Ng Pak Mei v Sierra Delima Development Sdn Bhd & Anor [2020] 12 MLJ 465

NG PAK MEI v SIERRA DELIMA DEVELOPMENT SDN BHD & ANOR [2020] 12 MLJ 465

Court of Appeal (Putrajaya)

Deed of Novation

Facts

1.     The Appellant is one of the purchasers of a parcel in the housing development on a land belonging to the First Respondent (“the  Project”) by virtue of the deed of novation dated 3 September 2018 (“deed of novation”) with Gurdip Singh and Harjender Kaur (“the Original Purchasers”) executed with the consent of the First Respondent.

2.     The Second Respondent is the contractor for the Project.  A settlement agreement dated 6 July 2017 was entered into between the First Respondent and the Second Respondent to settle unpaid construction costs.

3.     A Sale and Purchase Agreement (“SPA”) was entered into between the Original Purchasers and the First Respondent.

4.     A charge was created in favour of the Second Respondent pursuant to the settlement agreement.  The deed of novation was entered into after the charge was created.

Issue

1.     Whether the Housing Development (Control and Licensing) Regulations 1989 PU(A) 58/1989 (“ HDA Regulations 1989”) is applicable to the Appellant as being the novate of the deed of novation?

2.     Whether the breach of the SPA in not obtaining the consent of the purchasers to create charge has any bearing on the legality of the charge?

Ratios

1.    The application of HDA Regulations 1989

(a)   According to Clause 2 of the deed of novation, the novatee shall be entitled to all whatsoever rights, title and interests pursuant to the SPA as if the novatee is the original party thereto in place of the novator.

(b)   Hence by dint of the deed of novation, the Appellant steps into the shoes of the Original Purchaser and receives all benefits and assumes all liabilities under the SPA.

(c)    Therefore, the parties are bound by the SPA and HAD Regulations 1989.

2.  The breach of the SPA

(a)  Regulations 11 of the HDA Regulations 1989 stipulates that every contract of sale is for the sale and purchase of a housing accommodation in a subdivided building in the form of a parcel of a building or land intended for subdivision into parcels, as the case may be, and shall be prescribed in Schedule H.

(b)  The Court opined that Clause 3 of the SPA (which is the standard form contract prescribed by Schedule H) requires mandatory conformity by the parties.

(c)  After the execution of the SPA, the developer shall not subject the land to any encumbrances without prior approval from the purchasers.

(d)  As in the case of Bodco Engineering and Construction Sdn Bhd v Tribunal for Housing Purchassr Claims & Ors [2017] 4 MLJ 501, the non compliance of Clause 3 of the SPA is not merely a breach of the sale and purchase agreement but would also constitute a breach of the statutory requirements.

(e)  Therefore, the agreement between the Respondent and the Second Respondent to create a charge without the Original Purchaser’s prior consent would amount to violation of HDA Regulation 1989.

(f)    On that note, the creation of the said charge was unlawful and illegal, and therefore void.

Decision

1.    The appeal and all prayers in the originating summons are allowed.

Key Take Away

1.      Generally, a novation is procedure whereby one party can transfer all of its obligations under a contract to a third party.  The original party to the contract is effectively replaced by the third party.  The original party to the contract is effectively replaced by the third party.  When a contract is novated, the other contracting party must be left in the same position as before the novation is made when a contract being novated.

2.      The HDA Regulation 1989 is a piece of social legislation, whereby its aim is, among others, to safeguard the interests of the purchaser of a property.

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