Key Insight for Developers: Silence on DIBS Duration Extends the Obligation to Service Interest for Purchasers

The Court of Appeal in Encorp Iskandar Development Sdn Bhd v. Teo Choon Poh (Zhang Chunbao) & Ors [2025] 10 CLJ 420 unanimously dismissed the Developer’s appeal, affirming the High Court’s ruling that the Developer Interest-Bearing Scheme (DIBS) obliges the Developer to bear progressive loan interest until actual delivery of vacant possession (VP), irrespective of delays beyond the 48-month contractual period. The decision hinges on contractual interpretation, factual matrix, business common sense, contra proferentem, and estoppel by conduct.

Background of Facts

The Developer was the registered proprietor and developer of the strata-titled mixed development known as Encorp Marina Harbour (the “Project”). Between 2012 and 2013, the respondents (the “Purchasers”) entered into individual SPAs with the Developer pursuant to Schedule H of the Housing Development (Control and Licensing) Act 1966 (HDA). Each SPA incorporated the statutory 48-month timeline for delivery of vacant possession (DVP). Upon the execution of the SPAs, the Developer presented Purchasers with a letter offering two mutually exclusive incentives:

• An immediate 3% rebate on the purchase price; or
• Participation in the DIBS, whereby the Developer would service all progressive loan interest during the “construction period”.

All Purchasers opted for DIBS via separate DIBS agreements. However, the DIBS agreements were silent on the duration of the interest-servicing obligation.

Although the contract period for DVP is within 48 months from the SPA (2012-2013) which was aimed to be between 2016-2017, VP notices were only issued by the Developer in 2018, which was delayed beyond the Contract Period.

Initially, the Developer voluntarily continued to service progressive interest on behalf of the Purchasers beyond the 48-month contractual period. However, the Developer had subsequently issued a “belated overpayment notice” to end-financiers asserting overpayment of interest post-48 months, raised tax invoices against Purchasers demanding reimbursement, and pre-conditioned physical delivery of VP and keys on repayment, while simultaneously imposing late payment interest and triggering automatic accrual of the defect liability period (DLP).

Upon facing unequal bargaining power, the Purchasers acceded to the reimbursement demands under economic duress. They subsequently commenced proceedings at the High Court claiming breach of the DIBS covenant. The High Court allowed the claim, prompting this appeal.

Rulings

High Court: Purchaser’s claim was allowed in full and held the Developer liable to reimburse all progressive interest paid by the Purchasers beyond the 48-month contract period. The key reasonings are as follows:

1. Consistent Omission to Limit DIBS to 48 Months Constituted Admission: The Developer’s own execution of the UOB End-Financing Agreement expressly stated that it would bear progressive interest “during the construction of the property and until the expiry of the vacant possession stage”. This, coupled with the absence of any 48-month cap in the DIBS agreement or financiers’ letters, amounted to a binding admission that the DIBS obligation extended beyond 48 months in any event of delay.
2. “Construction Period” Is The Entire Period Until Actual DVP: The term “construction period” in the DIBS agreement was construed to mean the full duration required to complete the units and deliver vacant possession, not limited to the 48-month contractual timeline under the SPA.
3. Developer’s Continued Interest Servicing Post-48 Months Constitutes Waiver/Estoppel: By voluntarily continuing to service interest after the lapse of 48 months, the Developer waived any right to claim the DIBS period had expired and was estopped from later demanding reimbursement.
4. Coercive Refund Demands Were Inequitable and Invalid: The Developer’s pre-conditioning of physical VP delivery on reimbursement, while simultaneously imposing late payment interest and triggering automatic DLP accrual, placed the Purchasers under economic duress. The refunds obtained were not voluntary and were set aside.
5. DIBS and LAD Are Separate and Cumulative Remedies: The DIBS covenant (interest relief) was independent of the liquidated ascertained damages (LAD) clause in the SPA (delay compensation). No double recovery arose as the remedies addressed distinct contractual breaches. As such, the purchasers were entitled to both:
   • Reimbursement of post-48-month interest under DIBS; and
   • LAD for late delivery under the SPA.
6. Contra Proferentem Applied Against Developer as Drafter: Any ambiguity in the Developer-drafted DIBS agreement was resolved against the Developer and in favour of the Purchasers. The rule requires the court to construe any ambiguity in the contract document against the party which drafts the ambiguous document (citing Mandarin Pavilion Sdn Bhd v. Chang Vui Lun & Anor [2019] 2 CLJ 22; [2019] 3 MLJ 395).

The Developer was ordered by the High Court to refund all post-48-month interest paid by the Purchasers, with interest and costs.

Court of Appeal: Developer’s appeal was dismissed, affirming High Court’s findings.

1. No Temporal Limitation in DIBS Documentation: Financiers’ offer letters and UOB End-Financing Agreement (co-signed by Developer) expressly extended interest servicing “until expiry of the vacant possession stage” — inclusive of delays. Ambiguity in Developer-drafted DIBS agreement triggers factual matrix analysis and contra proferentem against the Developer.

2. DIBS Covers Entire Construction-to-VP Period: “Construction period” construed to mean actual time taken to complete and deliver VP, not limited to 48 months.

3. Business Common Sense Prevails: DIBS must offer incremental economic advantage over the 3% rebate. Limiting DIBS to 48 months renders the incentive commercially absurd.

4. Estoppel by Conduct: Developer’s continued interest servicing post-48 months constituted admission. Subsequent refund demands under duress were inequitable. Thus, estoppel barred denial of prior conduct.

5. DIBS and LAD are Distinct Remedies: DIBS interest relief accrues throughout construction whereas LAD arises only upon delay. No double recovery as the remedies serve different contractual purposes.

Key Takeaways for Purchasers

1. Documenting Correspondences: Purchasers should meticulously document all financier correspondence, end-financing agreements, and developer acknowledgments, while resisting any demands made under duress to preserve their contractual rights.

Key Takeaways for Developers

1. Clear Definition of DIBS: Developers must define the duration of DIBS obligations explicitly in all agreements, as silence or ambiguity will trigger the application of the contra proferentem rule against the drafter.
2. Conducts are Binding: Post-contract conduct by developers, such as continued payment of progressive interest beyond the contractual period, may constitute a binding admission and cannot be unilaterally retracted.
3. Coercive refund demands risk estoppel: Coercive demands for reimbursement of interest payments, particularly when coupled with threats of withholding VP or imposing penalties, expose developers to estoppel claims due to unequal bargaining power.
4. DIBS & LAD are distinct remedies: The DIBS scheme and LAD under the SPA are distinct remedies with different purposes, allowing purchasers to enforce both without constituting double recovery.