City Law denies having advised claimant in ‘99-to-1’ lawsuit

THE law firm that is being sued over two “99-to-1” property deals – alongside mainboard-listed PropNex ’s subsidiary and its agent – disputed having advised the claimant that these transactions were legal and valid.

City Law is contesting all the allegations, including of being negligent and breaching its duty of care to the claimant Melvin Li in his purchases of a 1 per cent interest in his parents’ newly bought properties that the firm handled.

In its defence filed on Friday (Mar 7), City Law claimed that it only assisted in the conveyancing of the property transactions. The scope of its work did not include advising on the legality or potential implications of the “99-to-1” arrangement.

Represented by Dentons Rodyk & Davidson in this lawsuit, City Law alleged that Li had already chosen to structure the transactions in the “99-to-1” manner even before the firm became involved. Neither the claimant nor his parents had informed the firm of their reasons for such a structure.

Li is suing PropNex Realty, its agent Ian Sng and City Law for about S$1.2 million after he was made to top up the Additional Buyer’s Stamp Duty (ABSD) and pay surcharges imposed by the Inland Revenue Authority of Singapore (Iras) for his purchases of a 1 per cent interest in each of his parents’ condominium apartments.

PropNex Realty is being sued for being liable for its agent’s alleged wrongful advice and actions.

Li claimed that Sng and City Law had advised him that the structure of the “99-to-1” arrangement was legal and that the transactions would be valid.

Taking the 1 per cent stake in each of his parents’ properties, Piccadilly Grand and Pullman Residences, was to help fund their purchases because they were ineligible for bank mortgages, claimed the 43-year-old.

The businessman alleged that the arrangement was supposed to cost him the ABSD for only that 1 per cent interest, given that he already has a residential property in his name and would be liable for ABSD for additional residential property purchases.

The so-called “99-to-1” scheme is a tax-avoidance arrangement used by some property buyers to reduce the rightful ABSD payable on the purchase of a residential property.

It enables those who already own a residential property to reduce or avoid paying ABSD, while still becoming a co-owner of an additional property and a co-applicant for a loan to finance the purchase.

But Li ended up having to pay ABSD rates of 17 per cent and 25 per cent, respectively, for his 1 per cent interest in each of his parents’ purchases, resulting in a further S$1.2 million in extra stamp duties and surcharges.

City Law said that it was introduced to Li by Sng, but denied being part of the “assembled team” that the property agent arranged for the claimant’s “99-to-1” transactions.

Also, it claimed that neither did its representatives advise, endorse or affirm that the “99-to-1” transactions were legal and valid, nor did Li and his parents ask the firm for such advice. The scope of its duty of care owed to the claimant did not extend to advising on the structure or legality of the “99-to-1” transactions, it said.

It pointed to Li’s statement that it was Sng who had advised him that such a structure was legitimate.

Thus, any loss and damage Li is said to have suffered arose because of his reliance on the advice of Sng and PropNex Realty to structure the purchases in the “99-to-1” manner or by the negligence of these two defendants, alleged the law firm.

“Numerous” such transactions

Additionally, it denied negligence or any breach of duty on its part.

It noted that “numerous” deals involving the “99-to-1” scheme had been conducted openly and “with the full knowledge of Iras” for several years prior to Li’s transactions.

The taxman had not taken any action or issued any warnings and/or other adverse guidance on such transactions, to the best of its knowledge, claimed City Law.

“Further, banks (which are regulated and closely overseen by the Monetary Authority of Singapore) were also openly granting loans to fund the full purchases (up to the permissible loan ratio at that time) to buyers who purchase only 1 per cent of the interest in the property,” it added.

“In the present case, Maybank had offered mortgage loan facility for both properties. In the circumstances, it was not unreasonable for conveyancing lawyers not to enquire and/or advise further when performing such transactions in accordance with the specific and unequivocal instructions of their clients, especially when the clients did not ask for such advice,” the firm stated.

Should City Law be found liable, the firm said, the extent of the alleged loss and damage should take into account any increase in value of Piccadilly Grand and Pullman Residences.

Defences of Sng and PropNex Realty

Sng and PropNex have disputed all the allegations and claims against them.  

The agent claimed that he was tasked by Li to conduct informal checks with law firms about whether the “100-sell-1” method could help Li to fund his parents’ property purchases.

He denied having told Li that “99-to-1” transactions were proposed by his manager and teammates. Instead, he accused a City Law representative of having assured Li that the intended purchase of Pullman Residences using the “100-sell-1” method was legitimate, and that the representative did not highlight any potential risk to the claimant.

His defence also denied that the “99-to-1” transactions were held by Iras to be illegal, but did not elaborate on that point.