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Right to sue still doubtful

25/05/2002 NST-PROP By Salleh Buang

Whether an assignment is in fact absolute does not have any impact on section 22C

Probably every house owner and purchaser in Malaysia is aware that the amendments to the Housing Developers (Control & Licensing) act 1966 are now in force.

Thanks to the print media, everyone must know by now that apart from a change in its name (the Housing Development Act), the scope of the new law has also been widened. It now covers not just private sector housing developers as was the case in the past but both statutory bodies as well as co-operative societies.

Further to that, I think that everyone who is interested to know more about the law must have been keeping up with the various comments and opinions expressed by a wide range of people on the subject.

Looking back on what has been written so far, to my mind there is one particular section (section 22C) in the recent amendments that has not been discussed sufficiently.

The amendment in question concerns a purchaser's right to "on his own volition and in his own name" initiate and maintain in any court or tribunal, any action, suit or proceeding against a housing developer in respect of any matter arising out of the Sale and Purchase Agreement (SPA).

There is, however, a catch to this. The freedom to act "on his own volition" has been made subject to a "contrary intention" expressed in any agreement, assignment or charge between the purchaser and his financier. If there is such a "contrary intention" in the deed of assignment or charge, then the purchaser is still required to obtain the "prior written consent" from the financier before he can institute any action against the developer.

I am fully aware that the House Buyers Association is very much against this proviso. Personally speaking, I share this sentiment. I am, however, not confident that the Minister of Housing and Local Government is prepared to make another amendment so soon after the recent one.

Several friends in legal practice tell me that they are not sure to what extent this new section can be of assistance to purchasers. So many arguments have been advanced by developers when they were sued by purchasers that purchasers no longer have any locus standi to institute proceedings against them because the purchasers had assigned all their rights and interest under the SPA to financial institutions from which they had obtained their housing loans. Such an argument was raised by the developer in Lim Hock Lai v Hwa Kong Development Sdn Bhd [2001] 5 CLJ 515, which was actually a Kuching High Court case, heard on appeal and subsequently decided by Ian HC Chin J in February last year.

In this case, the Deputy Registrar had earlier held that the purchaser had locus standi  to commence action against the developer for damages for late delivery. The developer appealed against that decision where the High Court judge Ian Chin J held that the documents employed in the assignment with the financier (from whom the purchaser secured his housing loan) was by way of a charge and not an absolute assignment. Furthermore, the judge said such an assignment had been held to be an equitable mortgage in Chuah Eng Khong v Malayan Banking Berhad [ 1999] 2 CLJ 917. Dismissing the developer's appeal against the Deputy Registrar's decision, the judge held that 'it is impossible upon a consideration of the terms of the documents employed in the present transaction to conclude that the assignment is not by way of a charge."

Despite the favourable decision (for purchasers generally) in the Lim Hock Lai case, it is likely that purchasers will continue to have problems in the future if the judges, upon considering the actual terms of a particular deed of assignment, come to the decision that the assignment is absolute in nature and not merely by way of a charge.

In an old case, the Federal Court had held in Nouvau Mont Dor (M) Sdn Bhd v Faber Development Sdn Bhd [1985] 1 CLJ 56 that the question of whether or not a particular assignment is absolute or merely by way of charge (within the meaning of section 4(2) of the Civil Law Act 1956) depends on what "can be gathered from the four corners of the document".

The Federal Court added that if upon examination, the document shows that an absolute assignment had been executed by the purchaser in favour of the financial institution, then the purchaser (assignor) would no longer be competent to maintain an action against the developer.

In a recent case, Max-Benefit Sdn Bhd v Phuah Thean An & Anor [2001] 2 CLJ 70, the purchasers had purchased a property from the appellants (developer) and subsequently had assigned their interest in the agreement to Hock Hua Bank Bhd which had granted them a loan. The developer had delayed completion and when the purchasers filed their action in court, the Magistrate's Court entered summary judgement for the purchasers. The developers appealed against that decision.

The issue before the High Court was whether, having assigned their interest under the SPA to the Bank, the purchasers had locus standi  to commence their action against the developer. Dismissing the developer's appeal KC Kohrah J held that the earlier Nouvau Mont Dor case 'was decided on the peculiar facts in the case. Whether or not there has been an absolute assignment is dependent on what was the aim of the transaction."

The Judge's decision is worth quoting at some length:

"Although the assignment is stated to be absolute in effect, it is not. The assignment was purely for the purpose of securing the loan. What I have adverted to show is that there was a loan which the assignors-purchasers had taken from the bank and that the loan had to be repaid over a period of time and that the rights and interests over the property were assigned as surety to ensure that the loan will be repaid. The loan or any balance or part of it was given upon the security of the same property. The implication is that the assignment of the equitable chose in action would come to an end, it would revert back to the assignors on one of the two events taking place, whichever comes earlier. The first event is where the loan is fully paid. The second event is where the developer has obtained the legal title tot he property and the property is then transferred to the assignors-purchasers with the consent of the assignee bank. There was no absolute assignment in this case and the bank has no locus standi  in this case. I therefore hold the purchasers as plaintiffs have locus standi to sue the developer-defendant."

While these decisions could be said to have resolved the question whether an assignment expressed to be absolute is in fact absolute in nature or is merely in the nature of a charge, it does not in any way have any impact on section 22C.

Under that section, if a particular assignment contains a "contrary intention" of the parties (i.e. it requires the borrower/assignor to get the consent of the bank/assignee), the purchaser is still contractually required to get the prior written consent. If such consent has not been asked for and duly given, and the purchaser proceeds to sue the developer, the developer can still rely on the purchaser's lack of locus standi  to defeat the purchaser's claim.

To give the full benefit of section 22C to purchasers in future, solicitors acting for them should ensure that when their clients execute deeds of assignment, they should see to it that such assignments do not contain such a "contrary intention". The question is whether the lending banks would be happy with it.


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