Court Gives Financial Protection to Property Purchasers

Case Summary
Facts
Arguments
Comment

Case Summary

In a recent property development case, a purchaser used a standard sale and purchase agreement prescribed under the Housing Developers' Rules to claim the right to set off liquidated damages from progress payments after the developer had been placed in liquidation. The judicial commissioner hearing the case held that a claim for liquidated damages may be made up to the date of delivery of vacant possession of the units. Consequently, the purchaser was entitled to set off liquidated damages against any payment to be made towards the purchase price.

This decision has important implications for the law governing commercial property and construction agreements, as well as insolvency law.

Facts

The plaintiff in this case was the liquidator of Panorama Development Pte Ltd. The defendant was the purchaser of units in a proposed development undertaken by the plaintiff.

The sale and purchase agreement was based on the prescribed terms and conditions of the Housing Developers' Rules (1). Under Clause 11(3) of the agreement, vacant possession was to be delivered by a certain date, failing which liquidated damages would be payable under Clause 11(4). The defendant was contractually entitled to set off the liquidated damages payable against progress payments that were due.

Clause 11(3) provides(2):

"If the vendor fails or is unable to deliver vacant possession of the building unit to the purchaser on the date specified in paragraph (1) of this clause for any reason whatsoever, the vendor shall pay to the purchaser liquidated damages calculated from day to day at the rate of 10% per year on the total sum of all the installments paid by the purchaser towards the purchase price for the period commencing immediately after the date specified in paragraph (1) of this clause and ending on the date vacant possession of the building unit is delivered to the purchaser."

Clause 11(4) provides(3):

"Any liquidated damages payable to the purchaser under this clause may be deducted from any installment due and payable to the vendor."

Arguments

The plaintiff's position was that the defendant could not avail itself of the right of set-off against the liquidator because the liquidator sits in a different capacity from that of the company. In this respect, the plaintiff relied heavily on the Court of Appeal's decision in Good Property Development Pte Ltd(4).

The defendant's position was that it had a right to set off the liquidated damages from progress payments and to require the liquidator to be bound by all the terms and conditions of the sale and purchase agreement on the grounds that:

• the set-off provision in the agreement had to be given effect, given that the agreement was a statutory requirement(5);
  
  
• the agreement was binding on the liquidator by virtue of it being successor-in-title of the company(6);
  
  
• there was mutual credit and dealings sufficient to satisfy Section 88 of the Bankruptcy Act(7);
  
  
• there was a right of set-off, given that the dealings amounted to a transactional set-off(8); and
  
  
• there was affirmation/adoption of the contract.

Comment

The judicial commissioner did not give written grounds for his decision. Nevertheless, this decision provides purchasers of property with greater financial protection against developers. This is in addition to Section 9 of the Housing Developers (Control and Licensing) Act which provides that the monies in a project account may only be used towards the completion of the building project.

This case also clarifies a party's right of set-off in an insolvency situation for pre-liquidation debts where the liquidator performs an existing contract. And this area of law has needed clarification; Peter Woods described this area of law as an area "which gives rise to the greatest difficulty"(9).

For further information on this topic please contact Lawrence Tan at Drew & Napier by telephone (+65 531 2514) or by fax (+65 533 0693) or by e-mail ([email protected]) . The Drew & Napier web site can be accessed at www.drewnapier.com.

Endnotes

(1) Housing Developers' Rules, Form E.

(2) Clause 11(3) is now Clause 12.5 of the Housing Developers' Rules, 1999 ed.

(3) Clause 11(4) is now Clause 12.6 of the Housing Developers' Rules, 1999 ed.

(4) Good Property Development Pte Ltd v Societe General [1996] 2 SLR 239.

(5) Case relied on for argument: Golden Bay Realty Pte Ltd v Orchard Twelve Investments Pte Ltd [1989] SLR 42.

(6) Clause 23(1) of the standard sale and purchase agreement (now Clause 1.1.1 of the Housing Developers' Rules, 1999 ed) and Re Cyril Wright [1949] 1 Ch 729.

(7) Section 327(2) of the Companies Act (Cap 50) and Section 88 of the Bankruptcy Act (Cap 20).

(8) See English and International Set-Off by Philip Wood (1989 ed) paras 7-152, 7-164.

(9) English and International Set-Off by Philip Wood (1989 ed) para 7-150.