The Value of Fiduciary Duties: Evidence from En Bloc Sales in Singapore

Abstract

We explore the causal relationship between the legal doctrine of fiduciary duties and market price response in the setting of collectively selling subdivided residential real estates, the en bloc sales, in Singapore. We used a unique legal shock in 2009, the Ng Eng Ghee v. Mamata Kapildev Dave case decided by the Singapore Court of Appeal, to identify the value of fiduciary duties to actual and potential sellers, i.e. subsidiary proprietors whose condominium units have been sold en bloc or could be sold through the same legal scheme in future. We find that the judicial establishment of fiduciary duties in the en bloc sale process raises the price of these sales. After considering both the increase in price premium and the decrease in deal probability, the new judicial position seems to do no harm to condominium prices. Furthermore, we observe evidence lending persuasive support to the proposition that fiduciary duties is a useful legal device to constrain agency problem which, in the context of en bloc transactions, manifests itself as lowball sales by investor owners at the expense of resident owners. Finally, the findings in this paper demonstrate that fiduciary duties are likely to have enhanced the overall welfare of both sides of en bloc transactions. Our study highlights the importance of judicial oversight in non-consensual land assembly mechanisms that have been contemplated or practiced in a number of jurisdictions. At the same time, it presents a rare piece of empirical evidence illustrating the practical impact of fiduciary duties, a long-standing and widely-adopted legal doctrine. As such, this study also sheds new light on the crucial issue of adapting fiduciary duties to a variety of areas of law including corporate M&A, shareholder activism and broker-dealer obligations.