Court rules on collective sales tainted by bad faith

The Court of Appeal has, for the first time, ruled that it cannot step in to change collective sale agreements and approve them if they are tainted by bad faith.

This principle was contained in judgment grounds for a case involving Newton condo Gilstead Court released late last week.

The court also said the authorised representatives (exco) in a sale committee must act jointly in any application for a collective sale. This is believed to be the first instance where there was a falling out among those representatives.

The Court of Appeal ruled in July that the $150.2 million sale of the 48-unit condo was not to go ahead.

It overturned the nod the High Court gave in February to the sale, with Justice Quentin Loh amending and striking out some clauses in the collective sale agreement that were deemed objectionable.

The clauses had imposed financial penalties on owners who did not consent to the sale - non-signatory subsidiary proprietors (SPs).

For example, they were asked to fork out twice the sum as consenting sellers to a common fund set up for sale-related costs, to be withheld from their sale proceeds and shared among consenting owners.

Justice Loh had found that while these clauses caused an "unjustifiably unequal distribution of the sale proceeds", it was not to the extent of affecting the deal's good faith.

However, in the Court of Appeal, the appellants - three objecting owners represented by Morgan Lewis Stamford partner Adrian Tan - argued the sale order should be set aside.

The Court of Appeal agreed there was a lack of good faith given some of the clauses, which "would have a potentially substantial impact on the amount that each non-signatory SP would receive as their share of the sale proceeds," it said.

It noted that throughout three major amendments to the Land Titles (Strata) Act, Parliament's intention was constant: "Once the court or the Strata Titles Board is satisfied there is lack of good faith in the transaction... it must refuse the collective sale application."

Also, former Supreme Court judge Warren Khoo, one of three exco here and a respondent, filed an application to approve the sale without telling the other two exco members.

One of them eventually agreed but the other did not and became a defendant in the case.

"The foresight of Parliament in requiring joint action by the authorised representatives was aptly demonstrated by the procedural chaos arising from the failure of (the three) to act jointly, to the prejudice of everyone involved," the Court of Appeal said.

"Authorised representatives should be ever mindful of the fact that they have no authority to act severally before embarking on any unilateral course of action."

Rennie Whang

A version of this article appeared in the print edition of The Straits Times on October 08, 2015, with the headline 'Court rules on collective sales tainted by bad faith'. Print Edition | Subscribe