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Federal Court Rejects Purchaser’s Leave Application to Appeal on Issue of “Ready for Connection”

posted 10 months ago

INTRODUCTION

On 22.6.2023, the Federal Court in the case of Govindan Kumar A/L Muniandy & Anor v Eco Green City Sdn Bhd [Civil Application No.: 08(f)-521-11/2022(B)] unanimously dismissed the Purchaser’s application for leave to appeal to the Federal Court against the Court of Appeal’s decision dated 17.10.2022 [Civil Appeal No.: B-01(A)-467-09/2020], which held that the phrase “ready for connection” found in the Sale and Purchase Agreement (Schedule G) entered between the Developer and Purchaser shall be interpreted to mean that the electrical points and water fittings and fixtures have been installed and supply is available for tapping i.e. ready for connection of supply, and does not mean that supply is actually connected.

The Developer, Eco Green City Sdn Bhd was represented by our partner, Ankit R Sanghvi and our associate, Chew Jin Heng.

FACTS

On 28.10.2015, the Developer and the Purchaser entered into a Sale and Purchase Agreement for the purchase of the Property for a purchase price of RM663,800.00 (“SPA”).

The SPA (Schedule G) is prescribed under the Housing Development (Control and Licensing) Regulations 1989 (“HDR”) and Housing Development (Control and Licensing) Act 1966 (“HDA”).

Pursuant to Clause 22 of the SPA, vacant possession of the Property is to be delivered to the Purchaser in the manner stipulated in Clause 23 within 36 months from the date of the SPA. Liquidated damages (“LD”) shall be calculated from day to day at the rate of 10% per annum of the purchase price, from the expiry date of the delivery of vacant possession until the date the Purchaser takes vacant possession of the Property.

Clause 23 of the SPA reads:

(1)     The Vendor [Developer] shall let the Purchaser into possession of the said Property upon the following:

(a)  …

(b) water and electricity supply are ready for connection to the said Building;

Clause 31 (e) of the SPA reads:

“ready for connection” means electrical points and water fittings and fixtures have been installed by the Vendor [Developer] and tested and commissioned by the Appropriate Authority or its authorised agent and supply is available for tapping into individual building units;

Time for the delivery of vacant possession of the Property was 36 months, which started from 28.10.2015 and ended on 27.10.2018.

Notice of delivery of vacant possession of the Property was issued on 15.11.2018 by the Developer to the Purchaser.

The electricity meter of the Property was installed on 6.3.2019.

TRIBUNAL

On 12.3.2019, the Purchaser filed a claim in the Tribunal against the Developer for LD.

On 2.5.2019, the Tribunal decided in favour of the Purchaser and awarded LD in the sum of RM23,642.19, calculated from 27.10.2018 to 6.3.2019 (date of installation of electricity meter) (“Award”).

HIGH COURT

On 26.7.2019, the Developer filed a judicial review application to seek for an order of certiorari to quash the Tribunal’s Award. On 19.8.2020, the High Court in Eco Green City Sdn Bhd v Tribunal Tuntutan Pembeli Rumah & Anor [2020] MLJU 1670 allowed the judicial review and held that:

i. Vacant possession of the Property was delivered on 5.2018 upon the issuance of the notice. Therefore, LD shall be calculated from 27.10.2018 to 11.5.2018 (date the notice of vacant possession of the Property was issued).

ii. The Tribunal had committed an error in law by concluding that vacant possession was delivered when the electricity meter was installed.

iii. The Tribunal failed to give effect to the clear and unambiguous provision in the SPA, and over-stretched the meaning of the words “ready for connection”.

COURT OF APPEAL

Aggrieved by the decision of the High Court, the Purchaser appealed to the Court of Appeal for the determination of one principal issue – What is the correct cut-off date for the calculation of LD i.e. (a) date the notice of vacant possession of the Property was issued; or (b) date of installation of electricity meter.

On 17.10.2022, the Court of Appeal unanimously dismissed the Purchaser’s appeal and upheld the High Court’s decision.

The Court of Appeal held that:

i. “Ready for connection” does not mean that the unit in question must be installed with actual supply and it does not require actual connection.

ii. There is no such requirement for meter installation by the Developer in Clause 31(e). This provision only compels the Developer to install the electrical points, and not the electrical meters.

FEDERAL COURT

On 16.11.2022, the Purchaser filed a leave application to appeal to the Federal Court against the Court of Appeal’s decision.

The Purchaser relied on the Federal Court’s recent decision in the case of Remeggious Krishnan v SKS Southern Sdn Bhd (formerly known as MB Builders Sdn Bhd) [2023] 3 MLJ 1 which made a finding on the interpretation of “ready for connection” under the statutory agreement (Schedule H) prescribed under the HDR and HDA.

During the hearing before the Federal Court on 22.6.2023, the Developer submitted that the case of SKS Southern is distinguishable from the facts in this case:

i. Unlike the developer in SKS Southern that made an application to Tenaga Nasional Berhad (“TNB”) after vacant possession was delivered, the Developer in this case made an application to TNB 3 months BEFORE vacant possession was delivered to the Purchaser. Therefore, the Developer in this case had carried out its obligation to ensure the property was “ready for connection” before the notice of vacant possession was issued.

ii. The developer in SKS Southern was early and delivered vacant possession of the property before the expiry of the time to do so. However, the developer was found to be liable for “compensatory damages” due to its breach on the manner of delivery of vacant possession.

iii. This is different from the facts in this case as the Purchaser in this case is claiming from additional liquidated damages due to the late installation of the electricity meter after vacant possession was already delivered.

After hearing the submissions from both parties, the Federal Court unanimously dismissed the Purchaser’s application for leave with costs of RM30,000.00, as the questions posed by the Purchaser did not meet the threshold and requirements for leave to be granted under Section 96 of the Courts of Judicature Act 1964.

COMMENTS

With the decision of the Federal Court, the decision of the Court of Appeal dated 17.10.2022 remains final. The cut-off date for the calculation of LD shall be date the notice of vacant possession of the Property was issued, NOT the date of installation of electricity meter.

However, it is important to highlight that since the Purchaser’s leave application was dismissed, the Federal Court did not make any findings or delve into the issues and merits of this case, including the interpretation of the phrase “ready for connection”.

As such, the Federal Court’s decision in SKS Southern remains to be the leading authority and law on the phrase “ready for connection” in relation to the supply of electricity and water which is present in all the SPAs (Schedules G, H, I & J) prescribed under the HDR and HDA. This decision, much to the dismay of developers, appears to be a new added burden placed on the heads of developers to ensure that there is actual supply of water and electricity to the property in question at the point of time the notice for delivery of vacant possession is given. Failure to ensure the same would result in the delivery of vacant possession to be deemed invalid and a developer similarly circumstanced would be exposed to compensatory damages, even if the developer actually delivered the notice for delivery of vacant possession within the prescribed time permitted under the SPA in question.   

Please do not hesitate to get in touch with the authors of the article and / or the firm if you have any queries on how this recent decision may impact your business or if you require legal advice on this issue.

About the author

Ankit Sanghvi
Partner
Arbitration & Adjudication, Asset & Debt Recovery, Banking Litigation, Commercial & Corporate Litigation, Insurance Law, Land Law Litigation, Liquidation & Insolvency, Tort & Negligence
Halim Hong & Quek
[email protected]

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