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Court Of Appeal Defines Duty Of Purchaser To Sellers In A Collective Sale
December 2009 | Collective Sales | Real Estate | Property Notes

Introduction

The role and duties of a collective sale committee, and its relationship with the subsidiary proprietors, were defined by the Court of Appeal in Ng Eng Ghee and Others [2009] SGCA 14 (commonly referred to as the Horizon Towers case). More recently, the Court of Appeal examined the relationship between the purchaser of a collective sale site and the consenting majority owners, and the obligations and role of the Strata Titles Board, in Chua Choon Cheng and others v Allgreen Properties Ltd [2009] SGCA 21 ("the Regent Garden case").

The facts

The majority owners ("Majority Owners") in Regent Garden condominium appointed a sale committee ("SC") to act on their behalf in a collective sale agreement ("CSA"). The reserve price in the CSA was based on an estimated development charge of S$7.6 million. When an offer was received from a developer ("the Purchaser"), there were extensive discussions among the Purchaser, the SC and the property consultants on the potential impact of the development charge ("DC"). Eventually, the SC entered into a sale and purchase agreement ("SPA") with the Purchaser and, for the sake of certainty, the SC decided not to subject the sale to any development charge baseline enquiry.

The Majority Owners filed an application to the Strata Titles Board ("STB") for a collective sale order. Meanwhile, the Purchaser was informed that the applicable DC would only be S$950,894, substantially lower than the estimated DC of S$7.6 million. The dissenting minority owners ("Minority Owners") then filed objections to the STB. During mediation, the STB indicated that an incorrect valuation would be a ground for dismissing the Majority Owners' application. In order to secure the Minority Owners' consensus, the Purchaser offered them additional payments. These were accepted and the Minority Owners withdrew their objections to the STB. Unhappy with the Purchaser's additional payments to the Minority Owners, the SC then opposed the collective sale. The STB proceeded to dismiss the application on the ground that the basis of arriving at the sale price was wrong.

The Majority Owners filed an action to be discharged from the SPA while the Purchaser sought an order for specific performance of the SPA. The High Court dismissed the Majority Owners' application and granted an order for specific performance to the Purchaser.

The Majority Owners' appeal against the High Court decision was heard by the Court of Appeal.

STB's role

The Court of Appeal ("CA") made some observations with respect to the STB decision. Firstly, the CA thought that the STB should have deferred its decision pending the High Court decision, to avoid any inconsistency with the High Court. Secondly, despite the Minority Owners withdrawing their objections, and hence the allegations of lack of good faith, the CA agreed that STB still had jurisdiction over the application for approval.

However, the CA found the STB’s decision "questionable in law". The CA commented that the STB should not have entertained the SC’s objections. The collective sale regime was not designed to protect an SC from its own errors when there were no other legitimate complaints. The SC's decision not to subject the collective sale to a baseline enquiry, although wrong in hindsight, did not equate to lack of good faith. The CA stated that "the STB's primary roles are to ensure that both the letter and spirit of the en bloc processes are observed, and, in particular, to ensure that the Minority Owners are not prejudiced".

The CA's reiteration that the primary role of the STB is to protect the minority, and not the majority, owners is timely. In 2007/8, property prices were escalating rapidly. There were several cases of majority owners filing their objection with the STB to a sale they had earlier consented to, raising the question as to whether such owners were simply trying to get out of the deal because prices had since gone up. It remains to be seen whether the Regent Garden case will be relied on, in future, to persuade the STB to disregard objections filed by majority owners.

The Purchaser's obligations and its relationship with the Majority Owners

An interesting issue was whether the Purchaser could pay additional monies to the Minority Owners to secure their consent to the collective sale. The CA considered whether there was an implied term in the SPA that prohibited such payments and whether there was an obligation of good faith on the part of the Purchaser.

The Majority Owners argued that a term against additional payments without the consent of the Majority Owners should be implied to give effect to the objective behind the collective sale regime. The practice of additional payments if left unchecked would encourage subsidiary properties to hold out for a premium and this could frustrate the legislative intent of urban renewal.

Rejecting the argument, the CA held that there was no express term prohibiting such additional payment. One could sense from the judgment that the irony of the appellants’ case did not escape the CA: the Majority Owners were trying to champion the statutory protection which the Minority Owners were entitled to while, at the same time, trying to deny the Minority Owners the benefit of the additional payments. The CA made it clear that the relationship between the Purchaser and the Majority Owners was governed by the terms of the SPA. The CA refused to accept that there was such an implied term, in fact or in law, stating that it is established law that a court would not lightly imply a term into a contract. In particular, the CA was even less inclined to imply such a term in law since such a holding would extend and apply to all future cases, and not just the contract in this case.

On the issue of good faith, the CA made it clear that "the Purchaser in a collective sale does not owe any duty of care, much less a duty of good faith, to the Majority Owners". The CA opined that it was not possible to imply any new duty of good faith in law into collective sale contracts outside that stipulated in the statutory scheme. The CA's view is consistent with the underlying principle in property sale contracts, namely, caveat emptor. It would be unfair to impose on the buyer a disproportionate duty of care or good faith towards the sellers.

The CA further ruled that purchasers of collective sale sites are under no exceptional duty of disclosure to the majority owners. In this case, the Purchaser was not under a duty to disclose to the Majority Owners that additional payments were made to the Minority Owners. This is consistent with the common law position that there is no general duty of disclosure in the performance of an already concluded contract.

Conclusion

The Regent Garden case further clarifies the roles and obligations of the various parties in a collective sale. In particular, the Court of Appeal's decision will be welcomed by purchasers of collective sale sites. Such purchasers already have to bear with the lengthy collective sale process and the risk of their being drawn into disputes between the majority and minority owners. The case confirms the importance of the sale and purchase agreement in determining the purchasers' rights against and obligations towards the owners. Unless otherwise stated in the agreement, the decision allows the purchaser to make additional payments to the minority owners to withdraw their objection without first obtaining the consent of, or disclosing this to, the majority owners.