This is a summary of the Federal Court judgment dated 19 January 2021. It is now settled law that the date for calculation of liquidated agreed damages (LAD) begins from the date of payment of deposit/booking fee/initial fee/expression by purchase of his written intention to purchase.
Facts of the Case
There are seven appeals comprising of three sets of different cases heard together in the Federal Court. All cases originate from applications for judicial review filed in the High Court and had essentially raised the same question of law. Two appeals were filed by PJD Regency Sdn Bhd, the developer of a project known as ‘You Vista’ in Cheras (hereinafter referred to as “PJD Regency Sdn Bhd’s case”). Three appeals were filed by the purchasers of a project known as ‘Taman Paya Rumput Perdana Fasa 2’ in Alor Gajah developed by GJH Avenue Sdn Bhd (hereinafter referred to as “GJH Avenue Sdn Bhd’s case”). Two appeals were filed by Sri Damansara Sdn Bhd, the developer of a project known as ‘Foresta Damansara’ in Kuala Lumpur (hereinafter referred to as “Sri Damansara Sdn Bhd’s case”).
Issue of the Case
Where there is a delay in the delivery of vacant possession by a developer to the purchaser in respect of Schedule G and/or H type contracts under Regulation 11(1) of the Housing Development (Control and Licensing) Regulations 1989 (HDR 1989) enacted pursuant to Section 24 of the Housing Development (Control and Licensing) Act 1966, whether the date for calculation of liquidated agreed damages (LAD) begins from the date of payment of deposit/booking fee/initial fee/expression by purchase of his written intention to purchase or from the date of the sale and purchase agreement?
Judgment of the Case
The respective clauses in Schedule G & H under Regulation 11(1) of HDR 1989 which governs the time for delivery of vacant possession are as follows:
“Schedule G
24. Time for delivery of vacant possession
(1) Vacant possession of the said Property shall be delivered to the Purchaser in the manner stipulated in clause 26 within twenty-four (24) months from the date of this Agreement.
…
(4) For the avoidance of doubt, any cause of action to claim liquidated damages by the Purchaser under this clause shall accrue on the date the Purchaser takes vacant possession of the said Property.
Schedule H
25. Time for delivery of vacant possession
(1) Vacant possession of the said Parcel shall be delivered to the Purchaser in the manner stipulated in clause 27 within thirty-six (36) months from the date of this Agreement.
…
(4) For the avoidance of doubt, any cause of action to claim liquidated damages by the Purchaser under this clause shall accrue on the date the Purchaser takes vacant possession of the said Parcel.”.
The purchasers submitted that Hoo See Sen & Anor v Public Bank Berhad & Anor [1988] 2 MLJ 170 and Faber Union Sdn Bhd v Chew Nyat Shong & Anor [1995] 2 MLJ 597 are both authorities for the proposition that the date of calculation of LAD begins from the date when they paid the booking fee. The developers argued that Hoo See Sen, when understood properly, established no such proposition and that accordingly, Faber Union having followed it, was decided per incuriam (by mistake). According to the developers, the Scheduled Contracts ought to be read literally which means that the of calculation of LAD should begin from the date printed on the sale and purchase agreement (SPA).
The Federal Court begins by examining the two cases. The court held thatthe decision of Hoo See Sen is that the date of calculation of the LAD runs from the date the booking fee was paid and not from the date of signing of the agreement. The Supreme Court in Faber Union relied on Hoo See Sen also decided that when it concerns the calculation of LAD, the date runs from the date of the payment of the booking fee. The Federal Court held that Faber Union was not decided per incuriam for the reason that the Supreme Court had referred to the wrong report as submitted by the developers’ counsel. It was held that the judgment ought to be read and appreciated in context.
The Court held that the Housing Development (Control and Licensing) Act 1966 (HDA 1966) and its subsidiary legislation, HDR 1989 are social legislation is settled beyond dispute. (see the decisions of the Federal Court in: Veronica Lee Ha Ling & Ors v Maxisegar Sdn Bhd [2011] 2 MLJ 141 and Ang Ming Lee & Ors v Menteri Kesejahteraan Bandar, Perumahan dan Kerajaan Tempatan & Anor and other appeals [2020] 1 MLJ 281).
The social significance of the statute is further proven in SEA Housing Corporation Sdn Bhd v Lee Poh Choo [1982] 2 MLJ 31:
“It is common knowledge that in recent years, especially when government started giving housing loans making it possible for public servants to borrow money at 4% interest per annum to buy homes, there was an upsurge in demand for housing, and that to protect home buyers, most of whom are people of modest means, from rich and powerful developers, Parliament found it necessary to regulate the sale of houses and protect buyers by enacting the Act. That was why rule 12 was enacted and in particular paragraphs (o) and (r) thereof. With respect we do not agree with Mr. Chelliah that it was opento a developer to get round these paragraphs by the inclusion of such a clause as clause 32 in this agreement.”.
A social legislation is a legal term for a specific set of laws passed by the legislature for the purpose of regulating the relationship between a weaker class of persons and a stronger class of persons. Given that one side always has the upper hand against the other due to the inequality of bargaining power, the State is compelled to intervene to balance the scales of justice by providing certain statutory safeguards for that weaker class.
Developers’ counsel contended that the Scheduled Contracts must be read literally and that it was the intention of the parties or the intention of Parliament that the date of the agreement should follow the printed date in the first page of the agreement.
The Court rejected their argument and held that when it comes to interpreting social legislation, the State having statutorily intervened, the Courts must give effect to the intention of Parliament and not the intention of parties. Otherwise, the attempt by the legislature to level the playing field by mitigating the inequality of bargaining power would be rendered meaningless.
The Court then summarised the principles on interpretation of social legislation in the judgment of Hoh Kiang Ngan v Mahkamah Perusahaan Malaysia & Anor [1995] 3 MLJ 369 as follows:
“(i) Statutory interpretation usually begins with the literal rule. However, and without being too prescriptive, where the provision under construction is ambiguous, the Courts will determine the meaning of the provision by resorting to other methods of construction foremost of which is the purposive rule (see the judgment of this Court in All Malayan Estates Staff Union v Rajasegaran & Ors [2006] 6 MLJ 97).
(ii) The literal rule is automatically displaced by the purposive rule when it concerns the interpretation of the protective language of social legislation.
(iii) For the avoidance of doubt, it is important to emphasise that even where a term or provision of a social legislation or a statutory contract enacted thereunder is literally clear or unambiguous, the Court no less shoulders the obligation to ensure that the said term or provision is interpreted in a way which ensures maximum protection of the class in whose favour the social legislation was enacted.”
From analysing the legal developments in respect of booking fees, it is clear that one of the main reasons why the HDA 1966 was passed is to curb the issues arising from the collection of booking fees. At first, the Minister prescribed the Housing Development (Control and Licensing) Rules 1970 which permits developers to collect booking fees. A subsequent Housing Developers (Control and Licensing) Regulations 1982 was then enacted and ruled out the practice of accepting booking fees. HDR 1989 was later enacted and it prohibit housing developers to collect any payment other than as prescribed by the contract of sale. The recent 2015 amendment has further tightened to prohibit everyone including stakeholders from collecting booking fees. Thus, the intention of the parliament is clear and purposive rule should be followed to interpret the clauses in the Scheduled Contract.
Under the HDR 1989, any person who contravenes any provisions can be penalised. Regulation 13 are as follows:
“13. (1) Any person who contravenes any of the provisions of these Regulations shall be guilty of an offence and shall be liable on conviction to a fine not exceeding fifty thousand ringgit or to a term of imprisonment not exceeding five years or to both.
(3) Any person who knowingly and wilfully aids, abets, counsels, procures or commands the commission of an offence against any provision of these Regulations shall be liable to be punished with punishment provided for the offence.”.
The fact that a particular course of conduct may attract penal sanctions is not in itself a sufficient ground to suggest that an agreement made in contravention of that very act is void for illegality. It will not prevent the tenant/plaintiff from obtaining his remedy. The prime idea behind the legislative framework is that the developers should be confined to a set timeline. Booking fees are prohibited yet the developers have continued to brazenly flout the law by calling it standard practice. At the same time, they very boldly demand that the statute be construed in their favour by strictly limiting the commencement period to the dates printed in those contracts.
In construing the illegality against the developers, if it is their attempt to have secured an early bargain through the 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 late delivery of vacant possession.
The purchasers submitted that a valid contract was formed when they paid the booking fees to the developers.
In Daiman Development Sdn Bhd v Mathew Lui Chin Teck and another appeal [1981] 1 MLJ 56, the issue was whether the purchasers, having signed a pro forma and having paid a booking fee to the developer can be said to have entered into a valid sale and purchase agreement valid contract was already formed. The Court held that subsequent signing of a sale and purchase agreement was found to be merely a formality.
The Federal Court are of the view that the legislative intent was that the initial payment of monies, in the form of a deposit, is sufficient to constitute an intention to enter into a contract given that the agreement would have to be signed at the same time. It is also observed by the High Court in Lim Eh Fah & Ors v Seri Maju Padu [2002] 4 CLJ 37 that a deposit would be meaningless if it does not indicate offer and acceptance.
Hence, the Federal Court held that the date for calculation of liquidated agreed damages (‘LAD’) begins from the date of payment of deposit/booking fee/initial fee/expression by the purchaser of his written intention to purchase and not from the date of the sale and purchase agreement literally.
The Court then proceeds to deal with each sets of the appeals.
PJD Regency Sdn Bhd’s case
Clause 25 of the sale and purchase agreements required that vacant possession be delivered within 42 months (before 2015 amendment which amended the time to 36 months). The purchasers signed a pro forma sale and paid a booking fee. The SPA was only signed at a later date. The purchasers filed a claim to the Housing Tribunal for LAD for late delivery. Purchasers also claimed that LAD in respect of the common facilities should run from the date the certificate of completion and compliance (‘CCC’) was issued.
The developer beside contended that the LAD should be calculated from the date SPA was signed also contended that the calculation of LAD in respect of the common facilities should run from the date the certificate of practical completion (CPC) was issued.
Clause 26 and 27 of their SPA are worded as follows:
“26. Manner of delivery of vacant possession
(1) The Vendor shall let the Purchaser into possession of the said Parcel upon the following:
(a) the issuance of a certificate of completion and compliance certifying that the said Building has been duly constructed and completed in conformity with the approved plans and the requirements of the Street, Drainage and Building Act 1974 and any by-laws made thereunder;
...
(2) The delivery of vacant possession by the Vendor shall be supported by a certificate of completion and compliance certifying that the said Building is safe and fit for occupation and includes handing over the keys of the Parcel to the Purchaser.
…
27. Completion of common facilities
(1) The common facilities serving the said housing development shall be completed by the Vendor within forty two (42) calendar months from the date of this agreement. The Vendor’s architect shall certify the date of completion of the common facilities.”.
The developer argued that there is no requirement of a CCC in clause 27(1) and CCC is merely required to ensure the building is safe for delivery of possession. They also submitted that the newly inserted clause 29 in 2015 amendment to Schedule H does not expressly refer to the CCC. Clause 29 is reproduced as follows:
“Completion of common facilities
29. (1) The common facilities serving the said housing development, which shall form part of the common property, shall be completed by the Developer within thirty-six (36) months from the date of this Agreement. The developer’s architect shall certify the date of completion of the common facilities and a copy of the certification shall be provided to the Purchaser.
(2) If the Developer fails to complete the common facilities in time, the Developer shall pay immediately to the Purchaser liquidated damages to be calculated from day to day at the rate of ten per centum (10%) per annum of the last twenty per centum (20%) of the purchase price.
(3) For the avoidance of doubt, any cause of action to claim liquidated damages by the Purchaser under this clause shall accrue on the date the Developer completes the common facilities together with the architect’s certification.”.
The Court held that Schedule H required the developer to obtain the CCC. It is also clear that the SPA only refer to one type of certification which is the CCC. Applying 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. Additionally, the CCC is a legal requirement imposed by law which in turn is only issued upon the developer complying with all regulatory laws such as the Street, Drainage and Building Act 1974. This in the Court’s view, affords protection to purchasers who would be assured that the relevant authorities have approved the construction. The same cannot be said in respect of the CPC or any other such document not amounting to a CCC.
The differences between CPC and CCC was explained in observations of the learned Court of Appeal is reproduced below:
“[40] Added to that, the certifications are for different purposes. The Certificate of Practical Completion was issued by the Developer’s architect to the Developer’s main contractor to show proof that work undertaken by the main contractor in the building contract entered between the main contractor and the Developer, has been completed to the satisfaction of the Developer’s architect. On the other hand, the CCC was issued to certify that the Property, together with the common facilities, has been constructed and completed in conformity with the approved plans and requirements of the Street, Drainage and Building Act 1974 and its by-laws.
[41] Therefore, the certification under Clause 27 of the SPA can only refer to the CCC. This is because the completion of the common facilities must be in tandem with the completion of the Property itself, as the purposes of the common facilities are for the use and comforts of the purchasers.”.
Thus, the Court dismissed PJD Regency Sdn Bhd’s appeal in favour of the Purchasers.
GJH Avenue Sdn Bhd’s case
Similarly, the purchasers had paid a booking fees and SPA was signed at a later date. The Court of Appeal in this set of cases ruled in favour of the Developer. The Court of Similarly, the Purchasers had paid a booking fee and the SPA was signed at a later date. The Purchasers claimed LAD for late delivery and the Tribunal allowed the LAD to be calculated from the date of the purchasers paid the booking fee. The Court of Appeal in this set of cases held that the Tribunal should apply the law as clearly stipulated in Schedule G because Schedule G is a statutory contract and does not allow parties to contract out of the scheduled form. The SPA did not have any clause which allowed the collection of deposit before signing of the SPA and the date of agreement clearly indicates that the date of agreement is the actual date of the SPA entered into.
The present Federal Court was unable to agree with the learned Court of Appeal and held:
“[111] Firstly, the Housing Tribunal is established by law. ‘Law’ under Article 160 of the Federal Constitution includes ‘common law’ insofar as it is in operation in the Federation or any part thereof. As numerous judgments have pointed out, common law includes Malaysian common law. It is on this basis that the doctrine of stare decisis exists in Malaysia. Having acknowledged that Hoo See Sen and Faber Union are authorities for the proposition that calculation of LAD begins from the booking fee date, the Court of Appeal was bound to follow the decision in those cases. In our view, the Court of Appeal’s attempt to distinguish those cases is, as is the attempt by the developers in these appeals, artificial.
[112] In any event, we have held that quite apart from those cases, the date nonetheless begins from the payment of the booking fee on account of the principles of statutory interpretation on social legislation. The Court of Appeal, with respect, appears to have misapplied the test in relation to illegality within the context of social legislation. It is our view that to limit the date of calculation to the date in the contract is to impliedly condone the collection of such fees. In other words, the result of such a construction by the Court of Appeal would mean that the developers are allowed to benefit from the booking fees collected in contravention of the law while at the same time being allowed to manipulate the date of the contract for purposes of the LAD. Additionally, the Court of Appeal appears to not have directed itself to the principles of contract law and the decision of Daiman which it was bound to follow.”
Sri Damansara Sdn Bhd’s case
The facts are that the Housing Tribunal awarded the purchasers LAD as calculated from the date of the deposit prior to the formal SPA. The only distinctive issue is whether the purchasers were unjustly enriched by the award of the Housing Tribunal. The developer had provided a 10% rebate on the purchase price of the property to the purchasers. As such, the developer contended that the LAD should have been calculated on the rebated purchase price and not on the actual purchase price stipulated in the SPA as that would otherwise tantamount to unjust enrichment.
The learned High Court cited with approval the following passage in Chew Ewe Hin & Anor v Sanjana Triangle Sdn Bhd & Anor case [2017] 1 LNS 355, as follows:
“[36] Returning to the four clauses pertaining to the LAD found in the SPA I agree with the views expressed by the learned author and hold that the doctrine of unjust enrichment has no application to the present case. The Defendant cannot turn around and say that since discount was given the LAD ought to be calculated based on the discounted purchase price. After all the terms of the SPA are statutorily provided for.”.
The High Court essentially held that the sale and purchase agreement having been derived from a statutory contract was not subject to amendment by the parties and that accordingly the developer was bound by the terms of the statutory contract of sale that the LAD shall be calculated from the purchase price.
The Court of Appeal dealt with the issue quite simply as follows:
“[24] In this context, the provisions of the contract of sale admit to no ambiguity as liquidated damages are to be calculated from the agreed purchase price. There was no mention of any rebate in the sale and purchase agreement. It must be borne in mind that the contract of sale was prescribed and regulated by statute and the parties could not import additional clauses into it and especially to remove the protection of home buyers.
[25] For the above reasons, we did not think there was any justification for the plea of unjust enrichment. There was, therefore, no error on the part of the Tribunal in the calculation of the liquidated damages.”.
The Federal Court agrees with the views of the High Court and the Court of Appeal above. It was held that it is trite principle of law that where a statute prescribes a form under the umbrella of social protection, such provisions may be contracted out of provided that the terms of the agreement are favourable to the purchasers.The Court are of the view that the express provision of rebates is favourable to the purchasers which the developer could have inserted into the sale and purchase agreement. Even if such terms were included into the contract, for the following reason, it would have altered the conclusion on the calculation of the LAD. The Court’s explanations are as follows:
“[124] 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. In our view, such an act amounts to nothing more than an act to manipulate the purchase price for the collateral purpose of having to pay LAD.
[125] The LAD prescribed by law is a statutory remedy afforded to the purchasers. There can therefore be no question of unjust enrichment upon an innocent party’s right to enforce his statutory remedy against the party in breach. This is especially so considering the developer’s own contravention of the law by collecting an initial fee from the purchaser in express contravention of regulation 11(2) of the HDR 1989.”
Hence, the purchasers were not being unjustly enriched by the award of the Housing Tribunal. The order of High Court and Court of Appeal are therefore affirmed.
The Court then proceed to conclude the Appeals as follows:
“[130] The Courts will not countenance the bypassing of statutory safeguards meant to protect the purchasers. To that extent, where the developers act in contravention of the law, they have to accept the resulting consequences.
[131] While the developers might think that it is a standard commercial practice to accept booking fees, the development of the law clearly suggests to the contrary. The Courts will not condone such a practice until and unless the law says otherwise.
[132] In summary, we find that the appeals by the developers are devoid of merit and we accordingly dismissed the appeals with costs. We find merits in the purchasers’ appeals and the appeals are therefore allowed with costs.”
Principle of the Case
The date for calculation of liquidated agreed damages (‘LAD’) begins from the date of payment of deposit/booking fee/initial fee/expression by the purchaser of his written intention to purchase and not from the date of the sale and purchase agreement literally.
The full judgment can be accessed from the link here.
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