Court slams $200k inducement, refuses to clear en bloc sale

This story was first published in The Straits Times on April 10, 2013

THE High Court has slammed an en bloc sales committee and its marketing agent for offering a $200,000 inducement to a couple to join the collective sale of their residential block.

The consent from flat owners Han Min Juan and Jee Ming Tu would have enabled the requisite 80 per cent majority to be crossed for Harbour View Gardens in Pasir Panjang Road to be sold to a property developer.

Justice Belinda Ang refused to allow the sale to proceed and said the collective sale committee (CSC) involved had failed to act in good faith while the marketing agent's conduct was "commercially unacceptable".

The test case is significant in clarifying the circumstances in which incentive payments are allowed.

Justice Ang added in judgment grounds released yesterday that the committee "did not act in a transparent manner" and had furthered the interests of the majority owners to the prejudice of the dissenting minority owners.

The 14 units of freehold three- storey walk-up apartments had been sold to RH West Coast for $33 million last year subject to clearance for the sale.

The sum was $1 million below the reserve price offered initially.

Three owners objected to the sale and subsequent mediation by the Strata Titles Board failed last September. This led to the Strata Titles Board's stop-sale order last December. The CSC then applied to the High Court to approve the sale.

The three objecting unit owners argued that the CSC had not acted in good faith by offering a $200,000 incentive to the couple for the sole purpose of reaching the 80 per cent majority required for the sale to go through.

Lawyers Lim Seng Siew and Lai Swee Fung, representing the objecting owners, further argued that the CSC did not act "even-handedly" as the incentive was offered to one opposing minority owner and not to others.

But lawyer David de Souza countered for the CSC that the incentive payment was offered in their capacity as individual unit owners and not as CSC members.

Justice Ang made clear "it should not be objectionable" if owners who are not CSC members "for noble or other reasons make such inducement payments directly and privately to a minority owner".

But as appointment holders, the CSC and its marketing agent Colliers International (Singapore) were subject to duties of good faith and fidelity in relation to the minority owners.

It emerged that Colliers had signed the deal to arrange for the incentive to the couple. The judge found this placed Colliers in a position in which its own interests conflicted with the interests of the CSC and the minority owners.

Justice Ang said CSC members have a higher level of accountability and cannot "enter into engagements in which their personal interests conflict... with the interests of those they are bound to protect".

The judge added that the CSC breached its fiduciary duty by allowing its marketing agent Colliers to participate in the inducement arrangement.

Justice Ang noted that the deal with Colliers involved a CSC member who was also a co-owner of the unit that was to get the incentive payout and this was wrong.

"The CSC's honesty to the defendants was wanting," she added. The case is expected to proceed to the Court of Appeal in due course.

This story was first published in The Straits Times on April 10, 2013

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