Both parties in last year’s High Court case of Chew Ai Hua, Sandra v Woo Kah Wai and another (Chesney Real Estate Pte Ltd, third party) [2013] 3 SLR 1088 (Chew Ai Hua’s case) appealed against the judgment of the court. The Court of Appeal’s decision is an important reminder of the risks associated with so-called “pre-option contracts” in real estate transactions.

Briefly, in Chew Ai Hua’s case (also discussed in The Stamford Chronicle, August 2013), the two joint owners (the defendants) of a Minbu Road condominium unit under construction (the Unit) engaged Chesney Real Estate Pte Ltd (Chesney) to assist them to sell the Unit. The plaintiff made a written offer to purchase the Unit at $920,000 by a letter sent through her property agent. It gave the defendants (through Chesney) 3 days to accept her offer by delivering a signed option to purchase (to be on the terms stated in the letter) to the plaintiff. She enclosed a cheque for the $9,200 option money with her written offer. There were differing versions as to what subsequently happened between the various parties. In any event, the plaintiff was not able to exercise the option to purchase before its expiry and a dispute arose.

The High Court found that the plaintiff’s written offer to buy the Unit was accepted by the defendants through their conduct of banking in the plaintiff’s cheque and in retaining the option money beyond the deadline of the offer. This resulted in a contract (the pre-option contract) for the grant to the plaintiff of an option to purchase the Unit that should comply with the requirements of the plaintiff’s written offer. However, it found that the option to purchase given did not comply with those requirements. Consequently, the defendants were held liable for the loss suffered by the plaintiff.

After hearing the case, the Court of Appeal (see Woo Kah Wai and another v Chew Ai Hua Sandra and another appeal [2014] SGCA 41) dismissed both appeals by finding, among other things, the following:

  1. the plaintiff’s written offer was accepted by the defendants and it gave rise to a legally binding pre-option contract;
  2. by issuing an option to purchase that effectively gave the plaintiff only one instead of three days to exercise the option to purchase, the defendants breached the pre-option contract; and
  3. the High Court was not wrong in ordering the refund of the option fee of $9,200 to the plaintiff as well as damages.

The Court of Appeal also noted that while the parties did not dispute the terms of the option to purchase save for the stipulated option period, there could be a possible uncertainty. (Note that at the time the pre-option contract was concluded, the option to purchase had not yet been prepared and its complete terms were not known.) The Court of Appeal said that this arose because the plaintiff’s written offer “did not spell out what would be the sum payable on the exercise” of the option to purchase granted pursuant to the pre-option contract. However, the defendants did not raise this objection in their pleadings nor did the parties dispute the option to purchase terms except for the stipulated option period. Therefore, the Court decided that the parties, as between themselves, were clearly of the same mind about the sum payable and did not allow this issue to affect the outcome of the appeals.

However, the Court of Appeal cautioned that its conclusion on this matter was tied to the specific facts of Chew Ai Hua’s case. It said the Court might reach a different conclusion if the issue (that such an omission creates an uncertainty that is fatal to the completeness of the contract) is more comprehensively argued in a similar case in the future.

COMMENTS

Parties involved in the sale and purchase of property would do well to take note of the Court of Appeal’s decision in Chew Ai Hua’s case. However, as the Court noted, the case involved pre-option contracts whereas the ’normal scenario’ would typically only involve an option to purchase and no written offer. As a result, the Court’s decision on this case should be confined to its special facts. This leaves the door open for the Court of Appeal to reconsider such agreements more fully in the future.