Update on Shunfu Ville collective sale

A team led by N. Sreenivasan SC and Valerie Ang successfully acted as counsel for the Collective Sale committee (the “CSC”) of Shunfu Ville in a landmark decision of the Court of Appeal which explained and applied the statutory provisions relating to how a majority is obtained and recognised in relation to approval for en-bloc sales. The Shunfu Ville en-bloc, at $638 million is one of the largest in recent years.

The issues which the Court of Appeal considered were:

(a)     Whether the transaction was in good faith taking into account the sale price of the Property; and

(b)     Whether the respondents acted ultra vires m making the application for collective sale under s84A(l ).

The CA examined the legislation concerning collective sales and the policy reasons behind such legislation; and held that “What emerges from this is the clear policy intention of the LTSA’s collective sale scheme to meet a public interest in creating more homes for Singaporeans in prime freehold areas while ensuring that the rights and interests of all affected parties, especially those of minority subsidiary proprietors who oppose a sale, are taken into account and adequately protected.

The Good Faith issue

The Court of Appeal accepted our submission that there was nothing in the Land Titles (Strata) Act (“LTSA”) to require that a public tender had to be carried out at the same price as eventually reached in a sale by subsequent private treaty. The Court of Appeal recognised that the reason the private sale mechanism existed was to accommodate a situation where the CSC may enter into a private contract at a different price after the public tender had not been successful.

The objectors had also argued that the CSC had only carried out the 2nd public tender with the desire of entering into a private treaty and this amounted to a lack of good faith. The Court of Appeal disagreed and held that the other options available to the CSC were not viable for the reasons submitted by Straits Law, on behalf of the CSC. The option to abandon the sale altogether had drawbacks such as uncertainty as to whether to carry out maintenance works and the fact that the property may depreciate in the future. The Court of Appeal also agreed with the submissions that we made on behalf of the CSC that the option to call for a 2nd public tender at a lower price was not viable as a decrease in price required subsidiary proprietor consent and it was unclear when such consent would be obtained. This was risky as the CSC had other deadlines to meet.

With regards to the appellants’ contention that offering a public tender at $638m would have attracted more bids, the Court of Appeal accepted our submission that the objectors had shown no evidence that this would have been the case. The Court agreed with the CSC that if there were other developers who were interested in the property but were not prepared to pay $688m, they would have proposed their desired prices and entered into negotiations in the same way the ultimate buyer did.

The objectors also argued that the CSC failed to engage with all parties who had shown interest in purchasing the properties as they had not proactively followed up on the expressions of interest and had not used the offers as leverage to negotiate a higher price with some other party. The Court of Appeal disagreed and found that the CSC had engaged with the interested parties and that this requirement to engage related to firm expressions of interest rather than mere enquiries, as was the present case.

Whether the respondents acted ultra vires in making the collective sale application

The objectors argued that on a plain reading of the words of the LTSA, the consent of the subsidiary proprietors who signed the original CSA must continue until the time of application to the board and that it was not sufficient that there was a 80% majority which included parties who did not originally sign the CSA.

Straits Law argued that the contractual provisions in the CSA in the present case had specifically provided that new subsidiary proprietors may join the CSA by signing supplementary agreements. Since these were contractual provisions which were agreed to by and bound the original consenting parties, there was no reason that such a contractual arrangement would violate the scheme in the LTSA. Thus, CSC had not acted ultra vires in applying for a collective sale. These submissions were accepted by the Court of Appeal.

This case is a landmark case for various reasons, First, the size of the en-bloc deal is one of the largest, if not the largest, in recent years. Second, the contractual provisions in question which the CSC relied upon were quite unique. Third, the Court of Appeal’s decision clarifies the manner in which the majority for the purposes of an application for an en-bloc sale is to be established.

If you have any queries pertaining to this article, please feel free to contact Mr N. Sreenivasan S.C. at sreeni@straitslaw.com.sg or Ms Valerie Ang at valerieang@straitslaw.com.sg, or the Straits Law Director who usually attends to your matters.