By Joseph Cheah
In a landmark decision by the Federal Court on 19th January 2021, the Court held that if the developer fails to deliver vacant possession within the stipulated time, the calculation of the Liquidated Ascertained Damages (“LAD”) shall begin to run from the date of payment of the booking fee.
A. Point of Law:
There were 7 appeals before the Court comprising of 3 different sets of facts, albeit similar. The cases were heard together by the same panel as they essentially raised the same point of law. The question of law is:
“Where there is a delay in the delivery of vacant possession by a developer to the purchase in respect of Schedule G and/or H type contracts under Regulation 11(1) of the Housing Development (Control and Licensing) Regulations 1989 (Regulation 1989) enacted pursuant to Section 24 of the Housing Development (Control and Licensing) Act 1966, whether the date for calculation of LAD begins from:
- the date of payment of deposit/booking fee/initial fee/expression by purchase of his written intention to purchase; or
- from the date of the sale and purchase agreement.”
In short, the question is: when should LAD begin to calculate if the developer fails to deliver the keys to your home within the stipulated time.
B. Key Takeaways
Principle of stare decisis
A case cannot be read in vacuum. It must be read in light of its facts, and appreciated in context. Even if a case law referred to the wrong report or the wrong page of a precedent, this single error cannot be sufficient to declare that the said case was not decided properly.
Concept of Social Legislation
The Housing Development (Control and Licensing) Act 1966 (“HDA 1966”) and its subsidiary legislation are social legislation. It seeks to protect the interest of purchasers against the developers.
A social legislation is a legal term for a specific set of laws passed by the legislature for the purpose of regulating the relationship between a weaker class of persons and a stronger class of persons – due to inequality of bargaining power.
The Court must give effect to the intention of Parliament and not the intention of parties. This is to level the playing field and mitigate any purported inequality of bargaining power when it comes to negotiating a contract.
When it comes to interpreting a social legislation, the following principles apply:
- statutory interpretation usually begins with the literal rule.
- the literal rule is automatically displaced by the purposive rule when it concerns the interpretation of the protective language of social legislation.
- the courts have the obligation to ensure the said provisions are interpreted in a way which ensures maximum protection towards the purported protected class of persons.
The onus of compliance with the regulatory scheme of the housing legislation, being a social legislation, is on the developers.
Importance of understanding Legislative History
The courts take strict view of the fundamental intentions of the Parliament when a legislation is enacted. The interpretation of a statute ought to be given effect having considered the legislative intent at that relevant time.
In this case, the Court held that the intention of Parliament is unequivocal. The law in force has made it clear that collection of booking fee is to be absolutely prohibited.
The Legal Effect of Booking Fees
The Court took notice that the collection of booking fees is widely practiced in the industry. However, collection of booking fees is in clear contravention of the law (see regulation 11(2) of the Housing Development (Control and Licensing) Regulations 1989 (“HDR 1989”)).
The Court held that the developers have committed an illegal act in securing the contracts (by collecting booking fees). It is not the contracts per se that are illegal rather it is their performance which violates the regulation stated above.
The fact that a particular course of conduct may attract penal sanctions is not in itself a sufficient ground to suggest that the agreement made in contravention of that very act is void for illegality.
The Court also acknowledged that a blatant breach by the developers and conclude that the sales and purchase agreement to be void would be detrimental to the innocent home buyers who paid booking fees under the erroneous assumption that it was necessary to secure their purchase.
When it concerns social legislation and the stronger class of persons has committed an illegal act, the existence of a penal provision does not automatically render the contract void. If that is the case, then it would erase the weaker class’ right to a remedy. They shall be entitled to the appropriate remedy.
The Court held that if it is the developers’ attempt to secure an early bargain through the illegal collection of booking fees, then the protective veil cast by the legislature over the purchasers should operate in a way so to bind the developers to the booking fees.
Formation of Contract
An agreement has already been formed when the initial payment of monies is made.
The Court acknowledged that there should be a maximal protection of the purchasers having regard to the social purpose of the HAD 1966.
By collecting the booking fee and procuring a signed pro forma document, the developer have put the purchasers in a disadvantaged position – as they were also the ones responsible for drafting the final sales and purchase agreement. There can be an abuse of power here where the developer may take the opportunity to present the sales and purchase agreement at a later date to extend the date to deliver vacant possession.
To limit the date of calculation to the date in the contract is to impliedly condone the collection of such fees.
C. Conclusion
In situations where the legislation is about protecting the weaker class and/or to provide a balance of equal bargaining power, the courts will interpret the provisions in so far as to ensure protection of the weaker class.
The standard practice of collecting booking fees by developer is illegal.
However, if booking fees are paid, the LAD shall be calculated from the date the booking fee is paid.