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Published August 31, 2007

NEWS ANALYSIS

Horizon Towers saga reaches a turning point

By MICHELLE QUAH

(SINGAPORE) The long-running saga that has gripped the Singapore property market has reached a turning point; the majority sellers in the Horizon Towers debacle now have just over a week to respond to lawsuits filed against them.

Sued for allegedly messing up the en bloc sale of the development, the majority sellers need to decide if they should contest the action or give in to the demands.

BT spoke to several lawyers to determine the implications of each decision.

Background

The tale began in February when 84 per cent of Horizon Towers owners - the majority sellers - agreed to sell the Leonie Hill development en bloc to Hotel Property Ltd (HPL), Morgan Stanley Real Estate-managed funds and Qatar Investment Authority for $500 million.

The sale fell through when the Strata Titles Board (STB) in early August refused to grant an order for the collective sale. The board said the sale application was defective because certain documents were missing.

STB's rejection came just days before the Aug 11 deadline for the completion of the collective sale. To salvage the deal, HPL and its partners asked the majority sellers to extend the deadline and either to appeal against the STB's decision or file a fresh application.

When the majority sellers did not respond, HPL and its partners decided to make good on their threat to sue.

The lawsuit

Through their lawyers, Allen & Gledhill, HPL and its partners filed an originating summons in the High Court last week - naming all 255 owners and the sales committee members who signed off on the collective sale as defendants.

It is believed that HPL feels the majority sellers may not have kept faith with them - especially when some sellers were not keen on having the en bloc sale succeed, when subsequent collective sales of neighbouring developments fetched much higher prices.

HPL and its partners are now demanding that the majority sellers 'do everything necessary' to obtain the collective sales order - including extending the sale completion deadline by four months to Dec 11, appealing against STB's decision and/or filing a fresh application for a new sales order, if needed.

Should the sellers fail to take one of these actions, HPL and its partners will sue for damages of between $800 million and $1 billion. This means each of the majority sellers could be liable for about $4 million.

The majority sellers have until Sept 11 to decide on what to do.

The minority owners are not being sued because they were not part of the collective agreement to sell Horizon Towers, but the majority's decision would impact whether they would have to move out of their homes.

What should Horizon owners do?

The sales committee of Horizon Towers told BT they have asked the High Court to appeal against STB's decision, but have not yet decided if they should give in to the other demands.

Some sellers have indicated their intention to contest the lawsuit, with one apartment owner saying the sellers intend to raise up to $5 million to engage lawyers to prepare their defence.

The majority is now collectively represented by Tan Rajah & Cheah, but individuals have begun seeking their own legal advice.

BT spoke to lawyers not involved in the Horizon Towers saga. While refraining from making a direct judgment on the case, the lawyers acknowledged that the majority sellers are obliged to 'do everything in their power' to file a proper sale application to the STB, given that they agreed to do so in the sale-and-purchase agreement.

Patrick Ee, director of law firm Legal21 LLC, told BT: 'It's an accepted position in law that parties to an agreement have to use their best endeavours to achieve the condition precedent in that agreement. In a previous en bloc deal I was involved in, we advised the sales committee to extend the sale completion deadline because that was what was needed to ensure that the sellers were 'doing everything in their power' to make a proper collective sale application to the STB.'

Mr Ee also pointed out that in the case of Horizon Towers, the STB had rejected the collective sale order application because of improper documentation. 'Speaking generally, technicalities which can be rectified should be dealt with,' he said.

Some majority sellers have also indicated their intention to name the lawyers and sales agents who advised them on the collective sale application as third parties to the claims made by HPL and its partners.

A corporate lawyer, who asked to remain unnamed, commented on such a course of action: 'Naming their advisers as third parties doesn't absolve the sellers of their contractual obligations to the buyers; it merely serves to indemnify them against some of the damages which HPL is looking to claim against them.'

Alvin Chang of M&A Law Corporation explains the position further: 'Bringing in the advisers as third parties doesn't mean the sellers can shift the blame completely on the advisers. It just means that, should HPL prove its case against the sellers and succeed in their claim for damages, the sellers can try to get their advisers to indemnify them for those damages caused as a result of the advisers' negligence or inadequate advice.

'But whether the sellers have a case would depend a lot on the scope of work their advisers were supposed to provide during the en bloc sale application.'

Nicholas Narayanan of law firm Nicholas & Co believes the focus should be on resolving the issue, rather than assigning blame. 'I feel it's premature at this juncture to point fingers at various parties as to who's to blame for the STB's decision, when a resolution for the whole matter is clearly in sight. The majority sellers can easily rectify the situation: they can extend the deadline and refile an application to save the sale,' Mr Narayanan said.