THE DUTY OF CARE IN COLLECTIVE SALES OF STRATA DEVELOPMENTS
| Citation | (2008) 20 SAcLJ 227 |
| Published date | 01 December 2008 |
| Date | 01 December 2008 |
The question of the existence of a duty of care and therefore one link in the chain towards establishing liability in the context of the en bloc sale of strata developments is considered in this article. It argues that professional advisers to the sale committee are likely to be under a duty of care to the subsidiary proprietors. If further argues that the members of a sale committee are under a more limited scope of duty of care towards the subsidiary proprietors.
1 Part A of this article expresses the writer’s views on what appears to be a point which has not been decided in any jurisdiction, viz, whether members of a sale committee, constituted for the purposes of meeting the requirements under s 84A of the Land Titles (Strata) Act1 (“LTSA”) (or any other equivalent law), or the professional advisers to the sale committee (“Professional Advisers”) are under a duty of care to the owners of a strata development. In this relationship, it should be noted that the reasonably foreseeable type of loss is pure economic loss rather than physical damage, and the focus of this article is accordingly on the problem of the existence of a duty of care. With the coming into force of the amendments to the LTSA on 4 October 2007, one point of considerable importance seems to have been settled into statutory form in s 84(1A)(a) of the LTSA, viz, the relationship between the sale committee and the owners. Part B of this article is devoted to the position of the sale committee vis-à-vis the owners under the new law. Subject to this qualification, Part A attempts to set out the rights and obligations of the parties as they were before the coming into force of s 84(1A)(a) of the
LTSA. All references to the LTSA in Part A are therefore also references to the earlier version of the statute as unamended.
2 One preliminary point to note is that the sale committee did not have any form of statutory or judicial recognition, in the sense that statute or case law did not create or recognise its formation.2 The sale committee was formed by members who are owners of the development, and it would appear that the rights and obligations of the members are not formalised or created, at least under contract, until the execution of a collective sale agreement by an owner or owners. Henceforth, the owners and the sale committee overcome any privity of contract problem. One recognises that the sale committee usually enters into conditional contracts with Professional Advisers, viz, at least a firm of solicitors and a marketing agent, which is “ratified” by the owner upon executing the collective sale agreement. As stated above, what then is the juridical basis for the sale committee’s existence, and more importantly, what are its rights and obligations? The further question then is what are the rights and obligations of the Professional Advisers?3
3 This article seeks to provide some possible answers to the question of what are the obligations of the Professional Advisers and the sale committee to the owners. It postulates the situation where the sale committee or the Professional Advisers have by want of reasonable care caused the owners to suffer financial loss.
4 To put matters into perspective, a short introduction as to how the problem considered in this article may arise is set out.
5 It is now the main avenue for those owners who wish to dispose of a strata development en bloc to do so by way of an application under s 84A of the LTSA. Two other avenues exist. One, by resolution of the management corporation.4“Where this method is employed, the subsidiary proprietors will become tenants in common of the land and they can, by unanimous resolution, direct the management corporation
to sell the land.”5 The other is by way of an application to court, for an order that the strata scheme be terminated and sold.6
6 Both methods were considered cumbersome, since the former required a unanimous decision, which was usually wanting, and the former, required what might turn into a lengthy and tenuous application to court.
7 Section 84A of the LTSA was passed so as to streamline the process, and could be seen as a hybrid of the former two avenues. It was important always to bear in mind that an application to the Strata Titles Board would only succeed if the Strata Titles Board was satisfied that the criteria set out in s 84A(9) of the LTSA could be met.
8 With this in the background, it became the practice that a number of owners who were interested in selling their strata title in a development would form a “sale committee”7, with a view to orchestrating a collective sale under s 84A of the LTSA. The impetus for a collective sale as opposed to an individual sale is commercial. A unit price for the sale of the entire development and the land on which it was premised would fetch a higher price on the market than the market for the sale of an individual unit.
9 The sale committee would then proceed to engage the Professional Advisers. The Professional Advisers would be involved in various aspects of the transaction, but the milestones are: (a) the signing of a collective sale agreement by the participating owners; (b) the sale of the development public tender or public auction; (c) the execution of a conditional sale and purchase agreement between the representatives of the owners, usually the sale committee, and the purchaser if more than 80%8 of the collective owners have endorsed the collective sale agreement; and (d) the application by the sale committee and the solicitors to the Strata Title Board to sanction the collective sale under the sale and purchase agreement.
10 A number of contentious points can arise in the run up to or after the run up to the sale. To take an example of one scenario prior to a purchaser executing a sale and purchase agreement: who, if any one, shall
be liable as a result of any untoward delay in the run up to the sale? In other words, where is the liability risk in the event of a failure to exercise reasonable diligence or care in pressing the sale through? This can be important should the property market stagnate or fall during the period when the sale committee and the Professional Advisers are attempting to or fail to press the collective sale process through. It may be even more pertinent when the stagnation or fall in the market is foreseeable so that it is recoverable in the tort of negligence as enunciated in South Australia Management Corporation v York Montague Limited9. Do the owners have a right to claim against the sale committee and the Professional Advisers for loss of opportunity as a result of delay? It may not be purely a market risk, but a legal one.
11 With regard to a possible contentious point raised after the sale, one scenario in which financial loss may be incurred is from the making of negligent misstatements or misrepresentations to a purchaser, in which case, assuming that the purchaser has a valid claim against the owners, can the owners then bring an action against the sale committee and its advisers who failed to exercise reasonable care in making those statements?10
12 A second scenario may be the failure to incorporate certain terms in the sale and purchase agreement with the purchaser for the benefit of the owners. A third scenario is where the claim is for loss of bargain because the sale committee or its advisers have failed to exercise reasonable care in securing the best price for the development. Issues of causation aside, it does not seem logical to draw a distinction between loss which is incurred as a result of a third party’s (namely, the purchaser’s) claim which is recoverable under s 15(1) of the Civil Law Act,11 and loss suffered directly by the owners.
13 This article does not consider the other question of whether a duty of care is owed by the sale committee or the Professional Advisers to the purchaser.12
14 The policy consideration which underpins the reluctance of the courts to find liability for pure economic loss has been echoed in the jurisprudence of the United Kingdom, United States, Singapore and many other commonwealth jurisdictions. It found its classical exposition in the American case Ultramares Corporation v Touche13 by Cardozo J. This was the concern by the courts of extending liability, in the absence of any physical damage, for acts or omissions which might give rise to indeterminate liability to indeterminate claimants for an indeterminate time, viz, the floodgates argument. It was argued that a statement unlike an act, which could be relied on by a great number of individuals, might give rise to a very large amount of liability by a very large number of claimants. The acceptance of this policy consideration can be found in the United Kingdom, and was recognised in Caparo Industries plc v Dickman14. In Singapore, the same consideration was met with approval in Standard Chartered Bank v Coopers & Lybrand.15
15 As a result of this policy consideration, the courts were cautious to extend liability in cases where it felt that the common law merited the recovery of pure economic loss. It was the locus classicusHedley Byrne & Co Ltd v Hellers & Partners Ltd16 that the courts fully enunciated the principle that a negligent mis-statement could give rise to liability. Since then, the law has developed considerably, applying, as it seems, to be an amalgamation of the principles relating to ordinary duty of care (the “Threefold Test”)17, the development of jurisprudence according to legal reasoning (the “Incremental Test”)18 and by more modern principles (the “Assumption of Responsibility Test”)19. It is now generally established that the Hedley Byrne principle does not apply merely to the provision of information and advice but to include the performance of other services.20
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