Housing Development (Control & Licensing) Act 1966 ("HDA") Post Covid-19: Who Benefits - Developers or Purchases


Ranjan Chandran, Partner (Commercial & Construction Department)
Chandni Anantha Krishnan, Associate (Commercial & Construction Department)
Harneshpal Karamjit Singh, Associate (Commercial & Construction Department)

2020 3 MLRA ix

Hakem Arabi & Associates

Introduction: Time for Developers and Purchasers to Ponder

[1] More than seventy countries have declared some form of national level curfew and/or lockdown ever since the World Health Organization (“WHO”) declared COVID-19 a pandemic . We are living in unprecedented times as billions of people Worldwide have their movements restricted.

[2] Locally in Mala ysia, the Go vernment imposed the Movement Control Order (“MCO”) pursuant to the Prevention and Control of Infectious Diseases 1988 and the Police Act 1967. The MCO was meant to be in effect for 14 days from 18 March 2020 but has now been extended three times up until the 12 May 2020. There is every possibility of a possible fourth extension or more.

[3] All Malaysians have been advised to comply with the advice to stay put at home to contain the spread of this dangerous virus which is fast spreading and causing deaths.

[4] Similar to all layers of the Malaysian population, the building/construction industry was taken by surprise when the Mala ysian Government announced the MCO. The Ministry of Works has confr med that the said Industry is likewise subjected to the MCO.

[5] No doubt certain “Critical Works” construction projects are allowed to continue works during the MCO , this is however strictly confined to the continuation of projects , in instances where if it was stopped abruptly, may cause danger and harm to construction workers, the general public and the environment.

[6] During the third phase of MCO, the construction industry, specifcally construction projects and services related to construction works were a few selected sectors permitted to operate . Be that as it may, from the 19,077 construction companies that had applied to the Ministry of International Trade and Industry, only 1,856 companies were approved and allowed to operate.1

[7] As a result, most Developers are currently facing major diffculties with works essentially stopped, with much anxiety and grave concern on how the construction/building works will be completed with this current pandemic and MCO constraints.

[8] It is no secret that Developers and construction projects are undoubtedly adversely affected in this current MCO conditions and which will extend post COVID-19.

[9] Obtaining supplies and workforce mobility are currently impeded with not only a national lockdown but the lockdown and curfews in most countries in the world grappled with this Pandemic. The hardship to the Developers will be more obvious, especially if the supplies, the workforce and the expertise are procured from outside Malaysia, where these countries may still be under the imposition of some form of curfew and/or lockdown.

[10] For the purchasers who have in vested their hard-ear ned money to purchase properties, their concern will in variably be that the Developer completes the project on time as covenanted and there is no deferment or delay in completion occasioned by the COVID-19 pandemic and MCO lockdown periods.

[11] If there be any delays, purchasers will want to be compensated by virtue of the Liquidated Ascer tained Damag es (“LAD”) clause in their Sales and Purchase Agreements (“S&P”).

[12] From the perspective of Developers, there are two possible reliefs that they may fall back on from their Contract namely:

  1. For an accommodation on the extension of time for the completion of the construction/building project due to the CO VID-19 pandemic and MCO lockdown period.

  2. For a complete extinguishment/waiver of the LAD payable to the purchasers for late completion/delivery of Vacant Possession (“VP”) of properties during the COVID-19 and MCO lockdown period.

[13] The two legislations that are paramount in considering the obser vations above are the Housing Development (Control & Licensing) Act 1966 (“HDA") and the Housing Development (Control and Licensing) Regulations 1989 (“HDR”).

No Relief Of Force Majeure And Frustration For The Developer Under HDA & HDR For COVID-19

[14] The HDA and HDR, which are legislations with the primary intention of protecting purchasers, have prescribed form HDR S&P, most notably Schedule G and Schedule H that does not contain a Force Majeure clause. It is trite law that our Courts will not infer such a clause in its absence.

[15] The doctrine of Frustration which is the usual alternative relief in contract is further not available for the prescribed form HDR S&P. This will be explained with reference to the decision of our Court of Appeal in Sentul Raya Sdn Bhd v. Hariram Jayaram & Ors And Other Appeals (“Sentul Raya”)2 hereinafter.

[16] It will become apparent from case study analysis, that the intention of Parliament and the cour ts under the HDA and HDR regime is to protect the interest of purchasers by ensuring that constr uction of projects are completed as scheduled and De velopers do not misuse the la w to unnecessaril y dela y completion of projects or abandonment thereof.

Will Sub-regulation 11(3) Of The HDR Pro vide Relief To The De veloper For COVID-19?

[17] The HDR came into force on 1 April 1989 by vir tue of the po wers as conferred upon the Minister pursuant to s 24 of the HDA.

[18] The rele vant sub-regulation that is to be focused on to see if any relief is of avail to a De veloper is Sub-regulation 11(3) of the HDR which reads as follows:

“Regulation 11. Contract of Sale 11(3) Where the Controller is satisfed that o wing to SPECIAL CIRCUMSTANCES OR HARDSHIP OR NECESSITY COMPLIANCE with any of the provisions in the contract of sale is IMPRACTICABLE OR UNNECESSARY, he may, BY A CERTIFICATE IN WRITING, WAIVE OR MODIFY such provisions…”

Sentul Raya

[19] As mentioned earlier , there is then the decision of our Cour t of Appeal in the case of Sentul Raya which considered the application of Sub-regulation 11(3) of the HDR.

[20] In Sentul Raya, Sentul Raya Sdn Bhd a housing De veloper, governed by the HDA and HDR, entered into S&P with the purchasers to sell apartments in a condominium which Sentul Raya Sdn Bhd agreed to construct.

[21] However, Sentul Raya Sdn Bhd w as unable to make deli very of the apartments and the purchasers commenced action to reco ver LAD for late delivery of VP of their respective apartments.

[22] Of the many grounds put forward by Sentul Raya Sdn Bhd to resist the LAD claim, one g round that w as raised w as whether the Doctrine of Frustration was applicable?

[23] The Cour t of Appeal in the Sentul Raya held that Sub-regulation 11(3) of the HDR clearl y excluded the operation of the Doctrine of Frustration in respect of contracts regulated under the HDA regime. In short, the defence of Frustration was not available to Sentul Raya Sdn Bhd.

[24] The Court of Appeal further dismissed the argument advanced by Sentul Raya Sdn Bhd that the 1997 Financial Crisis rendered the contracts entered radically different. The Court held that the 1997 Financial Crisis merely made it more onerous or perhaps more expensive for Sentul Raya Sdn Bhd to perform its obligations.

[25] In Sentul Raya, the 1997 Financial Crisis aside from being an impediment in terms of fnancial constraints to complete the housing development project, was not a suffcient reason to frustrate the S&P executed.

[26] The decision of Sentul Raya completely favors the purchasers by sending a clear message to Developers that the cour ts shall not condone any attempt by Developers to bring an end to the development contracts.

Ang Ming Lee & Ors v. Menteri Kesejahteraan Bandar, Perumahan Dan Kerajaan Tempatan & Anor And Other Appeals (“Ang Ming Lee”)3

[27] In Ang Ming Lee, the Developer (BHL Construction Sdn Bhd) entered into the prescribed form Schedule H S&P with the purchasers . In accordance with the said S&P, the Developer was required to deliver VP of the property to the purchasers within 36 months of the S&P.

[28] The Developer applied for an extension of time to the Controller pursuant to sub-regulation 11(3) of the HDR. The reasons for the application was due to the numerous complaints by nearby residents on the extended working hours; stop work orders issued by the local authorities; and in vestigations conducted on the piling contractor. The Controller rejected the Developer’s application.

[29] The De veloper appealed as against the decision of the Controller to the Minister of UrbanWellbeing, Housing and Local Government pursuant to reg 12 of the HDR. It was purportedly approved and a further 12 months extension was granted to the Developer.

[30] The purchasers were dissatisfed with the decision of the said Minister as they were unable to claim for LAD and they commenced a civil suit for judicial review.

[31] The following questions were posed before the Federal Court:

  1. Does the Controller have the power to waive or modify any provisions in the prescribed form Schedule H S&P?;

  2. Does s 24 of the HDA confer power on the Minister to make regulations for the purpose to delegate the power to waive or modify the prescribed form Schedule H S&P to the Controller?;

  3. Is sub-regulation 11(3) of the HDR is ultra vires the HAD?

[32] The Federal Court held as follows:

  1. That the Controller has no po wer to modify or w aive any covenants in the prescribed form Schedule H S&P as s 24 of the HDA does not give the power of delegation from the Minister to the Controller. Thus, sub-regulation of the 11(3) of the HDR is ultra vires the HDA.

  2. That the Minister under s 24 of the HDA should appl y his/her own mind and not delegate his/her power to the Controller. The HDA enacted by P arliament entrusted the Minister to safeguard the interest of the purchasers.

  3. That if the Minister had delegated his/her po wers under sub- regulation 11(3) of the HDR, then there should not be an appeal process from the decision of the Controller to the Minister since , this was akin to an appeal to the Minister against his own decision.

  4. That the Minister’s action in delegating the po wer to modify the conditions and terms of the contract of sale may be construed as having exceeded what was intended by Parliament.

  5. That by modifying the covenants of the prescribed form Schedule H S&P and granting the De veloper an extension of time , the Controller had denied purchasers their right to claim LAD.

[33] The decision in Ang Ming Lee is an e xtremely fair decision based on the peculiar factual circumstances of that case , as the paramount intent of the HDA and HDR is for the protection of the interest of the purchasers.

[34] The Minister and the Controller ought not to willy-nilly grant extensions of time for Developers to complete the housing development projects without obtaining the consent of the purchasers and more so at the expense of depriving the purchasers of their entitlement of LAD which will be unfair and unjust to them as it is part of the covenant.

[35] The decision in Ang Ming Lee balanced the commercial interest of a multi- million housing development company against the life-time loan commitment of a purchaser for a basic living necessity.

What RecourseWould There Then Be F or Developers – Present And P ost COVID-19?

[36] It is no w evident that the HD A and HDR fa vors the purchasers’ rights and protects them as Force Majeure clauses are not contained in the prescribed form HDR S&P. The Doctrine of Frustration does not fnd bene volence with our Courts and sub-regulation 11(3) of the HDR has been declared ultra vires.

[37] As much as we fully support the true purport and intent of the HDA and HDR to afford the protection to the purchasers that they deserve, the law must be seen to be fair to consider the plight of the Developers, especially so in this time of the COVID-19 pandemic and MCO lockdown.

[38] It must be borne in mind that the present scenario of a Developer in the present COVID-19 pandemic and post COVID-19 is a far cry from the facts of Sentul Raya then decided.

[39] In the 1997 Financial Crisis , there w as no special circumstances or hardship like in the present CO VID-19 pandemic and/or the MCO imposed by the Government.

[40] The special circumstances and hardship in the present CO VID-19 pandemic and MCO will be the complete standstill and permanent closure of the development project so as to contain the serious risk and spread of this alarming and dang erous disease that has affected not onl y Malaysia but the wholeWorld at large.

[41] There are many roadblocks e verywhere to pre vent the mo vement of people, and workers are advised to stay safe at home. Mobility of construction workers in this cur rent time is vir tually impossible . There ha ve been many arrests for those who have breached the MCO.

[42] Procuring supplies for the constr uction project is y et another major problem, as most suppliers ha ve closed their businesses since the announcement of the MCO.

[43] In essence, the 1997 Financial Crisis as ad verted to in Sentul Raya is by no stretch of the imagination any w ay a comparison to special circumstances and hardship faced by the Developers due to the COVID-19 pandemic and the MCO.

[44] One may go that far as to say that, the special circumstances and hardship that the Developers have to endure now, is of a greater complexity and concern unimaginable with at present three MCO phases imposed completely crippling the progress of any construction project.

[45] The doors would seem to have been permanently shut for any recourse to the Developer in Ang Ming Lee by the Cour t declaring sub-regulation 11(3) of the HDR as ultra vires the HDA. The Appeal to the Minister on any rejected decision by the Controller under reg 12 of the HDR has presumabl y become redundant.

[46] It is noted that despite the decision ofAng Ming Lee, the legislature has not formally repealed the said Sub-regulation 11(3) of the HDR and the reasons are still left unknown.

[47] The Cour ts will be respectfull y urged to take note of an impor tant fact, that both the factual matrix of Sentul Ra ya and Ang Ming Lee did not deal with an unprecedented pandemic situation of COVID-19 or the imposition of an MCO.

[48] Undoubtedly what is paramount under the HD A regime is protection of the purchasers’ rights and interest, but ill-affording any recourse to the Developer is unjust and may well be self-defeating to the purchasers as projects may be abandoned if the developer is cash strapped.

Justice, Fairness And The Good Faith Principle

[49] Perhaps the time has come for the cour ts to impl y terms by the process of constr uction and inter pretation, incor porating the good faith principle by judicial activism in contractual relationships.

[50] The ‘Good F aith’ principle is a g eneral principle recognized in most civil law countries . It is a ter m that describes honest dealing . It is the duty to act in good faith where contracting par ties are to act with fair ness and/or reasonableness in performing their covenants.

[51] In § 1-203 of the Unifor m Commercial Code of the United States of America (“US”) states every contract or duty within the said Act imposes an obligation of good faith in its perfor mance or enforcement. Similarl y, in § 205 of the R estatement (Second) of Contracts of the US states that e very contract imposes upon each par ty a duty of good faith and fair dealing in its performance and its enforcement.

[52] This means that e very contract in the US has an implied ter m of good faith. Contracting par ties are implied to do nothing that ma y impede one another from enjo ying the fr uits of the contract. Ho wever, e ven in the US specifcally Califor nia, the breach of good faith will onl y be allowed if there exists a ‘special relationship’. The elements that need to be satisfed to pro ve ‘special relationship’ is as follows:

  1. the contract is such that the par ties are in inherentl y unequal bargaining positions;
  2. non-proft motivation for the contract;
  3. contract damages will not adequately compensate the plaintiff for the breach;
  4. plaintiff ’s vulnerability because of the defendant’s position of trust; and
  5. defendant's knowledge of plaintiff ’s vulnerability.4

[53] Is demanding LAD payment conscionable and fair given the current state of affairs? Is it conscionable to impose the time for completion in the given state of affairs? The answer will be an affrmative No.

[54] It is hoped that Mala ysia will become only the four th Commonw ealth country to recognize this good faith principle . Judicial innovation will be required to develop this good faith principle to tackle the hardship and special circumstances that De velopers shall face in completing their contractual obligations.

[55] The Developer can be assumed to have acted at all times in good faith in their project development and their works hampered due to an immediate stop for this COVID-19 pandemic and MCO lockdown period. The Developer had not acted in any way dishonest, unfair and/or unreasonable in perfor ming its covenants.

[56] The principle of good faith (if pro ven) m ust be applied to allo w an enlargement of time/e xtinguishment of LAD computation for a fair and just period. As if such principle is not implied, it would be unconscionable to demand LAD and impose completion of the covenants of the S&P in the current situation.

[57] Furthermore, the Court of Appeal in Aseambankers Malaysia Bhd & Ors v Shencourt Sdn Bhd & Anor5 stated it would be an unwise decision to summarily dismiss the existence of a duty of good faith in contracts.

[58] The time is right for our cour ts to apply the good faith principle to fnally settle the law on the said principle. The current COVID-19 pandemic and the MCO demands for the recognition of such a principle in Malaysia.

Malaysian COVID-19 Act Of Parliament?

[59] Malaysia urgently needs a COVID-19 Act of Parliament modelled in the same fashion like that of the Singapore’ s COVID-19 (Temporary Measures) Act 2020 (“CTM 2020”).

[60] The CTM 2020 has afforded some protection to Developers of projects by expressly stating that the LAD computations for the six months period of the CTM 2020 are to be ignored andthere can be no claims by the purchasers. This is indeed a w elcome relief to Developers in Singapore that m ust be seriously considered in the proposed Malaysian COVID-19 Act.

[61] In conclusion, the principles of justice and fair ness should be fe xibly applied together with the good faith principle, which must offer some recourse and/or relief to the De veloper in this CO VID-19 pandemic and MCO lockdown period, to grant reasonable extension of time to complete the project and to waive or extinguish LAD claims throughout this COVID-19 pandemic and MCO period.

* The Authors are Advocates & Solicitors of the High Court of Malaya
1 K P erimbanayagam and AM Radhi, “19,077 Contractors Applied but Onl y 1,856 Approved to Operate: New Straits Times” (NST Online, 22 April 2020) https://www. approved-operate accessed 27 April 2020
2 [2008] 1 MLRA 473
3 [2019] 6 MLRA 494
4 Wallis v. Superior Court, 160 Cal. App. 3d 1109 at 1118
5 [2014] 4 MLRA 104