Can a purchaser seek damages from a subsequent developer for the late delivery of their property? To find out more, let us briefly look at the case of Woolley Development Sdn Bhd v Tiara Contours Construction Sdn Bhd and see what the Court of Appeal has to say about this matter.
Cherating Development Sdn Bhd (“Cherating”) is a developer who owns a piece of land on the Penang island. In 1997, Cherating decided to build a commercial centre on the land. They appointed Syarikat Pembinaan Chan & Chua Sdn Bhd (“C&C”) as the main contractor and C&C appointed Tiara Contours Construction Sdn Bhd (“Tiara”) as their sub-contractor for the said project. However, Cherating did not have sufficient funds to pay C&C and in turn, C&C could not pay Tiara for services rendered by Tiara to C&C. As a consequence of the events above, the construction of the project came to a standstill.
Subsequent to the events above, all three parties came together and entered into a settlement agreement whereby Cherating would execute a sale and purchase agreement in favour of Tiara for a shop-office unit in the project without requiring any actual payment from the Tiara. This would effectively set off the debt that Cherating owes to C&C who in turn set off the debt that C&C owes to Tiara.
- The unit had not been constructed by Cherating and was never constructed as the project was abandoned;
- The strata title was not issued; and
- The land is still charged to Malaysia Building Society Berhad (“MBSB”), as security for a loan to Cherating.
MBSB therefore invited Woolley Development Sdn Bhd (“Woolley Development”) to rehabilitate the project. However, the land was never transferred to Woolley as Cherating was unable to remove the existing encumbrances on the land. This effectively means that the land remains in Cherating’s name and it remains charged to MBSB. Woolley Development subsequently sold the land to a third party, even though there was a caveat lodged by Tiara to protect its interest on that land.
Tiara sued both Cherating and Woolley Development, seeking a court order to enforce the SPA/ damages against both Cherating and Woolley Development (Tiara however withdrew its claim against Cherating as Cherating has been wound up).
The court’s decision
The High Court, amongst others, held that Woolley Development was liable to Tiara as they are the successor-in-title to Cherating. This was based off the clauses in the settlement agreement that states that the settlement agreement shall bind, amongst others, the successor-in-title of the respective parties in the settlement agreement.
However, the Court of Appeal held that Woolley Development cannot possibly be a successor-in-title because:
- Cherating have never transfer the ownership of the land to Woolley Development. Cherating therefore remains as the registered proprietor of the land. Even if the land has been transferred to Woolley Development, it would still have remained encumbered by the charge in favour of MBBS.
- The sales and purchase agreement was also not subjected to novation i.e. there was no new contract in place of the old contract between Cherating and Tiara. This means that Woolley Development was never in the picture and neither has they taken up the roles and responsibilities of Cherating in relation to the settlement agreement and the sales and purchase agreement between Cherating and Tiara.
Essentially, the Court of Appeal held that Woolley Development is not privy to the sale and purchase agreement i.e. they are not a party to the contract. Under the doctrine of privity of contract, a non-party cannot bring an action on the contract, nor can they be sued on the contract. This is because it is unjust to enable a third party (in this case, Woolley Development) to sue on a contract and not be liable for it and/ or enabling a third party to enforce contracts would affect or limit the rights of contracting parties to vary or terminate a contract.
Accordingly, a purchaser can only seek damages for late delivery of their property against a subsequent developer only if the subsequent developer is made a party to the contract.