In Encorp Iskandar Development Sdn Bhd v Teo Choon Poh (Zhang Chunbao) & 68 Ors [2025] 7 AMR 925, the Court of Appeal affirmed the High Court’s decision that inter alia the developer was responsible under the Developer Interest-Bearing Scheme to service the progressive interest up until the actual delivery of vacant possession inclusive of any delay.
 
Facts
 
The appellant is the developer of a strata condominium project known as Encorp Marina Puteri Harbour. The respondents are purchasers who entered into Sale and Purchase Agreements in Schedule H to the Housing Development (Control and Licensing) Regulations 1989 to purchase residential units in the project from the appellant (“SPAs”). The SPAs stipulated that vacant possession of the respective units (“VP”) were to be delivered within 48 months from the date of the respective SPAs (“contract period”).
 
At around the same time when the SPAs were signed, the appellant issued a letter to each of the respondents (“DIBS Letter”), requesting them to select the preferred mode of incentive, namely the Developer’s Interest-Bearing Scheme whereby the appellant would service the progressive interest during the “construction period” (“DIBS”) or an immediate rebate of 3% of the purchase price.
 
All the respondents opted for the DIBS (instead of 3% rebate on purchase price). The DIBS Letter sets out the appointed panel of end-financiers for the DIBS, but did not stipulate what was meant by the “construction period” or how it was to be determined, notwithstanding that the appellant was supposed to bear the loan interests charged by the end-financiers (“Bank Interest”) during this period.
 
The letters from the end-financiers offering the DIBS to the appellant contained a covenant by the appellant to bear the Bank Interest: (a) during the “construction stage” or “construction period” without any reference to a 48-months’ limit; or (b) up until the delivery of VP.
 
Although there was a delay by the appellant in delivering VP of the units to the respondents, the appellant continued to service the Bank Interest on behalf of the respondents after the contract period, until the appellant’s letters dated 29 May 2017 (“2017 May Notice”) to:

The appellant also issued tax invoices to the respondents seeking refund within 14 days thereof of the Bank Interest paid after the contract period (“Excess Bank Interest”), subject to late payment interest chargeable on any outstanding amount.
 
The appellant subsequently issued letters on the VP delivery, and reminded the respondents that keys handover was subject to full settlement of among others late payment charges. Hence, a majority of the respondents reimbursed the appellant for the Excess Bank Interest, before contending via their solicitor’s letter to the appellant that the appellant was liable to pay the Bank Interest until the VP delivery.
 
The respondents claimed against the appellant for failing to pay the Bank Interest for the period after expiry of the contract period until the VP delivery to the respondents, and the appellant counterclaimed against several respondents for the outstanding Excess Bank Interest.
 
Decision of the High Court
 
The High Court allowed the respondents’ claims, holding that the appellant was obliged to bear the Bank Interest throughout the actual construction period until VP was delivered.
 
Dissatisfied with the High Court’s decision, the appellant appealed to the Court of Appeal.
 
Decision of the Court of Appeal
 
Interpretation and Financial Logic of DIBS
 
According to the learned Court of Appeal judge, Azimah Omar JCA, the entire case rests on the determination on whether for the purposes of the DIBS, the term “construction period” in the DIBS Letter should be construed as being limited to the 48 months period to deliver VP under the SPAs, i.e. the contract period, or covers the entire time period taken by the appellant to fully construct and develop the parcels and deliver vacant possession to the respondents (inclusive of delays) (“VP Period”).
 
The Court of Appeal first considered the incentives offered by the appellant to promote sales of the development. According to the Court of Appeal, the financial logic must be that: 

Applying rule of contractual interpretation that contracts must yield to business common sense, the Court of Appeal opined that it only made business common sense to offer the DIBS as an alternative to a lump sum rebate if the DIBS would offer greater savings in the long run (or in case there was delay beyond the contract period). The Court added that it would not make any business common sense to offer distinct incentives of an immediate rebate and a gradual savings via the DIBS if the end result of both is the same.
 
Ambiguity in DIBS Letter
 
The Court of Appeal was of the view that the appellant had drafted the DIBS Letter in a manner that was ‘glaringly vague’. Accordingly, the Court took the initiative to examine the surrounding facts so as to ascertain the parties’ true intention. The Court added that the contra preferentum rule would apply against the appellant and any ambiguity in the DIBS Letter must necessarily be interpreted in favour of the respondents.
 
The Court of Appeal then considered the following facts and their impact on instant appeal. 

To implement the DIBS and to enable the end-financiers to officially inform the respondents that the appellant had agreed to bear the Bank Interest, the Court of Appeal concurred with the High Court’s view that there must have been a concluded agreement between such financiers and the appellant.
 
After examining the aforesaid letters, the Court of Appeal opined that it was clear that the end-financiers all shared the same understanding that the appellant was to bear the Bank Interest under the DIBS for the whole of the VP Period. Whilst acknowledging that the end-financiers’ offers to the appellant per se were not proof of the agreement between the appellant and the respondents, the Court of Appeal held that appellant’s unwillingness and reluctance to tender any evidence to the contrary gives rise to an adverse inference against the appellant. 

The Court of Appeal noted that even after the lapse of the contract period, the appellant continued to service the Bank Interest on behalf of the respondents. Thus, the Court viewed the 2017 May Notice to the end-financiers as a ‘belated’ notice, and to the respondents as ‘an afterthought’, given that the sudden and abrupt mention therein of a 48-month limit for the construction period only came about five years after the initial issuance of the DIBS Letter.
 
Estoppel Sought by Parties
 
The Court of Appeal then considered the arguments of estoppel raised by the parties against each other’s claim.
 
The appellant contended that the respondents were estopped from claiming a refund of the Excess Bank Interest as the respondents had already paid the same, albeit reluctantly. On the other hand, the respondents anchored estoppel on the appellant’s continued payment of the Bank Interest after the expiry of the contract period.
 
The Court of Appeal said that it is trite that as ‘estoppel’ is an equitable remedy, any person seeking to rely on the same “must come with clean hands.” According to Her Ladyship Azimah Omar JCA, the respondents were put in an inequitable position (and with lower bargaining power) by the appellant acting inequitably by making a ‘U-turn’ against its own status quo and forcing additional late payment charges and delaying physical possession. Thus the estoppel sought by the appellant was grounded on a position of inequity and coercion.
 
On the other hand, the respondents had not done anything to ‘force’ the appellant to continue servicing the Bank Interest after the expiry of the contract period which the latter had done voluntarily. Hence, the estoppel sought by the respondents was grounded on outright volition by the appellant. Accordingly, the Court found that estoppel lies in favour of the respondents and bars the appellant from negating its previous admissions by conduct.
 
Outcome
 
The Court of Appeal affirmed the High Court’s decision, including the finding that the appellant was legally bound to bear the Bank Interest for the entire duration of the VP Period, and dismissed the appellant’s appeal.
 
Conclusion
 
Notwithstanding the Court of Appeal’s decision to construe the DIBS Letter in favour of the purchasers, it is to be noted that this case was decided based on its facts and contemporary evidence. The Court of Appeal did not expressly or impliedly prohibit developers from limiting the duration of a developer’s interest bearing scheme to the period for delivery of vacant possession stated in the sale and purchase agreements.
 
This case also serves as a reminder that contracts be drafted without ambiguity. From a practical perspective, the decision is an important reminder to purchasers who opt for a developer’s interest bearing scheme as part of their purchase of property to ensure that there is no ambiguity in the documentation governing such scheme as to the period during which the developer is to be legally bound to pay progressive interest to the end-financiers on behalf of the purchasers.
 
Case Note by Jesy Ooi (Partner) and Engy Tan (Senior Associate) of the Real Estate Practice of Skrine.