by Vivian Kuan
Published October 1, 2020
Article first published in LinkedIn on 30.09.2020.
The Malaysian federal government implemented a cordon sanitaire - the Movement Control Order - in response to the Covid-19 pandemic from 18.03.2020 to 12.05.2020 (“MCO”).
The MCO directly affected numerous commercial transactions and the operation of businesses. In particular, land offices and law firms were not allowed to operate during the MCO – thus private caveat(s) could not be lodged, balance purchase prices could not be paid, and the sale of properties could not immediately succeed.
That last part has led to disputes. Let’s consider one instance.
In an Ipoh High Court case (“Ipoh case”), a successful bidder in a public auction sought an extension of time to complete his sale (“Successful Bidder”).
His last date to pay the balance purchase price fell during the MCO period, i.e. on 06.05.2020. As such, he argued, among others, that:
a) since that the MCO was enforced by the government and beyond the control of parties, he would be greatly prejudiced if held responsible for an obligation he could not at the time perform;
b) further, the 10% reserve price paid would be forfeited if the balance purchase price was not paid within the stipulated 120 days;
c) the MCO effectively robbed from him 50 days from the 120 days legally allowed for completion.
The law safeguards the interest of both chargor and chargee (usually, a bank and bidder). This requires both parties to be heard before any decision is made.
The High Court was thus tasked to examine the intent of Parliament behind S. 257 (1) (g) of the National Land Code 1965 which states:
… (g) specify that the balance of the purchase price shall be settled on a date not later than one hundred and twenty days from the date of the sale and that there shall be no extension of the period so specified; and …
In the Ipoh case above, the High Court did recognise that the Successful Bidder was placed in his predicament through no fault of his own - it was due to the imposition of the MCO. Additionally, that no legislative provisions were in place to deal with situations caused solely by the restrictions of the MCO.
However, and ultimately, the Court did not allow the application for extension of time.
It held that the said section was enacted to protect the interest of the chargor and to prevent non-serious bidders from participating/manipulating the auction, yet the necessary legal interests had not been safeguarded.
Why? Here are some of the key take away points.
In law, if you are a successful bidder, you must show that the interest of the Bank and the Chargor has been safeguarded:
Bona fide - You must show that you are willing and able to pay the balance purchase price: i.e. that you obtained a loan from the Bank before the expiry date. This has to be apparent in your affidavit in support. This was shown in the Ipoh case.
Notice to the Chargor – You must ensure that the cause papers of the proceedings have been served upon the chargor. This is important, because the Court affords a chargor the right to be heard in a request for extension of time. To be heard in court, the chargor must have notice of such proceedings. Thus the cause papers must be served. An affidavit of service must be filed to prove so. However, this was not done in the Ipoh case.
Payment of Interest – You must show that you are prepared to pay the interest imposed on the chargor’s account during the period of extension sought. This was also not done in the Ipoh case.
In prudence, a successful bidder who seeks an extension of time to complete a sale must consider these conditions before proceeding:
The bidder must obtain consent of the chargors for any extension of time.
The successful bidder must pay for the interest imposed on the chargor’s account after the completion date.
The successful bidder should undertake to indemnify the Bank, if any legal action is taken against the Bank (if the sale falls through due to the extension sought).
Ultimately, and going strictly by law, a court cannot grant orders in breach of the mandatory provisions of S. 257 (1)(g).
As such, the above legal considerations are applicable to sales before the Covid-19 Act.
The Court’s approach may change after the Covid-19 Bill is passed.