ARAB-MALAYSIAN FINANCE BHD V. CHAN SAI MEE
HIGH COURT MALAYA,
RK NATHAN J
5 JANUARY 2001
Charge - Order for sale - Cause to the contrary - Whether established -
Developer's failure to obtain official approval for building plans - Whether
sale and purchase agreement rendered void - Whether loan agreement affected
- Whether defendant had shown "valid cause to the contrary" - National Land
Code, s. 256(3)
This is the plaintiff's application to foreclose all that parcel of residential
premises known as Parcel No. B9/C2/27-1 1, Type C2 measuring approximately
1,099 square feet within Storey No. 27" Floor, Unit 1 1 of Building
Palazzo Zeno, B9, Taman Puteri (Venice Hill Condominium and Golf Resort),
Mukim of Ulu Langat together with an Accessory Parcel No. Carpark No. 34
of Building No. Palazzo Zeno, Carpark Level 1 (the said property) belonging
to the defendant and charged to the plaintiff in respect of a loan of
RM165,000.00 granted by the plaintiff to the defendant at the latter's request
and in respect of which the parties herein entered into a Composite Loan
Agreement and Assignment on 19.6.95 (the Agreement). Amongst the terms and
conditions of the Agreement were that:
(1) the defendant would pay a monthly
sum of RM1,459.00 months with a final payment of RM1,284.00; and
(2) the interest be fixed at 0.75%
per annum above the Base Lending Rate (BLR).
Upon the defendant's default in payment
of the instalments the plaintiff sent a notice of demand dated 21.10.99.
Since there was no response the plaintiff sent a second notice on 3.2.2000
demanding the full repayment with interest. The vendor of the said property
was in fact the developer named Venice Hill Resort Living Sdn Bhd. Unfortunately
the plaintiff had failed to exhibit the sale and purchase agreement entered
into between the defendant/purchaser and the developer/vendor.
FINDINGS OF THE COURT
It is the defendant's case that the sale and purchase agreement entered
into between the defendant and the developer is illegal, because the developer
had not, on the date the sale and purchase agreement was executed, obtained
the Advertising and Sales Permit issued by the Housing and Local Government
Ministry (Ministry). The defendant exhibited a letter dated 10.11.2000 from
the Ministry to this effect. The defendant also exhibited a letter dated
21.11.2000 from the Majlis Perbandaran Kajang (the Majlis) stating that
the building plans for the said property had not been approved as yet because
the developer had not paid the fine of RM452,296.60 imposed by the Majlis
upon the developer. The said letter indicated that the developer's appeal
against the imposition of the fine was rejected by the Majlis on 24.5.2000.
In the circumstances, the letter pointed out that the official approval
for the building plans would only be given upon payment of the said fine.
Since the building plans had not been approved and since neither the Developer's
Licence nor the Advertising and Sales Permit had been issued by the Ministry,
the defendant argued that the sale and purchase agreement was illegal and
that therefore the said loan agreement which was dependent upon the sale
and purchase agreement, was also tainted with illegality and therefore void.
One of the preambles
to the sale and purchase agreement relevant to this case reads as follows:
"AND WHEREAS the Vendor has, at its own costs and expense,
obtained the approval of building plans (hereinafter referred to as "the
Building Plan") from the Appropriate Authority (a copy of the Floor Plan,
Storey Plan and Site Plan as certified by the Vendor's architect are annexed
in the First Schedule);"
It is clear from the letter dated 21.11.2000
from the Majlis that when the sale and purchase agreement was signed on
7.12.94 the building plans had not as yet been approved. The defendant cited
in support the case of Ladang Tai Tak (KT) Sdn Bhd v
Suppiah a/l Andy Thavar & Ors  5 MLJ 257.
In that case, the Court held that the defendants who constructed a temple
upon the plaintiff's land were mere gratuitous licensees and were therefore
held to be trespassing upon the said land. Since the defendants were gratuitous
licensees and since their licence could thus be terminated at will the Court
found that the plaintiff was entitled to a declaration that the defendants'
temple structure was illegal and obtained consequential orders including
one for demolishing the temple. I fail to understand how this case can be
equated to the one before me. By no stretch of the imagination can it be
said that the defendant in the case before me is a gratuitous licensee.
His Lordship Abdul Malik lshak J said at page 263 of the said judgment as
stand was quite simple and straightforward. The structures that stood on
the temple were built without the approval of the relevant authorities and
for all intents and purposes remained illegal."
In fact in his lengthy judgment and after
going through the facts and the numerous authorities, the learned Judge
"… the defendants
by its actions in constructing and expanding the area of the prayer site
had also breached the terms of the licence that may be implied. Consequently,
in law the continued occupation of the plaintiff's land by the defendants
can be construed as nothing less than trespassers."
Section 5(1) of the Housing Developers
(Control and Licensing) Act 1966 reads as follows:
against housing development except by virtue of a licence and provisions
relating to the grant of a licence.
(1) No housing development shall be engaged in, carried on,
undertaken or caused to be undertaken except by a housing developer in possession
of a licence issued under this Act."
relied totally on this section. The defendant contends that the sale and
purchase agreement dated 7.12.94 is illegal because the developer had stated
as a fact in the preamble that the said developer had obtained the approval
of the building plans from the appropriate authority and in this case the
appropriate authority being the Majlis, when in fact the said official approval
had not to date been obtained. The question is, does this render the said
sale and purchase agreement dated 7.12.94 illegal and thus void. In
Kin Nam Development Sdn Bhd v Khau Daw Yau [1 984]
1 MLJ 256 the appellant wished to develop two pieces of land. One belonged
to him and the other to one Futo Trading Company Sdn Bhd (Futo). The appellant
invited bookings and all the lots were booked before approval for conversion
and subdivision of the land was obtained. When the appellant applied for
conversion and subdivision, this was granted subject to the condition that
a number of the lots ought to be reserved for Bumiputras. The appellant
thus decided not to build any of the houses and action was brought by some
of those who had booked the lots claiming specific performance of the contract.
In respect of the land that belonged to Futo, the appellant argued that
since Futo, being the proprietor of the land, was not made a party to the
booking transactions, whatever contracts that arose therefrom, were illegal
by virtue of Rule 11(1) of the Housing Developers (Control and Licensing)
Rules 1960 - PU(A)268/1970, and therefore null and void. The said Rule 11
(1) reads as follows:
"11.(1) No licensed housing developer who is not the proprietor of the land
upon which a housing development is carried out shall enter into any contract
of sale of any housing accommodation in that housing development unless
the proprietor of the land is also a -party to such contract of sale and
agreed to the sale of the land for the purpose specified in such contract
Rule 1 7 provides for the prosecution
of the housing developer for a breach of the said Rule. The then Federal
Court held that since neither the Act nor the Rules say anything with regard
to the effect of such a breach upon the contract then the only relevant
provision the Court ought to consider ought to be section 24 of the Contracts
Act 1950. The said section reads as follows:
"24. The consideration or object of an agreement is lawful, unless -
(a) it is forbidden by a law;
(b) it is of such a nature that, if permitted, It would defeat any law;
(c) it is fraudulent;
(d) it involves or implies injury to the person or property of another;
(e) the court regards it as immoral, or opposed to public policy.
In each of the
above cases, the consideration or object of an agreement is said to be unlawful.
Every agreement of which the object or consideration is unlawful is void."
Notwithstanding the fact that such a substantial
question of law and fact was not pleaded, the Court said at page 259 as
"In any case there
is nothing illegal about the consideration or object of the contracts because
they are only contracts for the sale and purchase of houses, and neither
do they come within any of the paragraphs of section 24 quoted although
the appellant may well be guilty of an offence under Rule 17 for contravening
Rule 1 1 (1) of the
Housing Developers (Control and Licensing)
Rules, 1970. In other words, these Rules do not affect the validity or otherwise
of the contracts which the developer has signed with the purchasers."
In Beca (Malaysia) Sdn Bhd
v Tan Choong Kuang & Anor [19861 1 MLJ 390 the appellants
were housing developers. The respondents had agreed to buy three units of
flats from the appellants and paid a deposit of $20,000.00. The deposit
was made before the issuance of the Developer's Licence to the appellants.
The respondents subsequently refused to sign the Sale and Purchase Agreement
and claimed a refund of the deposit. The learned President of the Sessions
Court held that the deposit was meant to be a booking fee and not part payment.
The appellants had not obtained the licence and permit at the time of collecting
the deposit and therefore they were not authorised to collect the deposit.
He therefore ordered the refund of the deposit. An appeal to the High Court
was dismissed. The then Supreme Court held that the agreement was valid
but was voidable at the instance of the buyers and that since the buyers
had elected to avoid the agreement, they were entitled to claim for the
return of the deposit. This is what the Court said at page 395 of the judgment:
"Having regard to the scope and
purpose of the Enactment and the Rules made thereunder, they are clearly
made for the benefit of a class of people, namely, the house buyers. The
duty of observing the law is firmly placed on the housing developers for
the protection of the house buyers. Hence, any infringement of the law
would render the housing developers liable to penalty on conviction. Although
the developers have to comply with a number of statutory requirements
we are unable to find anything in the Enactment or the Rules which would
invalidate an agreement or contract as a result of any breach of the Enactment
or the Rules. On the facts of this case we are of the view that the transaction
is valid until it is avoided."
The Court gave the option to the buyers
to avoid or to affirm the contract. The reason why the then Supreme Court
held that the agreement or the provisional agreement as the Court called
it, ought not to be declared illegal was because "it might in a given situation
prove profitable to the developers, for instance, when there is a housing
boom". The question for this Court now is to see whether the defendant in
this case did anything to avoid the contract. Firstly, the defendant himself
ought to have taken out a summons to avoid the contract. This he did not
do. But ought that to be held against the defendant. Ought the defendant
to be penalised for raising his avoidance only when the plaintiff chose
to foreclose. I do not think it would be fair to hold it against the defendant
and penalise him for failing to move suo moto. He is in my view entitled
to raise the issue of avoidance at this stage of the proceedings. It is
interesting to refer to the letter dated 10.11.2000 from the Ministry wherein,
having stated that in respect of the affected parcel of land the developer
had not as yet obtained the Licence or the Advertising and Sales Permit,
the said letter concluded with this paragraph..
"2. Untuk makluman
tuan seterusnya, penjualan rumah - rumah yang telah memperolehi Sijil Layak
Menduduki, tiada Lesen Pemaju dan Permit lklan dan Jualan diperlukan.
" Whether the Ministry can make such exemptions
is another issue. But even so, can the plaintiff show that in this case
the defendant has been given the Certificate of Fitness in respect of his
purchase. Unfortunately, the plaintiff has not done so. On the contrary
the defendant has in his reply affidavit exhibited his letter dated 10.8.2000
and addressed to the plaintiff and marked Exhibit G in which the defendant
had expressly stated that in respect of his apartment "the Certificate of
Fitness is still pending". In fact in the said letter the defendant has
indeed requested for the refund of monies paid amounting to RM12,433.73.
ln his police report made on 31.10.2000 (Exhibit C to Enclosure 9) the defendant
has again, 'maintained that he had not been issued with the Certificate
Having considered the facts of the case before me, I am inclined
to hold that the defendant has successfully raised the defence of avoidance.
There is yet another issue that I must
consider. In both the cases referred to in my judgment the matter arose
between the developer and the purchaser. In this case it is between the
financier and the purchaser. In my view the defendant has shown a valid
"cause to the contrary" pursuant to section 256(3) of the National Land
Code to warrant a dismissal of this action with costs.
Dated the 5th' day of January 2001.
Sgd. Dato' Dr. Kamalanathan Ratnam
DATO' DR. KAMALANATHAN RATNAM
HAKIM MAHKAMAH TINGGI
Mr. Robin Lim
Ms. Jenny Lee
with Mr. Chris Chan for defendant.