Jesy Ooi Witter Yee August 15 2022 Federal Court ruling on clause 12 for housing developers and purchasers SKRINE | Projects, Construction & Infrastructure - Malaysia Jesy Ooi, Witter Yee Projects, Construction & Infrastructure IntroductionFactsQuestion of lawDecisionCommentIntroductionIn Chong Nge Wei & Ors v Kemajuan Masteron Sdn Bhd,(1) the Federal Court unanimously reversed the decision of the Court of Appeal and restored the decision of the High Court as to the interpretation of clause 12 (now re-numbered as clause 14) of the statutory Sale and Purchase Agreement under Schedule H of the Housing Development (Control and Licensing) Regulations 1989. Among other things, these regulations entitle the purchaser of a housing unit to seek a corresponding reduction in the purchase price or claim damages against a developer who, when building a property, uses different materials without the purchaser's written consent.The key points deriving from this case are as follows:Clause 12 entitles a purchaser to either ask for a corresponding reduction in the purchase price or exercise their alternative right to claim for damages due to the use of different materials from that stipulated in the Fourth Schedule of the statutory Sale and Purchase Agreement without the purchaser's written consent. Nothing in clause 12 states that damages could only be claimed if the material used is cheaper than the contracted material. Thus, if the purchaser opts to claim damages instead of the reduced price for the property, it is incorrect to conclude that the change in materials has no adverse effect on the value or purchase price of the property.To establish the claim for damages under clause 12, the proof of actual loss must be shown before damages can be awarded. In this case, a quotation prepared by a building contractor, which provides a detailed breakdown of the remedial works to be carried out, is prima facie proof of the losses and damages suffered by the purchaser, subject to any rebuttal evidence tendered to challenge the excessiveness and reasonableness of the prima facie proof.FactsThe appellants had purchased six apartment units of the respondent's housing project development. The appellants, among other things, claimed for breach of contract under clause 12, as the respondent had changed the building material for the outer brick walls of the properties from autoclaved aerated concrete building block to flexcore, without the appellants' written consent.The High Court allowed the appellants' claim and ordered assessment of damages pertaining to the respondent's breach of clause 12. During the assessment, the appellants produced a quotation prepared by a building contractor, and the senior assistant registrar assessed the damages to be in the sum of 380,500 Malaysian ringgit. Dissatisfied with the quantum of damages awarded, the respondent appealed to the judge in chambers who dismissed the appeal. The respondent was, however, successful in its appeal to the Court of Appeal, hence the appellants' appeal to the Federal Court.Question of lawThe question of law before the Federal Court was:Whether a claim for damages, for the purpose provided in Clause 12 of the statutory sale and purchase contract under Schedule H of the Housing Development (Control and Licensing) Regulations 1989 requires proof of actual loss to be shown before damages could be awarded.Decision At the outset, the Federal Court held that, pursuant to clause 12, the appellants were at liberty to ask for a reduced price for the properties or to claim for damages in the event of the respondent's wrongful act of using different building materials from the contracted materials without the appellants' written approval. The Court also found that there was nothing in clause 12 to say that damages could only be claimed in the event that the respondent used material that is cheaper than the contracted material. Thus, if the appellants opted to claim for damages, no unfavourable inference could be drawn against them, and it was unjustified to conclude that the change in the materials used had no adverse effect on the value or purchase price of the properties. Such inference, the Federal Court said, sends the message to housing developers that they can change contract materials on a whim without facing any legal consequence. Further, the Federal Court held that the Court of Appeal's observations that other owners of the housing project did not file similar claims against the respondent and that the necessary certificates of fitness for occupation had been issued by the relevant authority, are misconceived and "irrelevant to the question of whether the appellants were entitled to damages for the respondent's breach of Cl. 12 of the SPAs."Having laid down its view on the interpretation to be given to clause 12, the Federal Court ruled that, in order to be entitled to damages for the respondent's breach of clause 12, the appellants must prove their losses and "it is not enough to write down the particulars" only. The Federal Court then proceeded to consider whether the appellants had successfully discharged their burden to prove the actual losses suffered from the respondent's breach of clause 12.The Federal Court noted that the appellants had produced a quotation prepared by a building contractor to support their claims for the cost of replacing the materials used for the outer brick walls. In respect of the Court of Appeal's view that the actual remedial works must first be carried out and actual expenses must first be incurred before damages could be awarded, the Federal Court relied on the two English cases of WM. Cory & Sons Ltd v Wingate Investments (London Colney) Ltd and Strange And Others v Westbury Homes (Holdings) Ltd And Another (2) and held that the appellants were "prima facie entitled to the cost of replacing … as would put them in a position to have the building material they contracted for".The Federal Court found that the quotation provided a detailed breakdown of the works to be carried out as well as the rate and amount for each piece of work, which included the cost of the replacement of materials, and there was, therefore, prima facie proof of the cost of the remedial works.In the absence of any rebuttal evidence or alternative amount tendered by the respondent, who, as the developer of the housing project, could have easily determined if the sum quoted was reasonable or otherwise, the Federal Court found that the quotation remained uncontradicted and the respondent's contention that the sum of 380,500 Malaysian ringgit claimed by the appellants was "excessive and unreasonable" and nothing more than a bare and unsubstantiated allegation. The sum of 380,500 Malaysian ringgit had to be taken as representing the reasonable cost of the remedial works. As such, the Federal Court held that damages in the sum of 380,500 Malaysian ringgit had been proven by the appellants.Accordingly, the leave question was answered in the affirmative and the decision of the High Court was reinstated.CommentThis Federal Court decision has provided clarity to housing purchasers on their rights to seek damages under clause 12 in the event of the unauthorised use by a developer of building materials that are different from the contracted materials. This decision clarifies that clause 12 not only covers the use of "cheaper" material but also the use of materials that are not consented to by the housing purchasers. Although the housing purchasers bear the burden to prove the losses caused by the unauthorised change of materials, there is no requirement to prove that such losses have actually been incurred or that the remedial work has been carried out. Evidence tendered by the purchaser detailing the remedial work required and the cost thereof may constitute prima facie proof of the losses until and unless the housing developer rebuts it.For further information on this topic please contact Jesy Ooi or Witter Yee at SKRINE by telephone (+603 2081 3999) or email ([email protected] or [email protected]). The SKRINE website can be accessed at www.skrine.com.Endnotes(1)  4 CLJ 833.(2) WM. Cory & Sons Ltd v Wingate Investments (London Colney) Ltd (1981) 17 BLR 104 and Strange And Others v Westbury Homes (Holdings) Ltd And Another  EWCA Civ 1247.