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Can the property developer be liable for unfulfilled promise or it is all for illustration purpose only? 

Often, a developer will make promises on the facilities of the property such as sky garden, swimming pool, sport centre or even shopping mall to attract the purchasers. 

The legal question is what happens if, after the completion of the project, some of the promises are not fulfilled by the housing developer? Can the purchaser sue the Housing Developer or the can the Housing Developer escape liability by inserting an exemption clause such as “the Housing Developer has the power to make any alterations.”

The court has indicated its stand in the recent case of Toh Shu Hua & Ors v Wawasan Rajawali Sdn Bhd [2023] 2 CLJ 310.

This was a claim brought by 122 plaintiffs against the first defendant, a housing developer and its parent company as the second defendant with regards to a property development project. The plaintiffs’ claim against the defendants was mainly based on three grounds: 

(i) late delivery of vacant possession of the apartments purchased

(ii) loss suffered because of misrepresentation by the defendants as to the nature of the project; and 

(iii) damages suffered due to defects both in the apartments as well as common areas.

Specifically on the question of whether the housing developer would be liable for unfulfilled promise, our concern is on (ii), the alleged misrepresentation.

To fall under “Misrepresentation”, s.18 of the Contracts Act 1950 (‘the Act’) provides that there must be inter alia a positive assertion not warranted by the person making them, breach of duty with intent to give advantage thereby inducing an innocent party to the agreement to make a mistake as to the substance of the agreement. In other words, there must be a false statement of a material fact made by one party which eventually induce the other party to enter into a contract.

The plaintiffs argued that they were misled by the representation made in the sale brochures and the sales pitch as to the background of the project especially the promise of “Your World in One Place” which promised the purchaser to be entitled to a diverse ‘habitat’ to enjoy work, play, recreate in such a “self-sustained integrated development in the heart of Cyberjaya”. Also, amenities such as shopping mall, serviced apartment, central park and others. In fact, most of the promises were not achieved and not likely to be achieved in the near future. Thus, plaintiffs were unable to enjoy the lifestyle that they are expecting at the time of purchasing the said property.

The High Court held that the brochure was accompanied by details such as the size of the apartments, the overall impression of the entire project and many other features. Thus, the brochure was not merely an invitation to treat but a promise. The developer has failed to provide a near accurate description of the project and in fact, a misrepresentation as “it is clear that what was pictured in the brochures was not even remotely visible at present. In relying the representation, the plaintiffs had been influenced to buy the apartments.

The court also rejected the defendant’s argument that the brochure contained an exclusion clausesafeguarding them from any discrepancy in the project’s description due to few reasons: (i) the exclusion clause was in a fine minute wording at the bottom of the page; and (ii) there must be a grain of truth in marketing the project even if not fully accurate and even if there is an exclusion clause.

It should be noted that s.19 of the Act provides that the aggrieved party can choose to either rescind or insist the contract to be performed and be put in a position he would have been if the representation made had been true, nonetheless, the Judge viewed that the plaintiffs were not seeking for rescission but to be compensated for the loss of the property value which would have otherwise been valued if the representation was true. Despite the difficulty in quantifying the loss of enjoyment, the Court by weighing these factors, decided that some reasonable monetary compensation should be awarded to the plaintiffs. Accordingly, a sum of RM50,000 was awarded to each of the plaintiffs for the loss of enjoyment of the use of the apartments in a manner promised by the first defendant.

Furthermore, taking into account the defendants’ defiant and combative attitude in matters that could have been resolved much earlier and with the consultation of the residents, the High Court has awarded the sum of RM2,000,000 for aggravated damages to be shared amongst the plaintiffs.

Key Points to Take Note

Developers should take note of the following key takeaways from this decision:

1. Developers should always ensure that the information providing in brochures and sales pitches is the current state or a near accurate description of the project. It should not contain any information that could not even be remotely visible at present. Any misrepresentation can attract legal consequences and result in the contract become voidable.

2. Developers should not rely on exclusion clauses to absolve themselves from their responsibility. Exclusion clauses may not always protect the developer especially in cases of misrepresentation. There must be a grain of truth in marketing the project.

3. Developers should always try to resolve the disputes between purchasers without bringing the matters to court if the matters are of such a simple nature and can be resolved earlier. Aggravated damages may be imposed on the developers if they are not actively taking their role in solving the purchasers’ complaintsbut acting defiantly and combatively. 

By George Miranda, Joy Sam Jia Qian, Kong Chai Yin

This article is for general information purposes only and does not constitute legal or professional advice. It should not be used as a substitute for legal advice relating to your particular circumstances. Please note that the law may have changed since the date of this article.

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