Introduction

The recent Court of Appeal decision of Sri Damansara Sdn Bhd v Voon Kuan Chien & Anor [2020] 5 CLJ 619 (“Sri Damansara”) stems from the question as to whether the calculation for late delivery of vacant possession (“VP”) claim should commence from the date the booking fee was paid or from the date of the Sale and Purchase Agreement (“SPA”).

The Appellant, Sri Damansara Sdn Bhd (“the Developer”) appealed to the Court of Appeal against the decision of the High Court that had dismissed its Judicial Review Application.

Brief Facts

On 06.01.2012, the Developer in this case collected a booking fee of RM10,000 as part of the 10% deposit of the purchase price of the condominium. The SPA was dated 28.06.2012.

The First Respondent (“the Purchaser”) was delivered VP on 22.12.2016 and accordingly, the Purchaser filed a claim with the Second Respondent, Tribunal for Homebuyer Claims (“the Tribunal”), for Liquidated Ascertained Damages (“LAD”) for the late delivery of VP. In the said claim, the Purchaser sought to claim LAD from the date of payment of the booking fee.

The Developer’s argument was premised on the plain meaning of the LAD clause in the SPA, there being no ambiguity that the calculation of LAD must be from the date of the SPA.

The other argument of the Developer was that there was an effective discount of RM 63,108.00 via the credit note given from the purchase price of RM 731,080.00 and therefore, the actual and real purchase price was RM 667,972.00.

The Developer further argued that the booking fees collected was to assist the purchasers and that the SPA would only be signed after the approval of the purchaser’s loan. If the loan was not approved, then the approved administrative charges of RM 600.00 will be forfeited from the booking fee.

The Tribunal for Homebuyer Claims

The Tribunal agreed with the Purchaser that the issue of the proper date of the SPA should be taken as the date the booking fee was paid. Dissatisfied, the Developer applied for judicial review to the High Court.

High Court

The High Court was of the opinion that there was no error of law committed by the Tribunal. The High Court was convinced that the remedy of certiorari does not apply to quash the award of the Tribunal. The Developer, naturally, appealed to the Court of Appeal.

Cour of Appeal

The Court of Appeal held that the Developer failed to comply with the Housing Developers (Control and Licensing) Act 1966 (“HDA”) and the Housing Developers Regulations 1989 (“HDR”), specifically Sub-Regulation 11(2) on the prohibition against the collection of the booking fee.

The Court held that it must not be forgotten that the HDA is a social piece of legislation designed to protect the purchasers who are in a more vulnerable position because of the inequality of bargaining powers. Further, the mandatory standard form SPA in Schedule H under HDR is designed to protect purchasers and in fact no amendments can be made to it without the consent of the Controller of Housing.

Thus, to allow collection of deposit of less than 10% of the purchase price before the signing of the SPA would be repugnant to the whole purpose of the HDA and the HDR. Additionally, the Court also held that the sanction of any payment without the signing of a SPA would be to contravene the prohibition in Sub-Regulation 11(2) and the spirit and statutory scheme of the Schedule H SPA.

The Court held that two matters were irrelevant as follows:

1. That the purchaser consented to the payment of the booking fee because the HDA and the HDR are there to protect the purchaser and the prohibition would have no bite if a booking fee or a deposit less than 10% of the purchase price is collected without the signing of the SPA; and
2. That the purchaser could only pay the 10% of the purchase price much later and so when it was paid the SPA was dated.

Such a mischief in the circumvention of the prohibition on collection of a booking fee is precisely what the HDA and the HDR were designed to arrest. Therefore, the Courts had no problem to rule that the calculation for late delivery of VP claim should commence from the date the booking fee was paid and not from the date of the SPA, for to take the SPA date would be to allow the perpetuation of a practice that the HDR prohibits.

The Court was vocal to state that to sanction a dating of the SPA only when the full 10% of the purchase price had been paid rather than the moment a booking fee or a lesser deposit is made would be to expose the purchaser to further vulnerabilities that would make them susceptible to unscrupulous practices by developers.

The situation in this case becomes more justified when the full 10% of the purchase price was deemed paid with the fiction of a giving of a credit note upon the signing of the SPA. In relation to this, the Court questioned as to why such credit note was not given at the point the booking fee was paid? The Court of Appeal, accordingly, dismissed the appeal of the Developer.

This decision followed the celebrated case of Faber Union Sdn Bhd v Chew Nyat Shong & Anor [1995] 3 CLJ 797 (“Faber Union”) in regards to the calculation of delivery of VP to be taken from the payment of booking fee.

Conclusion

The decision of Sri Damansara is important so as to reconcile the position of Faber Union which was a normal commercial agreement scenario where parties have the freedom to contract as opposed to a prescribed HDR Agreement where parties cannot contract out of the said prescribed HDR Agreement.

As freedom to contract and the protection of homebuyers under the HDA regime are two completely different propositions of law, it will be interesting to see how the Federal Court would decide such a scenario.

On the decision of Sri Damasara, there would appear to be some inconsistency in the rationale for deciding that the calculation of delivery of VP is to commence from the payment of the booking fee.

The reason for this is that the Court of Appeal had on one breath expressed very strong sentiments by explicitly stating that the HDA is a social legislation for the protection of the purchasers and that the collection of booking fees is strictly prohibited. The Court was also mindful that parties cannot contract out of the prescribed HDR Agreement.

On the next breath, the Court of Appeal would seem to have bent backwards by allowing the purchaser’s claim for late delivery of VP to commence from the booking date by the fact that the 10% purchaser price had in fact been paid by the Purchaser even prior to the execution of the SPA. This is supported by the rejection of the credit note discount argument by the Developer on the reduction of the purchase price.

The begging question will then be – whether the Federal Court will agree with the decision of the Court of Appeal which would seem to be a decision favoring the purchasers on the claim for late delivery of VP from the payment of the booking fee when the HDA does not permit such a claim.

It will be interesting to see what the Federal Court will decide on Sub- Regulation 11(2) of the HDR that prohibits the collection of any prior payment before the signing of the SPA.

Will the Court declare Sub-Regulation 11(2) ultra vires to permit the collection of deposits prior to the signing of a SPA, like in a normal commercial agreement scenario?

If that happens then the Federal Court will further endorse Faber Union and bring about consistency for both HDA and non-HDA scenarios.

The possibility of the Federal Court seriously looking into Sub-Regulation 11(2) of the HDR is there as the Federal Court had declared Sub-Regulation 11(3) of HDR ultra vires in the case of Ang Ming Lee v Menteri Kesejahteraan Bandar, Perumahan dan Kerajaan Tempatan & Anor and Other Appeals [2020] 1 CLJ 162. The Federal Court held that the Minister’s act of delegating to the Controller of Housing in the HDR was notmade in accordance to the provisions of the Delegation of Powers Act 1956. As such, the Controller has no power to waive or modify any provision in the prescribed HDR SPA because Section 24 of the HDA does not confer, on the Minister, to make regulations for the purpose of delegating the power to waive or modify the said prescribed HDR SPA. Accordingly, Sub-Regulation 11(3) which conferred power to the Controller to waive andmodify the terms and conditions of the prescribed HDR SPA was ultra vires the HDA.