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  • Writer's pictureAarthi Jeyarajah

Developer's Win?



In our earlier Issue No. 2 circulated in August 2021, this author had written about “LAD Claims in the time of Covid-19”. In that issue, one of the topics discussed was whether the Minister [from the Ministry of Housing and Local Government] had the power to grant extensions of time for development governed under the Housing Development (Control & Licensing Act 1966 (“HDA 1966”).


To recap, it was discussed that Section 35 of the Covid-19 Act [Temporary Measures for Reducing the Impact of Coronavirus Disease 2019 (Covid-19) Act 2020] provides that the Minister shall grant the application by way of written direction if he/she is satisfied that additional time is required by the developer.


Power of the Minister


This power of the Minister to grant such extensions of time, is not a new one and is also provided for under “normal circumstances” (not just as a result of Covid-19) being derived from Section 24(2) (e) of the HDA 1966 and (arguably) Regulation 11(3) of the Housing Development (Control and Licensing) Regulations 1989 (“HDR”). However, as Regulation 11(3) of the HDR allows for a “controller” to exercise its powers to waive or modify provisions of a contract of sale, this “power” has become a point of contention as to whether such extensions of time can be granted under sale and purchase contracts governed under the HDA (the Schedule H and K contracts) and WHO is allowed to grant such extensions of time.


The Federal Court in Ang Ming Lee & Ors v Menteri Kesejahteraan Bandar, Perumahan dan Kerajaan Tempatan & Anor and other appeals [1] (“Ang Ming Lee”) held that the Controller of Housing is not empowered to grant extension of time for the delivery of Vacant Possession. This case dealt with the issue of the Minister delegating his powers under the HDA 1966 to the Controller of Housing, which was frequently the practice that was seen in the industry over the years. Having determined the Controller does not have this power, it is then left solely to the Minister to exercise discretion in granting any extension of time to developers on the basis that they have provided satisfactory reason that such additional time is required.


In Issue No. 2, this author had mentioned that the Court of Appeal has recently delivered a decision on this issue in a case involving one Alvin Leong. This author has since received a copy of the Grounds of Decision (from some very helpful learned friends), and the Court of Appeal has affirmed the position that a Minister does have the power to grant extensions of time. We discuss this case below.


The Court of Appeal decision in Bluedream City Development Sdn Bhd vs. Kong Thy & 184 others (heard together with 5 other appeals) (unreported)


The Issue:


The complaint of the Purchasers by way of judicial review was against the decision of the Minister to grant a second extension of time of 17 months (from 42 moths to 59 months) for the Developer to complete the units in the service apartments of a housing development [2].


There had been an initial extension of time granted by the Controller of Housing for 6 months (“First Extension”), which had been obtained by the Developer prior to the Purchasers signing the Sale and Purchase Agreements (“SPA”). This decision had not been challenged at the time and the Purchasers had agreed the delivery of vacant possession ought to be 42 months from the date of the SPA. What must be borne in mind that any challenge by way of judicial review in respect of the decision of the Minister/ Controller of Housing (such as in this case), ought to be done “promptly” within a strict timeline of 3 months “from the date when the grounds of application first arose or when the decision is first communicated to the applicant. [3]


Nevertheless, the Purchasers challenged the First Extension, as well as the second extension which was subsequently obtained for a further 17 months on the basis that the Developer had a Stop Work Order (SWO) and was unable to carry out any works during this period (“the Second Extension”). What must be noted is that the Second Extension was granted by the Minister himself, and not the Controller.


The Decision of the Court of Appeal


The Court of Appeal quite rightly dismissed the challenge in relation to the First Extension and deemed it to be a “non-starter”. The Court of Appeal then went on to distinguish the present decision from Ang Ming Lee case on the basis that the Second Extension was a decision of the Minister and the HDA and Parliament had clearly intended for the Minister to be empowered to waive or modify provisions in a contract for sale under the HDA, i.e to make decisions such as to extend time to complete the units and deliver vacant possession.


Do the Purchasers have to be heard when the Minister is contemplating an application by the Developer for an extension of time?


The Court of Appeal outlined as follows:

  • The right to be heard is not expressly stated in the HDA or the HDR in respect of an application to the Minister to exercise his powers to modify terms of a SPA;

  • It would be a colossal task to conduct a hearing involving some 270 purchasers when a quick decision has to be made; and

  • As such, there is no need to hear the Purchasers individually unless the Minister has some doubts as to how the Purchasers interest may best be safeguarded.


As such, the Court of Appeal had set out the following matters that ought to be considered when reviewing the Minister’s decision [4]:

  • It is important that the Minister must act fairly, taking into consideration that the Purchasers are not obliged to consent to any extension of time implored by the Developer. The Minister is entitled to proceed on the assumption that the Purchasers would not agree to any extension of time.

  • The Minister, when discharging his duty under the HDA, would have to take the interest of the Purchasers into consideration as he is entrusted under the HDA to safeguard the rights of the Purchasers.

  • Minister has to act honestly and by honest means, to act justly and to reach just ends by just means in relation to natural justice in an "administrative law" context. In this case, the Minister will have to ensure that the Developer is able to complete the developments in spite of the 17 month delay due to the SWO (which was found to be not due to any fault of the Developer).

  • The Minister cannot only review the fact that the purchaser is unable to claim for liquidated ascertained damages (LAD) but will have to take a broader view to determine if an extension is necessary so that the Developer would be in a position to complete the project if they are at the same time saddled with a claim for LAD.

  • ·The Minister should consider costing, risk assessment and exposure to claims to gauge and assess the viability of completion of the housing project


The Court of Appeal also opined that the Minister, having the resources, should be in the best position to determine if there are instances from time to time where there is a genuine need to ask for an extension of time to complete, especially if the reason and risks are beyond that which the Developer could have anticipated. The Court of Appeal also held that the Parliament had granted the Minister flexibility to consider in “valid and worthy” cases to extend the time of completion, by taking into consideration the cause of the delay, the extent of completion of the project as a whole and the interest of the purchasers and its entitlement to compensation [5].


On the flipside, the Court further held that the Minister also has to consider ramification of not granting an extension of time, as the Developer may not have the funds to continue and the end result may well be that the Project is abandoned and no “rescue developer” would want to continue on a project if the Purchasers are insisting on LAD claims. The Developer not being granted an extension may also suffer liquidation given that there will be subcontractors, suppliers, purchases and bankers to deal with under an insolvency regime [6].


Social Legislation?


Whilst cases involving LAD claims and the HDA always tend to lean towards the purchasers, the Court of Appeal has quite rightly recognised the harsh realities of the construction industry and the need for the Minister to exercise its power in the right circumstances. The Court of Appeal recognises that social legislation is to protect the weaker segment of society however it also has recognised that the Developers ought not be punished in order to protect the purchasers, given appropriate circumstances. In this case, the Court has held that the Developer is not trying to “take advantage of their own delay” or is it a case to “shortchange” the Purchasers (as we have seen time and again).


What’s more interesting is the closing words of the Court stating that this decision is:


“not a victory for anyone, not even the Developer but a reminder once again that the law and with that, the Court too that interpret the law, would often have unenviable task of balancing the conflicting interest of the parties and to make all parties see that there could be a convergence somewhere of the apparent conflict”.


 

Aarthi & Associates is a legal firm dealing with varied civil and corporate disputes, including construction disputes, injunctions and CIPAA claims. The firm's philosophy of "Providing Solutions", demonstrates a commitment to providing fast, effective and practical solution to disputes. Please visit www.aarthiassociates.com for more information and contact details

 

References:

[2] It should be noted that this case did not happen during the pandemic period and the Covid-19 Act does not apply.

[3] Order 52 Rules of Court 2012

[4] para 66-72 of the Grounds of Judgment

[5] para 95 & 96 of the Grounds of Judgment

[6] para 100 of the Grounds of Judgment

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