An Unlawful Provision Does Not Render The Entire Agreement Void And Unenforceable
Kaisar Maxim Sdn Bhd v Cheah Poh Hin
One provision in a Sale and Purchase Agreement (SPA) that was not in conformity with Schedule H of the Housing Development (Control and Licensing) Regulations 1989 (HDR) does not render the entire agreement to be void ab initio. Rather, only that particular clause was held to be unlawful.
This was the decision made by the High Court in Kaisar Maxim Sdn Bhd v Cheah Poh Hin recently in yet another housing development dispute pertaining to a clause in the SPA on the delivery of vacant possession. This alert discusses this decision.
As most cases of dispute relating to the arena of housing development, it all started from a SPA that was entered between the company (Appellant) and the buyer (Respondent) on 31.12.2019.
In the SPA laid the impugned clause on the time of delivery of vacant possession, which was stated to be 54 months from the date of the SPA. This clause became the subject matter of this entire suit, as the Respondent claimed that the 54 months period did not conform to the stipulations in Schedule H of the HDR i.e. a period of 36 months from the SPA date for the delivery of vacant possession. As what has been established thus far by the courts, any amendments made to the provisions of a Schedule H SPA must only be done with the approval from the Minister of Housing and Local Government (Minister). Otherwise, it is considered ultra vires and goes against the Housing Development (Control & Licensing) Act 1966 (HDA). Therefore, due to this particular clause in the SPA, the Respondent contended that the SPA was illegal in its entirety.
The main issue which the High Court had to address was whether the SPA in its entirety could be considered as void ab initio simply because of one unlawful clause.
The High Court answered the above question in the negative. Whilst the High Court recognised and acknowledged that the particular provision had indeed been ultra vires based on the Federal Court’s decision in Ang Ming Lee, the court was not keen to uphold the Sessions Court’s view that the whole of the SPA thus became illegal.
Revisiting the principle of contract law, the High Court opined that it would first and foremost consider “the implication of an Agreement that contains what is prohibited by statute”, citing in support a few cases including the following passage from an Australian case:
“The question whether a statute, on its proper construction intends to vitiate a contract made in breach of its provisions, is one which must be determined in accordance with the ordinary principles that govern the construction of statutes [...]” – Gibbs ACJ, Yango Pastoral Co Pty Ltd & Ors v. First Chicago Australia Ltd & Ors  139 CLR 410
The High Court examined Section 23A of the HDA as well as Regulations 11 and 13 of the HDR and concluded that the contravention of Schedule H of the HDR does not render the whole SPA void and unenforceable. Despite the intention of Parliament that there must be strict adherence to the time frame for the delivery of vacant possession, there was an absence of any express provision which suggests that a contravention of the HDA would render the entire SPA void.
The High Court went on to state that the impugned clause that was unlawful would attract penalty as stipulated under Regulation 13 of the HDR, as it would render only that clause unlawful. This would mean that a buyer would be able to insist that vacant possession be delivered to them by the developer within the stipulated 36 months as provided in Schedule H of the HDA. This view was based on the decision of the Court of Appeal in Loh Tina v. Kemuning Setia Sdn Bhd that the whole SPA was not null and void for non-compliance but null only to the extent of the unlawful clauses which were modified without approval from the Minister.
Ultimately, the protection of home buyers remains paramount as per the protections set out in the HDA and HDR. A provision in a SPA pursuant to the HDA must not be amended at one’s discretion without the proper approvals from the Minister. Nevertheless, even if such provision is deemed unlawful, it would not render the entire agreement as null and void.
Authored by Kimberly Lim Ming Ying, an Associate with the firm’s Corporate & Real Estate Transactions practice group.
17 FEBRUARY 2022