HOUSING DEVELOPMENT:
FEDERAL COURT DECIDED CALCULATION OF LAD TO BEGIN FROM DATE OF PAYMENT
OF BOOKING FEE
After a whirlwind of conflicting cases, the Federal Court has finally decided on the pivotal question, thereby clarifying and resolving the ultimate conundrum:
“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 (Regulation 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:
(a) the date of payment of deposit/booking fee/initial fee/expression by purchaser of his written intention to purchase; or
(b) from the date of the sale and purchase agreement,
having regard to the decisions of the Supreme Court in Hoo See Sen & Anor v Public Bank Berhad [1988] 2 MLJ 170 and Faber Union Sdn Bhd v Chew Nyat Shong & Anor [1995] 2 MLJ 597.”
A total of 7 appeals stemming from the judicial reviews filed in KL and Malacca were brought before the Federal Court, all of which had the common question on when the calculation of LAD should begin.
To summarise, the Federal Court has decided the above mentioned question in favour of the Purchasers, whereby the calculation of the LAD is to begin from the date of payment of the booking fee to the Developer.
Their grounds of judgement are premised on four (4) reasonings:
1. Decisions in Supreme Court case of Hoo See Sen and Faber Union
a.
b.
c.
d. Therefore, the learned Counsel had erred in stating that Faber Union was decided per incuriam.
2. The Concept of Social Legislation
a.
b.
c.
3. Legislative History and Statutory Interpretation
a.
b.
c.
d.
e.
f.
g.
“...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.”
4. Formation of Contract
a.
b.
c.
UNIQUE LEAVE QUESTIONS IN EACH CASE
5. PJD Regency Cases
Q: What is an “architect’s certificate”?
a. The Developer in this case filed for 2 judicial reviews against different purchasers mainly on 2 points:-
i.
ii.
b.
c.
6. Federal Court held that architect’s certification is in the form of CCC and not CPC based on the following reasons:-
a. In the SPA, it only refers to one type of certification which is the CCC;
b.
c.
d.
7. GJH Avenue Cases
Q: Are Purchasers entitled to LAD calculated from the date of booking fee?
a.
b. The decision of the Housing Tribunal was subsequently upheld by the High Court.
c.
d.
8. Sri Damansara Cases
Q: Is there unjust enrichment on the Purchaser?
a. Learned Counsel posed 3 questions to the Federal Court:-
i.
ii.
b.
c.
d.
e.
i.
ii.
f.
A synopsis by:
Nicole Koh Sui Fen
Ong and Manecksha
Date: 19th January 2021
The cases of Hoo See Sen and Faber Union are both authorities that champion the proposition that LAD is to be calculated from the date of payment of booking fee.
The learned Counsel submitted that Faber Union was decided per incuriam (through lack of due regard to the law or its facts) as the Supreme Court had referred to Hoo See Sen incorrectly. He contended that nowhere in Hoo See Sen did it determine that the date of contract runs from the booking fee. He regarded that the only statement that could infer such notion was found in a semble (an opinion/remark said in passing in a judgement) of a now defunct Supreme Court Reports.
The Federal Court (hereinafter referred to as “the Court”) held that the Faber Union case is to be read as a whole and appreciated in context. The salient facts and ratio decidendi of Hoo See Sen was set out in the Malayan Law Journal report of the Faber Union case stating that calculation of the LAD begins from the date of payment of the booking fee. By reading Hoo See Sen and Faber Union, the law on calculation of LAD remains well established.
It has been long established that the Housing Development (Control and Licencing) Act 1966 and its subsidiary legislations such as the HDR 1989 are “social legislations”.
While there is no express definition of what exactly is “social legislation”, it would be fair and reasonable to say that it would refer to legislation which is for the good and benefit of society. (Supreme Court of India in New India Insurance Co Ltd v Smt Shanti Misra AIR 1976 SC 237)
Therefore, the Court held that Courts have a duty to give effect to the intention of Parliament and not the intention of parties in order to uphold the concept of social legislation. If not, it would render the intention of the Parliament to provide equal bargaining power to the Purchasers to be inconsequential.
The Court took a trip down memory lane in the legislative history of the HDA 1966 whereby the Court appreciated the gist and efforts of the HDA 1966 in protecting Purchasers’ rights.
It is well noted that prior to the enactment of HDA 1966, during the reading of the HDA Bill in 1966, the then Minister of Local Government and Housing had regarded the Bill as “legislative measures should be taken to protect the people from bogus and or unscrupulous housing developers. Hence this Bill”.
In 1970, the HDR 1970 permitted the developers to collect booking fees provided that the amount of such fees did not exceed a statutory range. However, this has been repealed by the subsequent enactment of the HDR 1982 whereby it states in Regulation 11(2) of the HDR 1982 – no collection of booking fees, howsoever described are allowed.
In 1989 vide P.U(A) 106/2015, Regulation 11(2) was further amended with stricter terms stating that “persons including parties acting as stakeholders” are prohibited from collecting booking fees.
Having said the above, the Court is of the view that the legislation was enacted with the Purchasers’ wellbeing in mind. By collecting booking fees, the Developers have acted in contrary to Regulation 11(2) of the HDR 1989.
Therefore, the Court opined that to allow the LAD to run from the date printed on the SPAs would not only be a great deprivation of protection for the Purchasers but the Court would be seen as condoning the Developers’ attempt in circumventing the statutory protection for Purchasers.
Thus, the Court decided that the Developers are to be held accountable for the illegal collection of booking fees:-
Developers contended that Regulation 11(2) of the HDR 1989 when construed literally meant that a contract exists only when the Sale and Purchase Agreements (“SPA”) are formally signed. Thus the LAD is to be calculated from the date of the SPAs.
However, the Court adopted the principle held in Daiman Development Sdn Bhd v Mathew Lui Chin Teck and another appeal [1981] 1 MLJ 56 (‘Daiman’) where it states that a valid contract is established once the Purchaser had signed the booking form and had paid the booking fee to the Developer. Payment of such deposit was sufficient to constitute intention on the Purchaser to enter into a contract. A subsequent signing of the SPA was found to be merely a formality.
Further, the Court held that to allow the calculation of LAD to run from the date of the SPA instead of the date of payment of booking fee would be disadvantageous to the Purchaser as the Developer may put any date it favours to extend the date to deliver vacant possession.
Developer contended that the LAD was to be calculated from the later date rather than the booking fee date. This point of law has been discussed earlier and the Court held that the decisions of the High Court and Court of Appeal are correct and is therefore upheld.
“For the purpose of ascertaining the date of completion of common facilities under a statutory agreement prescribed in Schedule H and J of the Housing Development (Control and Licensing) Regulations 1989 made pursuant to the Housing Development (Control and Licensing) Act 1966, whether the relevant date is when the prescribed architect certifies they were completed.”
With regard to 5(a)(ii), the Purchasers contended that the LAD should be calculated until the date of Certificate of Completion and Compliance (“CCC”) whereas the Developers contended that the LAD should only be calculated until the date of Certificate of Practical Completion (“CPC”). The Housing Tribunal decided in favour of the Purchasers and the Developers filed for judicial review.
The Developers contended that Clause 29 of Schedule H does not expressly mention the need for a CCC as it only states “architect’s certification”.
Taking into consideration the concept of social legislation, it is prudent for the Court to interpret the contracts in a manner most favourable to the Purchasers;
CCC is the legal requirement imposed by the law for the Developer to comply, thereby providing assurance to the Purchasers that the Developer has obtained all relevant approvals from the authorities;
CPC differs from CCC whereby CPC is issued by the Developer’s Architect to the Contractor certifying that the building/construction has been completed to the satisfaction of the Developer. CPC arises under the building or construction contract.
The Housing Tribunal decided in favour of the Purchasers whereby it held that the calculation of the LAD begins from the date of the payment of booking fee following Hoo See Sen and Faber Union.
The Court of Appeal then distinguished the Supreme Court cases and held that “the date of this agreement” provided in the SPA is the date of the SPA entered into between the Developer and Purchasers and not from the date of the booking fee.
Ultimately, the Federal Court decided that the Court of Appeal has erred in its judgement is bound to follow the decisions in Hoo See Sen and Faber Union.
First 2 questions were on the issue of calculation of the LAD commencing on the date of booking fee or from the date of the SPA. This point of law has been decided and discussed above.
The third question relates to unjust enrichment. Point in question is – Developer had given a 10% rebate on the purchase price of the property to the Purchasers. Developer contends that LAD should be calculated based on the rebated purchase price instead of the actual purchase price in the SPA.
The Developers contended that by calculating the LAD based on rebated purchase price amounts to unjust enrichment on the Purchaser.
High Court held that the Developers does not have the discretion to amend the SPA as it is a statutory contract and is bound by the terms of the contract. Hence the LAD is to be calculated based on the actual purchase price stipulated in the SPA.
Court of Appeal opined that no rebates were mentioned in the SPA. As the SPA is a statutory contract, parties could not add or remove clauses from the SPA. However, considering that the SPA is under a social legislation, the Federal Court views that a clause that is favourable to the Purchasers may be inserted into the SPA.
Having said that, the Federal Court view that even if the rebate clause was included in the SPA, the calculation of the LAD would have remained the same i.e. calculated from the actual purchase price, based on the following justifications:-
Rebate amounts to refund of monies already paid by the Purchaser. The Federal Court believes that use of rebates is a manipulative scheme employed by Developers to off-set the LAD that is payable to the Purchaser in a manner of refunding the Purchaser’s own money. This defeats the whole purpose of the LAD that acts as a penal sanction on the Developer.
LAD is a statutory remedy for Purchasers. It is a protection afforded to the innocent Purchasers and this right should by no means be seen as an unjust enrichment. This is particularly vital given that a collection of a booking fee by the Developer is in contravention of the law.
For the reasons above, the Federal Court held that the LAD calculated on the actual purchase price does not amount to unjust enrichment.