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  • Writer's pictureAarthi Jeyarajah

LAD Claims in the time of Covid-19

Updated: Oct 29, 2021


I was recently invited to speak on any topic for the purposes of continuing professional development (CPD) webinars organised by Johore Bar Committee. After giving it much thought, I chose the topic “Claims for LAD in the time of Covid-19” together with my esteemed co-speaker, Nimalan Devaraja.



The reason behind choosing this topic was two-fold, first was because of the rate of housing development in Johore over the last decade (and more) and secondly, because there are now several landmark decisions in relation to liquidated ascertained damages (“LAD”) claims under the Housing Development (Control and Licensing) Act1966 (“HDA 1966”).


If I'm honest, I'd say that I also chose this topic because it is a fascinating area of law that has steadily developed in the last few years.


Current Issues with the Construction Industry



It is evident that the construction industry is facing a slew of issues since the various restrictions imposed beginning March 2020 and continues todate due to the Coronavirus Disease 2019 (“Covid-19”) that has had a devastating impact worldwide.





It was recently reported that [1]:


  • As a result of Covid-19, construction supply had been halted; construction work stopped and in 2020 there was little indication of when things would go back to “normal”.

  • Further, global vaccination efforts do not appear to be able to keep up with mutations of the SARS-CoV-2 virus which appear more virulent and have caused an exponential increase of COVID-19 cases in India and Europe. The World Health Organization (WHO)in April said the organisation is not certain at this stage that vaccination prevents transmission of the virus.

  • Based on Construction Industry Development Board ("CIDB") records, the value of construction projects awarded in Malaysia fell 42% to RM55.3 billion between January and October 2020 compared with RM94.6 billion for the same period in 2019.

  • According to CIDB, roughly 4,000 COVID-19 infections attributed to foreign workers have been recorded at various worksites as of December 2020.


As such, it is expected that housing development projects will inevitably be delayed, which in turn would give rise to claims for LAD by purchasers as provided for under the standard form contracts found in Schedule G and Schedule H to the Housing Development (Control and Licensing) Regulations 1989.


It should also be borne in mind that there is a fixed method of calculation of LAD under these contracts and the Courts have repeatedly reinforced the fact that the HDA 1966 is “social legislation” [2] and cannot be “contracted out” of [3].


Impact of the Covid-19 Act in Relation to LAD Claims


The Temporary Measures For Reducing The Impact of Coronavirus Disease 2019(COVID-19) 2020 (“the Covid-19 Act”) was gazetted on 26 October 2020 and Part XI of the same specifically deals with modifications to the HDA 1966. The Covid-19 Act provides that the provisions are deemed to have come into effect retrospectively on 18 March 2020.


Section 35(1) of the Covid-19 Act provides that notwithstanding any agreement entered into between the purchaser and the developer, the period from 18 March 2020 to 31 August 2020 shall be excluded from the calculation of:

(a) the time for delivery of vacant possession of a housing accommodation; and

(b) the liquidated damages for the failure of the developer to deliver vacant possession of a housing accommodation.


As such, a period of 167 days is automatically excluded from any calculation for delivery of vacant possession or any calculation for LAD. Section 35 (2) of the Covid-19 Act further provides that a developer may also seek a further extension from the Minister for these periods up until 31 December 2020.


Can the Minister Grant Such Extensions?

The Covid-19 Act 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. The widely discussed Federal Court decision of Ang Ming Lee & Ors v Menteri Kesejahteraan Bandar, Perumahan dan Kerajaan Tempatan & Anor and other appeals [4] 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 this regard, the Court of Appeal has recently delivered a decision on this issue in a case involving one Alvin Leong, and the Grounds of Decision of the Court of Appeal is highly anticipated.


Is it Fair?

It is not disputed that the developers would have been forced to shut down operations(almost completely) in the beginning period of the restrictions imposed by the Government especially during the Movement Control Order that took place beginning 18 March 2020. However, subsequently, constructions companies involved in housing development have been allowed to resume operations under different standard operating procedures, which are changed from time to time. Whilst construction companies may have been allowed to operate intermittently, it should also be taken into account that operating at reduced capacity would still result in delays, and there is a further issue of supply of manpower and resources that would have also been impacted as a result of the restrictions imposed by the Government and the lockdowns which have taken place internationally.


Moving Forward

Interestingly, the Covid-19 Act has not been amended or supplemented to provide for the lockdowns or restrictions that have been imposed in the year 2021, as such there are no "LAD free periods" accorded for this year. However, as with the Covid-19 Act, it remains to be seen if Parliament enacts further legislation to account for the delays that would have inevitably occurred in 2021.


Bearing this in mind, if a purchaser is waiting for vacant possession to be delivered and is unsure of the position taken by the developers in respect of the delays of delivery and the potential LAD that can be claimed, it is always advisable to seek legal advice. Based on matters that this author has dealt with, homebuyers should always be weary of signing off on any potential claims without seeking legal advice and further should be weary of any purported “settlement agreements” at the time of collection of keys and delivery of vacant possession.

"

The phrase ‘social legislation’ attached to the Housing Development (Control and Licensing) Act 1966 (‘the HDA 1966’) and its ensuing subsidiary legislation ie the Housing Development (Control and Licensing) Regulations 1989 (‘the HDR 1989’) is not merely a fanciful label.


In disputes between home buyers and housing developers, its significance lies in the approach taken by the courts to tip the scales of justice in favour of the home buyers given the disparity in bargaining power between them and the housing developers."[5]

(emphasis added)


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.

 

References:

[1] https://www.iproperty.com.my/news/construction-industry-property-development-malaysia-challenges-the-way-forward/

[2] PJD Regency Sdn Bhd v Tribunal Tuntutan Pembeli Rumah & Anor and other appeals

[2021] MLJU 41 (FC) and Ang Ming Lee & Ors v MenteriKesejahteraan Bandar, Perumahan dan Kerajaan Tempatan & Anor and other appeals [2020] 1 MLJ 281 (FC)]

[3] Hedgeford Sdn Bhd v Sri Gananatha a/l Sivanathan & Ors [2018] MLJU 1424, HC

[4] [2020] 1 MLJ 281

[5] PJD Regency Sdn Bhd v Tribunal Tuntutan Pembeli Rumah & Anor and other appeals [2021] 2 MLJ 60, para 1


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