When a buyer assumes possession of a property and learns that the materials or the facilities provided were not as promised or agreed upon in the Sale and Purchase Agreement, it may be frustrating. The Federal Court in an unanimous decision in Chong Nge Wei & Ors v Kemajuan Masteron Sdn Bhd [2022] 4 CLJ 833 recently overturned the decision of the Court of Appeal and reinstated the High Court's ruling regarding the interpretation of Clause 12 (now re-numbered as Clause 14) of the statutory Sale and Purchase Agreement (“Clause 12”) under Schedule H of the Housing Development (Control and Licensing) Regulations 1989 (“HDA”) which, inter alia, entitles the purchaser of a housing unit the right to request a corresponding reduction in the purchase price or claim damages against a Developer who uses different materials in constructing the property than that stated in the agreement without the purchaser's written consent.

A case was brought by purchasers of 6 apartment units against Kemajuan Masteron Sdn Bhd (“the Developer”) for amongst others, liquidated ascertained damages (“LAD”) for failure to deliver vacant possession and common facilities within the time stipulated in the Sale and Purchase Agreements (“SPA”) and breach of contract under Clause 12 of the SPA for a change in building materials without the purchasers' consent.

The High Court had allowed the purchasers' claim and ordered an assessment of damages pursuant to the Developer's breach of Clause 12 which led to an award by the Senior Assistant Registrar in the sum of RM380,500.00. After an unsuccessful appeal to the judge in chambers, the Developer then succeeded in an appeal to the Court of Appeal whereby the Court of Appeal found that as the purchasers' chose not to claim for a reduction of the purchase price of their units and instead claimed for damages, the change in building material did not adversely affect the units nor reduce the value of the same; that the purchasers were attempting to make a double recovery and gain substantial profits from the Developer's breach; and the purchasers had failed to adduce any evidence of their losses arising from a breach of Clause 12.

The primary question that arose in the Federal Court on appeal by the purchasers was whether a claim for damages, for the purpose provided for in Clause 12 of the SPA, under Schedule H of the HDA, requires proof of actual loss to be shown before damages could be awarded.

The Federal Court held that, pursuant to Clause 12, if and when the developer committed an unlawful act by using building materials other than those specified in the contract without the purchasers' written consent, it is the right for the purchaser to request for a lower purchase price or to seek for damages. Nothing in Clause 12 limited damages only to situations where developers had used less expensive materials than specified in the contract. No inference can be drawn against the purchasers in claiming damages, and it would be erroneous to assume that the alteration of the materials used did not adversely affect the property's value or purchase price. The Federal Court also stated that the inference which had been drawn by the Court of Appeal was unjustified and sent a wrong message to housing developers that they could change the contract materials as they so please without facing any repercussions.

It was also observed that the only way that the purchasers could be placed “in the same situation as if the contract had been performed” would be to have the wrong material replaced with the right material as contracted for which would obviously involve cost to carry out such remedial works.

However, the Federal Court did agree with the Court of Appeal in that Clause 12 of the SPA does not fall within the definition of a damages clause which is an amount to be contractually stipulated and that therefore, in this case, it would turn on whether the quotation submitted constitutes sufficient evidence of damages that was suffered as a result of the breach of Clause 12. The Federal Court relied on two English cases, W.M. Cory & Son Ltd, v Wingate Investments (London Colney) Ltd (1981) 17 BLR 104 and Strange & Others v Westbury Homes (Holdings) Ltd and Anor (2009) EWCA Civ 1247, which showed that damaged had been awarded although no remedial works had been actually carried out by the claimants therein to rectify the defects. Applying this to the present case, the Federal Court held that the purchasers were prima facie entitled to the cost of replacing the materials as it would put them in a position to have the building material contracted for, and the quotation provided was prima facie proof of the sum which will meet the costs of the remedial works.

It was on this basis that the Federal Court further found that the quotation submitted by the purchasers was undisputed and that the Developer's allegation that the amount of RM380,500.00 claimed was "excessive and unreasonable" was merely a bare and unsupported allegation in the absence of any rebuttal, evidence or alternative amount offered by the Developer who would have been in the best position to easily determined if the sum quoted was reasonable or not. Therefore, the Federal Court found it to be necessary to consider the amount of RM380,500.00 to be the appropriate cost of the corrective work. Accordingly, the leave question was answered in the affirmative and on evidence, the damages had been sufficiently proven by the purchasers and thus, the decision of the High Court was reinstated.

As clearly outlined in the case above, nothing in Clause 12 dictates that damages can only be demanded if the material used is less expensive than the material that was contracted because 'different materials' simply means just that and does not necessarily connote 'cheaper materials'. If the buyer claims damages instead of the lower price of the property under Section 12, it is a mistake to assume that the alteration of materials will not adversely affect the value of the property or the purchase price. Thus, although there is still a need to prove losses, it must be remembered that a quotation which sufficiently shows the costs of remedial works which may include demolishing and replacing materials, may be taken as prima facie proof of damages in that it is damages suffered to put a purchaser in a position as if the contract had been performed. Developers should be aware of this possibility and be mindful of the materials specified in the agreements and the materials eventually used during the building stage.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.