In the case of Haneda Construction & Machinery Pte Ltd v Huttons Asia Pte Ltd and Another [2015] SGHC 294, the Singapore High Court had to decide on a claim for damages as a result of an unsuccessful attempt to ‘flip’ eight warehouse units for a quick profit.

In the property market, the term ‘flipping’ is used to describe buying a property and then quickly reselling it for a profit. Sometimes repairs or renovations are done to make the property more attractive before it is flipped, but not always. Although there may sometimes be ethical and legal issues involved with flipping a property, it can be a lucrative venture. However, flipping is easier said than done.

Haneda

The plaintiff in Haneda was a logistics and transportation company and the second defendant was a registered real estate salesperson with the first defendant, a company involved in the estate agency business.

The plaintiff had obtained, through the second defendant, options to purchase all eight remaining units of a freehold commercial warehouse development named ‘Novelty Bizcentre’. The development was unique because it came with facilities such as a swimming pool, a gymnasium, an aromatic garden, and other attractive features not commonly found in commercial warehouse developments. Moreover, the plaintiff was also given a developer discount of 16%.

The plaintiff’s case was that it only purchased the eight units to flip for a quick profit because of the second defendant’s representations and because those representations were false, it was entitled to damages.

The plaintiff said that it relied on the second defendant’s fraudulent representations that she had ready subpurchasers for four warehouse units (the initial representation) as well as the second defendant’s further fraudulent representation that she would procure subpurchasers for the remaining four warehouse units (the further representation). Because the representations included attractive minimum subsale prices, the plaintiff would be able to resell the eight units quickly and at a premium of at least 19% above their purchase prices to reap a total profit of at least S$2 million within less than one month.

As things turned out, a day after the plaintiff exercised its options to purchase, the Singapore government announced new cooling measures to discourage short-term speculation in properties. This was the seventh round of cooling measures for the Singapore property market and they were widely considered the most comprehensive yet. Among other things, the measures included the introduction of a Seller’s Stamp Duty on industrial properties to discourage speculative activity in the industrial property market. Consequently, the eight warehouse units that the plaintiff had just bought were caught by the measures.

Although the second defendant found subpurchasers for four units before the cooling measures were announced, only one of them eventually completed the purchase. Because the plaintiff could only manage to obtain financing to purchase two of the unsold units, it forfeited the monies it had paid for the remaining five units.

After a series of amendments to the statement of claim, which included adding a claim based on an alleged oral contract, the only claim remaining before the court at the trial was of fraudulent misrepresentation. This was in substance the plaintiff’s original claim.

The judge was of the view that in assessing the factual veracity of a plaintiff’s claim, especially one based on oral representations, the court is entitled to examine the previous versions of the pleadings and draw any necessary inferences from the significant shifts in or additions to the factual accounts stated.

At the end of the trial, the judge found several contradictory inconsistencies in the plaintiff’s pleaded case as it evolved as well as the fact that the plaintiff’s case was entirely inconsistent with the objective evidence before the court. As a result, he found that the plaintiff had failed to discharge its burden of proving that the second defendant had made either the initial representation or further representation as pleaded in the statement of claim. The judge also added that even if he had found the second defendant to be liable, he would still have dismissed the claim against the first defendant because of insufficient evidence for the purposes of an employer-employee relationship necessary for vicarious liability.

Although the plaintiff’s claim was dismissed, the judge went on to set out his views in relation to three unusual heads of damages the plaintiff claimed.

Atypical Heads Damages

The plaintiff had essentially claimed for all the monies it expended and forfeited as a result of its purchase of the warehouse units (save for one unit that was sold above the price allegedly promised by the second defendant) as well as for its loss of profits had the second defendant’s representations been true.

The judge said that the rule in awarding tortious damages as stated by the Singapore Court of Appeal in Wishing Star Ltd v Jurong Town Corporation [2008] 2 SLR(R) 909 is to ‘put the victim into the position in which he would have been, if the tort had not been committed’. This is unlike the rule in contractual damages that was to put the innocent party in the position it would have been in had the contract been performed.

Losses arising from the sub-purchasers’ failure to complete the sub-sale

In the judge’s view, the parties must have understood that ‘ready subpurchasers’ meant ‘buyers who were prepared to buy the warehouse units by paying the option fees, and no more’. He added that ‘whether these ready subpurchasers would subsequently exercise the options and complete the subsales is a matter entirely outside the second defendant’s knowledge and control’. Consequently, it was unlikely for the second defendant’s representations to include (or to be understood to include) a guarantee in relation to the future conduct of the subpurchasers in the absence of any express representation.

Personal loss of the two directors of the plaintiff

Although the plaintiff’s counsel accepted that some of the losses claimed by the plaintiff (like the interest charged by another developer of one director’s Malaysian properties for the delay in the completion of those properties) were actually the personal losses of the plaintiff’s directors, they flowed directly from the plaintiff’s reliance on the second defendant’s misrepresentation. The judge disagreed and said the plaintiff cannot claim losses that were incurred personally by its directors. He also wondered if such a claim might be too remote to be recoverable because it related to different transactions from the case before the court.

Loss of profit from misrepresentation

The judge said the plaintiff’s claim for the profits it would have earned had the second defendant’s representations been true must fail because that was a claim for contractual damages and its contractual claim has since been abandoned.

Conclusion

Haneda highlights some of the risks involved in flipping properties, such as the dangers of sudden and unexpected changes in the law as well as in the property market. They also include the risks of not getting representations in writing and not having any guarantee properly documented.