In its effort to safeguard the interests of house buyers, the Housing Development (Control and Licensing) Regulations 1989 (HDR) prescribes various standard, scheduled Sale and Purchase Agreements for the purchase of residential properties directly from housing developers (the Scheduled SPAs).
The two common ones are under Schedule G of the HDR for non-strata, landed residential properties (Sch G SPA) and Schedule H of the HDR for strata residential properties, whether landed or otherwise (Sch H SPA).
The Scheduled SPAs provide for durations within which construction works of the residential properties shall complete and vacant possession thereof be delivered, failure of which will make developers liable to pay to the purchasers liquidated ascertained damages for late delivery of vacant possession (LAD). Sch G SPA provides for 24 months while Sch H SPA provides for 36 months (the VP Period).
It is inadvertent that there may be instances beyond the control of developers that disrupt construction works. Such include inclement weather, shortage of raw materials, issuance of a Stop-Work Order (SWO), or a pandemic such as Covid-19 that had resulted in the unprecedented stoppage of work across most industries, including the construction industry.
These circumstances result in developers requiring more time to complete the project and deliver vacant possession of the properties therein. As such, it is not uncommon for developers to apply to the Controller of Housing (the Controller) and/or Minister of Urban Wellbeing, Housing, and Local Government (the Minister) for an extension of time for the VP Period.
Legislative Framework for Extension of the VP Period
Housing Development (Control and Licensing) Act 1966 (HDA)
Section 24(2)(e)
24 Power to make regulations
(1) Subject to this section, the Minister may make regulations to carry into effect the provisions of this Act.
(2) In particular and without prejudice to the generality of the foregoing power, the regulation may —
(e) regulate and prohibit the conditions and terms of any contract between a licensed housing developer, his agent or nominee, and his purchaser;
Housing Development (Control and Licensing) Regulations 1989
Regulation 11(3)
(3) Where the Controller is satisfied that owing to special circumstances or hardship or necessity compliance with any of the provisions in the contract of sale is impracticable or unnecessary, he may, by a certificate in writing, waive or modify such provisions:
Provided that no such waiver or modification shall be approved if such application is made after the expiry of the time stipulated for the handing over of vacant possession under the contract of sale or after the validity of any extension of time, if any, granted by the Controller.
Regulation 12
Notwithstanding anything to the contrary in these Regulations, any person aggrieved by the decision of the Controller … may within fourteen (14) days after having been notified of the decision of the Controller, appeal against such decision to the Minister; and the decision of the Minister made thereon shall be final and shall not be questioned in any court.
Judicial Interpretation
The above provisions were examined recently in two cases i.e. Ang Ming Lee & Ors v Menteri Kesejahteraan Bandar, Perumahan dan Kerajaan Tempatan & Anor and other appeals [2020] 1 MLJ 281 (Federal Court) (Ang Ming Lee) and Bludream City Development Sdn Bhd v Kong Thye & 184 Ors and other appeals [2022] MLJU 74 (Court of Appeal) (Bludream). Both cases tell the same tale of application for extension of the VP Period but the developers ended up with rather different fates.
Ang Ming Lee & Ors v Menteri Kesejahteraan Bandar, Perumahan dan Kerajaan Tempatan & Anor and other appeals [2020] 1 MLJ 281
Facts
The buyers had signed Sch H SPAs with the developer, BHL Construction Sdn Bhd for the purchase of condominium units in Sri Istana Condominium, under which the VP Period is 36 months. On grounds of (i) non-stop complaints by nearby residents due to extended working hours, (ii) SWO issued by the local authorities; and (iii) investigation conducted on the piling contractor, the developer applied to the Controller under Regulation 11(3) of the HDR for extension of VP Period.
The Controller rejected the application, to which the developer appealed against the same to the Minister, under Regulation 12 of the HDR (the Appeal).
Via a letter signed by a person on behalf of the Controller, the Appeal was allowed and an extension of 12 months was granted (the Decision).
Being deprived of their rights to claim for LAD, the buyers applied to the High Court for a judicial review of the Decision.
High Court
The High Court allowed the buyer's judicial review application to quash the Decision and declared both Regulation 11(3) of the HDR and the Decision as null and void for being ultra vires the HDA. The High Court held that the Controller does not have the right to waive or modify the terms and conditions of the Scheduled SPAs and that HDA is social legislation to protect the interests of house buyers.
Court of Appeal
Disgruntled, the developer appealed to the Court of Appeal where it was ruled that (i) Regulation 11(3) of the HDR is not ultra vires the HDA and the Minister could delegate the power to waive or modify the terms and conditions of the Scheduled SPAs; and (ii) the Decision was, however, a nullity because (a) the buyers were not afforded the opportunity to be heard; and (b) the Decision appeared to have come from the Controller himself, and not the Minister.
Federal Court
The Federal Court held as follows:-
(i) Regulation 11(3) of the HDR was ultra vires the HDA. Section 24 of the HDA did not empower the Minister to make regulations to delegate to the Controller the powers to waive or modify the Scheduled SPAs.
(ii) Section 24(2)(e) of the HDA only empowers the Minister or gives the Minister the discretion to regulate and prohibit the terms and conditions of the Scheduled SPAs. Where such discretionary powers are given to a specific authority, such powers shall be exercised by such specific authority only, to the exclusion of all other authorities unless there is a contrary indication. The HDA does not so indicate otherwise. As such, such powers to regulate and prohibit the terms and conditions of the Scheduled SPAs shall not be delegated to the Controller and shall be exercised strictly by the Minister only.
(iii) As the power to regulate does not include the power to delegate, the Minister's action in delegating to the Controller, via Regulation 11(3) of the HDR, the power to modify the terms and conditions of the contract of the sale exceeded what was intended by Parliament.
(iv) The Decision was signed on behalf of the Controller (instead of the Minister) and conveyed the decision of the Ministry of Urban, Wellbeing, Housing, and Local Government (instead of the Minister). This shows that the Decision is one of the Controller (as delegated by the Minister) and not that of the Minister.
Bludream City Development Sdn Bhd v Kong Thye & 184 Ors and other appeals [2022] MLJU 74
Facts
Similar to Ang Ming Lee's case, Bludream's case involved an application by the developer for an extension of the VP Period. In this case, the developer, Bludream City Development Sdn Bhd had made its first application to the Controller for an extension of the VP Period for an additional 6 months to the original 36 months, totalling 42 months (First Extension). The First Extension was granted by the Controller, after which the buyers executed their respective Sch H SPAs (which provided for a VP Period of 42 months instead of 36 months) with the developer for the purchase of serviced apartment units in the Mines Resort City, Seri Kembangan. The First Extension was not in dispute.
An SWO for 17 months was issued flowing from subsidence and cracks in a nearby school ("the Subsidence and Cracks"), resulting in a stoppage of construction works. Upon investigation, the Subsidence and Cracks were because of an underground stream under the school and not resulted and/or contributed by the developer.
On the ground of the aforesaid SWO, the developer applied, for the second time, to the Controller under Regulation 11(3) of the HDR for an extension of the VP Period for a corresponding period of 17 months (that is, from 42 months to 59 months). The Controller had extended the VP Period for 12 months (that is, from 42 months to 54 months) for unsold units, and for sold units, supplementary agreements will have to be executed between the developer and the buyers for the extension.
The developer further appealed to the Minister against the Controller's decision. The Minister had allowed for the 17-month extension of the VP Period (that is, from 42 months to 59 months) (Second Extension).
Discontented, the buyers applied to the High Court for a judicial review of the Second Extension.
High Court
The High Court allowed the judicial review applications by the buyers, on the ground that the High Court was bound by the Federal Court's decision in Ang Ming Lee's case which held Regulation 11(3) of the HDR to be ultra vires the HDA.
Court of Appeal
The Court of Appeal distinguished Ang Min Lee's case as follows:
(i) In Ang Ming Lee's case, Regulation 11(3) of the HDR was held to be ultra vires the HDA because the decision for extension of the VP Period was by the Controller and not the Minister. There, the Federal Court made clear that the decision to extend the VP Period is one to be made by the Minister and not delegated to and by the Controller. In Bludream's case, the decision to extend the VP Period was by the Minister. The Minister is well within the power to extend the VP Period, in view that he is empowered to "regulate and prohibit the terms of any contract…" (Section 24(2)(e) of the HDA) and to "waive or modify the terms of any contract of sale…" (Regulation 11(3) of the HDR).
(ii) The Federal Court in Ang Ming Lee's case merely held that the Minister is not empowered to delegate such powers to extend the VP Period to the Controller. The Minister himself nevertheless remains empowered to extend the VP Period by Section 24(2)(e) of the HDA and Regulation 11(3) of the HDR.
Accordingly, the Court of Appeal held that in arriving at its decision to grant the Second Extension, the Minister had considered the relevant factors such as the continuing costs of bridging loans, labour costs, overheads including rental of plant and equipment, increased costs of materials and cost of interests on the buyers' loans released under the Developer's Interest-Free Bearing Scheme (DIBS), the possibility of completing the project should there be no extension of VP Period and therefore exposing the developer to massive LAD claims, etc. The Minister had also taken cognisance of the possibility of the developer not being able to afford to complete the project in the event no extension of the VP Period is granted and therefore resulting in abandonment of the project, which will ultimately be even more detrimental to the purchaser compared to the deprivation of entitlement to LAD.
Taking into consideration all the above, the Court of Appeal upheld the Minister's decision in granting the Second Extension.
Note: We understand that the respondents have applied for leave to appeal to the Federal Court and the same is pending. It will be interesting to see how the Federal Court will decide when Bludream's case also involved an appeal to the Minister against the decision of the Controller.
Conclusion
(1) Following the judgments of the above cases, Regulation 11(3) of the HDR is ultra vires the HDA and no longer valid. Thus, the Controller has no power to waive or modify the terms and conditions of the contract of sale.
(2) The Minister remains empowered to waive or modify such terms and conditions and can therefore grant an extension of the VP Period.
Moving forward, where developers encounter situations necessitating extension of the VP Period, it is prudent to ensure that the application is made and the approval thereof is by the Minister. In the event the approval letter is signed by persons other than the Minister, such signatory must sign for and on behalf of the Minister and not the Controller or any other persons.
Two Cents Worth
The cases have clarified that the Minister has discretionary powers under HDA and HDR to waive and modify any provisions of the Scheduled SPAs such as extending the VP Period. With this clarification, licensed housing developers may be knocking on the Minister's door to seek an extension of time to complete their housing development projects.
The Minister must exercise his discretion in accordance with legal requirements. Discretionary power must be used reasonably, impartially, avoiding oppression or unnecessary injury.
The reason the Parliament grants discretionary power to administrative agencies is that they possess experience and specialization in a particular area. This experience and specialization help the agencies in making decisions in the agencies' areas of expertise.
Delegatus Non Potest Delegare
A discretionary power must, in general, be exercised by the authority to whom it has been committed. It is a well-known principle of law that when power has been confined to a person, he must exercise the power personally unless he has been expressly empowered to delegate it to another. This principle has been expressed in the form of a maxim delegatus non-potest delegare. It is often applied in the law of agency, trust, and arbitration. Thus, if a person, to whom the authority to personally exercise discretion is vested by a statute, delegates his discretionary power to another person, it will amount to a failure to exercise the discretion by the former.
This article is written by Amanda Law Jia Yi, Partner of Conveyancing and Retail Banking Practice Group of Chee Siah Le Kee & Partners for Henry Butcher Malaysia
