29 July, 2015
INTRODUCTION
In The One Suites Pte Ltd v Pacific Motor Credit (Pte) Ltd [2015] SGCA 21, the Singapore Court of Appeal (“CA”) considered whether the buyer in a conveyancing transaction was obliged to use reasonable endeavours to obtain the consent of the relevant authority for the sale after it had refused the buyer’s application. The CA’s answer was “no”, if the parties had expressly provided for rescission upon the refusal of the requisite consent. This was because such an express term negated any implied obligation to use reasonable endeavours after there had been such a refusal.
FACTS
In July 2012, the buyer exercised an option to purchase (“OTP”) for the sale and purchase of the remainder of the lease over a property at 11 Leng Kee Road. At that time, the buyer had already paid a total sum of $1.68m (being 10% of the purchase price of the property) to the seller (and lessee of the property) as deposit under the OTP.
However, under the OTP, the property was sold subject to the “existing approved use”. The OTP also provided that the sale was also subject to the written approval of the Housing and Development Board (“HDB”). In particular, Clause 12a of the OTP provided that if HDB refused to approve the sale of the property, “the sale … shall be rescinded and all moneys paid to account of the purchase price herein shall be refunded free of interest compensation or otherwise …”.
After the OTP was exercised, the buyer sought the approvals of the relevant authorities, including the HDB and the National Environment Agency (“NEA”), for the sale. On 11 September 2012, the NEA informed that it was unable to support the buyer’s application as the buyer’s proposed uses (as a general motor workshop, store, showroom, staff canteen, office and auxiliary purpose) did not conform to the URA’s Master Plan 2008, under which the long term land use plan for the site was for residential use. On 24 September 2012, the HDB also informed that it was “unable to grant in-principle approval” because the “NEA’s consent has not been obtained”.
The next day, the buyer notified the seller that the transaction had been “rescinded” under the OTP and claimed the refund of its $1.68m deposit. The seller rejected the purported notice of rescission and suggested that the buyer should appeal against NEA’s decision after revising its proposed use to address NEA’s concerns. The buyer, however, declined to follow the seller’s suggestion as it saw no reason to either revise its application or appeal against the NEA’s decision.
Although the seller subsequently procured NEA’s approval to the buyer’s application, the buyer’s position was that the OTP had been terminated on 25 September 2012 and could not be retrospectively revived.
In the High Court, the judge held that the buyer’s purported rescission of the OTP on 25 September 2012 was premature and therefore invalid because:
(a)a term should be implied in the OTP that the buyer had to use all reasonable endeavours to obtain the written approval of the relevant authorities to the sale within a reasonable time. This was because certain clauses in the OTP suggested that the OTP could remain in force indefinitely if the relevant authorities did not respond to the buyer’s applications for the approval of the sale;
(b)the buyer was not entitled to rescind the sale as the HDB’s notification of 24 September 2012 was “not a clear and unequivocal rejection” of the buyer’s application, but was “merely a statement … that it could only process the [buyer’s] application after the NEA’s approval was obtained”; and
(c)the buyer ought to have appealed against the NEA’s decision as it knew that there were realistic prospects of success, but it refused to do so because it had lost interest in the transaction and was looking for an opportunity to rescind the OTP. The buyer therefore failed to take all reasonable steps to obtain the NEA’s approval.
DECISION
The CA reversed the High Court’s decision and held that the OTP was rescinded, under Clause 12a of the OTP, by virtue of HDB’s notification of 24 September 2012. Hence, the buyer was entitled under the OTP to recover the sum of $1.68 paid to the seller.
The CA considered two key issues:
(a)Whether the HDB had refused to approve the sale on 24 September 2012; and
(b)If the HDB had refused to approve the sale, whether the buyer was obliged to use reasonable endeavours to persuade the HDB to change its mind after it had refused to approve the sale.
On the first issue, the CA disagreed with the High Court’s holding that the HDB’s refusal was not clear and unequivocal. The CA noted that the NEA had unequivocally refused to grant its approval and the HDB’s notification of 24 September 2012 was contingent on the NEA’s approval. From an objective perspective, the CA found that the HDB’s notification of 24 September 2012 was clear and unequivocal.
On the second issue, the CA noted that it was not disputed that where a sale of land was subject to the approval of the authorities, there is usually an implied obligation to use reasonable endeavours to obtain the requisite approvals of the relevant authorities.
However, where any particular requisite approval has been refused, there was no rule or proposition that a party must invariably use reasonable endeavours or take further steps to obtain the requisite approval. Whether or not an obligation to use reasonable endeavours is satisfied depends on the facts of each case.
Here, as there was an express term stipulating that the OTP would be brought to an end once the HDB refused to approve the sale, the buyer was not obliged to make further efforts to secure the approval for the sale from the NEA and the HDB. It is established law that “an implied term is subject to and cannot contradict an express term of the contract”. Therefore, implying a term on the buyer to use reasonable endeavours, after the HDB had refused to approve the application on 24 September 2012, would be “wholly inappropriate” as it was inconsistent with the express term in the OTP. The purpose of the express term, in the CA’s view, “must have been to eliminate the possibility of a dispute when the requisite approval has been refused, and to allow parties to have a clean break”.
In summary, the CA laid down the following principles in determining a party’s obligation to use reasonable endeavours in obtaining the approval of the relevant authorities in a sale of land:
>The courts will usually imply an obligation to use reasonable endeavours to obtain the consent of the relevant authorities where the contract is subject to the consent of the relevant authorities;
>However, whether such an obligation had been satisfied will ultimately depend on the precise facts and circumstances of each case;
>The scope of the obligation to use reasonable endeavours should be determined with regard to the express terms of the contract itself; and
>If the contact provides for rescission upon the refusal by the relevant authorities, no implied obligation to use reasonable endeavours arises after there has been such refusal.
CONCLUSION
Underlying this decision is the principle that the courts will give effect to the parties’ intentions where they are clearly evidenced by the express terms of a contract. Where an express term is applicable, the courts will not extend a party’s implied obligation to use reasonable endeavours to secure the approval of the relevant authorities after such approval has been refused.
If a party’s implied obligation to use reasonable endeavours is to be extended even after the relevant authorities have refused to grant consent to the sale, this obligation should be expressly stipulated in the contract. Better still, the specific steps required of a party to continue to secure the approval of the relevant authorities, such as lodging an appeal or making further representations, should be set out in the contract to avoid any dispute on the scope of the obligation.
For more information, please contact:
Sandra Han, Partner, RHT Taylor Wessing
sandra.han@rhtlawtaylorwessing.com
Chen Yiyang, RHT Taylor Wessing
yiyang.chen@rhtlawtaylorwessing.com
