Contributed by Gregory Das

On Jan 19 this year, the Federal Court delivered a landmark ruling in the law of housing development in the country that is in favour of homebuyers. The decision was delivered on the PJD Regency Sdn Bhd v. Tribunal Tuntutan Pembeli Rumah & Ors. 

The Federal Court resolved an issue of perennial uncertainty in deciding that liquidated ascertained damages (LAD) for the late delivery of vacant possession is to be calculated from the date of the payment of a booking fee until the date of the issuance of the Certificate of Completion and Compliance (CCC). 

In so doing, the Federal Court made a series of remarks that has concretized the notion that the paramount principle of housing law in Malaysia is the protection of the interests of homebuyers.

The appeals at the Federal Court arose from challenges against decisions of the Tribunal for Homebuyer Claims. Each of these decisions of the Tribunal pertained to the sum of LAD that was payable by developers to purchasers for the late delivery of vacant possession of the housing units that were sold.

In essence, the developers argued that LAD should be computed from the date of the Sale and Purchase Agreements (SPAs) between the parties until the date of the Certificate of Practical Completion (CPC). This had the effect of reducing the sum of LAD that was payable. Conversely, the purchasers contended that the LAD should be calculated from the date of payment of the booking fee (which was 10% of the purchase price of the units) until the date of issuance of the CCC. This reflected a longer time period and resulted in a higher sum of LAD payable by the developer.

The Federal Court addressed three principal issues in its judgment, which were as follows:

1. Whether the start date for the calculation of LAD was the date of payment of the booking fee or the date of the SPAs;
2. Whether the end date for the calculation of LAD was the date of issuance of the CCC or the date of the CPC; and
3. Whether the LAD payable could be calculated on the rebated (or discounted) purchase price and not the actual purchase price.

On the first issue, the Federal Court decided that the date of payment of the booking fee was the start date for the computation of LAD for these reasons:

• On the footing of two previous cases of the then Supreme Court (Hoo See Sen vs Public Bank Berhad and Faber Union Sdn Bhd vs Chew Nyat Shong), the time period to calculate the LAD payable for late delivery was held to be “very much decided”. 

• The effect of those cases was that “where a developer fails to deliver vacant possession according to the time stipulated in the statutory sale and purchase agreement, the calculation of the LAD beings from the date of payment of the booking fee and not from the date of that statutory agreement”;

• The Housing Development (Control & Licensing) Act 1966 (HDA) was reaffirmed to be a social legislation as it was enacted to address relationships where one side always has the upper hand against the other due to the inequality of bargaining power. Therefore, when interpreting the SPAs, the Federal Court held that it was incumbent on the Courts to give effect to this intention of Parliament “and not the intention of parties” to the SPAs. It followed that the SPAs could not be given a literal interpretation with the effect of solely upholding the intentions of the contracting parties. Rather, the agreements had to be read to give effect to Parliament’s intention of protecting the interests of homebuyers; 

• Further, the Federal Court referred to the legislative history of the HDA and referred to the parliamentary debates that preceded its enactment. In so doing, Tengku Maimun CJ observed: “Speaking specifically in the context of booking fees, deposits or any other labels that may be used, it is quite clear that this very issue was one of the main reasons why the HDA 1966 was passed. The Honourable Minister’s words – ‘legislative measures should be taken to protect the people from bogus and or unscrupulous housing developers. Hence this Bill’ – speak for themselves.” 

• It was also held that the collection of booking fees was contrary to Regulation 11(2) of the Housing Development (Control & Licensing) Regulations 1989, which provides that “No person including parties acting as stakeholders shall collect any payment by whatever name called except prescribed by the contract of sale”. The payment and collection of the booking fees meant that both the developer and purchaser were a party to the illegality (or the act that was unlawful under the Regulations). However, the Federal Court held that because the HDA was a “social legislation” to protect homebuyers, the “weaker party to the transaction will not be deemed to be in pari delicto [a party to the illegality] and shall accordingly be entitled to the appropriate remedy. The natural result of this is that the stronger party will have that illegality construed against them”. It was then ruled that “in construing the illegality against the developers, if it is their attempt to have secured an early bargain through illegal collection of booking fees, then the protective veil cast by the legislature over the purchasers should operate in a way so as to bind the developers to the booking fees. In this way, the developers will have to bear the full extent of the LAD payable by them to the purchasers consistent with the overall intent of the written law in respect of the late delivery of vacant possession”; and
• The Federal Court then held that a contract had been formed between the developer and the purchaser upon the payment of the booking fee. In the appeals, the purchasers signed pro forma documents upon the payment of the booking fees. It was held that the fact that the developers “have nonetheless bypassed the statutory prohibition against the collection of booking fees, and the pro forma agreements being amply clear as to the fundamentals of the agreement, means that a bargain was indeed made at the time of the payment of the booking fee…”.   

The Federal Court proceeded to determine that the end date for the computation of LAD was the date of issuance of the CCC. This was on the basis that “the sale and purchase agreement only refer to one type of certification namely, the CCC” and, further, that “if we were to apply logical reasoning, a developer is only entitled, pursuant to clause 27(1)(a) of the sale and purchase agreement, to deliver vacant possession to the purchasers upon the issuance of the CCC”.

Lastly, it was held that the LAD payable had to be computed on the purchase price stated on the SPAs and not the rebated (or discounted) purchase price offered by developers. The Federal Court ruled that “A rebate is essentially an ex post facto discount. It amounts to refund of monies already paid by the purchaser. The concept behind LAD is to compensate a purchaser for the developer’s failure to comply with the statutorily prescribed timeline. It would defeat the purpose of the protection guaranteed by the law if a developer is allowed to cut his losses incurred by the LAD by offsetting it using the purchaser’s own money”. 

By the PJD Regency Sdn Bhd ruling, it is now placed beyond doubt that the foremost objective of the housing laws in the country is the protection of the interests of homebuyers and the assurance that developers function within the parameters of the applicable legislation. 

Developers would therefore be well advised to ensure that their practices are consonant with the applicable principles under the HDA and do not deviate from the safeguards that protect the purchasers they contract with.

To find out how this decision will affect transactions predating the ruling, read: Will The PJD Regency Ruling Affect Transactions Predating The Decision?

Gregory Das is a practising dispute resolution lawyer in Kuala Lumpur and is familiar with housing development disputes.

Disclaimer

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This article cannot disclose all of the risks and other factors necessary to evaluate a particular situation. Any interested party should study each situation carefully. You should seek and obtain independent professional advice for your specific needs and situation.

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