Introduction
The Court of Appeal’s decision in Sri Damansara Sdn Bhd v. Voon Kuan Chien & Anor (Civil Appeal No: W – 01(A) – 17 – 01/2019) [“Sri Damansara”] adds to the on-going saga of which date should be used when calculating late delivery damages in a property’s sale and purchase transaction.
Factual Background:
In Sri Damansara, the purchaser bought a condominium unit from the housing developer and entered into a sale & purchase agreement [the “SPA”] under Schedule H of the Housing Development (Control and Licensing) Regulations 1989 [the “Regulations”] which principal legislation is the Housing Developers (Control and Licensing) Act 1996 [the “HDA”]. The SPA date was stated as 28.06.2012.
The purchaser paid the 10% booking fee of RM10,000.00 for his property on 06.01.2012 (approximately 5 months before the SPA’s date). Vacant possession of the property was given to the purchaser on 22.12.2016.
The SPA stated that the late delivery damages is to be calculated after the expiry of 42 months from the date of the SPA.
Thus, the pertinent issue is whether the date used to calculate the 42 months starts from:-
(i) 06.01.2012 – which is the date the purchaser paid the 10% booking fee. If it is 06.01.2012, then 42 months will expire on 06.07.2015; or
(ii) 28.06.2012 – which is the date stated in the SPA to be the date of the SPA. If it is 28.06.2012, then 42 months will expire on 28.12.2015.
Court’s Reasoning
The HDA is considered a social legislation.
It is meant to protect a house buyer against the housing developer. Thus, any onerous terms or additional obligations are not to be imposed on the house buyer.
The Court of Appeal concluded that:-
(i) the collection of any payment by the housing developer in the form of a “booking fee” or by any other similar type of description, that does not comply with the Regulations is legally wrong;
(ii) based on the-
(a) Supreme Court’s decision in Hoo See Sen & Anor v Public Bank Berhad (1988) 2 MLJ 170;
(b) Supreme Court’s decision in Faber Union Sdn Bhd v Chew Nyat Shong & Anor (1995) 3 CLJ 979 [the “1st Faber Union”];
(c) Court of Appeal’s decision in Nippon Express (M) Sdn Bhd v Che Kiang Realty Sdn Bhd & Another Appeal (2013) 7 CLJ 713 which held that there was no reason to deviate from the 1st Faber Union;
(d) High Court decisions in Lim Eh Fah & Ors v Seri Maju Padu [2002] 4 CLJ 37, Faber Union Sdn Bhd v Tribunal Tuntutan Pembeli Rumah, Kementerian Perumahan Dan Kerajaan Tempatan & Ors [2011] 7 CLJ 37 [the “2nd Faber Union”] and Lembaman Development Sdn Bhd v Ooi Lai Yin & Anor and Other Cases [2015] 6 CLJ 375,
the date of the booking fee being paid is to be used to calculate the late delivery damages.
The Court of Appeal’s reasons for this are:-
(i) housing developers have better bargaining positions and could introduce additional standard forms or letters, extending recommendations of solicitors nominated by them to represent the house buyer in the SPA and preparation of the loan documentation;
(ii) the practice of paying a booking fee contradicts the scheme under the Regulations. This leaves the house buyers open to exploitation such as-
(a) there is no protection to the house buyer, having paid the booking fee, if the housing developer refuses to sign the SPA;
(b) if the house buyer is unable to obtain a loan, some housing developers may forfeit the entire booking fee or deposit paid if the house buyer’s loan is not approved whereas if the SPA is terminated, the developer could only forfeit 1% of the purchase price; and
(c) the term housing developers commonly used to refund the booking fee or deposit to the house buyer but charge a RM600.00 administrative charge, has no legal force because the SPA does not have such refund clause.
The Court of Appeal also decided not to follow another recent Court of Appeal decision in GJH Avenue Sdn Bhd v Tribunal Tuntutan Pembeli Rumah, Kementerian Kesejahteraan Bandar, Perumahan Dan Kerajaan Tempatan & Ors And Other Appeals [2019] 1 LNS 1184.
Analysis:
The Court of Appeal’s approach could be narrowed down to:-
(i) the emphasis placed on the Supreme Court’s decisions of Hoo See Sen and 1st Faber Union and the Court of Appeal’s decision of Nippon Express; and
(ii) how the “booking fee” (or deposit) is to be treated.
When the Supreme Court’s decision of Hoo See Sen is read carefully, the matter was really about:-
(i) an application for an injunction to restrain the bank from paying the developer, given that the buyer claimed for damages exceeded the sum payable from the buyer’s loan to the developer; and
(ii) the interpretation of the terms of the deed of assignment dated 07.11.1983 [the “Deed of Assignment”].
In the Supreme Court’s judgment, it was mentioned in passing (and orbiter) that:-
“The appellants purchased a two-storey link house which was to be constructed by the second respondent for $145,000. For this purpose, the appellants and the second respondent entered into a sale and purchase agreement on 18 August 1982 by paying a booking fee of $1,000, subject to various payments including progress payments. According to clause 18 of the sale and purchase agreement, which was only signed on 18 March 1983, the building was to be so constructed that the second respondent had to give vacant possession within 24 months of the date of the agreement, i.e. 24 months from the date of payment of the booking fee (18 March 1982).”
No cogent explanation was given as to why the date of the agreement is to be from the date of payment of the booking fee. Further, the above statement had no bearing on the Supreme Court’s interpretation of the Deed of Assignment.
When the 1st Faber Union came along, all the Supreme Court there said was:-
(i) the facts therein were similar to Hoo See Sen; and
(ii) there was no good reason to disagree with Hoo See Sen.
While subsequent High Court decisions may be right to adopt Hoo See Sen and the 1st Faber Union because those decisions were binding on them, again, it does not adequately or cogently explain why the date of the agreement in Hoo See Sen is to be taken from the date of payment of the booking fee.
Could it have been the peculiarity in Hoo See Sen where one of the express clauses there plainly stated that the date of the booking fee is the date of the agreement?
Then we have the Court of Appeal’s decision in Foong Seong Equipment Sdn Bhd (receivers and managers appointed) v Keris Properties (PK) Sdn Bhd (No 2) [2009] 5 MLJ 393. Here, the Court of Appeal was clear that time started to run from the execution of the SPA (nothing mentioned about the date of booking fees paid). They held, among others:-
“[30] As developer, the plaintiff is required to diligently proceed to complete the development project within the time specified in the SPAs, because upon the execution thereof, time effectively started to run against the developer: Hoo See Sen & Anor v Public Bank Bhd & Anor [1988] 2 MLJ 170 (SC); Faber Union Sdn Bhd v Chew Nyat Shong & Anor [1995] 2 MLJ 597; [1995] 3 CLJ 797 (SC); and Lim Eh Fah & Ors v Seri Maju Padu [2002] 4 CLJ 37 (HC).”
We now come to the recent Court of Appeal’s decision of GJH Avenue Sdn Bhd v Tribunal Tuntutan Pembeli Rumah, Kementerian Kesejahteraan Bandar, Perumahan Dan Kerajaan Tempatan & Ors And Other Appeals [2019] 1 LNS 1184 [“GJH Avenue”].
Here, the same issue arose and the Court of Appeal held that:-
(i) where words are plain and unambiguous, its meaning must be given a plain and ordinary meaning. So, if the date of agreement is as stated in the SPA itself, one should take it as such; and
(ii) Hoo See Sen and the 1st Faber Union were decisions prior to the HDA and Regulations and thus, distinguishable.
There is another issue with giving legal force to “the date of the booking fee” to be the “date of the SPA” as was done in Sri Damansara. First, the Court of Appeal repeatedly stated that the collection of any booking fee or deposit from a house buyer is repugnant of the HDA and Regulations and thus, legally wrong.
However, they are giving effect in law (i.e. to use the date of the booking fee) what they essentially held was a legally wrongful practice.
One may say that the Court of Appeal’s reasoning in Sri Damansara is justified given that the HDA and Regulations are ‘social legislations’. Yet:-
(i) legal guidance must be given on how, exactly, are such social legislations are to be interpreted; and
(ii) a balance must be achieved between ensuring adequate protection for house buyers and to the certainty of how we interpret contracts or legislations.
For example, what happens if for some reason the booking fees were only fully paid after the SPA was signed?
Do we then adopt the plain and ordinary meaning of the SPA just because it would be more advantageous to the house buyer?
This was what happened in Kompobina Holding Sdn Bhd v Tribunal Tuntutan Pembeli Rumah & Anor [2017] MLJU 2268. Here:-
(i) the SPA was signed on 18.01.2012;
(ii) for some reason, the house buyer only paid the booking fees in full on 11.06.2013.
While the Court of Appeal held that the effective SPA date was 18.01.2012, does it mean that the Court’s interpretation would always result in a favourable outcome for the house buyer, as indicated in Sri Damansara?
The above queries are difficult to reconcile at present and the Federal Court’s guidance on this would be timely.
We must keep in mind that the above analysis applies to housing buyers and developers.
For commercial properties and developers (who do not fall under the HAD), the Court of Appeal’s reasoning of Sri Damansara and the authorities it follows, may not apply. This can be seen in the recent High Court decision of Fair Vista Sdn Bhd v. Pertubuhan Keselamatan Sosial Axes Holdings Sdn Bhd; Civil Suit No: J-12BNCVC-19-08/2019, 18.05.2020.
Conclusion:
1. For house buyers and housing developers, there appears to be more authorities to suggest that the effective date for calculating late delivery damages is the date of the booking fees was paid.
2. Payment of a “booking fee” or “deposit” (in any shape or form) is prohibited as it would be contrary to the HDA and Regulations.
3. The Supreme Court’s decisions of Hoo See Sen and the 1st Faber Union do not adequately or cogently explain why the date of the SPA agreement is the date the booking fees was paid.
4. The decision by the Federal Court resolving all of the conflicting case law would give much needed clarity on this issue. Alternatively, the revision or amendments to the HDA or Regulations would be timely.
5. In the meantime, it would be prudent for housing buyers and developers to seek legal advice to ensure the pitfalls on this issue are avoided.
