N K Rajarh v Tan Eng Chuan

• Jurisdiction: Singapore
• Judgment Date: 08 April 2013
• Date: 08 April 2013
• Docket Number: Originating Summons No 1199 of 2012
• Court: High Court (Singapore)

N K Rajarh and others

Plaintiff

and

Tan Eng Chuan and others

Defendant

[2013] SGHC 76

Belinda Ang Saw Ean J

Originating Summons No 1199 of 2012

High Court

Agency—Disclosure by agent—Marketing agent entering into separate agreements relating to inducement payment with objecting subsidiary proprietor—Whether agreements had to be disclosed

Agency—Duties of agent—Marketing agent making inducement payment to objecting subsidiary proprietor to achieve 80% consent threshold required for collective sale—Commission of marketing agent only payable if collective sale successful—Whether marketing agent owed duties to all subsidiary proprietors including objecting subsidiary proprietors—Whether marketing agent acted in conflict of interest by agreeing to make inducement payment

Equity—Fiduciary relationships—Fiduciary duties of collective sale committee to subsidiary proprietors—Whether collective sale committee in breach of duties of disclosure by failing to disclose agreement relating to inducement payment—Whether collective sale committee in breach of duties of loyalty by taking part in scheme with marketing agent to make inducement payment to objecting subsidiary proprietor—Whether collective sale committee acted in conflict of its duty to objecting subsidiary proprietors by taking part in inducement payment scheme with marketing agent

Land—Strata titles—Collective sales—Collective sales committee acquiescing in marketing agent making inducement payment to objecting subsidiary proprietor—Whether collective sale committee in breach of good faith by allowing conflict of interest of marketing agent to take foothold in transaction

Land—Strata titles—Collective sales—Objecting subsidiary proprietors claiming lack of good faith under s 84A (9) (a) (i) Land Titles (Strata) Act (Cap 158, 1999 Rev Ed)—Whether entire collective sale process and conduct of members of collective sale committee relevant in assessing whether transaction was in good faith—Section 84A (9) (a) (i) Land Titles (Strata) Act (Cap 158, 1999 Rev Ed)

Words and Phrases—‘Good faith’—Whether test of good faith under s 84A (9) (a) (i) Land Titles (Strata) Act (Cap 158, 1999 Rev Ed) objective

The representatives of the collective sale committee (‘the CSC’) of a development applied to the High Court to approve a collective sale pursuant to s 84A of the Land Titles (Strata) Act (Cap 158, 1999 Rev Ed) (‘the LTSA’). The subsidiary proprietors who opposed the collective sale (‘the Minority Owners’) essentially objected on the grounds of lack of good faith.

The CSC unsuccessfully put the development up for public tender. The tender was launched even though less than 80% of the subsidiary proprietors (by share value and strata area) signed the collective sale agreement (‘the CSA’). Subsequently, on 19 July 2012, a developer offered to purchase the development for $33m (‘the Offer’). The Offer expired on 25 July 2012.

On 23 July 2012, a general meeting of the subsidiary proprietors was convened, inter alia, to discuss the Offer and to agree to a collective sale below the reserve price via a supplemental agreement (‘the Supplemental Agreement’). On 24 July 2012, the subsidiary proprietors of one more unit (‘the Hans’) signed the CSA and Supplemental Agreement. It was not disputed that the Hans had consented to the collective sale in exchange for an inducement payment of $200,000, payable on the legal completion of the collective sale (‘the Inducement Payment’). The Minority Owners assumed that this Inducement Payment was documented in an agreement (‘the Contribution Agreement’) between several subsidiary proprietors who were willing to contribute some of their sale proceeds (‘the Contributing Owners’) and the Hans. With the Hans' consent, the 80% threshold required for a collective sale was achieved. On 25 July 2012, the sale and purchase agreement for the Development was entered into between the CSC and the developer.

The representatives of the CSC refused to disclose a copy of the Contribution Agreement to the Minority Owners on the basis that it was a private arrangement between the Contributing Owners and the Hans. When disclosure of this document was ordered, it transpired that the Contribution Agreement was in fact an agreement entered into between the Contributing Owners and the CSC's appointed marketing agent, Colliers' International (Singapore) Pte Ltd (‘Colliers’). Pursuant to the Contribution Agreement, the Contributing Owners agreed to contribute a total of $200,000 to Colliers, who undertook to make the Inducement Payment to the Hans on legal completion. One of the Contributing Owners (‘MM’) only signed the Contribution Agreement and the Supplemental Agreement on 25 July 2012. The order for disclosure also revealed a second agreement dated 24 July 2012 between Colliers and the Hans (the ‘Colliers Agreement’) pursuant to which the Hans contracted with Colliers to sign the CSA and Supplemental Agreement in exchange for the Inducement Payment.

The representatives of the CSC contended that the Minority Owners' good faith challenge fell outside the three specific factors that Parliament had prescribed under s 84A (9) (a) (i) of the LTSA. They also argued that neither the LTSA nor the case law prohibited the making of the Inducement Payment. Finally, they submitted that the Colliers Agreement was a technical stop-gap measure since the correspondence revealed that MM had already agreed to pay his proportion of the Inducement Payment prior to the date of the Colliers Agreement.

Held, dismissing the application:

(1) The representatives of the CSC's strict and literal reading of s 84A (9) (a) (i) of the LTSA missed the meaning and intent of the statutory provision and rendered it unworkable. The duty of good faith under the LTSA required 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: at [8] .

(2) The entire collective sale process had to be scrutinised to determine if the transaction was carried out in good faith. In the present case, the court had to consider how the 80% threshold for a collective sale at the sale price of $33m was eventually obtained and the circumstances surrounding the Inducement Payment: at [9] to [12] .

(3) The CSC owed fiduciary duties to all subsidiary proprietors including duties of disclosure and duties of loyalty requiring the CSC to act in good faith in the interests of each group of subsidiary proprietors. In respect of the latter duty, it had to not act with the intention of furthering the interests of one group to the prejudice of the other. The CSC had to also take care to avoid conflicts of duty whereby it could not fulfil its obligations to one group without failing in its obligations to the other: at [19] .

(4) The CSC's fiduciary duties involved expectations of honesty, which were central to good faith. Although sensitive to context, the test of good faith was objective and depended not on a party's perception of whether its conduct was improper but on whether such conduct was regarded as commercially unacceptable by reasonable and honest people: at [20] .

(5) Colliers was a sub-agent for all the subsidiary proprietors. Therefore, Colliers, like the other professional advisers appointed by the CSC, had a duty to avoid any possible conflict of interest: at [22] .

(6) The Colliers Agreement was not a private arrangement between Colliers and the Hans since Colliers was a sub-agent of all subsidiary proprietors. There was therefore no question that such an agreement had to be disclosed to the Minority Owners. The CSC was therefore in breach of its duty of disclosure: at [23] and [30] .

(7) Colliers' commission was payable only if the collective sale was successful. By interposing itself to ‘underwrite’ the Inducement Payment, Colliers (as sub-agent for all subsidiary proprietors) acted directly against the Minority Owners' interest not to sell below the reserve price and put itself in a position where its duties to the CSC and the Minority Owners conflicted with its own interest. It did not matter that MM ultimately signed the Contribution Agreement or that Colliers would be reimbursed by the Contributing Owners: at [28] to [30] .

(8) Colliers, by entering into the Colliers Agreement, assisted the CSC in acting in breach of their fiduciary duties by conceiving, planning and assisting in giving effect to a scheme jointly with those members of the CSC who were also Contributing Owners to pay the Hans the Inducement Payment. By taking part in this scheme, the CSC was in breach of its duty of loyalty because it was furthering the interest of the subsidiary proprietors in favour of the collective sale to the prejudice of the Minority Owners; it had also acted in conflict of its duty to the Minority Owners: at [29] and [30] .

(9) The participation of Colliers in the Inducement Payment with the knowledge and acquiescence of all the six members of CSC who were also Contributing Owners was conduct that was commercially unacceptable by reasonable and honest people. Good faith required the CSC to ensure that it did not allow conflict of interest faced by its professional advisers (including...