Housing Development : “Kata itu Kota” (Every Promise Made Must be Honoured)

Kata itu kota is a well-known peribahasa. It means that every promise made must be honoured. Its English equivalent is A mans word is his bond”.
- per Judicial Commissioner Leong Wai Hong
in Affan Bin Mohd Nawi & Ors v Lakefront Residence Sdn Bhd & Ors [2023] MLJU 1955
 
 
All promises must be kept” was the central theme in the High Court case of Affan Bin Mohd Nawi & Ors v Lakefront Residence Sdn Bhd & Ors [2023] MLJU 1955 wherein Judicial Commissioner Leong Wai Hong granted, among others, the following orders: 
  1. a declaration that the development project known as Lakefront Villa @ Cyberjaya (“Project”) is a housing / residential development comprising of 110 units as shown in the approved building plans; 

  2. a declaration that the Project shall be used for residential purposes only; and 

  3. an injunction to restrain the Defendants from howsoever carrying out and/or proceeding with the phase 2 commercial development or any commercial development on the land. 
In coming to the decision, His Lordship was guided by the approach established in the trilogy of Federal Court cases of Ang Ming Lee & Ors v Menteri Kesejahteraan Bandar Perumahan dan Kerajaan Tempatan & Anor and Other Appeals [2020] 1 CLJ 162, PJD Regency v Tribunal Tuntutan Pembeli Rumah & Anor and Other Appeals [2021] 2 CLJ 441 and Remeggious Krishnan v SK Southern Sdn Bhd [2023] 4 CLJ 36 (collectively “the Federal Court Trilogy”) in interpreting a sale and purchase agreement that is prescribed under the Housing Development Housing Development (Control and Licensing) Act 1966 (“HDA 1966”) (“Statutory SPA”).
 
In essence, the Malaysian apex court in the Federal Court Trilogy stated affirmatively that a Statutory SPA under the HDA 1966, the former being a social contract and the latter being a social legislation, “must be interpreted in a way which ensures maximum protection for the house buyers against the developer.” This approach applies even when a term or provision of the HDA 1966 or the Statutory SPA is literally clear or unambiguous.
 
BRIEF FACTS
 
The 46 Plaintiffs were house buyers of the Project.
 
The First Defendant (“D1”) was the developer, the Second Defendant (“D2”) was the registered proprietor of the master land, and the Third Defendant (“D3”) was the ultimate holding company of D1 and D2.
 
Forty-five of the Plaintiffs had entered into Statutory SPAs with D1 and D2 to purchase 32 residential units from D1 and D2, whilst the 46th Plaintiff purchased his residential unit from D1 and D2 pursuant to a sale and purchase agreement that is not governed by the HDA 1966 (collectively “SPAs”).
 
The suit was filed for breaches of the SPAs and for misrepresentations by D1, D2 and D3 in respect of the Project.
 
The 110 Units Promise
 
The SPAs incorporated the representations made by D3 on behalf of and/or in complicity with D1 and D2 that the Project: 
  1. was its “maiden project”; 

  2. would be a gated and guarded development features just 110 exclusive luxury villas surrounding a panoramic lake – a picturesque retreat promising privacy and quiet respite; and   

  3. catered with quality living and families in mind, LakeFront Villa are life-inspired homes in a holistic environment”, 
(the “110 Units Promise”).
 
The Planning Permission for Commercial Development 
 
Planning permission was obtained to develop the Project in two phases, with phase 1 comprising of 86 bungalow villa units, and phase 2 comprising of 24 bungalow villa units (“Phase 2”).
 
In 2017, the public authority approved the conversion of Phase 2 from 24 bungalow villa units into commercial lots / shop offices (“Land Conversion”). The master land was then subdivided with Lot 2 being approved to be used for Phase 2 of the Project.
 
Notwithstanding the 110 Units Promise, in 2020, D1 and D2 filed a planning permission application for a proposed commercial development project on Lot 2 (“Commercial Development Application”).
 
The Commercial Development Application was initially rejected but was allowed by the appeal board upon appeal in 2022.
 
At the time of the proceedings: 
  1. 86 units of the bungalow villas have been built; 

  2. the remaining 24 units of bungalow villas have not been built; and 

  3. Lot 2 is a vacant land. 
ISSUES
 
Whilst there were 14 issues to be tried, this article will focus only on the following issues: 
  1. Whether the suit was an attempt and/or collateral attack to reverse the public authorities’ approvals of the Commercial Development Application, the Land Conversion and the issuance of the subdivided land titles (“Authorities’ Approvals”) which ought to be vindicated by way of judicial review against the relevant public authorities. 

  2. Whether D1 and D2 breached the terms of the SPAs for failing to build 110 bungalow villa units. 

  3. Whether D3, which is not a party to the SPAs and the deed of mutual covenants, made the 110 Units Promise on behalf of and/or in complicity with D1 and D2. 

  4. Who has the locus standi to sue – the joint management body (“JMB”) or the 46 Plaintiffs who purchased 32 units out of the 86 bungalow villa units comprised in Phase 1. 

  5. Whether the D1 and D2 can be compelled to complete the construction of the remaining 24 bungalow villa units. 

  6. Whether the Plaintiffs can sue for reimbursement of the service charges and sinking funds which ought to have been paid by the (unbuilt) 24 bungalow villa units. 
DECISION OF THE HIGH COURT
 
The learned Judicial Commissioner delivered his decision after a seven-day trial followed by two days of submissions by the parties. The key points of the High Court’s decision are discussed below.
 
Whether the court proceedings was an attempt and/or collateral attack to reverse the Authorities’ Approvals which ought to be vindicated by way of judicial review 
 
This issue was answered in the negative as the Plaintiffs’ suit against the Defendants, who are not public authorities or statutory bodies, was based on private law causes of action premised on contract i.e. breaches of the terms of the SPAs and in tort for misrepresentation. The Plaintiffs were correct to seek relief by way of a writ.
 
Whether the Defendants breached the SPAs for failing to build 110 bungalow villa units
 
His Lordship found that the Defendants were in breach of the terms of the SPAs, in particular the Preamble to the SPAs and the plans in the First Schedule of the SPAs, for failing to build 110 bungalow villa units.
 
The Preamble to the SPAs 
 
The Preamble to the SPAs stated, inter alia, that: 
  1. D2 granted D1 the absolute right to develop the master land as “a housing development”; 

  2. D1 is developing the master land “as a housing development known as Lakefront Villa @ Cyberjaya”; and 

  3. The vendor has agreed to sell and the purchaser has agreed to purchase the parcel delineated in the delineation plan and the site plan with a building to be erected thereon subject to the terms and conditions herein contained.
Applying existing case law, namely Luggage Distributors (M) Sdn Bhd v Tan Hor Teng & Anor [1995] 1 MLJ 719 and Abdul Razak Jundar Khan & Ors v Mustapha Mohammed & Ors [2020] 2 CLJ 769, and guided by the principle in the Federal Court Trilogy that a statutory contract under the HDA 1966 must be interpreted in a way which ensures “maximum protection for house buyers”, Justice Leong found that the Preamble to the SPAs binds D1 and D2 to develop the master land strictly “as a housing development.” D1 and D2 are not allowed to carve out an area from the master land to build a commercial component.
 
The Plans in the First Schedule
 
The site plans, layout plan and delineation plan (“the plans”), which formed part of the First Schedule and are expressly stated in clause 34 of the SPAs to be an essential part of the respective agreements, showed that a total of 110 bungalow villa units are to be built on the master land. It was significant that the plans did not show an existing commercial component or any future commercial component reserved for development on the master land.
 
Based on the foregoing, His Lordship concluded that clause 34 read with the Preamble and the plans bind D1 and D2 to develop the master land strictly “as a 110 villas housing development” and do not allow D1 and D2 to carve out an area from the master land to build a commercial component thereon.
 
Whether D3, which is not a party to the SPAs and the deed of mutual covenants, made the 110 Units Promise on behalf of and/or in complicity with D1 and D2
 
The Representations
 
The High Court did not agree with the Defendants’ submission that the Plaintiffs did not rely on the representations made in the brochures and site plans published in D3’s website, D3’s newsletters and a model of 110 bungalow villa units in the showroom that: 
  1. The gated and guarded development features just 110 exclusive luxury villas surrounding a panoramic lake – a picturesque retreat promising privacy and quiet respite; and   

  2. The gated and guarded development has just 110 exclusive villas”, 
(the “Representations”)
 
The Court was satisfied that D3 had made the Representations. The prominent use of D3’s logo, the repeated use of the phrase “our project” by D3, the newsletters being referred to as the “MCT Newsletter” and information on D3’s website shows that D3 took ownership and promoted the Project.
 
Based on the above findings, the Court was satisfied that D3 was actively involved and/or had control of the management and business activities of D1 and D2 in respect of the Project and had represented and/or held itself out as being responsible for and/or supporting and backing-up the Project.
 
In the opinion of the Learned Judicial Commissioner, when a developer and its partners make representations on their websites, newsletters, brochures and in the show model in its show room, the Court can assume there is reliance on such representations by the house buyers when making their purchases. The High Court decision of Toh Shu Hua & Ors v Wawasan Rajawali Sdn Bhd & Anor [2023] 2 CLJ 310 was cited by His Lordship as support for this approach.
 
The High Court rejected the Defendants’ contention that the Plaintiffs did not rely on the Representations in purchasing their respective bungalow villa units. Citing the Federal Court’s decision in Boustead Trading (1985) Sdn Bhd v Arab-Malaysian Merchant Bank Berhad [1995] 4 CLJ 283, His Lordship held that there was no requirement for the Plaintiffs to show that they had relied mainly or solely on the Representations and it is sufficient if the Representations are one of the factors that they relied on.
 
The fine prints
 
Justice Leong further found that the express “disclaimers” printed on the brochures were in very small fonts, which was so minute that they could not be read by normal eyes during trial unless they were enlarged, had no valid legal effect. The case of Toh Shu Hua, where Akhtar Tahir J held that one could not rely on an exclusion clause in the sales brochure on the ground that wordings of the clause were too minute and tucked away at the bottom of the page, was cited in support of the foregoing proposition.
 
Further, the Court added that there was no disclaimer on the Representations by D3 in its website, the relevant newsletters and the model of the bungalow villa units in the showroom.
 
Who has locus standi to sue – the JMB or the 46 Plaintiffs who are house buyers of 32 units out of the 86 units
 
The Defendants contended that the 46 Plaintiffs do not represent all the purchasers of the 86 villas and that based on section 143 of the Strata Management Act 2013, only the JMB has the locus standi to sue.
 
According to His Lordship, it is settled law that a sale and purchase agreement is an individual contract between a house buyer and the developer seller, and the house buyer is entitled to pursue his individual contractual rights as a private cause of action without the need to rely on the JMB to sue on his behalf. To impose such an obligation would, in His Lordship’s view, be a travesty of justice.
 
The High Court added that the above interpretation is consistent with the principle laid down in the Federal Court Trilogy that a statutory SPA under the HDA 1966 must be interpreted in a way which ensures “maximum protection for house buyers.”
 
His Lordship also referred to four cases that support his views, namely Hampshire Residences Joint Management Body v Zelan Development Sdn Bhd [2014] 10 MLJ 471, Re Bandar Kinrara Properties Sdn Bhd (in liquidation) [2021] MLJU 423, Dr Looi Mun Choon (bertindak di atas kapasiti sendiri and juga mewakili kumpulan pemilik-pemilik unit pangsapuri Paragon 3) v Paragon Promenade Sdn Bhd [2022] MLJU 265 and Dua Residency Management Corporation v Edisi Utama Sdn Bhd [2021] 1 LNS 174.
 
Whether D1 and D2 can be compelled to complete the construction of the remaining 24 bungalow villa units
 
His Lordship did not find it appropriate to grant an order for specific performance to compel D1 and D2 to complete the construction of the remaining 24 bungalow villa units which have not been built when such a term is not in the SPAs in the first place.
 
Whether the Plaintiffs can sue for reimbursement of the service charges and sinking funds paid
 
The Plaintiffs’ claim for reimbursement of the service charges and sinking funds paid was premised on the fact that the 86 units were sharing the service charges and sinking funds when it ought to have been shared by 110 units. In other words, the Plaintiffs were paying the share that the (unbuilt) 24 units would have paid.
 
The High Court held that the Plaintiffs’ claim was without basis and in fact, the Plaintiffs had no locus standi to sue for a refund (if any) for the following reasons: firstly, there was no contractual time frame under the SPAs for D1 and D2 to build the 110 units; secondly, the total amount of the service charges and sinking funds had not been established and was variable by the JMB or the management corporation; and thirdly, only the JMB or management corporation has the authority to collect maintenance charges and sinking funds.  
 
CONCLUSION
 
By declaring that the Project is to be used only for a residential development comprising of 110 units of bungalow villas and granting an injunction to restrain the Defendants from carrying out any commercial development in Phase 2, the High Court has unequivocally compelled the Defendants to honour the promises they made to the Plaintiffs in the SPAs.
 
The Court has also prevented the Defendants from wriggling out from their promises by striking down disclaimers that are printed in such fine print that they cannot be read by “normal eyes.”
 
The issues and decision of this case, in particular those involving the involvement of D3, are very much fact-centric. It would be interesting to see whether Courts would come to a different decision if the situation differs. For example, if Lot 2 was sold to an unrelated third party, would such third party be bound by the Representations or precluded from applying to the relevant authorities to convert the land use from residential to commercial or other use?
 
This decision signals a continuation of the growing trend in applying the principle established in the Federal Court Trilogy that the HDA 1966 and the Statutory SPA are to be interpreted in a way that ensures “maximum protection for the house buyers against the developer.”
 
Case Note by Jocelyn Lim Yean Tse (Partner) of the Dispute Resolution Practice of Skrine.
 

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