(July 30): A notable demonstration of judicial prudence and commercial acumen, the Federal Court’s recent decision in Obata-Ambak Holdings Sdn Bhd v Prema Bonanza Sdn Bhd and two other appeals (Obata) marks a significant milestone in the realm of legal adjudication. By aligning its ruling with practical business considerations, the judiciary has not only upheld the rule of law but has also demonstrated a commendable understanding of the complexities inherent in today’s commercial landscape.

On Nov 26, 2019, the Federal Court in the case of Ang Ming Lee ruled that Regulation 11(3) of the Housing Development (Control and Licensing) Regulations 1989 which conferred on the Housing Controller the power to waive or modify any provisions in the statutory contract of sale in Schedule H of the Regulations was ultra vires its enabling legislation, namely, the Housing Development (Control and Licensing) Act 1966. It must be noted that Ang Ming Lee was decided in light of the facts where the approval to extend the time period for the delivery of vacant possession and completion of common facilities (EOT) was given by the Controller after the sale and purchase agreements (SPA) were entered into with the purchasers. In holding that the EOT is invalid pursuant to the enabling regulation being declared ultra vires, the developer is required to pay liquidated ascertained damages (LAD) to the purchasers for late delivery of vacant possession.

Come 2020, a series of purchasers then came forward to claim LAD based on the case of Ang Ming Lee against the developers. One of the salient differences between the facts of these subsequent cases post-Ang Ming Lee and Ang Ming Lee is that the purchasers were aware of the extended time period for the delivery of vacant possession and completion of common facilities. This is because the developers had obtained the EOT before the signing of the SPA and the extended time period is well reflected in Clause 25 and Clause 27 of the SPA. Notwithstanding that, the purchasers then claimed that they are entitled to LAD on the basis that the EOT is invalid following the case of Ang Ming Lee.

The Courts below followed suit and found in favour of the purchasers solely following the precedent in Ang Ming Lee via the operation of stare decisis. The learned High Court judges Datuk Seri Mohd Firuz Jaffril in Obata and Datuk Rozana Ali Yusoff in Vignesh Naidu A/L Kuppusamy Naidu v Prema Bonanza Sdn Bhd (Vignesh) however took a different approach and deviated from Ang Ming Lee. Notably, the High Court and Court of Appeal took an issue on limitation and held that since the purchasers challenged the modification of the SPA (Clause 25 and Clause 27), the cause of action ought to run from the date when they signed the SPA. Given that the SPAs were signed by Obata in 2012, Obata is barred by limitation as the legal suit was filed in 2020, more than six years after it signed the SPA. On the other hand, the High Court judge in Vignesh took the liberty to distinguish Ang Ming Lee and struck out Vignesh’s claim for LAD. The Court of Appeal in Vignesh then overturned the decision in the High Court and again adopted the approach to strictly follow Ang Ming Lee.

At one time, the development sector found itself navigating through turbulent waters amid a dramatic surge in legal cases with estimated claims of a whopping RM48,819 million with respect to the EOT granted between 2016 to 2020. This sudden escalation in legal cases, driven by opportunistic legal tactics, caused significant strain on developers, who had then to grapple with an avalanche of claims by the purchasers. The relentless pursuit of litigation by some legal professionals had not only increased operational strain and impacted the developers’ ability to focus on core business activities but also stretched their resources. The housing industry finally saw some light at the end of the tunnel when the Federal Court granted the Developer (Prema Bonanza Sdn Bhd) leave to appeal to the Federal Court on July 26, 2022 based on seven questions of law.

On July 26, 2024, the Federal Court struck a delicate balance between protecting the rights of property purchasers and ensuring the continued vitality of the housing industry in holding that:

The Federal Court’s ruling recognises the essential need for the housing industry to operate efficiently and without undue constraint. The decision carefully navigates the complexities of regulatory demands and operational realities, ensuring that the housing industry practices are not hampered by excessive or impractical requirements.

The Federal Court's approach underscores a commitment to not only interpreting the law with precision but also appreciating the nuanced implications of its decisions on commercial operations. Such a ruling is instrumental in maintaining investors’ confidence and ensuring that business practices are guided by principles that are both fair and functionally coherent. By integrating a commercial perspective into its decision-making process, the judiciary has reaffirmed its role as a cornerstone of stability and progress in the marketplace.

Prema Bonanza Sdn Bhd is represented by Lai Chee Hoe and Ooi Xin Yi from Messrs Chee Hoe & Associates.

Philip TN Koh is an adjunct professor at Universiti Malaya and the School of Business, Monash University Malaysia. Ooi Xin Yi an advocate and solicitor of the High Court of Malaya.

https://www.theedgemarkets.com/node/721024