Dispute Resolution
Ang Ming Lee v Menteri Kesejahteraan Bandar, Perumahan Dan Kerajaan Tempatan1
Facts
By a Sale and Purchase Agreement (“SPA”) dated 3 May 2012 between BHL Construction Sdn Bhd (“Developer”) and the purchasers of units in Sri Istana Condominium (“Units”), it was agreed that vacant possession of the Units shall be delivered within 36 months from the date of signing the SPAs.
The SPAs were in the form prescribed by Schedule H of the Housing Development (Control and Licensing) Regulations 1989 (“Regulations”). According to subparagraph 25(2) of Schedule H, a developer is liable to pay liquidated damages (“LAD”) to a purchaser if the developer fails to deliver vacant possession within 36 months.
By a letter dated 20 October 2014 to the Controller of Housing (“Controller”), the Developer applied for an extension of time to deliver vacant possession under Regulation 11(3), which states as follows:
“Where the Controller is satisfied that owing to special circumstances or hardship or necessity compliance with any of the provisions in the contract of sale is impracticable or unnecessary, he may, by a certificate in writing, waive or modify such provisions … ”
By a letter dated 24 October 2014, the Controller rejected the Developer’s application.
By a letter dated 28 October 2014, the Developer appealed to the Minister of Urban Wellbeing, Housing and Local Government (“Minister”) against the rejection pursuant to Regulation 12, which states as follows:
“Notwithstanding anything to the contrary in these Regulations, any person aggrieved by the decision of the Controller … may, within fourteen (14) days after having been notified of the decision of the Controller, appeal against such decision to the Minister; and the decision of the Minister made thereon shall be final and shall not be questioned in any court.”
By a letter dated 17 November 2015 (“Letter”) signed on behalf of the Controller, an extension of 12 months was granted to the Developer (“Decision”). As a result of this, the purchasers were unable to claim LAD as the Developer had 48 months to deliver vacant possession of the Units instead of the statutorily prescribed 36 months.
Decision of the High Court
The purchasers filed a judicial review application against the Minister, the Controller and the Developer in respect of the Decision.
In allowing the application the High Court held, amongst others, as follows:
- The Controller has no power to waive or modify the prescribed contract of sale under Regulation 11(3) and extinguish the rights of the purchasers to claim LAD.
- The rights of the purchasers to claim LAD in the event of delay will be adversely affected or even extinguished. As such, they should have been given a right to be heard before the Decision.
- Regulation 11(3) is ultra vires the Housing Development (Control and Licensing) Act 1966 (“Act”).
- The Act is a piece of social legislation intended to protect the interest of purchasers.
- The Decision is null and void.
Dissatisfied with the decision of the High Court, the Developer appealed to the Court of Appeal.
Decision of the Court of Appeal
The Court of Appeal held that Regulation 11(3) is not ultra vires the Act, and thus set aside that part of the High Court’s decision.
However, the Court of Appeal affirmed that part of the High Court’s decision which held that the Decision is null and void, for the following reasons:
- There was no indication in the Letter that the Decision was conveyed on behalf of the Minister, or that the signatory was acting on the authority of the Minister. Therefore, the Decision was made without jurisdiction and was ultra vires the Act.
- The rights of the purchasers to claim damages in the event of delay would be adversely affected or even extinguished. As such, they should have been given a right to be heard before the Decision was made.
- The Developer and the purchasers applied for leave to appeal to the Federal Court against the decision of the Court of Appeal and their applications were allowed.
Decision of the Federal Court
In allowing the purchasers’ appeal and dismissing the Developer’s appeal, the Federal Court held as follows:
- The Act is a social legislation designed to protect home buyers, and the interests of purchasers are the paramount consideration. Parliament has entrusted the Minister with the task of safeguarding the interests of purchasers and the Minister has accordingly prescribed the terms in Schedule H.
- Section 24 does not confer power on the Minister to make regulations to delegate the power to waive or modify the terms in Schedule H to the Controller. The duty to safeguard the interests of the purchasers may not be delegated by the Minister to some other authority.
- The Controller does not have the power to waive or modify the terms in Schedule H.
- Regulation 11(3) is ultra vires the Act.
- The Decision was not valid, as the Letter was signed by an individual on behalf of the Controller and not on behalf of the Minister. Therefore, the Decision was that of the Controller and not the Minister.
Implications
The decision of the Federal Court is a timely reminder that the Act exists to protect the interests of purchasers, and that the Minister is entrusted with this task.
However, the Federal Court did not confine its decision to pending or future decisions by the Controller. Therefore, since a decision is “retrospective in effect unless a specific direction of prospectivity is expressed”2, the Federal Court’s decision, on its face, has retrospective effect. Hence, previous decisions made by the Controller under Regulation 11(3) may well be open to challenge.
It also remains to be seen whether the Minister will still be able to grant extensions of time to developers and, if so, the scope of that power. There are no provisions in the Act or Regulations which specifically empower the Minister to grant such extensions. While the Federal Court made it clear that the Minister has to safeguard the interests of purchasers, the issue of the Minister’s power to grant an extension and the scope of that power were not specifically discussed.
Until further judicial clarity is provided, developers are likely to see an increase in LAD claims by purchasers.
[1] [2019] 1 LNS 1741.
[2] Public Prosecutor v Mohd Radzi Bin Abu Bakar [2005] 6 MLJ 393, para 17 to 19; Semenyih Jaya Sdn Bhd v Pentadbir Tanah Daerah Hulu Langat [2017] 3 MLJ 561, para 126 to 133.
For further information regarding dispute resolution matters, please contact our Dispute Resolution Practice Group.
Employment and Administrative Law
Minimum Wages for City Employees
The Malaysian Government had announced that a new minimum wage will be implemented with effect from 1 January 2020. The new minimum wage is given at the rate of RM1,200 within 57 towns and city councils in Malaysia. As for the areas which are not classified, the minimum monthly wage of RM1,100 remains.
For further information regarding dispute resolution matters, please contact our Employment and Administrative Law Practice Group.
Financial Services
Maximum Stamp Duty on Foreign Currency Loan Agreements
Following our October Legal Alert on the proposal by the Minister of Finance for Budget 2020, the Finance Bill 2019 was passed by the Senate on 18 December 2019. The Finance Bill 2019 will be gazetted after the assent of Yang di-Pertuan Agong has been received. The Finance Bill 2019 will come into operation on the dates specified therein.
Presently, the maximum amount of stamp duty payable on charge or mortgage, agreement for a charge or mortgage, bond, covenant or debenture where the loan is a foreign currency loan or the financing was made according to the syariah in currencies other than the ringgit is RM500. When the Finance Bill 2019 comes into force, the maximum amount stamp duty payable will be increased to RM2,000. This amendment will come into operation on 1 January 2020.
Bank Negara Malaysia Issues Exposure Draft on Licensing Framework for Digital Banks
Bank Negara Malaysia (“BNM”) had, on 27 December 2019, issued an exposure draft on the licensing framework for digital banks. The deadline for submission of any feedback on the exposure draft to BNM is 28 February 2020.
The exposure draft sets out:
- the eligibility requirement and application procedure which must be complied with by an applicant intending to carry on digital banking or Islamic digital banking business;
- the business limitations and regulatory framework applicable to a licensed digital bank during the foundational phase; and
- the business activities that must be undertaken and the physical access points that may be established by the licensed digital bank.
In short, digital banks will be required to comply with the requirements under the Financial Services Act 2013 or, as the case may be, Islamic Financial Services Act 2013, including the applicable regulatory requirements relating to standards on prudential, business conduct, consumer protection and anti-money laundering and terrorism financing. Having said that, licensed digital banks will be subject to a simplified regulatory requirement relating to, among others, capital adequacy and public disclosure requirements.
Presently, BNM intends to issue up to five licences to qualified applicants to establish digital banks to conduct either conventional or Islamic banking business in Malaysia. The framework is intended for digital banks to offer banking products and services to underserved or unserved market primarily through digital or electronic means.
A copy of the exposure draft is available here.
For further information regarding tax and revenue matters, please contact our Financial Services Practice Group.
Tax and Revenue
Income Tax
The following public rulings and tax audit frameworks have recently been published on the Inland Revenue Board of Malaysia’s official website:
- Taxation of Foreign Fund Management Company (Public Ruling No. 7/2019) issued on 3 December 2019 to replace Public Ruling No. 6/2014 dated 4 September 2014;
- Notification of Change of Accounting Period by a Company/Limited Liability Partnership/Trust Body/Co-operative Society (Public Ruling No. 8/2019) issued on 6 December 2019 to replace Public Ruling No. 7/2011 dated 23 August 2011;
- Residence Status of Companies and Bodies of Persons (Public Ruling No. 9/2019) issued on 6 December 2019 to replace Public Ruling No. 5/2011 dated 16 May 2011;
- Withholding Tax on Special Classes of Income (Public Ruling No. 10/2019) issued on 10 December 2019 to replace Public Ruling No. 11/2018 dated 5 December 2018;
- Benefits In Kind (Public Ruling No. 11/2019) issued on 12 December 2019 to replace Public Ruling No. 3/2013 dated 15 March 2013;
- Tax Treatment of Foreign Exchange Gains and Losses (Public Ruling No. 12/2019) issued on 13 December 2019;
- Tax Audit Framework 2019 issued on 15 December 2019 to replace Tax Audit Framework dated 1 April 2018;
- Tax Audit Framework for Petroleum 2019 issued on 15 December 2019 to replace Tax Audit Framework for Petroleum dated 1 April 2013; and
- Tax Audit Framework for Transfer Pricing 2019 issued on 15 December 2019 to replace Tax Audit Framework for Transfer Pricing dated 1 April 2013.
Service Tax
The Service Tax (Amendment) (No. 2) Regulations 2019 have been gazetted on 23 December 2019 and will come into operation on 1 January 2020.
For further information regarding tax and revenue matters, please contact our Tax and Revenue Practice Group.