was accepted by the plaintiffs, that this inducement was for the sole objective of obtaining and achieving the requisite 80% threshold (by share value and strata area) prescribed by s84A(1A). It was contended on behalf of the defendants that the sale transaction was not in good faith because it was wrong to incentivise a subsidiary proprietor in order to secure the requisite 80%. In this connection, the CSC did not act in a transparent manner in the sale process, and was in breach of the good faith provision under the LTSA and at common law. It was further argued that the CSC did not act even-handedly in the interest of all the subsidiary proprietors because the additional inducement payment of $200,000 was only offered by the CSC to one opposing minority owner and not to all opposing minority owners. That is to say, the CSC’s offer was targeted at the Hans to the prejudice of the defendants. Mr Lim explained that with the inducement payment of $200,000, the Hans would receive more money than what they would have gotten even if the Development was sold at the reserve price of $34m. The final broad objection, which is tied to the inducement payment of $200,000, related to the method of distributing the proceeds of sale.

I propose to start with Mr De Souza’s interpretation of s 84A(9)(a)(i) of the LTSA which he mounted in reply to the defendants’ contention that the sale transaction was not in good faith because of the incentive or inducement payment of $200,000. Mr De Souza argued that parliament had prescribed three specific factors under s 84A (9)(a)(i) for the court to take into consideration when it considers whether or not the transaction was made in good faith (viz. the sale price, the method of distributing the proceeds of sale and the relationship of the purchaser to any of the subsidiary proprietors). According to him, the defendants’ contention introduced a new factor which the court should disregard as it is outside the ambit of the three specific factors.

Mr De Souza’s strict reading of s 84A(9)(a)(i) misses the meaning and intent of the statutory provision. Andrew Ang J in Tsai Jean v Har Mee Lee [2009] 2 SLR(R) observed (at [24]) that a strict and literal interpretation of the sub-section in question would render it unworkable. I agree with Ang J’s observation. Furthermore, the Court of Appeal in Ng Eng Ghee v Mamata Kapildev Dave [2009] 3 SLR(R) 109 (“Horizon Towers”) at [133] has ruled that the duty of “good faith” under s 84A(9)(a)(i) requires the CSC to discharge its statutory, contractual and equitable functions and duties faithfully and conscientiously, and to hold an even hand between the consenting and the objecting owners in the sale process. In short, the CSC has to discharge its duty of good faith in five (non-exhaustive) areas in relation to the entire collective sale process. The Court of Appeal in Chua Choon Cheng v Allgreen Properties Ltd [2009] 3 SLR(R) 724 (“Allgreen”) took the opportunity to summarise the five areas in question (at [85]):

To recapitulate, the duty of good faith requires the [CSC] to discharge its duties in good faith in five specific areas, including but not limited to (a) the duty of loyalty or fidelity; (b) the duty of even-handedness; (c) the duty to avoid any conflict of interest; (d) the duty to make full disclosure of relevant information; and (e) the duty to act with conscientiousness.

By s 84A(9)(a)(i) and in the context of this case, the court has to take into consideration the fact that the sale price of $33m for the lots and the common property in the strata title plan was below the reserve price of $34m; and that at the time the offer of $33m was made on 19 July 2012 and even up to 23 July 2012, there was still no requisite 80% consent for a collective sale at the below reserve price of $33m. As such, this court has to consider how the 80% threshold for a collective sale at the sale price of $33m was eventually obtained.

In doing so, this court has to take note that RH West Coast Pte Ltd’s (“RH West Coast”) offer of $33m was received on 19 July 2012 which was one week before expiry of the ten-week window to proceed with a collective sale by private treaty (see Third Schedule to LTSA para 11(3)); that there was a rush to get the Supplementary Agreement signed by the subsidiary proprietors (who had earlier signed the Collective Sale Agreement (“CSA”)) before 25 July 2012 (which was the last day for the CSC to sign the sale and purchase agreement with RH West Coast); and that even though the subsidiary proprietors who had earlier signed the CSA agreed to sign the Supplemental Agreement consenting to a collective sale below the reserve price, the 80% threshold had still not been met on 23 July 2012 which was the date of the general meeting. In determining whether the transaction was in good faith, the court has to also consider the circumstances which led to an agreement to pay the Hans the sum of $200,000 as a condition for their signatures on the CSA and the Supplemental Agreement. Mr N K Rajarh (“Mr Rajarh”) stated in his 2nd Affidavit (at para 24) that “the objective of the offer was to obtain the requisite 80% and the Additional Payment was a fixed amount [of $200,000], the payment would be made to the subsidiary proprietor(s) of the 1st unit that signed the CSA and the Supplemental Agreement so that the 80% would be achieved.” Mr Rajarh confirmed in cross-examination that the offer of $200,000 was only made to the Hans. I digress to mention for completeness that Mr Rajarh was cross-examined instead of Mr Han after Mr De Souza advised that he could not contact Mr Han to take the stand on 8 March 2013.

The LTSA does not specify precisely what it is about the sale price the court should take into account under s 84(9)(a)(i)(A). However, the approach as described earlier (see [9] and [10]) above is not dissimilar to the approach taken by the STB in Horizon Towers and approved by the Court of Appeal in Horizon Towers at [129] and [130] of that decision.

I must emphasise that the true discourse in this case centres on the collective sale process. As such, the entire collective sale process has to be scrutinised.

This leads me to the CSC’s refusal to provide a copy of the Contribution Agreement to the defendants. Mr De Souza argued that the Contribution Agreement was not an agreement signed by the CSC. He stated in his written submissions that it was signed by several majority subsidiary proprietors who had voluntarily agreed to contribute a portion of their sale proceeds on legal completion to incentivize the Hans to sign the CSA and the Supplementary Agreement (see para 15 of the plaintiffs’ submissions). Mr Rajarh confirmed in his 2nd Affidavit (at para 31) that the plaintiffs’ refusal to disclose the Contribution Agreement (he called it the “Compensation Agreement” in his affidavit) was because it was a private arrangement between the contributing owners and the Hans, and, as such, the defendants were not entitled to see it.

This court ordered Mr Rajarh to disclose the Contribution Agreement on 8 March 2013 in the course of his cross-examination. I must point out that up to that point in time, the defendants were only aware that the consenting owners were willing to contribute the additional payment of $200,000 and their respective lawyers were asking for sight of a copy of the agreement including the names of the contributors. All the while the defendants were labouring under the impression that the contributing owners had contracted to pay the Hans. This was not the case. Following the direction to disclose the Contribution Agreement, a second...