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Hiding behind the law
02/03/2002 Published in NST-PROP A Buyer Watch Article by National House Buyers Association

The House Buyers Association outlines why developers get away with not paying liquidated ascertained damages

Often, developers who fail to honour their obligation to pay liquidated ascertained damages (LAD) to house buyers, seek to hide behind the issue of buyers' locus standi, or rather lack of it, to initiate legal proceedings against them.

This is because buyers of properties with no individual title are deemed to have assigned all their rights under the Sale and Purchase Agreements (SPA) to their financiers as security for their loans - the issue comes under the provisions of the Civil Law Act.

However, it is interesting to note two recent High Court decisions that rejected the developer's argument and ruled that house buyers have the absolute locus standi to commence legal action against the developer even though they have assigned the rights and interest of the SPA to the Bank (see Clement Skinner JC's decision in Pak Ki Yau & Anor v Kumpulan Promista Sdn Bhd [1999] 6 MLJ 220 and Justice KC Vohrah's decision in Max-Benefit Sdn Bhd -vs- Phuah Thean An & Anor [2002] 1 MLJ 553)

The recent amendments to the Housing Developers (Control and Licensing) Act, 1966, which will be gazetted soon, seek to address this locus standi issue by introducing a new section 22c. This states that: "Notwithstanding anything contained in any written law or any rule of law, the homebuyer as defined in section 16A shall be entitled on his own volition and in his own name to initiate, commence, institute and maintain in any court or tribunal any action, suit or proceeding against a housing developer or any other person in respect of any matter arising out of the sale and purchase agreement entered into between the purchaser and the housing developer unless a contrary intention is expressed in any agreement, assignment or charge between the homebuyer and his financier in which case the prior written consent of his financier must first be obtained before he exercises any of his rights under this section."

It is the House Buyers Association's considered view that the wording in the new section 22c does not really address the issue because it does not solve the legal ambiguity of whether the assignment is absolute under clause 4(3) of the Civil Law Act 1956. The phrase "unless a contrary intention is expressed in any agreement, assignment or charge between the homebuyer and his financier in which case the prior written consent of his financier must first be obtained before he exercises any of his rights under this section" leaves room for argument in court as to the "contrary intention" of the assignment.

This phrase should not have been inserted. House buyers should have an unconditional and unreserved right to sue. An in doing so, we propose that is is sufficient for them to give a written notice to their financiers.

Another defence often raised by developers comes under the provision of the Contract Act, 1960. We feel it is most unfair and inequitable that the developer is allowed to raise this defence in court. The Court should take judicial notice of the following factors:

  1. Under Rule 11(1) of the Housing Developers (Control and Licensing) Regulations 1989 it is mandatory that every contract of sale for the sale and purchase of housing accommodation... shall be in the form prescribed in Schedule G or Schedule H.

  2. In all cases, the SPA would be pre-prepared by the developer and would be in accordance with Schedule G or H.

  3. That would mean that the house buyers cannot insert, amend or modify any of the clauses in the sale and purchase agreement.

  4. Even if the house buyers appoint their own lawyers, the SPA would be provided by the developer.

If house buyers are allowed to amend or modify the clauses of the SPA or insert clauses, then their lawyers would definitely make the necessary amendments to clause 20(2) (or Clause 22(2) to ensure that other laws or regulations would not apply and all weaknesses in the said clause be addressed with the insertion of new clauses. For example, clause 20(2) can begin with the phrase in the new section 22c "Notwithstanding anything contained in any written law or any rule of law ... "

However, in reality and practice, house buyers are not allowed or given the opportunity to make any amendments to the standard SPA.

The HBA submits that it is not fair and inequitable then that the developer should be allowed to raise defences under the provisions of other written laws. For housing cases where the SPAs are under Schedules G and H, the maxim unius est exlusio alterius should apply (when one thing is expressly specified, then it prevents anything else being implied).

If the intention of the new Housing Development (Control and Licensing) Act 1966 is to provide better protection for buyers, we feel that is has failed miserably as far as their right to compensation is concerned. HBA urges the Minister of Housing and Local Government to exercise the power conferred on him by the Act to review the Regulations and Schedules G and H and to look into Clause 20(2) of the former and Clause 22(2) of the latter so that the developer's obligation to pay the 10 per cent LAD will be mandatory and not subject to any other written law or regulations.

In the Judgement of Beca (Malaysia) Sdn Bhd v Tan Choong Kuang & Anor [1986] 1 MLJ 390, Justice Lee Hun Hoe CJ (Borneo) noted "Having regard to the scope and purpose of the Enactment and the Rules made thereunder, they are clearly made for the benefit of a class of people, namely, the house buyers. The duty of the law is firmly placed on the housing developers for the protection of the house buyers."

In the regulated Schedules G and H, the basic obligation of the vendor is to deliver the property as stipulated, strictly abiding by both the requirement of quality and delivery time as described in the agreements. It would seem that this clause to make basic obligations of developers mandatory exists in name only when they can be absolved of their responsibilities.


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