Ngui Gek Lian Philomene v Chan Kiat

• Jurisdiction: Singapore
• Judgment Date: 03 September 2013
• Date: 03 September 2013
• Docket Number: Originating Summons No 71 of 2013
• Court: High Court (Singapore)

Ngui Gek Lian Philomene and others

Plaintiff

and

Chan Kiat and others (HSR International Realtors Pte Ltd, intervener)

Defendant

[2013] SGHC 166

Andrew Ang J

Originating Summons No 71 of 2013

High Court

Land—Strata titles—Collective sales—Consenting subsidiary proprietors claiming objection based on incentive payments not raised at Strata Titles Board precluded from ventilation at High Court—Whether s 84 A (4 A) Land Titles (Strata) Act (Cap 158, 2009 Rev Ed) precluded objecting subsidiary proprietors from raising objection based on incentive payments since objection not raised at Strata Titles Board—Section 84 A (4 A) Land Titles (Strata) Act (Cap 158, 2009 Rev Ed)

Land—Strata titles—Collective sales—Objecting subsidiary proprietors claiming lack of good faith under s 84 A (9) (a) (i) Land Titles (Strata) Act (Cap 158, 2009 Rev Ed) based on incentive payments made to certain objecting subsidiary proprietors—Whether incentive payments offered by marketing agent amounting to bad faith in sale transaction—Section 84 A (9) (a) (i) Land Titles (Strata) Act (Cap 158, 2009 Rev Ed)

Land—Strata titles—Collective sales—Objecting subsidiary proprietors claiming lack of good faith under s 84 A (9) (a) (i) Land Titles (Strata) Act (Cap 158, 2009 Rev Ed) in sale and marketing of development—Whether collective sale committee breached duties amounting to bad faith in sale transaction—Section 84 A (9) (a) (i) Land Titles (Strata) Act (Cap 158, 2009 Rev Ed)

The plaintiffs were three authorised representatives of the Thomson View Condominium (‘the Development’) collective sale committee (‘the CSC’) who brought the present application for the collective sale of the Development under s 84 A (1) of the Land Titles (Strata) Act (Cap 158, 2009 Rev Ed) (‘the LTSA’) to Wee Hur-Lucrum Pte Ltd (‘the Purchaser’). The defendants were subsidiary proprietors of the Development who opposed the sale on the basis that it was not made in good faith.

On 31 October 2010, the subsidiary proprietors of the Development (‘the SPs’) approved the terms of the collective sale agreement (‘the CSA’) which included the initial reserve price of $490 m. This reserve price was eventually revised to $580 m on 18 March 2011 and the requisite statutory consent of 80% (‘the 80% consent threshold’) for a collective sale was obtained on 17 October 2011.

Before a public tender for the Development was launched on 21 August 2012, the land parcel that was adjacent to the Development was sold by the Government (‘the Bright Hill Drive GLS’). On 29 August 2012, the Government announced the station locations of the future Thomson Line. One of these stations was to be located within a five-minute walk from the Development (‘the MRT Announcement’). On 4 September 2012, the tender closed with the Purchaser submitting the highest bid of $590 m for the Development. The next day, the CSC awarded the tender to the Purchaser on terms that were amended after negotiations between the CSC and the Purchaser (‘the Amended Tender Contract’). The amendments included a clause which allowed the Purchaser to rescind the Amended Tender Contract if the lease upgrading premium turned out to be more than $95m (‘the LUP clause’). Also, the period for accepting the Purchaser's offer was amended from one month to three days (‘the Acceptance clause’).

On 5 October 2012, the CSC applied to the Strata Titles Board (‘STB’) for a collective sale order. Objections were then filed by the defendants and the STB subsequently issued a stop order. On 25 January 2013, the CSC filed the present application. It was later discovered by the defendants on 16 April 2013 that the marketing agent had offered payments of varying amounts to four SPs in return for their undertaking to sign the CSA so that the 80% consent threshold would be reached (‘the Incentive Payments’).

The defendants alleged that there were two main instances of bad faith. It was contended that the CSC failed in its duties during the sale and marketing of the Development by relying on a flawed valuation report, failing to review the reserve price, failing to properly consider the feasibility of extending the public tender, failing to seek fresh instructions from the SPs when there was reasonable doubt as to its mandate and acting in undue haste in accepting the Purchaser's offer. In particular, the LUP clause and the Acceptance clause were materially less favourable and not in line with market practice and the CSC should have obtained a fresh mandate from the SPs to accept those terms. The other allegation centred on the marketing agent's bad faith in offering the Incentive Payments. In reply, the plaintiffs argued that s 84 A (4 A) of the LTSA (‘the Section’) precluded the defendants' objection based on the Incentive Payments because this objection had not been raised earlier at the STB. The plaintiffs also contended that there was no bad faith in the sale and marketing process of the Development.

Held, dismissing the application:

(1) The principles laid down in Ng Eng Ghee v Mamata Kapildev Dave[2009] 3 SLR (R) 109 (‘Horizon Towers’) stood as good law and applied in the present case. The amendments made to the LTSA in 2007 and 2010 were not intended to repeal the existing common law as developed in the decided cases: at [27] .

(2) The CSC's behaviour during the sale and marketing of the Development did not amount to bad faith in the sale transaction within the meaning of s 84 A (9) (a) (i) of the LTSA. With respect to the flawed valuation report, there was no evidence to suggest that the valuation would have exceeded the Purchaser's $590 m bid even if the report had considered the MRT Announcement and the Bright Hill Drive GLS: at [28] , [29] and [39] .

(3) The CSC did not breach its duty of conscientiousness by failing to review the reserve price and were entitled to accept the marketing agent's advice not to increase the reserve price. There was no reason to conclude that the advice was obviously flawed: at [30] and [31] .

(4) In the light of the MRT Announcement, the CSC should have extended the public tender. This might have given potential bidders more time to absorb the MRT Announcement and obtain the necessary approvals in order to submit a bid. The CSC's failure to extend the public tender was a breach of their duty to obtain the best price for the Development. However, this breach was not sufficient to taint the entire sale transaction with bad faith: at [32] and [33] .

(5) The amendments, including the LUP clause and Acceptance clause, were materially less favourable than the CSA terms and not in line with marketing practice. The LUP clause effectively made the Amended Tender Contract an option rather than a binding contract. Furthermore, by agreeing to the Acceptance clause, the CSC rendered itself unable to convene a vendors' meeting within three days. Nevertheless, since the CSC honestly relied on their lawyer's advice that there was no need to consult the SPs on the proposed amendments, the CSC's failure to consult the SPs was not in bad faith: at [34] to [38] .

(6) The Section did not prevent dissenting SPs from raising a new ground of objection at the High Court if, through no fault of theirs, it became known to them only after they had filed objections to the STB. While the intent behind the Section was to avoid new grounds of objection from delaying the collective sale process, this intention did not extend to shutting out legitimate grounds of objection that could not have been known to the objectors at that point in time. In the present case, the defendants only knew of the Incentive Payments on 16 April 2013 and it would have been impossible for the defendants to have filed an objection based on the Incentive Payments to the STB. Furthermore, denying the defendants the opportunity to raise this objection would be patently unfair: at [40] to [45] .

(7) The marketing agent, as adviser to the CSC, owed a duty to avoid any possible conflict of interest. On the facts, the marketing agent egregiously breached this duty. It placed itself in a position of conflict by offering the Incentive Payments to a select group of dissenting SPs, thereby preferring this select group's interests (and their own personal interest in a very substantial commission for a successful collective sale) over the interests of the other objecting SPs. There is genuine doubt whether the requisite 80% consent threshold would have been reached if the Incentive Payments had not been offered. The Incentive Payments would also result in the consenting SPs receiving unequal payments. In addition, the marketing agent breached its duty of transparency by failing to disclose the offer of the Incentive Payments to the CSC or the other SPs: at [46] to [52] .

(8) Moreover, there was bad faith in the transaction involving the method of distribution of the sale proceeds within the meaning of s 84 A (9) (a) (i) (B) of the LTSA. The view that the Incentive Payments did not form part of the sale proceeds because they were borne by the marketing agent was fallacious. On closer analysis, since the marketing agent would only receive its commission if the requisite 80% consent threshold was achieved, the Incentive Payments did not come from commission that the marketing agent had already earned but from its future commission payable by all the SPs. Effectively, the marketing agent was reducing its commission by promising the Incentive Payments. This reduction of commission would ordinarily result in a corresponding increase in the net sale proceeds which would benefit all SPs but in this case, such a reduction only benefitted the four SPs who were promised Incentive Payments: at [54] .

(9) More fundamentally, the four SPs agreed to a different method of distributing the sale proceeds from the method spelt out in the Amended Tender Contract. The consent of the four SPs should therefore be disregarded for the purposes of...