By
Ranjan Chandran, Partner (Commercial & Construction Department)
Chandni Anantha Krishnan, Associate (Commercial & Construction Department)
Harneshpal Karamjit Singh, Associate (Commercial & Construction Department)
Just as a Malaysian Law Practitioner sat down to enjoy a cup of Tea and
read his/her copy of the third volume of the Current Law Journal after a
horridmorning in Court, he/shewould have been relieved to see a relatively
short two-page Judgment of our then Supreme Court in Faber Union Sdn
Bhd v Chew Nyat Shong & Anor (“Faber Union”)1 which had very informative
headnotes as follows:
“Vacant possession of building - Date for delivery of vacant possession -
Whether time started to run from the date the deposit was paid or from the
date the sale and purchase agreement was signed”
Little did he/she know that this two-page judgment would be the beginning
to the twenty five-year long uncertainty on the Law of Liquidated
Ascertained Damages (“LAD”).
The Authors aim is to dissect the findings of the then Supreme Court in Faber
Union, appreciate the developments and provide a detailed analysis on
the current position, and bring clarity to the Law on LAD.
The then Supreme Court was faced with only one issue as was candidly
stated by Hj. Mohd Eusoff Chin CJ as follows:-
“for the purpose of ascertaining the date of delivery of the vacant
possession in a claim of liquidated damages for late delivery of a building
to be constructed, does time start running from the date of payment of the
booking fee, or the date of the signing of the sale and purchase agreement
which was executed after the payment of the booking fee.”
The timeline was as follows:
(a) Date of Payment of the Booking Fee: 17th February 1984; and
(b) Date of the Signing of the Sale and Purchase (“S&P”) agreement:
27th June 1984.
The Supreme Court having placed reliance on the decision of Hoo See Sen
and Anor v Public Bank Berhad (“Hoo See Sen”)2 held, that the date of
delivery of vacant possession commenced from the date of payment of
the booking fee as opposed to the date of the execution of the S&P
agreement.
The Honourable Panel of Judges in Faber Union found a similarity in clause
18 of the S&P agreement in Hoo See Sen with clause 6.06 of the S&P
agreement before them.
Clause 18 stated that “vacant possession was to be delivered to the
purchaser within twenty-four (24) calendar months from the date of this
agreement”. Clause 6.06 stated that “vacant possession was to be
delivered to the purchaser within thirty-six (36) calendar months from the
date of this agreement”.
Thus, the Supreme Court found no reason to depart from the decision in
Hoo See Sen and affirmed that, for the purposes of ascertaining the date
of delivery of the vacant possession in a claim of liquidated damages for
late delivery of a building to be constructed, time commences from the
date of payment of the booking fee.
It is to be noted that in the Faber Union case, the actual facts of the matter
were not presented in totality so as to be in a better position to understand
the rationale of the decision as to why the Court chose to follow the
booking date as compared to the S&P agreement date to compute the
LAD.
As Faber Union affirmed the position in Hoo See Sen, it would be worth to
dissect the findings of the then Supreme Court in Hoo See Sen.
The Plaintiffs purchased a two-storey link house from the Second Defendant.
A booking fee payment was made on 18th August 1982 and the S&P
agreement was executed on 18th March 1983. The Second Defendant was
to deliver vacant possession after constructing the house within twenty-four
(24)months of the date of the S&P agreement in accordance to Clause 18.
For the purpose of ascertaining the date of delivery of the vacant
possession, the Supreme Court found that the Plaintiffs and the Second
Defendant had entered into the S&P agreement on the date of the
payment of the booking fee. As such, vacant possession should have been
delivered by the Second Defendant by 17th August 1984, within two years
of the date of the booking fee payment which was on 18th August 1982.
There is no hint of a doubt that the facts of Hoo See Sen are strikingly similar
to that of Faber Union.
A series of case laws had adopted the position as taken in Faber Union. The Authors will discuss these cases hereinafter.
The first reported decision to seek solace under Faber Union was the High
Court decision of Lim Eh Fa. In Lim Eh Fa, the purchaser had purchased a
condominium unit from the developer. The booking fee was paid on 18th
July 1992 and the S&P agreement was executed on 10th October 1992,
almost three months later.
It was agreed that vacant possession would be handed to the purchaser
within twenty-four (24) months from the date of the S&P agreement. In
addition, the purchaser had executed a loan agreement and a deed of
assignment with a bank on 12th June 1993.
Vacant possession was only given on 1st December 1996. The purchaser
relied on 18th July 1992 (by virtue of date of payment of booking fee) as the
date LAD started accruing but the developer relied on 12th June 1993 (by
virtue of date of deed of assignment on which the S&P agreement had to
be read with).
Applying Faber Union and Hoo See San, the High Court ruled that for the
purposes of calculating the damages on the late delivery of vacant
possession, the date starts to accrue from the date of the payment of the
booking fee.
The High Court was candid to state that the date of the payment of the
deposit was the date of which the contract was struck and the date the
developer assumed responsibility to fulfill its obligations including the
delivery of vacant possession.
The Court of Appeal decision of Nippon Express also found solace under
Faber Union.
In Nippon Express, the purchasers signed two purchase forms and offers to
purchase for two pieces of industrial lands. It was a term of the agreements
that the developer would construct the infrastructure for the two pieces of
industrial lands and deliver its vacant possession within thirty (30) months
from the date of the agreements.
In determining the commencement of this thirty (30) month period, the
Court of Appeal referred to the cases of Faber Union, Ho See Sen and Lim
Eh Fa and decided that the thirty (30) month period accrued from the date
of the payment of the booking fee.
This High Court case of Lembaman also sought solace under the Faber
Union decision.
This was a case which did not concern the Housing Development (Control
and Licensing) Act 1966 (“HDA”), and the issue before the Court was
whether to adopt the deposit payment date or the S&P agreement date
as the date when the contract was struck for the purposes of computing
the LAD.
The Court in the Lembaman case held that the payment of the deposit
date was the date when the contract was struck and the Developer
assumed the responsibility to fulfil its part of the bargain from the said
deposit date.
The Court in the Lembaman case was mindful of the fact that a developer
could willy-nilly pick any dates it favoured to execute the S&P agreement
which will be prejudicial to the interest of the purchasers.
The Court in the Lembaman case, to fortify its reasoning in preferring to
follow the Faber Union case, decided that a contract comes into existence
and parties to the contract assumed the obligations of a contract as soon
as the booking fee is paid and the contract is deemed to have come into
existence from that date.
Having seen the approach taken by the three (3) decisions as explained
above which preferred the Faber Union approach on the LAD
commencing from the booking date, it is the respectful view of the Authors
that the time has come for our Federal Court as the highest Court in the
land to seriously revisit the said decision of Faber Union.
The views as expressed by the Authors hereinafter, it is hoped, will provide
fortification on this need of our Federal Court to express their recent
sentiments to depart and/or distinguish the decision of the Supreme Court
in Faber Union so as ensure that the law on LAD is settled with regards to the
date of commencement of LAD computation.
The cases of Faber Union, Hoo See Sen, Lim Eh Fa, Nippon Express and
Lembaman were all decided the same way. In ascertaining the date of
delivery of the vacant possession, the commencement date that should be
used is the payment of the booking fee as opposed to the date of the
execution of the S&P agreement.
However, the Authors note that much literature have not touched on an
important observation that the S&P agreement in Faber Union was not an
agreement governed by the HDA but rather a standard commercial S&P
agreement as between two parties.
The S&P agreements in the other four (4) cases above were not the
prescribed form Schedule G and/or Schedule H S&P agreements as per the
Housing Development (Control and Licensing) Regulations 1989 (“HDR”)
pursuant to Section 24 of the HDA.
It is the respectful views of the Authors that if the HDA and HDR had applied,
the decision of Faber Union would have been different.
The HDA is a legislation specifically intended for the protection of the
interest of the purchasers. As mentioned above, by virtue of Section 24 of
the HDA, the HDR provides for prescribed form S&P agreements.
It is noted that the HDA as well as the HDR does not permit for the collection
of booking fees and/or deposits prior to the execution of the S&P
agreement.
This then explains the reason why the Faber Union decision cannot be relied
upon for HDR prescribed form S&P agreements when it concerns the issue
of the commencement of the LAD computation.
Strictly following the HDA and HDR legislation, it is the respectful views of the
Authors that the time for the computation of the LAD must be from the S&P
agreement date and there can be no issue of even considering the
booking date.
Adopting the decision of Faber Union that the date of computation of the
LAD commences from the booking date will run contrary to the HDA and
HDR legislation and will result in parties clearly contracting out of the HDA
and HDR legislation which cannot be condoned.
The true purport and intent of the HDA and HDRmust be strictly adhered to,
for otherwise the legislation will be deemed meaningless.
In support of the HDA and HDR legislation as explained above, the Authors
can do no better than to refer to the recent decision of our Court of Appeal
in the case of GJH Avenue.
The Court in GJH case made reference to Section 11(2) of the HDR which
provides as follows:-
“No housing developer shall collect any payment by whatever name
called except as prescribed by the contract of sale.”
The Court of Appeal was of the view that the HDA and HDR legislation
prohibited the collection of deposit when it was not provided for by the S&P
agreement. The Court held that the law as prescribed does not allow the
parties to contract out of the prescribed form Schedule G HDR S&P
agreement.
The Court chose not to follow the Faber Union approach and distinguished
the said decision.
This fairly recent decision of our High Court in the case of Hedgeford, took
a similar approach to depart from the Faber Union case and held that the
LAD computation should be calculated from the date of the S&P
agreement.
In Hedgeford, the Court was concerned with a prescribed form Schedule H
HDR S&P agreement and was mindful of the statutory contract.
The Court followed the specific terms of the prescribed form Schedule H
HDR S&P agreement on the claim for LAD in respect of the late delivery of
vacant possession of the apartment and late completion of common
facilities.
The Authors having expressed their views, are of the opinion that the time is right to revisit the Faber Union case and to distinguish or depart from the said decision. The Authors are mindful of the fact, that the Honourable Federal Court Judges, when the occasion does arise, can possibly decide based on the following two (2) approaches as follows:-
It is the thinking of the authors that following the above two approaches will
settle the Law on LAD conclusively.
Having expressed the views as above, the Authors have considered a
possible third approach that the Honourable Federal Court Judges may
decide and that is to do away completely with the difference between a
prescribed form HDR S&P agreement and a standard commercial S&P
agreement, by deciding that all S&P agreements shall commence
computation of LAD from the date of the S&P agreement.
The first apprehension to this approach will be with regards to the
commercial S&P agreements that are not governed by the HDA and HDR,
where the bargaining power and the freedom of contract of the parties to
decide on the terms and conditions as mutually agreed has always been
envisaged by the Contracts Act 1950. The pandora’s box will once again
be opened if this freedom of contract is curtailed.
The second apprehension to this approach will be the unfairness and
injustice to the purchasers in having to settle for LAD payments from the S&P
date when theymay have paid the booking and/or deposit payments very
much earlier in time.
If the developer according to its whims and fancies decides to prolong the
preparation of the S&P agreement to say a month or a year, then the
purchasers will be deprived of their LAD entitlements and be left with no
remedy or compensation.
Simply put, it is the respectful views of the Authors that, a revisit of Faber
Union Supreme Court decision by our Federal Court today will be mind-
boggling and yieldmuch complication in finding an acceptable resolution.
However with that being said, such a revisit is absolutely necessary and vital
as it would hopefully finally put an end to the twenty five-year long
uncertainty on the Law of LAD that plagues Malaysia.
Citation
1 [1995] 3 CLJ 797
2 [1988] 2 MLJ 170
3 [2002] 7 MLJ 262
4 [2013] 7 CLJ 713
5 [2016] 7 MLJ 261
6 [2020] 3 CLJ 307
7 [2019] 10 MLJ 729