Introduction
Facts
Issue
Decision
Comment
Construction projects in the country came to an abrupt halt in March 2020 because of the covid-19 pandemic. The inability of developers to complete projects within the stipulated deadlines set out in the respective sale and purchase agreements has caused much concern for developers as the purchasers are entitled to liquidated damages if the developers are unable to deliver vacant possession on time.
With the Temporary Measure for Reducing the Impact of Coronavirus Disease 2019 (Covid-19) Act 2020 (the Covid Act) being around for almost one year, there has finally been a reported decision on the application of sections 32, 35 and 37 of the Covid Act, in Part XI of the Act named "Modifications to the Housing Development (Control and Leasing) Act 1966", in the case of Jason Yap Wei Kian v PNSB ACMAR Sdn Bhd.(1)
The plaintiff (the purchaser) and the defendant (the developer) entered into a sale and purchase agreement (the agreement) dated 27 November 2015 which adopted schedule G of the Housing Development (Control and Licensing) Regulations 1989 for a property with a car park (the property). The relevant clauses in the agreement were as follows:
- the defendant was to deliver vacant possession of the property and common property within 36 calendar months from the date of the agreement; and
- the plaintiff was entitled to claim from the defendant 10% per annum of the purchase price at daily rest, as liquidated damages, from the expiry of the designated date for vacant possession until vacant possession was delivered.
Vacant possession of the property and common property was delivered to the plaintiff on 18 July 2020, as opposed to 26 November 2018, which was the vacant possession date in the agreement.
The magistrates' court allowed the plaintiff's claim for liquidated damages against the defendant. However, the judge disallowed liquidated damages from 18 March 2020 until 15 July 2020 (the exemption period) pursuant to section 35 of the Covid Act and also on the basis that the plaintiff had not included in its pleadings section 37(1) of the Covid Act, which is the saving provision (the decision). Therefore, the plaintiff appealed against this part of the decision to the high court.
The core issue to be decided by the high court in the appeal was whether the magistrates' court judge had erred in not taking into account the liquidated damages within the exemption period because the plaintiff had not specifically included section 37(1) of the Covid Act in its pleadings.
In examining the application of sections 32 and 35 of the Covid Act, the high court judge found that the magistrates' court had been correct in its decision to exclude liquidated damages within the exemption period because:
- Part XI of the Covid Act is deemed to have come into operation on 18 March 2020 pursuant to section 32 of the Covid Act; and
- it is clear from section 35 of the Covid Act that the calculation of liquidated damages was to be excluded from 18 March 2020 until 31 August 2020 for the developer's failure to deliver vacant possession of a housing accommodation (the exemption period was within this duration).
However, the magistrates' court judge had erred in failing to take into consideration the application of section 37(1) of the Covid Act (the saving provision):
The modifications in sections 34, 35 and 36 shall not affect any legal proceedings commenced, or any judgment or award obtained, to recover late payment charges payable by the purchaser or liquidated damages payable by the developer or any other sum during the period from 18 March 2020 until the date of publication of this Act. (High court's emphasis.)
The plaintiff commenced an action for liquidated damages against the defendant on 26 August 2020, before the Covid Act had been gazetted on 23 October 2020. Thus, section 37(1) applied notwithstanding that such provision had not specifically been pleaded by the plaintiff. This is not a requirement under Order 18 rule 11 of the Rules of Court 2012. Further, the plaintiff had sufficiently pleaded the relevant facts and claim in its pleadings.
In addition to the above findings, the high court also observed that section 37(1) is a saving clause for property owners who had filed actions against developers prior to the enforcement of the Act, without realising the existence of section 35. Therefore, in the context of section 37(1), a developer cannot avoid its obligations to pay liquidated damages for late delivery of vacant possession to its purchasers by relying on section 35(1) of the Act, if the claim by a purchaser has been filed and/or proceedings have been commenced before the Act was gazetted.
In light of the above, the plaintiff's appeal was allowed and the exemption period was taken into account in calculating the liquidated damages for late delivery of vacant possession.
The operation of the Covid Act has been extended until 31 December 2021. However, such extension is only limited to Part II of the Act – namely "Inability to perform contractual obligations".(2) This is notwithstanding that the progress of housing developments continues to be affected by the pandemic.
Since developers are now unable to rely on the Covid Act for relief in respect of an exemption to pay liquidated damages for late delivery of vacant possession, they could make an application to the minister of urban wellbeing, housing and local government to extend the time for delivery of vacant possession, based on the recent decision by the Court of Appeal in the case of Bludream City Development Sdn Bhd v Alvin Leong Wai Kuan and other appeals.(3) It remains to be seen whether the Federal Court agrees with the Court of Appeal's decision given its recent decision in Ang Ming Lee v Menteri Kesejahteraan Bandar, Perumahan dan Kerajaan Tempatan and other applications.(4)
For further information on this topic please contact Tan Min Lee at Gan Partnership by telephone (+603 7931 7060) or email ([email protected]). The Gan Partnership website can be accessed at www.ganlaw.my
Endnotes
(2) Temporary Measures for Reducing the Impact of Coronavirus Disease 2019 (covid-19) (Extension of Operation) (No.2) Order 2021.
(3) The grounds of judgment of the Court of Appeal have not been released as at the date of the publication of this article.