FEDERAL COURT’S LANDMARK RULING IN PREMA BONANZA CASE: What Developers and Purchasers Need To Know!

Introduction

The Malaysian Federal Court’s landmark decision in Ang Ming Lee & Ors v Menteri Kesejahteraan Bandar, Perumahan Dan Kerajaan Tempatan & Anor And Other Appeals[1] (“Ang Ming Lee“) has profoundly impacted the legal landscape concerning housing development projects. This led to housing developers facing the risk of substantial liquidated damages (“LAD”) claims as the Federal Court determined that the Controller of Housing (“Controller”)’s authority under Regulation 11(3) of the Housing Development (Control and Licensing) Regulations 1989 (“HDR”) was beyond the scope of the Housing Development (Control and Licensing) Act 1966 (“HDA”).

The Ang Ming Lee decision set the stage for subsequent rulings, including the recently decided Federal Court’s case of Obata-Ambak Holdings Sdn Bhd v Prema Bonanza Sdn Bhd[2] (“Prema Bonanza”).

What happened in Ang Ming Lee

Ang Ming Lee’s decision concerns Regulation 11(3) of the HDR. Pursuant to a standard sale and purchase agreement (“SPA”) following the statutorily prescribed form under Schedule H of the HDR, it was stipulated that the period for delivery of vacant possession of the unit shall be 36 months from the date of the SPA, failing which the developer shall be liable to pay the purchaser LAD.

In this case, the developer sought an extension of time for the delivery of vacant possession of the units to the purchasers by applying to the Controller pursuant to Regulation 11(3) of the HDR. The developer’s application was first rejected by the Controller but was purportedly allowed by the Minister of Urban Wellbeing, Housing and Local Government (“the Minister”) on appeal by way of a letter dated 17.11.2015 (“Purported Approval”). As such, the developer obtained an additional 12 months to deliver vacant possession of the units to the purchasers, rendering the purchasers unable to claim the LAD as provided under SPA.

The purchasers challenged the Purported Approval by filing an application for judicial review.

High Court:

The High Court ruled in favour of the purchasers and held, among other things, that:

  1. The Controller has no power to modify the prescribed contract of sale under Regulation 11(3) of the HDR in a way that extinguished the purchasers’ right to claim LAD.
  2. Regulation 11(3) of the HDR was deemed ultra vires the HDA, meaning it was beyond the scope of the authority granted by the HDA.
  3. The Purported Approval was null and void.

The developer, dissatisfied with the decision of the High Court, appealed to the Court of Appeal.

Court of Appeal:

The Court of Appeal allowed the developer’s appeal and held as follows:

  1. The Controller has wide powers under the HDA, including the power to exercise his discretion as granted under Regulation 11(3) of the HDR to waive or modify the terms and conditions of the contract of sale. Therefore, Regulation 11(3) of the HDR is not ultra vires the HDA.
  2. The Purported Approval was invalid and of no effect since there was no evidence to prove that the Purported Approval was granted by the Minister.
  3. The purchasers must be given the right to be heard prior to any decision made on the extension of time since the right to claim LAD in the event of delay would be adversely affected. Since no such right was afforded to the purchasers, the Purported Approval was null and void and was thus set aside.

Aggrieved by the Court of Appeal’s decision, both the purchasers and the developer applied for leave to appeal to the Federal Court, and their applications were granted.

Federal Court:

The central issue before the Federal Court was the validity of Regulation 11(3) of the HDR – whether the Controller had the authority under the HDA to modify the period for delivery of vacant possession.

The Federal Court allowed the purchasers’ appeal and dismissed the developer’s appeal.

The findings of the Federal Court can be summarised as follows:

  1. The Controller does not have the power to waive or modify any provision in the Schedule H Contract of Sale as prescribed by the HDR.
  2. Section 24 of the HDA does not confer power on the Minister to make regulations for the purpose of delegating the power to waive or modify the Schedule H Contract of Sale to the Controller.
  3. Regulation 11(3) of the HDR is ultra vires the HDA.
  4. The HDA is a piece of social legislation designed to protect the purchasers’ interests. Allowing extensions of time to the developer undermines this protective intent as it would deny the purchasers’ right to claim LAD.

Post Ang Ming Lee

The landmark decision in Ang Ming Lee was pivotal as it declared that the Controller lacks the authority to waive or modify any provisions of the statutory prescribed contract of sale pursuant to the HDR, including extending the statutory period for the delivery of vacant possession.

Significantly, the Ang Ming Lee decision did not explicitly state whether its implications should be applied prospectively or retrospectively. Consequently, many courts have interpreted the decision of Ang Ming Lee to have retrospective effect.[3] This interpretation has led to numerous purchasers seeking judicial declaration that any extension granted by the Controller is void and ineffective, regardless of whether the extensions were obtained prior or after Ang Ming Lee decision.[4] As a result, developers who obtained such extensions prior to Ang Ming Lee may also be exposed to LAD claims from purchasers.

Notwithstanding the above, the subsequent Court of Appeal decision in Bludream City Development Sdn Bhd v Kong Thye & Ors and Other Appeals[5] upheld the Minister’s authority to grant a 17-month extension for the completion of service apartments, clarifying that while the Ang Ming Lee decision affirmed that the Controller cannot extend the completion period under the statutory SPA, it did not negate the Minister’s power to modify or vary the terms of the statutory SPA.

Federal Court’s decision in Prema Bonanza

On 26 July 2024, housing developers received a measure of relief when the Federal Court delivered its decision in Prema Bonanza. This ruling addresses and resolves the aftermath of the Ang Ming Lee decision, clarifying critical issues arising from it.

In Prema Bonanza, five appeals were heard together due to the common issues they presented for determination by the Federal Court.

To summarise the facts in Prema Bonanza:

The disputes involved developers and purchasers who had entered into SPAs in the prescribed form under Schedule H of the HDR. The developers sought to vary or extend the time period for the delivery of vacant possession and the completion of common facilities beyond the statutory period of 36 months. These extensions were either approved by the Controller or communicated to the purchasers prior to the signing of the SPAs.

The following are the pertinent issues determined by the Federal Court in Prema Bonanza.

Limitation Period

Issue: When does the limitation period begin for LAD claims for late delivery of vacant possession?

Answer: The 6-year limitation period begins to run at the earliest point the purchasers could commence legal action, which is either from the date of execution of the SPAs or from the date of any breach of the SPA terms, rather than from the expiry of the 36-month period prescribed under Schedule H of the HDR.

Application of the Second Actor Theory

Issue: Does the Second Actor Theory apply in cases where an innocent third party relied on an earlier decision made by a public authority, which was later declared ultra vires?

Answer: The Second Actor Theory applies because:

  1. Declaring the developer’s actions void due to the invalidity of the Controller’s earlier decision would result in substantial injustice.
  2. The Controller considered and granted the application for extension based on the law being valid at that time.
  3. Various parties had relied on the Controller’s decision prior to it being declared invalid by Ang Ming Lee.
  4. The purchasers were aware of the extended period for completion, as the extended period was granted before the SPA was executed.

Prospective Overruling

Issue: Should the ruling in Ang Ming Lee be applied prospectively or retrospectively?

Answer: The ruling in Ang Ming Lee should be applied prospectively. Retrospective application could have severe consequences for the housing industry. Therefore, to avoid significant disruption, an order invaliding legislation should generally take effect only prospectively, unless there is an overriding public interest necessitating retrospective application. Consequently, with the Federal Court’s affirmation that the Ang Ming Lee decision should apply prospectively, all extensions granted before this decision remain valid and enforceable.

Unjust Enrichment

Issue: Can the purchasers claim LAD retrospectively relying on Ang Ming Lee?

Answer: No, the purchasers should not be allowed to claim LAD relying on Ang Ming Lee, as allowing such claims retrospectively would result in unjust enrichment. This is especially so when the purchasers were fully aware of and accepted the terms of the SPA with the extended period, and had benefited from the delivery of vacant possession, and accepted LAD payments. Furthermore, the developers had not acted in any way unconscionably or to the detriment of the interest of the purchasers.

Conclusion

The decision in Prema Bonanza brings much-needed clarity to the issues surrounding Ang Ming Lee. The key takeaways are:

  1. The Ang Ming Lee ruling does not apply retrospectively. Purchasers can no longer rely on Ang Ming Lee to claim LAD if they were aware that the SPAs stipulated a completion period exceeding the statutory prescribed period.
  2. The validity of the extension of time granted before Ang Ming Lee (26 November 2019) is not affected and shall remain validly and legally intact.
  3. The developers must communicate any extension of time granted by the Minister to the purchasers, and where possible, be acknowledged by them to ensure clarity and agreement.
  4. Purchasers are advised not to sleep on their right in asserting their claims for LAD, as the limitation period begins to run from the date of execution of the SPAs.

These clarifications are instrumental in balancing the interests of developers and purchasers, thereby fostering a more stable and efficient housing industry.

For personalised legal and compliance support, please reach out to our Projects & Infrastructure Senior Associate, Ms. Elise Tam (elise@nzchambers.com) or Pupil in Chamber, Mr. Alif Mustaqim. We are here to help you achieve compliance and manage these regulatory updates effectively.

Authors:

  1. Elise Tam
  2. Alif Mustaqim

Published On: 6 August 2024

References:

[1] [2020] 1 MLJ 281.

[2] Appeal No. 02(i)-70-08/2022 (W).

[3] Aminnudin Rezal Jaafar & Ors v Prema Bonanza Sdn Bhd [2022] 2 CLJ 914; Amprojek Construction Sdn Bhd v Loo Kuo Fong [2022] CLJU 1803.

[4] Yvonne Chow Shih Sze v MRCB Seputeh Land Sdn Bhd & Ors [2022] CLJU 971; Tan Ching Ching v Ekovest Capital Sdn Bhd [2021] CLJU 2543.

[5] [2022] 2 CLJ 829.