Right to sue
still doubtful
25/05/2002 NST-PROP By Salleh Buang
Whether an
assignment is in fact absolute does not have any impact on section 22C
Probably every house
owner and purchaser in Malaysia is aware that the amendments to the
Housing Developers (Control & Licensing) act 1966 are now in force.
Thanks to the print
media, everyone must know by now that apart from a change in its name (the
Housing Development Act), the scope of the new law has also been widened.
It now covers not just private sector housing developers as was the case
in the past but both statutory bodies as well as co-operative societies.
Further to that, I
think that everyone who is interested to know more about the law must have
been keeping up with the various comments and opinions expressed by a wide
range of people on the subject.
Looking back on what
has been written so far, to my mind there is one particular section
(section 22C) in the recent amendments that has not been discussed
sufficiently.
The amendment in
question concerns a purchaser's right to "on his own volition and in his
own name" initiate and maintain in any court or tribunal, any action, suit
or proceeding against a housing developer in respect of any matter arising
out of the Sale and Purchase Agreement (SPA).
There is, however, a
catch to this. The freedom to act "on his own volition" has been made
subject to a "contrary intention" expressed in any agreement, assignment
or charge between the purchaser and his financier. If there is such a
"contrary intention" in the deed of assignment or charge, then the
purchaser is still required to obtain the "prior written consent" from the
financier before he can institute any action against the developer.
I am fully aware that
the House Buyers Association is very much against this proviso. Personally
speaking, I share this sentiment. I am, however, not confident that the
Minister of Housing and Local Government is prepared to make another
amendment so soon after the recent one.
Several friends in
legal practice tell me that they are not sure to what extent this new
section can be of assistance to purchasers. So many arguments have been
advanced by developers when they were sued by purchasers that purchasers
no longer have any locus standi to institute proceedings against
them because the purchasers had assigned all their rights and interest
under the SPA to financial institutions from which they had obtained their
housing loans. Such an argument was raised by the developer in Lim Hock
Lai v Hwa Kong Development Sdn Bhd [2001] 5 CLJ 515, which was
actually a Kuching High Court case, heard on appeal and subsequently
decided by Ian HC Chin J in February last year.
In this case, the
Deputy Registrar had earlier held that the purchaser had locus standi
to commence action against the developer for damages for late delivery.
The developer appealed against that decision where the High Court judge
Ian Chin J held that the documents employed in the assignment with the
financier (from whom the purchaser secured his housing loan) was by way of
a charge and not an absolute assignment. Furthermore, the judge said such
an assignment had been held to be an equitable mortgage in Chuah Eng
Khong v Malayan Banking Berhad [ 1999] 2 CLJ 917. Dismissing the
developer's appeal against the Deputy Registrar's decision, the judge held
that 'it is impossible upon a consideration of the terms of the documents
employed in the present transaction to conclude that the assignment is not
by way of a charge."
Despite the
favourable decision (for purchasers generally) in the Lim Hock Lai case,
it is likely that purchasers will continue to have problems in the future
if the judges, upon considering the actual terms of a particular deed of
assignment, come to the decision that the assignment is absolute in nature
and not merely by way of a charge.
In an old case, the
Federal Court had held in Nouvau Mont Dor (M) Sdn Bhd v Faber
Development Sdn Bhd [1985] 1 CLJ 56 that the question of whether or
not a particular assignment is absolute or merely by way of charge (within
the meaning of section 4(2) of the Civil Law Act 1956) depends on what
"can be gathered from the four corners of the document".
The Federal Court
added that if upon examination, the document shows that an absolute
assignment had been executed by the purchaser in favour of the financial
institution, then the purchaser (assignor) would no longer be competent to
maintain an action against the developer.
In a recent case,
Max-Benefit Sdn Bhd v Phuah Thean An & Anor [2001] 2 CLJ 70, the
purchasers had purchased a property from the appellants (developer) and
subsequently had assigned their interest in the agreement to Hock Hua Bank
Bhd which had granted them a loan. The developer had delayed completion
and when the purchasers filed their action in court, the Magistrate's
Court entered summary judgement for the purchasers. The developers
appealed against that decision.
The issue before the
High Court was whether, having assigned their interest under the SPA to
the Bank, the purchasers had locus standi to commence their action
against the developer. Dismissing the developer's appeal KC Kohrah J held
that the earlier Nouvau Mont Dor case 'was decided on the peculiar facts
in the case. Whether or not there has been an absolute assignment is
dependent on what was the aim of the transaction."
The Judge's decision
is worth quoting at some length:
"Although the
assignment is stated to be absolute in effect, it is not. The assignment
was purely for the purpose of securing the loan. What I have adverted to
show is that there was a loan which the assignors-purchasers had taken
from the bank and that the loan had to be repaid over a period of time and
that the rights and interests over the property were assigned as surety to
ensure that the loan will be repaid. The loan or any balance or part of it
was given upon the security of the same property. The implication is that
the assignment of the equitable chose in action would come to an end, it
would revert back to the assignors on one of the two events taking place,
whichever comes earlier. The first event is where the loan is fully paid.
The second event is where the developer has obtained the legal title tot
he property and the property is then transferred to the
assignors-purchasers with the consent of the assignee bank. There was no
absolute assignment in this case and the bank has no locus standi
in this case. I therefore hold the purchasers as plaintiffs have locus
standi to sue the developer-defendant."
While these decisions
could be said to have resolved the question whether an assignment
expressed to be absolute is in fact absolute in nature or is merely in the
nature of a charge, it does not in any way have any impact on section 22C.
Under that section,
if a particular assignment contains a "contrary intention" of the parties
(i.e. it requires the borrower/assignor to get the consent of the
bank/assignee), the purchaser is still contractually required to get the
prior written consent. If such consent has not been asked for and duly
given, and the purchaser proceeds to sue the developer, the developer can
still rely on the purchaser's lack of locus standi to defeat the
purchaser's claim.
To give the full
benefit of section 22C to purchasers in future, solicitors acting for them
should ensure that when their clients execute deeds of assignment, they
should see to it that such assignments do not contain such a "contrary
intention". The question is whether the lending banks would be happy with
it.
