NG PAK MEI v SIERRA DELIMA DEVELOPMENT SDN BHD & ANOR [2020] MLJU 997

COURT OF APPEAL (PUTRAJAYA)

Deed of Novation

2. In the appeal, the Appellant contended that the charge and the lien holder’s caveat entered in favour for the Second Respondent are unlawful and void.

3. The Appellant also contended that the charge had contravened the provisions of Regulation 11 of the Housing Development (Control And Licensing) Regulations 1989 (P.U(A) 58/89)(“Regulations 1989”), made under the Housing Development (Control And Licensing) Act 1996 (Act 118).

4. It is not disputed that the Sale and Purchase Agreement is subject to Act 118.  The Second Respondent is the contractor for the Project.  To settle unpaid construction costs, the First Respondent entered into a Settlement Agreement with the Second Respondent. Pursuant to the Settlement Agreement, the Charge was created in favour of the Second Respondent.  It is a fact that the Deed of Novation was entered after the Charge was created.

2. Whether the breach of the Sale and Purchase Agreement in not obtaining the consent of the purchasers to create the Charge has any bearing on the legality of the Charge.

(a) The Court of Appeal referred to Clause 2 of the Deed of Novation which stipulates that the novatee shall be entitled to all whatsoever rights, title and interest pursuant to the Sale and Purchase Agreement as if the novatee is the original party thereto in place of the novator.

(b) The Court of Appeal further found that by virtue of this Deed of Novation, the Appellant steps into the shoes of the original purchaser and received all benefits and assumes all liabilities under the Sale and Purchase Agreement and the parties are still bound by the Sale and Purchase Agreement and Act 118 as well as the Regulations made thereunder.

2.   Whether the breach of the Sale and Purchase Agreement in not obtaining the consent of the purchasers to create the Charge has any bearing on the legality of the Charged.

(a) The Court of Appeal referred to Section 24 of the Act 118 in which confers on the Minister the powers to make regulations for the purpose of carrying into effect the provisions of Act 118, resulting in Regulation 11 of Regulations 1989 being made.

(b) Regulation 11 provides that every contract of sale where the 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, it shall be in the form prescribed in Schedule H.

(c) Therefore, the Court is of the view that Clause 3 of the Sale and Purchase Agreement (which is the standard form contract prescribed by Schedule H) requires mandatory conformity by the parties. The legislative intent in the said Clause 3 which binds the affected parties makes it clear that the developer shall not at any time after the execution of the Sale and Purchase Agreement, subject the land to any encumbrances (in the present case the creation of the Charge) without the prior consent of the purchasers where parties are not allowed to depart from.

(d) In this regard, it is not a matter of dispute by the Respondents that no such required consent was obtained from the original purchasers prior to the creation of the said Charge.

(e) The Court of Appeal found that the non-compliance of Clause 3 of the Sale and Purchase Agreement is not merely a breach of the sale and purchase agreement but would also constitute a breach of the statutory requirements.

(f) The Court of Appeal further decided that it is trite law that an agreement in contravention of written law is unlawful or illegal.  The lordship relied on Section 24(b) of the Contracts Act 1950 (Act 138). Section 24(b) contains clear provisions that the consideration or object of an agreement is lawful, unless it is of such a nature that, if permitted, it would defeat any law.

(g) The Court of Appeal also found the housing legislation is primarily aimed to protect the interests of purchasers to counter the economic and bargaining power imbalance of the parties.

2. The creation of the Charge in such manner as in the appeal before the Court of Appeal would render the Charge unlawful, illegal and therefore void.

Away

2. It is also settled law that parties to a contract is bound to the terms and conditions of such contract.  However, should the consideration of that contract is unlawful, it should be considered not only a breach of contract but also a breach of the relevant law.  In such a case, that contract become void.