SINGAPORE - The regulator of estate agents is studying the High Court's recent findings involving HSR International Realtors' role in the failed Thomson View en bloc deal "before deciding on any follow-up action that may be necessary", BT understands.
HSR was the marketing agent for the proposed $590 million condominium en bloc sale, which the court recently scuttled over secret incentive payments the agent had offered after finding that it amounted to bad faith.
Justice Andrew Ang found that HSR had "egregiously breached its duty to avoid any possible conflict of interest" by failing to disclose the incentive payments to the condo's collective sale committee (CSC) and other owners; and also held that the incentive payments had the effect of "tainting" the method of distribution of the sale proceeds.
In response to BT's questions, Yeap Soon Teck, deputy director (licensing) for the Council for Estate Agencies (CEA), said: "In an en bloc sale transaction, the estate agent is expected to work closely with the collective sale committee, taking instructions from their clients, and acting ethically during the process. They must also comply with the laws and requirements that govern en bloc sale transactions."
Under the CEA's Code of Ethics and Professional Client Care, an estate agent is required to protect the interests of its client, be unaffected by its own interests, and not put itself in any position of conflict.
When contacted yesterday, HSR declined to comment on the matter.
Lawyers for Thomson View CSC told BT that it will not be appealing against the High Court's decision to disallow the collective sale. As the CSC is unable to get court approval, it has informed the buyer, a joint venture between Wee Hur Development and Lucrum Capital (Wee Hur-Lucrum), that it will not be proceeding with the en bloc sale.
Referring to the case, KhattarWong partner K Anparasan noted that even though it is not expressly stated that estate agents owe a fiduciary duty to the owners, it would appear that they do, at least, owe a duty of care to them.
In an earlier case, the Court of Appeal disallowed a $33 million en bloc sale for Harbour View Gardens after finding that its agent's offer of incentive payments "with the knowledge and acquiescence of the CSC is conduct that is commercially unacceptable". Justice Belinda Ang ruled that 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".
Interestingly, in 2009, the Court of Appeal dismissed an appeal by majority owners of Regent Garden who had opposed a $34 million collective sale to Allgreen Properties because they were unhappy that Allgreen made $2 million in incentive payments to six minority owners.
In its judgment, the court found that there was nothing in the agreement between buyer and seller, or the law, that prohibits Allgreen from making additional payments to minority owners. And, on whether the Regent Garden collective sale was done in good faith, it ruled: "A purchaser does not owe any duty of care, much less duty of good faith, to a vendor of property in relation to the price of the property."
In response to BT, former Supreme Court judge Warren Khoo, who is leading the landmark Gilstead Court collective sale, said: "The root of the problem is not who makes such payments or in what capacity he makes it - the purchaser, the marketing agent in his own right or as agent, the sale committee, etc. Regardless of who makes the payment, it is the receipt by a few owners itself and the natural sense of unfairness and inequality felt by the non-recipient owners that is the root of the problem. It is this sense of being discriminated against that have made these owners challenge such payments in court."
He added that legislation is the only way forward. "It is not possible for the courts alone, circumscribed as they are by the narrow approach of the present law, to develop a coherent and intelligible jurisprudence to deal with such behaviour.
"It is necessary to outlaw such behaviour as a form of corruption, with possibly criminal as well as civil sanctions. Until corrective legislation is enacted, owners can help themselves by inserting appropriate provisions against such practices in their collective sales agreement, in their tender terms and conditions, as well as in their marketing agent employment contract."
Some lawyers are hoping that the appellate court's written judgment on Harbour View, which is yet to be issued, will clarify the laws governing the estate agents' duties. They also raise the question of whether en bloc sale rules should make clear when incentive payments are allowed.
Arguing that this isn't necessary, Norman Ho of Rodyk & Davidson said that it would be "difficult to have an all-encompassing provision detailing the prohibition against incentive payment as the issue on such payment arises from the fiduciary duty and bad faith, and not on the payment per se."
Instead, Mr Ho suggested that additional provisions could be introduced to the Estate Agents (Estate Agency Work) Regulations 2010, prohibiting agents from making incentive payments to minority owners.
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