1. Housing developer — Abandoned project — Statutory notice for liquidated ascertained damages (LAD) — Application to nullify notice and restrain winding-up petition under Companies Act 2016. (Para 1 , 2 , 3 , 4 , 5 )
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2019 MarsdenLR 1488
HIGH COURT (SHAH ALAM)
NOORIN BINTI BADARUDDIN, J
Ganda Selat Sdn Bhd – Plaintiff
Versus
Mohammadi bin Mt Abu @ Ramli & Ors – Defendant
SAMAN PEMULA NO : WA-24NCC-506-09/2018
Advocates:
Albert Ewe with Jenny Lim Siow Teng (Ewe Chong & Khoo) for the plaintiff.
Noor Azelina binti Kassim with Zainab binti Yahaya (Azelina Lin & Partners) for the defendant.
Albert Ewe with Jenny Lim Siow Teng (Ewe Chong & Khoo) for the plaintiff.
Noor Azelina binti Kassim with Zainab binti Yahaya (Azelina Lin & Partners) for the defendant.
In abandoned housing projects, the right to liquidated ascertained damages (LAD) is automatic upon the developer's failure to deliver vacant possession, regardless of contractual clauses requiring possession for accrual, as the Housing Development Act aims to protect purchasers.
Headnote:(A) Companies Act 2016 - Sections 465(1)(e) and 466(1)(a) - Housing Development (Control and Licensing) Act 1966 - Schedule H - Liquidated Ascertained Damages (LAD) - Abandoned housing project - Whether the requirement to take vacant possession under the Sale and Purchase Agreement (SPA) acts as a bar to claiming LAD when the project is abandoned - In a special contract of a statutory nature designed to protect purchasers, the right to LAD is automatic upon the developer's failure to deliver vacant possession within the stipulated time - To hold that vacant possession is a prerequisite for LAD in an abandoned project would be absurd and contrary to the purpose of the Act (Paras 9, 11, 20, 22).
(B) Winding-up proceedings - Statutory demand - A creditor is not required to obtain a judgment before serving a statutory demand (Para 23) - To oppose a winding-up petition, the respondent must raise a bona fide dispute in both a subjective and objective sense, based on substantial or reasonable grounds (Para 23) - A mere dispute over the exact amount of LAD does not constitute a substantial ground of dispute if the liability to pay is established (Para 25).
(C) Interpretation Acts 1948 and 1967 - Section 17A - In the interpretation of a provision of an Act, a construction that would promote the purpose or object underlying the Act shall be preferred to a construction that would not promote that purpose or object (Para 16).
Facts of the case:
A housing developer failed to complete a project, which was subsequently declared abandoned by the relevant authorities. The purchasers of several units issued a statutory notice under the Companies Act claiming liquidated ascertained damages (LAD) as provided in the Sale and Purchase Agreements. The developer sought a declaration that the notice was null and void and an injunction to restrain the filing of a winding-up petition, contending that the LAD had not yet accrued because vacant possession had not been delivered to the purchasers.
Findings of Court:
The court found that the developer was liable for LAD due to the failure to deliver vacant possession within the stipulated 36-month period. Given that the project was abandoned, the contractual clause stating that the cause of action for LAD accrues upon taking vacant possession cannot be used to defeat the purchasers' claims, as doing so would cause injustice and contradict the protective purpose of the housing legislation.
Issues: Whether the statutory notice for LAD was valid despite the lack of vacant possession, and whether the debt was bona fide disputed on substantial grounds to justify an injunction against a winding-up petition.
Ratio Decidendi: In the context of abandoned housing projects governed by statutory SPAs, the right to LAD is automatic upon the expiry of the delivery period. The protective purpose of the Housing Development Act overrides contractual clauses that would otherwise delay the accrual of the cause of action. Furthermore, a statutory demand does not require a prior judgment, and a dispute over the quantum of a debt is not a substantial ground to block a winding-up petition if the debt's existence is established.
Result: Plaintiff’s application dismissed with costs.
Act Referred
Companies Act 2016: S.465(1)(e), S.466(1)(a)
Housing Development (Control and Licensing) Act 1966
Housing Development (Control and Licensing) Regulations 1989
Contracts Act 1950: S.56(3)
Interpretation Acts 1948 and 1967: S.17A
Housing Developers (Control & Licensing) Act, 2002
Strata Management Act 2013
Strata Titles Act (Amendment) 2013
Housing Development (Control and Licensing) Act 1966
Housing Development (Control and Licensing) Regulations 1989
Contracts Act 1950: S.56(3)
Interpretation Acts 1948 and 1967: S.17A
Housing Developers (Control & Licensing) Act, 2002
Strata Management Act 2013
Strata Titles Act (Amendment) 2013
Legal Category Hierarchy
- company law
- property law
- practice and procedure
Table of Contents
2. Whether LAD accrues only upon delivery of vacant possession or automatically upon delay — Whether the debt is bona fide disputed on substantial grounds. (Para 6 , 7 , 17 , 18 )
3. LAD is automatic upon delay in abandoned projects — Vacant possession cannot be a prerequisite for LAD when completion is impossible — Debt is not substantially disputed. (Para 8 , 9 , 11 , 12 , 13 , 14 , 15 , 16 , 19 , 20 , 21 , 22 , 23 , 24 , 25 , 27 , 28 , 29 , 30 , 31 )
4. In abandoned housing projects, the right to LAD is automatic upon delay; delivery of vacant possession is not a prerequisite for the debt to accrue. (Para 9 , 11 , 20 , 22 )
5. Application to nullify statutory notice and restrain winding-up petition dismissed with costs. (Para 32 )
6. Does the right to LAD in a housing project depend on the delivery of vacant possession?
No. In abandoned projects, the right to LAD is automatic upon delay. Requiring vacant possession as a prerequisite would be absurd and unjust, as it would prevent purchasers from ever receiving payment when completion is impossible. (Para 9 , 11 , 20 , 22 )
7. Is a court judgment required before a creditor can serve a statutory demand for winding-up?
No. A creditor is not required to obtain a judgment before serving a statutory demand. An unpaid creditor is generally entitled to a winding-up order against an insolvent company regardless of whether judgment has been obtained. (Para 23 , 24 )
8. What constitutes a bona fide dispute sufficient to restrain a winding-up petition?
To oppose a winding-up petition, the respondent must raise a dispute that is honestly believed to exist and based on substantial or reasonable grounds, rather than just a serious question to be tried. (Para 23 , 26 )
9. How is commercial insolvency determined under the Companies Act 2016?
Commercial insolvency is the inability to meet current demands. A company may be wealthy in terms of assets, but if it lacks available assets to meet current liabilities, it is commercially insolvent. (Para 29 , 30 )
Noorin binti Badaruddin J:
JUDGMENT
[1]This is the Plaintiff’s application seeking for inter alia the followings:
1.1a declaration that the Defendants’ statutory notice pursuant to s. 465 (1) (e) and s. 466 (1) (a) of the Companies Act 2016 dated 28.8.2018 is null and void; and
2.1an injunction prohibiting the Defendants whether jointly and/or separately to file a company’s winding up petition against the Plaintiff
Background Facts
[2]The Plaintiff is a housing developer and had commenced a housing project of two blocks of 20-storey condominiums consisting of 350 units known as Residensi Sungai Chinchin, Gombak (“the project”) and the Defendants are the purchasers of 120 units of the condominiums (“the units”) in the project.
[3]The Plaintiff, Defendants and the land owners have signed the relevant Sale and Purchase Agreements pursuant to schedule H of the Housing Development (Control and Licensing) Act 1966 (“the SPAs”).
[4]The Plaintiff failed to complete the project and to date, no vacant possession of the units were delivered to any of the Defendants. By letter dated 5.1.2018, the Ministry of Urban Wellbeing, Housing and Local Government declared that the project is an abandoned project. The project had not been resumed since.
[5]The Defendants through their solicitors have issued statutory notice (“the notice”) dated 28.8.2018 against the Plaintiff pursuant to ss. 465 (1) (a) and 466 (1) (e) of the Companies Act 2016 (“CA”) claiming for the liquidated and ascertained damages (“LAD”) as the sum due and owing to them.
Summary of the Plaintiff’s Contentions
[6]It is the Plaintiff’s contention by issuing the notice, the Defendants are proposing to present a petition based on the LAD debt which has yet to accrue as a cause of action and is therefore bona fide disputed on substantial grounds. It is highlighted that pursuant to clause 26 (3) of the SPAs, the LAD shall only be paid to the Defendants upon the latter taking possession of the units. The Plaintiff contends that the Defendants’ action is premature as they have not delivered vacant possession of the respective units to the Defendants. The Plaintiff further contends that the Defendants have yet to commence a civil action against the Plaintiff to determine the truth of the allegations and/or their rights and as such it is submitted that the notice has no basis as there is no creditor-debtor relationship between the parties for the Defendants to enforce the debt.
Summary of the Defendants’ Contentions
[7]It is the Defendants’ contention since the Plaintiff fails to deliver vacant possession of the units purchased by them, it is their rights to claim for the LAD even if there is no vacant possession delivered to them and there is no necessity for a judgment to be obtained first before initiating a winding-up proceeding. It is further contended that there is no bona fide dispute as to the amount owed by the Plaintiff to them.
Evaluation and Findings
[8]It cannot be disputed that the Defendants are entitled to the LAD pursuant to clause 26 (2) of the SPAs which clearly provides for the LAD in the event of delay accruing at the rate of 10% of the purchase price of the units respectively. Clause 26 (1) of the SPAs provides that the delivery of vacant possession in accordance with clause 27 i.e. upon issuance of the Architect Certificate approving the completion of the condominium unit, must be delivered to the Defendants within thirty (36) months from the respective dates of the SPAs. Clauses 26(1) and (2) of the SPAs are reproduced:
“26 (1) Vacant possession of the said Parcel shall be delivered to the Purchaser in the manner stipulated in clause 27 herein within thirty-six (36) calendar months from the date of this Agreement
(2) If the Vendor fails to deliver vacant possession of the said Parcel in the manner stipulated in clause 27 herein within the time stipulated in subclause (1), the Vendor shall be liable to pay to the Purchaser liquidated damages calculated from day today at the rate o
