Recent Development: Calculation of Liquidated Ascertained Damages for the Late Delivery of Vacant Possession

Introduction

The Federal Court, on 20th February 2021, took a definitive position to clear the air in the calculation of time in the late delivery of vacant possession in respect of residential properties. 

Prior to the decision, there were two conflicting Court of Appeal decisions, wherein in relation to the calculation of Liquidated Ascertained Damages (“LAD”), whether time starts from the date of payment of the booking fee or the date of signing of the sale and purchase agreement (SPA). 

The Housing Development Legislation

Residential properties are governed and regulated by the Housing Development (Control and Licensing) Act 1966 (the “Act”) and the Housing Development (Control and Licensing) Regulations 1989 (the “Regulations”) respectively. 

The Act provides for the control and licensing of the business of housing development in Peninsular Malaysia, the protection of the interest of purchasers and for matters connected therewith. 

In short, the Act is very much a social legislation. That is to say, in the event the law is ambiguous, or where there is a disparity in bargaining power, the scales of justice will tip in favour of the weaker class in the case of a dispute. 

The aforementioned conflicting decisions arose due to the phrase “from the date of this Agreement” that is contained in Clause 24(1) of Schedule G of the Regulations (properties with individual titles) and Clause 25 of Schedule H of the Regulations (properties with subdivided titles – properties under strata). 

While Schedule G stipulates that the time for delivery of vacant possession is to be within 24 months from the date of the Agreement, Schedule H permits the delivery of vacant possession to be within 36 months from the date of the Agreement. 

The confusion that arose was whether ‘the date of this Agreement’ referred to the date of payment of the booking fee by the prospective purchaser or the date of signing the SPA with the developer. 

Prior Decisions

In Hoo See Sen & Anor v Public Bank Berhad [1988] 2 MLJ 170, a purchaser filed an injunction at the High Court against the bank from releasing the balance purchase price to the developer on the premise that the developer had owed the purchaser a greater sum of LAD. The High Court dismissed the application. 

However, the Supreme Court allowed the purchaser’s appeal and granted the injunction and held that LAD was to be paid to the purchaser and that time commenced from the date of payment of the booking fee, and not the date the SPA was signed. 

Subsequently, the Supreme Court in Faber Union Sdn Bhd v Chew Nyat Shong & Anor [1995] 2 MLJ 597 followed the precedent set in Hoo See Sen and similarly held that the for the calculation of LAD in the late delivery of vacant possession, time starts to run from the date the purchaser paid the booking fee. 

Conflicting Decisions

There were two decisions of the Court of Appeal that were conflicting, namely:

1. GJH Avenue Sdn Bhd v Tribunal Tuntutan Pembeli Rumah & 2 Ors [2019] 1 LNS 1184 (the “GJH Avenue Appeal”); and
2. PJD Regency Sdn Bhd v Tribunal Tuntutan Pembeli Rumah & Anor [2019] MLJU 2067 (the “PJD Regency Appeal”). 

The GJH Avenue Appeal emanated from the Tribunal for Homebuyer Claims, wherein the said Tribunal allowed the purchasers’ claim therein against the developer and determined that the LAD calculation should begin from the date of payment of the booking fee. 

The developer, being aggrieved by the decision, filed a judicial review application at the High Court against the Tribunal’s decision. The High Court consequently dismissed the developer’s application.

However, on appeal, the Court of Appeal distinguished the Supreme Court decision in Hoo See Sen and held that the SPA therein was not a “Form G type of Agreement”, and therefore, was not subject to the Act and the Regulations as the said case pre-dated the enactment of the same. 

The Court of Appeal took a literal approach and found that where the collection of deposit is prohibited by law, the term “this agreement” in a statutory contract could not refer to anything but the contract between the parties themselves, i.e. the SPA, and thus, LAD should be calculated from the date of signing the SPA.

Shortly after, the PJD Regency Appeal, which commenced at the Tribunal for Homebuyer Claims by aggrieved purchasers, was similarly brought before the High Court vide the developer’s judicial review application following the Tribunal’s decision in favour of the purchasers. 

The High Court affirmed the Tribunal’s decision. On appeal by the developer, the Court of Appeal affirmed the position in the authorities of Hoo See Sen and Faber Union and held that the LAD should be calculated from the date of payment of the booking fee, taking an opposing stance from the GJH Avenue Appeal.

The two back to back, conflicting decisions placed many homebuyers and developers in the dark in relation to LAD claims. Many claims before the Courts were made to await the outcome of the Federal Court on these Appeals. 

The Federal Court's Decision

The Federal Court’s starting point in its determination was the finding that the Act and the Regulations were and are, in every aspect of its enactment, a social legislation. This was settled beyond dispute in the Federal Court decisions of 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 Court held that a social legislation differs from any other legislation enacted by the public elected body, in that where there are ambiguous terms in the former, the prevailing literal rule is displaced by the purposive rule. 

This is pertinent for the legislature to mitigate the inequality of bargaining power that may exist. 

Further, the Federal Court held that this is not akin to the Court rewriting the terms of the SPA, but merely construing the Regulations in accordance with the statutory provisions. 

Whilst the principles of contractual interpretation dictates that a legislation should be read literally and in accordance with the intention of parties, the interpretation of social legislation allows for the intention of Parliament to take precedence over the intention of parties. 

Her Ladyship Tengku Maimun Binti Tuan Mat, Chief Justice of the Federal Court, further held that there was a formation of a valid contract when booking fees was paid to the developer, as in often case, pro forma documents are signed to that effect; and the developers bypassing the statutory prohibition of the collection of booking fees means that a bargain was indeed made at the time – see Daiman Development Sdn Bhd v Mathew Lui Chin Teck and another appeal [1981] 1 MLJ (Privy Council). 

Furthermore, the collection of booking fees would be disadvantageous to purchaser as developers are at liberty to date the SPA in view of extending the date of delivery of vacant possession. 

Premised on the findings above, the Federal Court unanimously held that in the calculation of LAD for the late delivery of vacant possession in residential properties, time starts to run from the date of payment of the booking fee by the purchaser.

Conclusion

This decision means that upon a purchaser’s payment of the booking fee, a developer would have 36 months (24 months for individual titles) to deliver vacant possession of the sub-divided property, failing which, the purchaser may claim for LAD thereof. 

This is very much the judiciary’s attempt to put a halt to ‘ingenious schemes devised by developers to circumvent the law’ and level the playing field for innocent homebuyers from bogus and unscrupulous housing developers.