Introduction

On 6 March 2023, the Federal Court in the case of Remeggious Krishnan v SKS Southern Sdn Bhd (formerly known as MB Builders Sdn Bhd) [2023] 3 MLJ 1 ruled that the phrase “ready for connection” in Clause 27(1)(c) of a Sale and Purchase Agreement prescribed under Schedule H of the Housing Development (Control and Licensing) Regulations 1989 must be interpreted to mean that the property must be installed with actual supply of electricity during the delivery of vacant possession. There is an obligation on the developer to provide and ensure that there is actual supply of water and electricity to the property.

The Federal Court set aside the decision of the Court of Appeal which held that “ready for connection” does not mean that the property must be installed with actual supply of electricity.

Facts

SKS Southern Sdn Bhd, the respondent in this case is the developer of a residential project in Johor Bahru.

Remeggious Krishnan, the appellant in this case purchased a property from the respondent by way of a sales and purchase agreement dated 6 February 2017 (“SPA”).

Clause 25 of the SPA provides that the time frame of delivery of vacant possession shall be within 36 months from the date of the SPA i.e. on or before 6 February 2020.

Clause 27 of the SPA provides that the manner of delivery of vacant possession shall be as follows:

Clause 27 — Manner of delivery of vacant possession

(1) The Developer shall let the Purchaser into possession of the said parcel upon the following:

(a) …

(b) …

(c) water and electricity supply are ready for connection to the said Parcel;

The respondent delivered the notice of vacant possession to the appellant on 24 April 2018. However, vacant possession was delivered with no electricity connection to the property.

The application to Tenaga Nasional Berhad (“TNB”) was sent on 19 June 2018 and the deposit was paid by the respondent on 26 June 2018.

Housing Tribunal

On 21 December 2018, the appellant filed two separate claims in the housing tribunal against the respondent.

On 16 January 2019, the housing tribunal awarded a sum of RM16,452.05 and costs of RM400 in favour of the appellant for the delay in the connection of electricity (“award”).

High Court

Aggrieved by the decision of the housing tribunal, the respondent applied for judicial review against the housing tribunal and the appellant and sought for an order of certiorari to quash the award based on, among others, that the housing tribunal had erred in awarding damages to the appellant for the non-connection of electricity to the property.

The High Court dismissed the respondent’s judicial review application on, among others, the following grounds:

a) Clause 27(1)(c) of the SPA stipulates that the manner of delivery of vacant possession is upon, inter alia, water and electricity supply are ready for connection to the said property.

b) Although vacant possession was delivered, there was no electricity connection to the property as required by Clause 27(1)(c) of the SPA as the application to TNB was sent only on 19 June 2018 and the deposit paid by the respondent on 26 June 2018.

c) The housing tribunal did not err in awarding damages to the appellant for the non-connection of electricity to the property as it was undisputed that vacant possession was delivered without any electricity connection to the property in breach of Clause 27 of the SPA.

Court of Appeal

The respondent appealed against the decision of the High Court.

Court of Appeal unanimously allowed the appeal and held that:

a) The High Court erred in the construction of Clause 27(1)(c) of the SPA. Clause 27(1)(c) of the SPA states “ready for connection” and it does not mean that the property must be installed with an actual supply of electricity.

b) The date of the SPA was 6 February 2017 and the respondent was required to deliver vacant possession of the property to the appellant on or before 6 February 2020.

c) Both the housing tribunal and the High Court concluded that there was a late delivery of the property of 63 days calculated from 24 April 2018 to 26 June 2018 based on their erroneous construction of Clause 27(1)(c) of the SPA. The award was without basis and made arbitrarily.

d) The electricity supply was in fact connected to the property on 11 July 2018, well before the time due for delivery of vacant possession which was on 6 February 2020.

Federal Court

The Federal Court held that the Court of Appeal’s interpretation of Clause 27(1)(c) of the SPA cannot be correct as it overlooks Clause 27(1)(k) of the SPA:

Clause 27 — Manner of delivery of vacant possession

(1) The Developer shall let the Purchaser into possession of the said parcel upon the following:

(a)   …

(c)   water and electricity supply are ready for connection to the said Parcel;

(k)   “ready for connection” means electrical points and water fittings and fixtures in the said Parcel have been installed by the Developer and are fully functional and supply is available for tapping into individual parcels;

The Federal Court ruled that there is an obligation on the developer to provide actual supply of water and electricity to the property. Any other interpretation would be unfair to the purchasers save for the payment of any deposits for the supply of water and electricity if the SPA provided for it. The respondent was therefore in breach of Clause 27 of the SPA, as the manner of delivery of vacant possession was invalid since there was no electricity supply connected at the time.

The Federal Court further held that the time frame for delivery of vacant possession (Clause 25) is separate from the manner of delivery of vacant possession (Clause 27).

The appellant was entitled to claim compensatory damages for breach of Clause 27 of the SPA. This was separate from any claim for liquidated damages for late delivery of possession under Clause 25 of the SPA. Therefore, damages were justifiably ordered by the tribunal for the delay of 63 days for breach of Clause 27 of the SPA.

Comments

The phrase “ready for connection” in relation to the supply of electricity and water is present in all the SPAs (Schedules G, H, I & J) prescribed under the Housing Development (Control and Licensing) Regulations 1989 and Housing Development (Control and Licensing) Act 1966.

With this latest ruling of the Federal Court, housing developers have the duty to ensure that there is actual usable and connected supply of electricity and running water in the property units at the time when vacant possession of the units is delivered to the purchasers.

The Federal Court has made a clear distinction between (1) liquidated damages arising from failure to deliver vacant possession within the time frame stipulated in the SPAs; and (2) compensatory damages arising from failure to comply with the manner of delivery of vacant possession stipulated in the SPAs.

Consequently, even if vacant possession is delivered within the time frame of delivery of vacant possession stipulated in the SPAs, housing developers will still be liable for compensatory damages if there is no actual supply of electricity and water in the units at the time when vacant possession is delivered to the purchasers.

Therefore, it will be prudent for housing developers to make the necessary applications to the relevant authorities early on and before the projected dates of vacant possession to the purchasers, in order to ensure that there will be actual supply of electricity and water in the property units when vacant possession is delivered to the respective purchasers. 

About the author

Chew Jin Heng
Associate
Arbitration and Adjudication, Debt Recovery and General Litigation, Construction Disputes, Contractual Disputes, Land Disputes, Family Law
Halim Hong & Quek
jhchew@hhq.com.my