What actually happened during the Federal Court ruling on restricting EOT for developers in Malaysia?

A closer look into the decision of the Federal Court to which favoured all homebuyers in Malaysia and the rationale behind it.

National House Buyers Association representatives, lawyers and purchasers at the Federal Court. © HBA

The Federal Court Landmark decision on the Extension of Time (EOT) restriction has been extensively reported in the news media and online portals. The written Court Judgment of the Federal Court is now available in all the Law Journals for all to understand our esteemed learned Judges rationale in upholding the primacy of homebuyers’ interest under the law.

It was a 3-year long journey – The National House Buyer’s Association’s (HBA) pro bono legal team had to contend with the developers’ lawyers as well as those lawyers holding watching briefs (yet allowed to address the Court) for the Real Estate and Housing Developers’ Association (REHDA) and the Bar Council (both REHDA and the Bar Council supported the position taken by the developer as observed by FC learned Judges).

In this article, we will learn more about the Federal Court’s landmark decision of the Federal Court helmed by Her Ladyship Chief Justice Tan Sri Tengku Maimum Tuan Mat. 

Discretionary power granted to Housing Controller supposed to be exercised prudently

The issue of contention is in the Housing Development (Control & Licensing), Regulations, 1989 (hereinafter referred to as ‘HDReg). HDReg 11(3) was, time and again, invoked by the Controller of Housing against the detriment of naïve and unwary house buying public and it reads:

HDReg 11(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.”

Hence, only the Housing Controller has the power to waive or modify the provisions of the Sale & Purchase Agreement (SPA). So what is wrong with the Housing Controller giving an extension of time? Is he not entitled to exercise his power under this HDReg 11(3)? Has “granting of extension” been exercised in a just manner? Were the affected buyers accorded the ‘rights to be heard’ since it affects them’?

No reasonable minded person, let alone the Housing Minister and those under his charge, can possibly imagine that the powers given under HDReg 11(3) is meant to be used against homebuyers – let alone blatantly and unilaterally take away rights which are expressly given to them by Parliament for their protection.

READ: What to do if your ‘new’ property has defects & 4 other must-knows about Defect Liability Period (DLP)

A whopping 536 EOTs approvals invoked under HDReg 11(3) & HDReg 12

There are a total of 536 Extension of Time (EOT) approvals granted by the Controller of Housing under HDReg 11(3) and HDReg 12 by the Housing Minister since 2014 according to the recent Parliament Hansard that was made available in the current sitting.

EOT-home-buyer-malaysia

Source: 123rf

The figures are mind-boggling. How could they have issued the EOTs to housing developers to save developers at the detriment of homebuyers?

If discretionary powers are not exercised with prudence, perhaps it is time for these powers to be removed or the minister replaced. 

What actually happened? Here’s the proceedings in the Federal Court

After going through the legal process from the Judicial Review proceedings at the High Court and then to the Court of Appeal, the case finally reached its apex at the Federal Court. Leave to appeal (to the Federal Court) was granted on 10.10.2018 to both the Purchasers and Developer on several questions of law. 

For the full sequence of events, read this.

HBA legal team represented the purchasers in the litigation proceedings on a pro bono basis. The Purchasers’ questions to the Federal Court were:

    1. whether the Housing Controller has the power to waive or modify any provision in the Schedule H Contract of Sale as prescribed by the Minister under the Housing Development (Control and Licensing) Act 1966 (HDA) (“Question 1”);
    2. whether Section 24 of the Housing Development (Control and Licensing) Act 1966 confers power on the Minister to make regulations for the purpose to delegate the power to waive or modify the Schedule H Contract of Sale to the Housing Controller (“Question 2”);
    3. whether HDReg 11(3) of the Housing Development (Control and Licensing) Regulations 1989 is ultra vires the Housing Development (Control and Licensing) Act 1966 (“Question 3”).

The Developer’s questions to the Federal Court were: 

    1.  whether the letter granting an extension of time after an appeal pursuant to Regulation 12 of the Housing Development (Control and Licensing) Regulations 1989 must be signed personally by the Minister and whether the Minister could delegate his duties (signing of the letter granting the extension of time) to an officer in the Ministry of Urban, Wellbeing, Housing and Local Government of Malaysia (“Question 4”);
    2. whether the Minister has taken into consideration the interest of the purchaser is obliged to afford the purchasers a hearing prior to the Minister granting the extension of time albeit there is no such provision or requirement in the Housing Development (Control and Licensing) Act 1966 or Housing Development (Control and Licensing) Regulations 1989 (“Question 5”).

The Purchasers’ submission and the gist of the arguments to the Federal Court were:

  • under the Act, both the Minister and the Controller have a separate and independent role;
  • as a general rule, the powers of the Minister may not be delegated to the Controller unless it is expressly provided under the Act;
  • Section 24(2) of the Act expressly confers power to the Minister to make regulation for the purpose of prescribing the statutory form for the contract of sale;
  • the Minister is also authorised to prescribe regulation for the purpose of regulating the terms and conditions of the contract of sale between the developer and purchasers;
  • the word ‘regulate’ is not defined in the Act;
  • the word ‘regulate’ ordinarily means ‘to control or to govern’; 
  • and it was not the intention of Parliament to authorise the Minister to delegate the power to ‘prescribe’ and to ‘control’ and ‘govern’ to the Controller

How did the Federal Court arrive at the EOT landmark decision?

© Wavebreak Media Ltd | 123RF

The Federal Court’s decision was delivered by the Chief Justice of Malaysia: Tan Sri Tengku Maimum Tuan Mat leading a panel consisting of Chief Justice of Malaya, Tan Sri Azhar Mohamed, Federal Court Judges, Tan Sri Idrus Harun and Datuk Nalini Pathmanathan. In her conclusion, the Federal Court Judges unanimously answered the prayers of the Purchasers to the Questions posed as follows:

Purchasers’ Questions 1 and 2  – Negative

Purchasers’ Question 3 – Affirmative

Developer’s Questions 4 and 5  – No necessity to answer

A summary of the rationale given by the Federal Court:

  1. There was no provision enabling the controller to exercise the Urban Wellbeing, Housing and Local Government minister’s powers.
  2. Granting of EOT to the Developer did not appear to protect or safeguard the purchasers, but rather the Developer and that militated the intention of Parliament.
  3. By modifying the prescribed terms and conditions and by granting the developer the EOT, the Controller has denied the purchasers’ right to claim for liquidated ascertained damages/ compensation ( LAD).

Which laws regarding the completion of properties should be amended next?

It is time to amend the laws again to cater for a longer construction/ completion period for housing developers that embark on multi-level developments and depending on the complexity of certain projects. Perhaps, the threshold for 30-storey high rise and above should be automatically granted a 48 months completion date? However, based on recent events, it’s better not to give the discretionary power to the Housing Minister and those under his charge: it may be abused. 

If you enjoyed this industry update, read this next: What caused Malaysia’s residential property overhang and when will it get better?

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