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Malayan Law Journal Reports/1986/Volume 1/BECA (MALAYSIA) SDN BHD v TAN CHOONG KUANG &
ANOR - [1986] 1 MLJ 390 - 30 September 1985
5 pages
[1986] 1 MLJ 390

BECA (MALAYSIA) SDN BHD v TAN CHOONG KUANG & ANOR

SC KOTA KINABULU
LEE HUN HOE CJ (BORNEO), WAN SULEIMAN & SEAH SC JJ
FEDERAL COURT CIVIL APPEAL NO 280 OF 1984
6 May 1985, 30 September 1985
Contract -- Contract for sale of flats -- Contract made before issuance of Developer's Licence to Vendors -Claim for return of booking fee -- Agreement voidable at instance of purchaser -- Distinction between
agreement and contract -- Housing (Control and Licensing of Developers) Rules, 1980, r. 10(2) -- Housing
(Control and Licensing of Developers) Enactment, 1978 -- Contracts Act 1950, ss. 2 & 66
Conveyancing -- Sale of flat -- Contract made before issuance of Developer's Licence to Vendors -- Claim for
return of deposit -- Whether contract voidable
Housing Developers -- Agreement voidable at instance of purchaser -- Election
In this case the appellants were housing developers. The respondents had agreed to buy three units of flats
from the appellants and paid a deposit of $20,000.00. The deposit was made before the issuance of the
Developer's Licence to the appellants. The respondents subsequently refused to sign the Sale and Purchase
Agreement and claimed a refund of the deposit. The learned President of the Sessions Court held that the
deposit was meant to be a booking fee and not part payment. The appellants had not obtained the licence
and permit at the time of collecting the deposit and therefore they were not authorised to collect the deposit.
He therefore ordered the refund of the deposit. An appeal to the High Court was dismissed. The appellant
appealed to the Supreme Court.
Held: the agreement in this case was valid but was voidable at the instance of the buyers. The buyers had
elected to avoid the agreement and they were entitled to claim for the return of the deposit.
Cases referred to
Mary-Ann Arrichiello v Tanglin Studio Pte Ltd [1981] 2 MLJ 60
Daiman Development Sdn Bhd v Mathew Lui Chin Teck & Anor [1981] 1 MLJ 56
Kin Nam Development Sdn Bhd v Khau Daw Yau [1984] 1 MLJ 256
Yeep Mooi v Chu Chin Chua & Ors [1981] 1 MLJ 14
John B Skilling & Ors v Consolidated Hotels Ltd [1979] 2 MLJ 2
Curragh Investments Ltd v Cook [1974] 1 WLR 1559 1563 [1974] 3 All ER 658
Raymond Banham & Anor v Consolidated Hotels Ltd [1976] 1 MLJ 5
SUPREME COURT

Lawrence Thien for the appellants.

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Stephen KS Foo for the respondents.

1986 1 MLJ 390 at 391
LEE HUN HOE CJ (BORNEO)
(delivering the Judgment of the Court): This appeal is against the dismissal by the learned Judge of an
appeal from the decision of the Sessions Court, Kota Kinabalu.
Briefly, the appellants are a company incorporated in Malaysia with its registered office at Tingkat 5, Wisma
Central, Jalan Ampang, Kuala Lumpur. They are housing developers. One of their ventures was the
development of an area of land in Sandakan at Mile 2, Leila Road, Tanah Merah into a commercial and
residential complex known as Leila Komplex. The respondents agreed to buy 3 units of flats costing
$703,685.00 from the appellants and on May 1, 1981 paid a deposit of $20,000.00. It was common ground
that the deposit was made before the issuance of the Developer's Licence and the Sale Advertisement
Permit on September 26, 1981. The respondents were asked to sign the Sale and Purchase Agreement on
May 23, 1981. They did not sign it. Instead, through their solicitors, they claimed for the refund of the deposit
on the ground that the deposit was collected illegally under Rule 10(2) of the Housing (Control and Licensing
of Developers) Rules, 1980 (hereinafter referred to as "the Rules"). These Rules were made under the
Housing (Control and Licensing of Developers) Enactment, 1978 (hereinafter referred to as "the Enactment")
on January 23, 1980 and which were gazetted on May 15, 1980 to come in force on July 1, 1980.
The respondents claimed that the payment of the deposit was intended to be a "booking fee". On the other
hand the appellants maintained that the deposit was in actual fact part payment towards the purchase price
of the three units of flats. They said that the payment was not illegal by reason of or prohibited under the said
Rule 10(2). They counterclaimed for the deposit to be forfeited. Rule 10 reads as follows:
"10(1) A purchaser of housing accommodation including the land shall not be required to pay a booking fee of a sum
exceeding 2.5 per centum of the purchase price of such housing accommodation including the land.
(2) Notwithstanding paragraph (1) of this Rule, no purchaser of a housing accommodation including the land shall be
required to pay a booking fee of a sum exceeding one thousand ringgit.
(3) For purposes of this Rule the term 'booking fee' shall include any payment by whatever name called which payment
gives the purchaser an option or right to purchase the housing accommodation including the land."

The learned President of the Sessions Court held that the deposit was meant to be a booking fee and not
part payment. At the time of collecting the deposit the appellants had not as yet obtained the licence and
permit. Without the proper licence they were not authorised to collect deposit. He, therefore, ordered the
refund of the deposit and dismissed the counterclaim. In dismissing the appeal the learned Judge stated at
page 8 of the Appeal Record:
"... Rule 10(1) and 10(2) limits the amount of booking fee which may be collected by a housing developer from a
purchaser. Rule 10(3) is clearly enacted to prevent any attempt by a housing developer to contract out of its
provisions..."

Having set out Rule 19(3) the learned Judge went on:
"The payment of the deposit in my judgment was caught by the provisions of the above rule. It was not disputed that
such payment had given the respondents in this case the option or right to purchase the 3 units of flats. To hold that the
deposit was part payment and not booking fee would render its provisions a dead letter and to reinstate the mischief
which the rule was designed to remedy."

Before us the same arguments as in the lower courts were used. We agree with the learned Judge that the
main issue is really what is the effect of the provisional agreement entered into by the parties before the
issuance of the licence to the developers. It is the submission of the appellants that a contract which does
not comply with the said Enactment and Rules made thereunder is not invalid and should be enforceable

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according to its terms. The Singapore case of Mary-Ann Arrichiello v Tanglin Studio Pte Ltd [1981] 2 MLJ 60
and Daiman Development Sdn Bhd v Mathew Lui Chin Teck & Anor [1981] 1 MLJ 56 were cited in support.
The appellants said that relevant provisions of the Singapore Housing Developers (Control and Licensing Act
(Cap. 250)) and the Housing Developers Rules, 1976 are substantially similar to the Sabah Enactment and
Rules. The only difference is that in the Singapore case the developers had a licence whereas in the instant
case the developers had no licence. It was submitted that there was no difference whether the developers
had the licence or not before the agreement was entered into.
At page 63 of the Singapore case, Chua J. stated:
"The buying and selling of houses or flats is not a prohibited activity under the law. Anyone (except foreigners in certain
cases) can buy and sell houses and flats in Singapore. The Act seeks to control housing development not the sale and
purchase of properties ... Section 21 of the Act is merely seeking to control, amongst other things, the mode
1986 1 MLJ 390 at 392
of performance of the contract of sale by housing developers and it seeks to do this through a licence granted to the
developer. It does not in any way prohibit the formation of an agreement. Certain procedures are provided for certain
activities, for example, in advertising, in raising a loan on the property and in agreements for sale. The so-called legal
impediment exists on the face of the licence only. Each licence could have its own limitations. Whether or not a
developer is under an impediment is personal only to the developer.
...
The Act is merely prescribing a method of performance by the housing developer for the protection of a class of
persons - to protect purchasers as far as possible from the risk of exploitation. The Act does not in any way prohibit the
making of a contract for sale and purchase of flats. The licence that the Act requires is a licence to develop."

Chua, J. then referred to Daiman's case [1981] 1 MLJ 56, particularly when Suffian, then L.P. said that the
pro forma was a firm contract. He therefore concluded that "the contract between the plaintiff and the
defendants is not illegal and is enforceable."
In Daiman's case [1981] 1 MLJ 56 Sir Garfield Barwick, after referring to Rules 10 and 12 which are the
same as the Sabah Rules, stated at page 59 onwards:
"Rule 17 provides that contravention by a licensed housing developer of any of the rules shall be an offence and render
the developer liable on conviction to a fine or, for a second or subsequent offence, a fine or imprisonment or both.
Nothing in the rules expressly purports to invalidate a contract which does not comply with the provisions of the rules.
The rules impose no penalties on a purchaser who enters into a contract which does not conform to the requirements
of the rules. Clearly rule 12 does not exclude the possibility of the contract of sale containing terms and conditions
other than such as are designed to effectuate the requirements of the rules. Rule 12 requires a contract to contain
within its terms the stipulated provisions. It is observable that rule 12 does cover much of the relationship of vendor and
purchaser in relation to the purchase and is mandatory so far as the appellant is concerned."

By Rule 10(3) the $20,000.00 is clearly meant to be "booking fee". It makes no difference by whatever name
such payment is called. Such payment gives the purchaser an option or right to purchase the three flats. If
the purchaser fails to exercise the option or right then he would forfeit such payment. Thus it seems that the
parties appear to concede that if the provisional agreement is held to be good only $3,000.00 can be forfeited
by the developers. If the agreement is to be regarded as illegal, void and unenforceable the developers
would have to refund the deposit as under section 66 of the Contracts Act it is provided that:
"When an agreement is discovered to be void...any person who has received any advantage under the agreement or
contract is bound to restore it, or to make compensation for it, to the person from whom he received it."

In the recent case of Kin Nam Development Sdn Bhd v Khau Daw Yau [1984] 1 MLJ 256 the developers
proposed to develop two pieces of land in Kuantan into a housing estate. One of the pieces belonged to the
Futo Trading Co. All the lots were booked before approval for conversion and subdivision of the land was
obtained. Later, the conversion and subdivision were approved but subject to the condition that a certain
number of lots should be reserved for bumiputras. The developers decided not to build any of the houses.
Those who had booked the lots sued the developers for specific performance. At the trial the developers
contended that they were not liable as the booking did not constitute a binding contract and that even if it did
so, the contract was rendered not only impossible of performance but also illegal by the imposition of the
special condition. The learned Judge rejected the developers' contention and gave judgment for the

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purchasers, in the form of damages. In dismissing the appeal the Federal Court, inter alia, held that the fact
that the developers would no doubt incur a heavy financial burden as a result of the special condition
imposed but that was not a relevant factor in involving the doctrine of frustration. In delivering the judgment of
the court, Salleh Abas C.J. (Malaya), (as he then was), left open the question whether Malaysian Rule 11 (1)
of the Housing Developers (Control and Licensing) Rules, 1960 would render a contract illegal by virtue of
section 24 of the Contracts Act as this was not pleaded by the appellants and also there was no factual basis
upon which a ruling could be made. Nevertheless, he also stated at page 259:
"In any case there is nothing illegal about the consideration or object of the contracts because they are only contracts
for the sale and purchase of houses, and neither do they come within any of the paragraphs of section 24 quoted
above although the appellant may well be guilty of an offence under Rule 17 for contravening Rule 11(1) of the
Housing Developers (Control and Licensing) Rules, 1970. In other words, these Rules do not affect the validity or
otherwise of the contracts which the developer has signed with the purchasers."

In Mary-Ann Arrichiello's case [1981] 2 MLJ 60 the developers wanted to increase the price of maisonette
earlier agreed at $129,600.00 to $135,000.00 by providing "better tiling". When the purchaser
1986 1 MLJ 390 at 393
refused to pay the increase and sued for specific performance the developers sought to escape liability by
pleading his own illegality to defeat the contract. In Daiman's case [1981] 1 MLJ 56 the same thing
happened. The developers sought to increase the purchase price earlier agreed at $26,000.00 to $35,000.00
by "amendments to the building plans and increase of material and constructions." The purchasers did not
agree to the increase and applied for specific performance which was granted. In Kin Nam's case [1984] 1
MLJ 256 the developers sought to avoid his liability because of the special condition imposed by the Pahang
State Government by not building the houses which were already booked. Here the purchasers were
awarded damages instead of specific performance. The developers in the three cases cited had the
necessary licences and there was no evidence that when the agreements were entered into any provisions
of the Act or Rules had been infringed. Nevertheless, to avoid liabilities the developers pleaded illegality on
one ground or another. In the instant case the developers not only had no licence when the provisional
agreement was entered into but also had collected deposit far in excess of that allowable under the said
Rules. Section 5(1) of the Enactment provides that no housing developer shall engage in, carry on or
undertake housing development without (a) being in possession of a licence issued under the Enactment,
and (b) having made a deposit with the Controller of a sum equivalent to 5% of the estimated costs of the
development. Failure to comply with section 5(1) is an offence punishable under section 20 which carries a
fine not exceeding $20,000.00 or imprisonment for a term not exceeding 5 years or both. It was only after the
Peguam Negeri wrote to the developers on May 29, 1981, pointing out the above that the developers took
the trouble to obtain a licence.
The respondents pointed out that the appellants had not only contravened the provisions of the Enactment
but also Rule 10(2) which allows a maximum of $1,000.00 as deposit. They submitted that the provisional
agreement was therefore rendered illegal and void. Yeep Mooi v Chu Chin Chua & Ors [1981] 1 MLJ 14;
John B Skilling & Ors v Consolidated Hotels Ltd [1979] 2 MLJ 2; and Curragh Investment Ltd v Cook [1974] 1
WLR 1559 1563 [1974] 3 All ER 658 were cited in support. They submitted the learned Judge was right.
The learned Judge was aware that "there is no lack of authorities which support the view that not in all cases
where contracts were made in contravention of some statutory provisions such contracts would be
considered to be illegal and unenforceable." However, he took the view that "for a contract to be illegal there
must be a sufficient nexus between the statutory requirements and the contract and only where the statutory
requirements breached were sufficiently linked to the contract then the question of its illegality would arise".
He relied on a passage in the judgment of Megarry J. in Curragh's case [1974] 1 WLR 1559 1563 [1974] 3 All
ER 658. After referring to Chitty on Contracts, 23rd Edition (1968), pages 428 and 429 which discussed the
cases in which a transaction in breach of a statutory prohibition was struck with illegality even though the
statute did not in terms say so but only imposed some criminal sanction for the breach, Megarry J. expressed
his views in the passage cited by the learned Judge. The relevant passage reads:
"I accept of course, that where a contract is made in contravention of some statutory provision then, in addition to any
criminal sanctions, the courts may in some cases find that the contract itself is stricken with illegality. But for this to
occur there must be a sufficient nexus between the statutory requirement and the contract. If the statute prohibits the
making of contracts of the type in question or provides that one of the parties must satisfy certain requirements (e.g. by
obtaining a licence or registering some particulars) before making any contract of the type in question, then the

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statutory prohibition or requirement may well be sufficiently linked to the contract for questions to arise of the illegality
of any contract made in breach of the statutory requirement. But it seems to me a far cry from that to the breach of
statutory requirements which are not linked sufficiently or at all to the contract in question. There are today countless
statutory requirements of one kind or another, yet I cannot believe that an individual or a company who is in breach of
any of these requirements (for example, under the Factories Acts) is thereby disabled from making a legal contract for
the sale of land or validly entering into covenants for title. To take an example that was mentioned in argument, I do not
think that it could seriously be contended that every contract made by an English company, whether for the sale of land
or otherwise, is illegal if, when it is made, the company is liable to prosecution and fine for failing to comply with some
provision of the (Companies) Act of 1948, for example, for not filing its annual returns in due time. Such doctrine, for
which I can see no justification, would result in chaos. If in the present case I assume that the vendor is in
demonstrable breach of sections 407 and 416, I am still quite unable to see how this provides any ground for
contending that the covenants for title that the vendor must give will be impaired by illegality. The breach of the law and
the covenants for title seem to me to be wholly unconnected."

In Skilling's case [1979] 2 MLJ 2 the appellants were partners in a firm of consultant engineers practising in
the United States. They sought to claim their professional fee under an agreement. They were however not
registered as required under sections 18 and 19 of the Singapore Professional Engineers Act (Cap. 225).
Held, the agreement was illegal as it
1986 1 MLJ 390 at 394
infringed the provisions of sections 18 and 19 of the said Act. In an earlier Singapore case of Raymond
Banham & Anor v Consolidated Hotels Ltd [1976] 1 MLJ 5 Winslow J. disallowed the plaintiff engineer's claim
for professional services rendered on the ground of non-registration which infringed the provisions of the
Singapore Professional Engineers' Act (Cap. 225). These two cases are concerned with the effect of nonregistration of professional engineers under that particular legislation.
It is useful to bear in mind the distinction between an agreement and a contract. The word "contract" has at
times been loosely used in the past. We do not see why we should perpetuate such loose use of the words.
The reason is simply that we are used to the English common law which does not make the distinction
between the two terms as does our section 2 of the Contracts Act. Our section 2 is word for word the same
as the equivalent section of the Indian Contracts and Specific Relief Acts. Pollock & Mulla on the Indian
Contract and Specific Relief Acts, 9th Edition, page 54 observes that:
"The distinction between 'agreement' and 'contract' made by sub-s.(h) is apparently original; it is convenient, and has
been adopted by some English writers. The distinction is apparent from section 2. By clause (e) every promise and
every set of promises forming the consideration for each other is an agreement and by clause (h) an agreement
enforceable by law is a contract. By clause (g) an agreement not enforceable by law is said to be void ..."

We have referred to the transaction as a provisional agreement. What the learned Judge decided was that
the "provisional agreement", although "contract" was used, is illegal.
In considering the effect on the agreement consequent upon the breach of the Enactment it is necessary to
examine the object of the Enactment. The long Title says clearly that Enactment was to provide for the
control and licensing of housing developers and for matters connected therewith. The main purpose was to
protect the public from exploitation by unscrupulous developers. We are only concerned in this case with the
position of the housing developers going into business without first obtaining a proper licence. Section 5 of
the Enactment is clear on this. The law says a housing developer must obtain a licence and pay a certain
sum as deposit to the Controller before he can engage in, carry on or undertake the business of housing
development. Not every breach of a statutory prohibition would render an agreement illegal or void though
such breach may attract criminal penalty. The fundamental question is whether the Enactment means to
prohibit the agreement. It is important that the courts should be slow to imply the statutory prohibition of
agreement, and should do so only when the implication is clear. Whether an agreement is implicitly forbidden
depends upon the construction of the statute, and for this purpose no one test is decisive. Persons who
deliberately set out to break the law cannot expect to be aided in a court of justice. It would be a different
matter when the law is unwittingly broken. An agreement for the sale of, say, frozen food, is not to be
considered illegal or void merely because the premises in which the frozen food is sold does not comply with
the law. We recognise that each case must be decided by reference to the relevant statute.
At the height of the housing boom the purchasers of houses were at the mercy of unscrupulous housing
developers. These developers collected excessive deposits and delayed building the houses. Invariably the

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purchasers had to agree to increase in prices by the developers for one reason or another. The situation
became so bad that the law had to step in to protect the house buyers. One of the means is to require a
housing developer to obtain a licence and to deposit a certain sum of money with the Collector before he can
carry on business as a housing developer. Another way is to make rules to ensure that no excessive deposit
is collected from would-be house buyers.
So far we have been dealing with cases where the existence of the licence was not in dispute. In the instant
case the developers had no licence when they entered into the provisional agreement with the buyers. We
think the distinction is most important in deciding the effect on the provisional agreement. The consensus of
the authorities would suggest that the contravention of any of the Rules only renders the developers liable to
a penalty but does not invalidate any agreement entered into by the developers and the buyers. The question
is whether there is any difference in effect on the provisional agreement consequent upon the breach of the
Enactment itself. The language of any provision of the Enactment shows clearly that the legislature intends to
protect the house buyers from exploitation by the housing developers through the issuance of a licence. In
this way the Enactment seeks to control both the housing developers and the mode of their performance.
Although the Enactment does not expressly prohibit the making of such an agreement any developer who
enters into an agreement without
1986 1 MLJ 390 at 395
first obtaining a licence would run the risk of such agreement being declared illegal, void, or unenforceable,
or enforceable by one party only.
Under the provisions of the Contracts Act, 1950 where the consent to an agreement has been caused by
coercion, fraud, misrepresentation or undue influence, the contract is rendered voidable at the instance of the
innocent party. On the effect of non-compliance with statutory requirements, Chitty on Contracts (General
Principles) 24th Edition, paragraph 223 at page 222 states:
"Non-compliance with such statutory requirements may produce various effects. It may make the contract void, or
unenforceable, or unenforceable by one party or enforceable only on an order of the court."

And paragraph 1022 at page 1023 says:

"Statutes which prohibit certain contracts often impliedly recognise, for example by punishing only one of the parties,
that the parties are not equally at fault, and therefore on their true construction only one of the parties to the contract is
prevented from suing upon it. Accordingly 'when the policy of the Act in question is to protect the general public or a
class of persons by requiring that a contract shall be accompanied by certain formalities or conditions, the contract and
its performance without those formalities or conditions is illegal, and cannot be sued upon by the person liable to the
penalties'. But the other party to the contract is not deprived of his civil remedies because of the criminal default of the
guilty party."

The appellants as developers should know that they could not carry on the business of housing development
unless they had obtained a licence. Yet, they acted as if they had the necessary licence by collecting deposit
from and entering into the provisional agreement with buyers who had no reason to doubt the bona fide of
the developers. The buyers could not be expected to know that the developers had no licence at the time. It
would be expecting too much of the buyers to say that they "had the means of discovering the truth with
ordinary diligence" to quote the words of section 19 of the Contracts Act, 1950. The learned President was
very careful in dealing with the matter. After referring to the various authorities cited and reviewing the law he
came to the conclusion that "the provisional agreement was a binding contract between the parties here;
however as the developers did not have the necessary licences when they signed the agreement and
collected the deposit, the binding contract is voidable and can be avoided by the innocent party."
Having regard to the scope and purpose of the Enactment and the Rules made thereunder, they are clearly
made for the benefit of a class of people, namely, the house buyers. The duty of observing the law is firmly
placed on the housing developers for the protection of the house buyers. Hence, any infringement of the law
would render the housing developers liable to penalty on conviction. Although the developers have to comply
with a number of statutory requirements we are unable to find anything in the Enactment or the Rules which
would invalidate an agreement or contract as a result of any breach of the Enactment or the Rules. On the
facts of this case we are of the view that the transaction is valid until it is avoided. The buyers had elected to
avoid the agreement and claimed for the return of the deposit.

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We agree with the dismissal of the appeal from the learned President by the learned Judge but for different
reasons. We also agree that the subsequent granting of the licence and the permit by the Controller could in
no way rectify the provisional agreement without the consent or knowledge of the buyers. However, with
respect, we are unable to agree with the learned Judge that the provisional agreement is illegal. We prefer
the approach adopted by the learned President rather than that of the learned Judge on the matter. Since the
Enactment is meant to be for the benefit of the house buyers it would seem, in our view, proper and right to
regard the provisional agreement as binding but voidable at the instance of the house buyers. They should
be given the option of either enforcing or repudiating the agreement depending upon the market situation of
the housing development in the country. If the provisional agreement were to be declared illegal it might in a
given situation prove profitable to the developers, for instance, when there is a housing boom. In which case
it would be absurd to say that the Enactment is to protect the buyers from exploitation when it is actually
aiding the developers to enrich themselves. So the avoidance of the agreement would cause inconvenience
and injury to innocent members of the public. To declare the agreement binding but voidable at the instance
of the buyers would provide no incentive to the developers to do any act before obtaining a proper licence.
Accordingly, we would dismiss the appeal with costs. Deposit to the respondents on account of taxed costs.
Appeal dismissed.
Solicitors: Chau & Thien; Chin Lau & Wong.