N K Rajarh v Tan Eng Chuan

• Jurisdiction: Singapore
• Judgment Date: 08 November 2013
• Date: 08 November 2013
• Docket Number: Civil Appeal No 42 of 2013
• Court: Court of Appeal (Singapore)

N K Rajarh and others

Plaintiff

and

Tan Eng Chuan and others

Defendant

[2013] SGCA 62

Sundaresh Menon CJ

,

Chao Hick Tin JA

and

V K Rajah JA

Civil Appeal No 42 of 2013

Court of Appeal

Land—Strata titles—Collective sales—Majority owners and sale committee members offering incentive payment to another sale committee member to achieve consent level for collective sale—Incentive payment effectively open to only one of three minority owners to accept—Whether sale committee breached duty of even-handedness

Land—Strata titles—Collective sales—Majority owners contributing to incentive payment from sale proceeds due to them—Relevant considerations for determining prejudice to minority owners

Land—Strata titles—Collective sales—Marketing agent entering into incentive payment arrangements without disclosure to minority owners—Whether marketing agent breached duty of disclosure

Land—Strata titles—Collective sales—Minority owners claiming lack of good faith in collective sale transaction—Relevant considerations in assessing whether sale committee and agents acted in good faith—Section 84 A (9) (a) (i) Land Titles (Strata) Act (Cap 158, 2009 Rev Ed)

Land—Strata titles—Collective sales—Sale committee refusing to disclose incentive payment agreement to minority owners which did not receive incentive payment—Whether sale committee breached duty of disclosure

The appellants were members of the collective sale committee (‘the CSC’) formed to facilitate the sale of a condominium development (‘the Development’). The subsidiary proprietors who objected to the collective sale were Han Min Juan (‘Mr Han’) and Jee Meng Tu (‘the Hans’), the first respondent and second respondent (‘the Tans’), and the third respondent (‘Ms Chow’) (collectively, ‘the Dissenting Proprietors’).

Consent from subsidiary proprietors representing not less than 80% of the share values and total area of all lots in the Development (‘the 80% threshold’) was required for an application for a collective sale to be made. On 13 April 2012, the CSC announced that the Development would be put up for sale by public tender even though the 80% threshold had yet to be met. At the close of the tender, there were no offers for the Development.

The solicitors subsequently received an offer on 19 July 2012 from an interested party to purchase the Development for $33 m. Subsidiary proprietors representing not less than 80% of the share values and the total area of all lots in the Development had to sign the sale and purchase agreement (‘SPA’) and a supplemental agreement (‘the SA’) to the collective sale agreement (‘the CSA’) to reduce the reserve price in the CSA from $34 m to $33 m for the offer to be accepted. There was a rush to complete the transaction because the SPA had to be executed by 25 July 2012. At a meeting on 23 July 2012, some of the subsidiary proprietors discussed whether to contribute a portion of the sale proceeds due to them to make an incentive payment to one or more of the Dissenting Proprietors so that they would sign the CSA and the SA and the 80% threshold would be crossed. The marketing agent (‘Colliers’) emphasised that this would be a private matter between the subsidiary proprietors that had agreed to contribute and the recipients of the incentive payment, and the sale proceeds would not be set aside for this purpose.

Nine of the ten subsidiary proprietors who consented to the collective sale agreed to contribute to the incentive payment (‘the Additional Payment’). These nine proprietors (‘Contributing Proprietors’) included all the members of the CSC (except for Mr Han) and three non-members. The Hans eventually signed the CSA and the SA on 24 July 2012 in exchange for the Additional Payment. The Additional Payment was effectively open to only the Hans to accept. It was not offered to Ms Chow because her consent was not critical for the purposes of meeting the 80% threshold. As for the Tans, they were offered an additional sum of $200,000 to sign the CSA and the SA for one of the Tans' two units in the Development.

Unbeknownst to the Tans and Ms Chow, Colliers had interposed itself in the arrangements for the Additional Payment, by entering into an agreement with the Contributing Proprietors for contributions to the incentive payment (‘the Contribution Agreement’), and a separate agreement with the Hans (‘the Colliers Agreement’) for the Additional Payment to made to them after legal completion of the collective sale. The CSC had refused to disclose the Contribution Agreement and the Colliers Agreement to the respondents, on the ground that it was a private arrangement between the Contributing Proprietors and the Hans. The Contribution Agreement and the Colliers Agreement were only disclosed on the High Court judge's orders.

The High Court judge dismissed the application for the collective sale, finding that the transaction was not in good faith because the Colliers Agreement was executed to assist the CSC in breaching its duties to the respondents, and the CSC, by taking part in the scheme for the incentive payment, had breached its duty of disclosure and fiduciary duties.

In this appeal, the appellants argued that sale committee members, in their role as subsidiary proprietors, were entitled to act in their own interest, provided it did not conflict with their duties as sale committee members. The Contributing Proprietors did not owe a duty to offer an incentive payment to Ms Chow and the CSC was not obliged to disclose the Contribution Agreement and the Colliers Agreement.

Held, dismissing the appeal:

(1) The assessment of ‘good faith’ in the collective sale transaction was determined in relation to the three factors of sale price, method of distribution of the sale proceeds and the relationship of the purchaser to any of the subsidiary proprietors. The court was not confined to an inquiry of whether the sale price was fair based on the market conditions, but could examine the process by which the price and the consent for the collective sale were secured. In addition, the court would have regard to what is good faith under general law, which would include an assessment of whether the sale committee and its advisers or agents had discharged their duties under general law: at [39] and [53] .

(2) A sale committee, when faced with factions of subsidiary proprietors whose interests conflict, could not prefer the interests of one faction without regard to the interests of the other subsidiary proprietors. The CSC had patently breached its duty to act even-handedly as between the Consenting Proprietors and the respondents, having regard to the CSC's involvement in the manner in which the Additional Payment was offered. In this case, the Dissenting Proprietors did not have the equal opportunity to accept and benefit from the Additional Payment because it was effectively only offered to the Hans: at [42] , [46] and [49] .

(3) The CSC acted in a manner inconsistent with the duties owed to the subsidiary proprietors. The CSC was privy to an arrangement that benefited only one of its members and furthered the interests of the consenting majority proprietors alone. The CSC members who participated in the Additional Payment allowed their individual interests as subsidiary proprietors to take precedence over their obligation to ensure an even-handed approach to the Tans and Ms Chow. Mr Han also breached his duty as a CSC member in accepting an offer that was not open to the other Dissenting Proprietors: at [50] .

(4) The CSC also breached its duty of disclosure, transparency and openness. The CSC was privy to the involvement of Colliers in the Contribution Agreement and the Colliers Agreement but this was not disclosed to the Dissenting Proprietors. Colliers' involvement in effecting the incentive payment was a material fact that would have revealed that Colliers had been interposed directly in the incentive payment arrangements in a manner which was not appropriate and which facilitated the CSC's breach of its duties to the proprietors, and this would have given the minority proprietors a basis on which to impugn the ‘good faith’ of the transaction: at [51] .

(5) Colliers breached its duty of transparency and openness owed to all the proprietors in the Development, including the Tans and Ms Chow. It was inappropriate for Colliers to be so intimately involved in the incentive payment arrangements as party to the Contribution Agreement and the Colliers Agreement without full prior disclosure of this role to all the proprietors. Colliers ought to have left it to the Contributing Proprietors to make their own arrangements, instead of interposing itself into the arrangements: at [52] .

(6) Procedural fairness in arriving at the 80% threshold (or, in general, the requisite consent level) was crucial because the remaining minority proprietors would be obliged to sell their properties without having consented to the collective sale if that threshold is met. Thus the court would expect nothing less than strict compliance with the standards of accountability, fairness, openness and propriety consistent with the letter and spirit of the statutory scheme, by the sale committee and its agents in facilitating the collective sale process. In the present case, the process by which the 80% threshold was achieved had been seriously tainted, and the respondents suffered prejudice as a result: at [53] .

[Observation: Although para 7 (3) of the Third Schedule to the Land Titles (Strata) Act (Cap 158, 2009 Rev Ed) (‘LTSA’) did not explicitly state that the 80% threshold had to be reached before a public tender was launched, it was, in our view, implicit in the opening words of para 7 (3) that the requisite threshold under s 84 A (1) of the LTSA should be met before the specified modes of sale under para 11 (viz, public tender and auction) could be launched. The irregularity in this case was consistent with our...