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After a lengthy legal proceeding of PJD Regency Sdn Bhd v Tribunal Tuntutan Pembeli Rumah & Anor [2019] MLJU 1399 in the Housing Tribunal, to the High Court, to the Court of Appeal and finally in the Federal Court, which was in essence, to decide on the question of – when does the time start running for the calculation of the Liquidated Ascertained Damages (LAD) in a Sales and Purchase Agreement (SPA).

This question is especially important to homebuyers as it determines the amount of damages that they can claim from the developer in the event of a delay in delivering vacant possession, in which the difference can be substantially significant if the calculation is from the date of payment of deposit or booking fee as compared to the date of the SPA.

Take for example the case of Hoo See Sen & Anor v Public Bank Berhad & Anor [1988] 2 MLJ 170, the purchasers paid a booking fee for the property on 18 August 1982 but the SPA was only signed seven months later on 18 March 1983. The difference in the amount claimable is material if the days of delay is calculated starting on the date of the SPA, as compared to the date of the payment of the booking fee. In this case, the Supreme Court held that the calculation began from the date of the booking fee and not from the date of the SPA.  

What is LAD?

LAD, as its name prescribed, is a form of damages that is agreed upon in the SPA between the developer and the purchaser. In the event where there is late delivery of vacant possession of the property by the developer, the purchaser will be able to claim LAD against the developer.

The time for delivery of vacant possession and the accrual date of the LAD are laid down in clause 24(1) and (4) of Schedule G and clause 25(1) and (4) of Schedule H of the Housing Development (Control and Licensing) Regulations 1989 (HDR 1989).

“Schedule G

24. Time for delivery of vacant possession

(1) Vacant possession of the said Property shall be delivered to the Purchaser in the manner stipulated in clause 26 within twenty-four (24) months from the date of this Agreement.

(4) For the avoidance of doubt, any cause of action to claim liquidated damages by the Purchaser under this clause shall accrue on the date the Purchaser takes vacant possession of the said Property.

Schedule H

25. Time for delivery of vacant possession

(1) Vacant possession of the said Parcel shall be delivered to the Purchaser in the manner stipulated in clause 27 within thirty-six (36) months from the date of this Agreement.

(4) For the avoidance of doubt, any cause of action to claim liquidated damages by the Purchaser under this clause shall accrue on the date the Purchaser takes vacant possession of the said Parcel.”

How is the LAD calculated?

On 19 January 2021, the Federal Court in PJD Regency Sdn Bhd decided that the time for the LAD calculation starts to run from the date of the payment of the booking fee, and not on the date of the SPA.

The calculation of the LAD is fairly simple:-

(Purchase Price x 10% x Days of Delay)/365

However, since the passing of the Temporary Measures for Reducing the Impact of Coronavirus Disease 2019 (COVID-19) Act 2020 (Covid-19 Act 2020), we have to take into account section 35 which provides protection to the developer against any claim by the purchaser for LAD between 18 March 2020 to 31 August 2020 (can be extended up to 31 December 2020 upon approval of application).

An example of LAD calculation:-

The reasoning behind the decision

The landmark decision of PJD Regency Sdn Bhd by Tengku Maimun binti Tuan Mat, the Chief Justice of the Federal Court of Malaysia, was decided in favour of the purchasers for the following reasons.

While it may be a standard commercial practice for developers to accept booking fees prior to the signing of the SPA, it is in express contravention of regulation 11(2) of the HDR 1989, which prohibits the collection of any payment except as prescribed in the SPA. The developer in their submission argued that there must be strict and literal compliance with the HDR 1989 so that the interpretation of the date of commencement is from the date printed on the SPA. Yet, they could not provide a reasonable answer to their contravention of regulation 11(2). 

One interesting point in law which was argued and has formed part of the reason for the decision is whether the purchasers are in pari delicto with the developer as having participated in an illegal transaction. Where a party seeking recovery of damages on an act committed based on illegality will be void and not recoverable. Reference was made to Kiriri Cotton Co Ltd v Dewani [1960] 1 All ER 177 where Lord Denning in his judgment held that “if as between the two of them the duty of observing the law is placed on the shoulders of the one rather than the other – it being imposed on him specially for the protection of the other – then they are not in pari delicto and the money can be recovered …”.

The Court was of the opinion that should the SPA, which was drafted based on statutory legislation, be rendered void due to the principles of illegality, “would be detrimental to innocent homebuyers who paid booking fees under the erroneous assumption that it was necessary to secure their purchase”.

Furthermore, her Ladyship referred to the HDR 1989 as a social legislation and defined it as “a legal term for a specific set of laws passed by the legislature for the purpose of regulating the relationship between a weaker class of persons and a stronger class of persons”. In this instance, the developer is the stronger class while the purchaser is the weaker class.

The decision of PJD Regency Sdn Bhd may be a nightmare to the developer, but then again as her Ladyship opined, “it would defeat the purpose of the protection guaranteed by the law if a developer is allowed to cut his losses incurred by the LAD by offsetting it using the purchaser’s own money”.