Jurisdiction - Singapore
Reports and Analysis
Singapore – Specific Performance not Automatic for Contracts for Land.

14 October, 2011

 
E C Investment Holding Pte Ltd v Ridout Residence Pte Ltd and others and another appeal [2011] SGCA 50 
 
SUMMARY
 
The Singapore Court of Appeal has, for the first time, held that specific performance will not automatically be granted for contracts relating to immovable property.  
 
Kelvin Tan acted for one of the successful parties, Orion Oil Limited.
 
BACKGROUND
 
In 2006, Ridout Residence Pte Ltd (“Ridout”) purchased a property (“Property”) for $28 million. To effect this purchase, its sole director, Agus Anwar (“Anwar”), took a loan of $30 million from Hong Leong Finance Limited (“HLF”), which was secured by a mortgage over the Property. 
 
In 2008, Anwar took a loan of $10 million from Orion Oil Limited (“Orion Oil”). This loan was secured by a charge in respect of the balance of the proceeds of sale of the Property after satisfaction of HLF’s prior interest. 
 
Between March and May 2009, HLF pressed Anwar for repayment of its loan. In order to obtain funds for repayment, Anwar decided to sell the Property. 
 
On 5 June 2009, Ridout granted EC Investment Holding Pte Ltd (“ECI”) an option (“1st  Option”) to purchase the Property at $20 million, with ECI having the right to cancel the 1st  Option by 6 August 2009. ECI subsequently exercised the 1st Option on 27 August 2009 and proceeded to lodge a caveat against the Property in respect of its interest as purchaser. 
 
Despite ECI having exercised the 1st Option, on 7 October 2009, Ridout proceeded to grant Thomas Chan (“Chan”) another option to purchase the Property at $37 million (“2nd Option”). Unaware of ECI’s caveat against the Property, Chan duly paid the option fee on 8 October 2009 and exercised the 2nd Option on 6 November 2009. Shortly after, ECI discovered that Chan had been granted the 2nd Option by Ridout which he had exercised. ECI warned Ridout that it was prepared to apply to court for specific performance of the 1st Option.
 
ECI and Ridout subsequently entered into settlement negotiations, where it was agreed that Ridout was to pay $5 million to ECI by 16 November 2009, whereupon ECI would cancel its purchase of the Property and withdraw its caveats.
  
However, Ridout failed to make payment of the $5million to ECI. ECI then commenced proceedings against Ridout for specific performance of the 1st Option.
  
THE HIGH COURT’S DECISION
 
The High Court declined to grant specific performance to ECI, holding that damages would be an adequate remedy.
 
In doing so, the High Court departed from the orthodox position that specific performance will always be granted for contracts relating to 
immovable property.  
 
The High Court cited with approval the Canadian Supreme Court’s decision in Sinnadurai Paramadevan and Blossom Paramadevan v Bernard Semelhago [1996] 2 SCR 415, where the court opined that specific performance should not be automatically granted for contracts relating to immovable property unless the property concerned was unique.
 
The High Court also followed an earlier High Court decision, Good Property Land Development Pte Ltd v Societe Generale [1989] 2 SLR(R) 97, where the court opined that even if the property was unique, damages may still be considered adequate if the property was purchased not for personal enjoyment, but for the profit derivable therefrom.
 
On the facts, the High Court found that there was no element of personal enjoyment in ECI’s ownership of the Property. ECI, being a property developer, had wanted to purchase the Property purely for commercial gain. Damages would therefore be an adequate remedy. 
 
Dissatisfied with the High Court’s refusal to grant an order for specific performance, ECI appealed to the Court of Appeal.
 
THE COURT OF APPEAL’S DECISION
 
The Court of Appeal dismissed ECI’s appeal. 
 
Specific performance is an equitable and therefore, discretionary remedy
 
The main thrust of ECI’s argument before the Court of Appeal was that it was prima facie entitled to specific performance of the 1st Option as it related to immovable property. Specific performance is typically granted for contracts relating to immovable property as land is deemed to be unique and no substitute is adequate.
 
The Court of Appeal observed that the origins of remedy of specific performance lie in equity. The grant of such a remedy is therefore discretionary in nature. Courts must therefore consider all the circumstances of each case before deciding whether to exercise its discretion to grant this relief.
 
Having regard to the totality of the circumstances of this case, the Court of Appeal was of the view that it would not be just and equitable to grant specific performance of the 1st Option. Damages would be an adequate remedy.
 
Factors the Court of Appeal considered
 
In reaching this decision, the Court of Appeal considered the following:
 
 
(a)   After ECI exercised the 1st Option, it was willing to forego its right to acquire the Property if given adequate compensation.  
 
(b)  ECI implicitly permitted Ridout to look for other purchasers for the Property as it knew that the latter had no other means to pay the $5 million (which was part of the settlement negotiations) except by selling the Property to another person.
 
(c)  However, due to the significant rise in property prices, ECI eventually decided to claim the Property itself by seeking specific performance of the sale of the Property. 
 
(d)  ECI had not applied for a stay of the transfer of the Property to Chan even as it appealed against the High Court’s decision.
 
(e)  Most importantly, Orion Oil would suffer “tremendous hardship” if the Property was sold to ECI for $20 million as there would be very little money left for the Orion Oil after ECI took its share of the sales roceeds as mortgagee. On the contrary, Orion Oil would not suffer any hardship if the Property was sold to Chan.
 
Hardship: a valid ground for refusing specific performance
 
The Court of Appeal held that hardship to a third party, as a ground for refusing specific performance, generally applies to the sale or mortgage of limited or part interests in immovable property where the sale of the entire property may prejudice the rights of other persons beneficially interested in that property. 
 
The Court of Appeal further commented that hardship to one of the parties to a contract relating to immovable property may also be a ground for refusing specific performance. 
 
COMMENT
 
This is the first time that the Court of Appeal has held that specific performance will not always be granted for contracts relating to immovable property.
  
The decision should not open the floodgates to parties to contracts for land challenging specific performance of such contracts because this case involved fairly exceptional circumstances. 
 
However, this decision provides a reminder that parties cannot assume specific performance will always be granted when they enter into a contract for land. They should therefore always act consistently with the avowed purpose of the contract and behave in a fair and equitable manner.
 
 
By Kelvin Tan

 

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