PropNex Realty changes law firm in ‘99-to-1’ suit to avoid conflict of interest

Property agency PropNex Realty has changed its law firm to Rajah & Tann in the “99-to-1” lawsuit to avoid conflict of interest as one of its agents is also being sued.

Previously, Withers KhattarWong represented the property agency and its agent Ian Sng, and had filed defences for both against claims from the claimant Melvin Li.

Both the agent and the agency had disputed Li’s allegations and claims in their defences filed in February, with PropNex Realty denying that it should be made responsible for its fellow defendant’s acts.

Now that it is handling the case, Rajah & Tann said that it “is reviewing the matter, and will advise on the appropriate steps to be taken to protect PropNex’s interests”, in response to The Business Times’ query on whether it will file a different defence or update it for PropNex Realty.

PropNex Realty (a unit of mainboard-listed PropNex : OYY 0%), City Law and Sng have been sued for about S$1.2 million after Li was made to top up the Additional Buyer’s Stamp Duty (ABSD) and pay surcharges imposed by the Inland Revenue Authority of Singapore for his purchases of a 1 per cent interest in each of his parents’ condominium apartments.

The so-called “99-to-1” scheme is a tax avoidance arrangement used by some property buyers to reduce the 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.

Li claimed he took the stake in each of his parents’ properties to help fund their purchases because they were ineligible for bank mortgages. The 43-year-old businessman owns a residential property in his name and would be liable for ABSD for additional residential property purchases.

He alleged that Sng and City Law had advised him that his purchases of a 1 per cent interest were legal, and that the transactions would be valid. He also claimed that the agent had said that such transactions were proposed by his manager and teammates from PropNex, and that they never had any issues.

But after Li sought the taxman’s clarification, he was made 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 extra stamp duties and surcharges of S$1.2 million.

Disputing Li’s claim, Sng instead said that he had learnt about the structure from training sessions conducted by law firms and bankers.

He also claimed he was tasked by Li to conduct informal checks with law firms about whether this method could help Li to fund his parents’ property purchases.

Sng thus contacted several law firms and relayed the information to Li, adding that Li would have to check with his conveyancing lawyer whether the method was applicable to his situation, Sng’s defence showed.

But he accused City Law of having assured Li that the purchase of using the “100-sell-1” method was legitimate, and that the law firm’s representative did not highlight any potential risk to the claimant.

As for City Law, it is contesting Li’s claims as well as disputing Sng’s allegations.

It claimed that it only assisted in the conveyancing of the property transactions in question. The scope of its work did not include advising on the legality or potential implications of the “99-to-1” arrangement. The law firm also claimed that it had not been negligent nor breached its duty of care to Li.

Instead, it alleged that the claimant had already chosen to structure the transactions in the “99-to-1” manner even before the company became involved, and it was not told the reasons for such a structure.

City Law cited Li’s statement that it was Sng who had advised him that such a structure was legitimate.

Any loss 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, the law firm alleged.

Source: The Business Times © SPH Media Limited. Permission required for reproduction.

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