Islamic Banks, Central Bank, Applicable Law & Shariah Advisors in the UAE

Posted on April 24, 2020 | Leave a comment
Sharjah Islamic Bank UAE

Banks in the UAE offer various types of Islamic banking products, including Islamic Home Finance (IHFPs). The demand for IHFPs is due to the awareness of UAE citizens to obtain home finance products that comply with the requirements of Islamic Law. Examples of these products include those that are not based on usury (riba’) and other elements that are not compatible with Islamic Law.

The UAE is a civil law country. The governing Law of the IHFPs are the UAE Federal Law No. 5 of 1985 Concerning Civil Transactions (the UAE Civil Code) and Islamic Law pursuant to the UAE Federal Law No. 14 concerning the Central Bank and Organisation of Financial Institutions and Banking (the Banking Law (‘Law No. 14’). The Civil Code is still subject to Islamic Law (Sections 1, articles 1, 2 and 3). For example, pursuant to Section I, Article 1 of the Federal Law No. (5) of 1985 On the Civil Transactions Law of the United Arab Emirates states:

’…In presence of an absolutely unambiguous text, there is no room for personal interpretation. In the absence of a text in this Law, the judge shall adjudicate according to the Islamic Sharia taking into consideration the choice of the most appropriate solutions in the schools of Imam Malek and Imam Ahmad Ben Hanbal and, if not found there, then in the schools of Imam El Shafe’ i and Imam Abou Hanifa, as the interest so requires. Where no such solution is found, the judge shall decide according to custom, provided it is not incompatible with public policy and morals. In case the custom is restricted to a specific Emirate, it shall be effective therein.’(emphasis added).

Among the subject matters that the Law No. 14 deals with are contract, loan, sale of land, ownership, proof, personal obligations, tort, sale, gift, partnership, hire, custodianship, guarantee, the right of ownership, wills, real securities (mortgage) and pledge.

Apart from the above laws, the IHFPs applicable in the UAE are subject to the scrutiny of the supervisory body, i.e. the Central Bank of the UAE (‘CB’) through the Higher Sharia Authority (‘HSA’)  and the Shariah Supervisory Board (‘SSB’) through the Internal Sharia Supervisory Committee (‘ISSC’).

Central Bank of UAE

The UAE’s Constitution identifies shariah (Islamic Law) as the principal source of Law. While the UAE Federal Law No. 5 of 1985 Concerning Civil Transactions (the UAE Civil Code), which is deeply rooted in shariah, recognises the basic Islamic financing contracts, including:

  1. Murabahah (cost-plus financing): Article 506 of the UAE Civil Code;
  2. Mudarabah (trust financing): Article 693 of the UAE Civil Code;
  3. Musharakah (partnership financing): Article 654 of the UAE Civil Code;
  4. Ijarah (leasing): Article 742 of the UAE Civil Code;
  5. While there is no specific article in the UAE law that expressly deals with istisna’, the official commentary to the UAE Civil Code stipulates that the shariah principles of istisna’ are applicable in the case of construction contracts (muqawala), pursuant to Article 872 of the UAE Civil Code.

While the Emirate of Dubai has established itself as an important centre for business and commerce, the laws and regulations applicable to financial products and services (including Islamic finance) are basic – often just providing a mandate for the formation of regulatory authorities to govern the provision of the relevant financial products and services in the UAE. Consequently, the detailed rules, regulation and policies relating to financial products and services are left to the discretion of the relevant regulatory authorities. The internal regulations, policies and guidelines implemented by the authorities relating to the related financial products are not always made public. The pertinent laws to Islamic financial services are, in many cases, diffused in multiple pieces of legislation and the coverage of issues (including consumer protection) is general rather than comprehensive.

The key governmental and regulatory policies that govern the UAE banking sector, including Islamic banks (except in the Dubai International Financial Centre (DIFC) and the Abu Dhabi Global Market, where the regulatory authorities are the Dubai Financial Services Authority and the Financial Services Regulatory Authority), are the UAE Federal Law No. 14 concerning the Central Bank and Organisation of Financial Institutions and Banking (the Banking Law) (‘Law No. 14’), which came into force on 30 September 2018 (Article 151 Law No. 14).

The Banking Law is the primary legislation giving the UAE Central Bank (‘CB’) the authority to regulate financial services (including Islamic financial services) in the UAE. According to the Banking Law, the UAE Central Bank has the power to license and monitor a wide variety of financial institutions operating in the banking and financial sector in the UAE, including the Islamic financial institutions. (Articles 4 and 15 Law No. 14).

Emirated Islamic Bank UAE

Concerning Islamic financial institutions, permissible activities are not specified in the Banking Law, which provides that ‘Islamic financial institutions’ means financial institutions licensed to undertake all the activities of a commercial bank but following the principles of Islamic shariah. The Banking Law provides that licensed Islamic financial institutions may undertake any of the following activities, provided they are done in a shariah-compliant manner (Article 65 Law No. 14):

  1. taking deposits of all types, including Shariah-compliant deposits;
  2. providing credit facilities of all types;
  3. providing funding facilities of all types, including shariah-complaint funding facilities;
  4. providing currency exchange and money transfer services;
  5. providing monetary intermediating services;
  6. providing stored values services, electronic retail payments and digital money services;
  7. providing virtual banking services;
  8. arranging or marketing licensed financial activities; and
  9. acting as a principal in financial products that affect the financial position of the licensed financial institution, including but not limited to foreign exchange, financial derivatives, bonds and Sukuk, equities, commodities and any other financial products approved by the UAE Central Bank.
Higher Sharia Authority UAE

Article 17 Law No. 14 establishes the Higher Sharia Authority (‘HSA’). The Board of Directors of the CB will appoint the members of the HSA. The source of fund for the establishment and operation of HSA is from a pool fund collected from the financial institutions licensed by the CS. The HSA has a duty to carry out supervisory activities to ensure that the activities, policies and the Islamic banking products in the UAE are in compliance with the Islamic Sharia. The HSA shall determine the rules, standards, and general principles applicable to Shari’ah-compliant businesses and Licensed Financial Activities, and shall undertake supervision and oversight of the Internal Sharia Supervisory Committees of Licensed Financial Institutions. The opinions and fatawa of the HSA shall bind the Internal Sharia Supervisory Committees (‘ISSC’) of Licensed Financial Institutions and the licensed financial institutions. The membership of HSA shall not less than five (5) members and not exceeding seven (7) members, of sufficient knowledge and experience in the jurisprudence of Islamic financial transactions (Articles 17 and 82 Law No. 14).

It should be noted that the CB together with the HSA shall be immune from any legal actions in the exercise of their statutory duties unless the exercise of the responsibility is tainted with bad faith and with intent to harm third parties (Article 25 Law No. 14).

Further, according to Article 111 Law No. 14 the UAE Central Bank (‘CB’) is given the right to intervene in any lawsuit filed involving a financial institution, with the CB to be notified of all such cases.

Dubai Islamic Bank UAE

Each Islamic financial institution must appoint and maintain a shariah committee, called the ‘Internal Sharia Supervision Committee’ (‘ISSC’) (Article 79 Law No. 14). The ISSC shall undertake sharia supervision of all businesses, products, services and the business conduct of the Islamic financial institution, to ensure that its operations and products comply with the rules and principles of sharia, as set by the Higher Authority. The ISSC will review all the proposed financial products and related documents and issue a fatwa on their sharia compliance. Once a financial product has received the approval of the ISSC, it can be offered by the Islamic financial institution to the public in the UAE. If there is any disagreement, either between the members of the ISSC or between the ISSC and the board of the Islamic financial institution in connection with compliance with principles of sharia, the dispute shall be referred to the HSA , whose ruling shall be final. Membership of ISSC shall consist of experienced specialists in Islamic finance and banking transactions jurisprudence (Articles  7 and 82 Law No. 14).

Previously, the adherence to the voluntary standards issued by standard-setting bodies such as the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) and the Islamic Financial Services Board varied among individual Islamic banks and financial institutions in the UAE. However, this has changed following the recommendation by the HSA that all banks and financial institutions offering shariah-compliant products in the UAE comply with the requirements of the AAOIFI’s standards with effect from 1 September 2018. For now, Islamic financial institutions continue to seek guidance from their ISSC; this can be problematic when arranging syndicates of Islamic banks or financial institutions, as there may be differences of opinion between the different committees on the application of sharia principles to the financing structure.

The product development team then reviews the scholars’ resulting fatawa. It can be followed by a discussion between the scholars and the product development team to finalise the product. The need for a constant dialogue between the product development team and the scholars throughout this process should be stressed. In line with the majority of countries where shariah-compliant financial services are offered, each financial institution in the UAE has its own ISSC, making individual decisions for the institution.

In determining whether an Islamic financial instrument is shariah-compliant, the shariah scholars generally adhere to the following process:

  1. review the product concept description created by the product development team;
  2. evaluate the market conditions identified by the product development team;
  3. examine the product development team’s views on the Islamic principles on which the transactions will be based; and
  4. review the product development team’s proposals and issue fatawa.

Sources of information and pictures reference

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Abandoned Housing Project in Taranaki, North Island, New Zealand: “When the Law is Against Equity, Equity Prevails’

Posted on October 5, 2023 | Leave a comment

A developer-builder by the name of NZ Tiny Homes abandoned their housing development project in Taranaki, in the west of New Zealand’s North Island.

The reason for the abandonment was the financial problems faced by the developer-builder company, NZ Tiny Town Projects Ltd. The financial problems were due to supply chain issues and the rising cost of construction following the outbreak of the COVID-19 pandemic.

The shareholders of the company applied for voluntary winding-up. The construction of the houses stopped at 95% completion. Additionally, the Code Compliance Certificate (CCC) for the houses has not been obtained from the New Plymouth District Council.

Some of the purchasers have fully paid the purchase prices. The developer-builder has been liquidated and under a liquidator’s control since November 15, 2022.

Following this, the aggrieved purchasers applied to the Auckland High Court to get back all their money paid and, if possible, to get ownership and possession of the abandoned houses from the liquidator and the liquidated developer-builder company. The liquidator is Tony Maginness from Baker Tilly Staples Rodway Auckland.

Purchasers include 80-year-old Carol Wright; David and Donna Craft; Rebecca and Brendon Gorringe; Hannah Elizabeth Terry; Gregor and Kelly Vallely; and Bernadus and Lydie Warmerdam.

Venning J. in the Auckland High Court held in favour of the purchasers on the grounds that the purchasers have an equitable lien over the abandoned houses. The equitable lien should take precedence over other competing claims in the liquidation, subject to the monetary value paid by the purchasers. The equitable lien warrants the purchasers to become beneficial owners of the abandoned houses. The purchasers have rights over the abandoned houses that they have paid for. Thus, the developer-builder is responsible for fulfilling their terms over the completion of the houses. It means the purchasers have a lien over the abandoned houses in return for their payment. This lien right arises due to equity and principles of fairness. Thus, it is called an equitable lien. The purchasers become lien holders over the abandoned houses, while the developer-builder can be considered the debtor. The debtor must repay the ‘consideration’ by ensuring that the houses can be completed and handed over to purchasers and cannot use the available money for other purposes except for the purpose of completing the construction of the houses and handing over the vacant possession of the duly completed houses to the purchasers.

What can be concluded is that the principle of priority of payment, which is usually enshrined in the liquidation law, giving priority to selected persons, including secured creditors and unsecured creditors, not to the aggrieved purchasers, is not invoked, giving way for purchasers to get their redress by way of an equitable lien.

As a result of the aforementioned issue, in addition to the losses suffered by the disgruntled buyers in the aforementioned project, numerous individuals are now avoiding purchasing homes from the builder-developer company.

Questions:

  1. Whether the aggrieved purchasers succeeded in rehabilitating the abandoned houses
  2. Can the aggrieved purchasers sue the liquidated developer builder company for compensation if the liquidated builder company cannot resume the construction of the incomplete houses?
  3. Whether the aggrieved purchasers obtain legal and equitable damages for all the troubles, losses, sufferings, and grievances caused by the builder-developer company
  4. Can equity and, in respect of the above case, equitable lien take precedence over the persons who have legal priority of payment over the liquidation money and assets?

Sources and References

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Posted in Abandoned Housing Projects

Soil Settlement and Erosions at Housing Areas: The Time Has Come for Us To Improve the Laws, Policies and Practices

Posted on September 26, 2023 | Leave a comment

There are numerous soil erosions and soil settlements that occur in many housing areas in Malaysia. The notable Highland Towers catastrophe that occurred in 1993 remains vivid in our memory. However, with due respect, this detrimental soil erosion and its catastrophic irreparable damage still haunt house residents without them obtaining any preventive measures or remedial measures. The consequences of soil erosions and soil settlements include building and wall cracks, floor cracks, damage to the building, cracks in the foundation and interior walls, non-uniform settling of doors and windows, sinking of floors and bulging walls, and sunken slabs. These are often considered the adverse effects of differential settlement and can be devastating to a building.

Apart from these, the victims also suffered pecuniary losses and other grievances and sufferings, such as loss of life and serious injuries. The damage brought about by soil erosion and settlement to the residents, to some extent, is irreparable. This includes the liability of the purchaser borrowers to even service their loan to financiers, even though their houses have been destroyed or are unfit for human habitation, as happened in Highland Towers. Soil erosion and settlement not only cause damage to the buildings and the vicinity but have also resulted in pecuniary losses and deaths for the residents. Thus, the damage and losses can be irreparable.

Other examples include soil erosion and settlement at Taman Puteri Lagenda Gurun, Kedah Darulaman; Taman Pertama Low-Cost Apartment, Dengkil, Sepang, Selangor; Taman Gambang Damai Kuantan, Pahang; Taman KLIA Indah, Sepang, Selangor; and the housing area at Jalan Plumbum, 7/101A, Section 7, Shah Alam, Selangor.

At Taman Puteri Lagenda Gurun, Kedah, Darulaman, a part of the project land, was subject to soil problems and soil erosion. This problem was discovered after the expiry of the defect liability period. The soil at the housing estate was problematic, resulting in soil settlement as, according to sources, the developer failed to provide sufficient measures and exercise adequate soil treatment at the initial stage and during the construction of the buildings. About 15 housing units have been severely damaged, including cracks and rupture to the roof, ceiling, walls, and ground mosaic, detrimental to the safety of the house occupants. Until now, the victim residents have not found and received any legal and equitable solution to their plights from the developer and the authority.

In Taman Gambang Damai, Kuantan, Pahang, two semi-detached houses have collapsed to rubble due to soil erosion, soil settlement and soil movement beneath the housing location. The houses were built on a filled slope, not a natural slope, that could not sustain the exorbitant running heavy rainwater running on it, penetrating it beneath and through it. Further, the drainage system is not adequate and has no maintenance, and the slope is steep and high. The houses’ foundation, too, was not fit and not commensurate with the size of the houses. Both houses are fully destroyed, and besides these houses, there are about 15 more neighbouring houses erected along the same stretch whose owners are required to leave immediately from their houses to avoid possible soil catastrophe. Some of the houses suffered damage due to soil settlement, such as cracks and ruptures to the house buildings. In this case, the developer’s liability has expired since the houses have been occupied for the last six years after the vacant possession, since 2015. There is no insurance coverage as the insurance agreement excludes landslides, soil problems, soil erosion and soil settlement. The purchaser residents too need to pay their end financier (Lembaga Pembiayaan Perumahan Sektor Awam – LPPSA) through Islamic Home Financing Bay’ Bithaman al-Ajil (BBA) for about MYR 1500 per month for 30 years. The prices of the two semi-detached houses are MYR 282,000 and MYR 268,000, respectively. The estimated loss of the victim residents is about MYR 400,000, including furniture, belongings, and renovation costs.

Likewise, soil settlement that occurred at Taman Permata Low-Cost Apartment, Lot 6373 Mukim of Dengkil, District of Sepang, Selangor, has resulted in wall cracks and serious building cracks. As a result, the buildings become dangerous for occupation. The problem of the project happened after the purchasers occupied the buildings. The housing project consisted of 400 units at Pekan Dengkil on Lot 420 with 7.44 acres adjacent to Lot 6373 on the southern site, which also stood on the boundary of Petronas underground pipe with a 40-meter reserve on the northern part. Putrajaya Holding Sdn Bhd developed this housing development project, and the land proprietor was Setiausaha Kerajaan Negeri Selangor.

The preventive and curative measures in facing soil erosions and settlements still seem to be inadequate. This is premised on the grounds that there are insufficient provisions of the law and inadequate enforcement on the part of the authorities that can deal with this problem. The curative and remedial measures also are not enough in that the losses and sufferings of the residents are not fully addressed. The insufficiency of the law and measures include inadequate conditions of the planning permission and approved building plans to prevent soil erosions, incomprehensive development plans, no provisions for providing updated periodic big data and data analytics by the relevant technical agencies and failure of the authority to carry out inspection, investigation and cross-check against the developers and contractors’ building works, or if there is any, the inspections and cross-check are not meaningful and inadequate. Apart from these, there is no mandatory requirement to carry out Soil Investigation (‘SI’) prior to the commencement of the building works. Similarly, there is no requirement that the developers should subscribe to any insurance coverage against this catastrophe either, should soil erosions occur after the expiry of the defect liability period.

The liability of the contractors and developers is limited up to the defect liability period depending on the contractual terms. In the case of transactions under the Housing Development (Control & Licensing) Act 1966 (Act 118), the defect liability period that the developers will be responsible for is 24 months after the delivery of the vacant possession. Beyond this period, developers shall not be liable. Indeed the current new amended Limitation Act 1953 (revised 1981)(Act 254), pursuant to its section 6A provides a better opportunity for the victim purchaser house residents to claim legal and equitable remedies against housing developers. This is because even though the limitation period and the defect liability period might have expired, the victim residents are still able to commence legal actions against the builder developers for negligence and claim damages and other legal and equitable remedies. Nonetheless, to get this benefit, there are some conditions. These conditions, if not fulfilled, will negate the victim residents getting the purported remedies. The requirements are that the victim residents must ensure that the action is within 15 years from the date of the cause of action accrued as confirmed and endorsed by the building consultant. Secondly, within this 15-year period, the victim residents must commence legal action within three (3) years from the starting date of the knowledge of the defect of the building that occurred due to soil settlements and erosions.

Nevertheless, there are certain issues that can prevent the victim residents from resorting to this legal provision if these two (2) requirements are not fulfilled. For instance, upon delivery of vacant possession, the victim residents discovered non-significant hidden and latent cracks on the floor and on the building walls or outside the house building but within his house compound.  The crack and damaged wall, floor or compound are not noticeable but remain latent and hidden for several years. However, the latent and hidden cracks are developing and getting larger every year, unnoticeable by the victim residents. However, in the 16th year, the latent defect became apparent, unequivocally obvious and conspicuously noticeable. At this point in time, the defect has caused massive damage to the building and is no longer safe for human habitation. On inspection and investigation by the building consultants, the latent defect was found to have occurred right after the delivery of the vacant possession. In this respect, the rights of the victim residents can be denied as, according to the building consultant, the defects occurred in the last 16 years, unnoticeable by the victim residents. 

Thus, certain proposals for improvement should be made to face the issues of soil erosions, which can lessen its unjust impacts and unfair consequences. These include the need to ensure the development plans (Structure and Local Plans) are updated, current and comprehensive. For this matter to succeed, inputs and information from relevant technical agencies are pertinent. Thus, the obligation to provide periodic updates on big data and data analytics of relevant soil, geographical and environmental information should be imposed on these agencies. Thus, the Development Plans can be meaningful to the local planning authority in exercising development controls such as issuing planning permission. Further, it is high time for Malaysia to establish the Department of Soil Conversation (‘DSC’) as applicable in New South Wales, Australia (NSW). The objective of DSC is to provide data, information and specialist advice as well as adequate measures and programmes to ensure that the proposed geographical locations are suitable and fit for land development. In respect of Building Law, it is pertinent that the practice in Singapore is relevant and worth following. The building law in Singapore requires detailed and rigorous verifications. It requires the building experts and consultants to carry out sufficient and meaningful cross-checks, which can ensure the quality of building works done by the developers and contractors.

Finally, it is the author’s view that the defect liability period, particularly with respect to regulated house buying, be extended to a more reasonable and just period. The author also suggests that developers should possess reasonable and suitable insurance coverage against the detrimental soil erosions that can occur after delivery of vacant possession, thus providing enhanced protection to the residents.  

Be that as it may, we cannot exclude damage caused by natural disasters or ‘force majeure, described as unforeseeable circumstances. Likewise, earthquakes, landslides and soil erosions are literally natural disasters or Acts of God where there is no remedy to reinstate the claimant, where a force majeure clause generally discharges a contracting party when supervening, sometimes supernatural events, go beyond the control of both parties – the developer and the purchaser residents, thus making the contractual performance impossible. Therefore, a plaintiff bringing a claim for damages to court, in this situation, is unlikely to succeed. Despite being ’force majeure’ or Acts of God, the author submits that certain reasonable approaches should be formulated and used to mitigate or, if possible, eliminate soil problems by considering the above suggestions.

In conclusion, it is high time for us to re-examine the existing laws, policies, and practices in providing adequate preventive and remedial measures in dealing with the issues of soil erosion in housing areas. This indirectly will help the government to achieve the objective of the National Housing Policy 2018-2025, which emphasizes the provision of sufficient, affordable, quality housing to its citizens and ensures sustainable development.

References and sources of photographs

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Taxation transfer pricing law in Malaysia: Salient legal issues

Posted on June 4, 2020 | Leave a comment

Md Dahlan, Nuarrual Hilal, Jamaluddin, Abu Tariq & Abdul Rahman, Rohana. (2020). Taxation Transfer Pricing Law In Malaysia: Salient Legal Issues. International Journal of Advanced Science and Technology, 29 (6s). pp. 1688-1703. ISSN 2005-4238.

Abstract:

Globalisation and rapid growth of international trade have made intercompany pricing a common consideration for vast majority of businesses. Transfer pricing is not in itself illegal or abusive. What is illegal or abusive is transfer mispricing, also known as transfer pricing manipulation or abusive transfer pricing. Generally, related parties are required to transact on terms which might reasonably be expected to have been made by independent parties engaged in the same or similar transaction at arm’s length. The allocation of profits among different parts of the multinational enterprise (MNE) operating in different jurisdictions is dependent on the outcome of its transfer pricing strategy. It can decide how much tax an MNE pays and to which authorities. To curb manipulation and abuse of transfer pricing, the Government of Malaysia like any other tax jurisdictions, introduced transfer pricing guidelines and law. The first guideline on transfer pricing was published in 2003 by the Inland Revenue Board of Malaysia. Consequently, in 2009, specific transfer pricing provisions were inserted into the Income Tax Act 1967 (ITA). Under the new provision, the Director-General of Inland Revenue (DGIR) is empowered to substitute the price of any transactions entered into by related persons to reflect the arm’s length price of such transaction. The objective of the research writing is to study the legal issues arising from the transfer pricing law in Malaysia. The authors find that imposition of penalty is one of the most prevalent issue resulting from transfer pricing adjustment. It is an accepted tax principle that a taxpayer is entitled to plan his affairs to pay less amount of tax as it otherwise would be. A taxpayer has always been free to mitigate his tax liability. This research writing used qualitative case study and legal research methodologies to discuss and analysis the law and the legal issues of the subject matter. For this purpose, the authors focused on two transfer pricing adjustment cases. An examination was also carried out on the notices of appeal filed by the taxpayers to the Special Commissioners of Income Tax. The ultimate goal is to minimize manipulation and abuse of transfer pricing in the related parties transaction. The research aspires to contribute towards the implementation of a comprehensive transfer pricing law in Malaysia.

Keywords: Taxation Transfer Pricing Law; Malaysia; Arm’s Length; Penalty; Legal Issues.

Full paper:

2020-taxation-transfer-pricing-law-ijastDownload

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Resolving Disputes in Abandoned Housing Projects in the UAE

Posted on April 8, 2020 | Leave a comment

8 April Housing Projects in UAE ada

Incomplete, stalled, or abandoned housing projects are not uncommon phenomena in the United Arab Emirates (UAE). The reasons leading to these problematic housing projects are many. Most are due to the financial inability of the housing developers to complete the task theT. The purchasers will be one of the aggrieved parties to the abandoned housing projects. Their losses include their failure to obtain the constructed houses that they purchased; they have to pay monthly instalments to their respective bank financiers, and they may lose all their money for the purchase of the housing units.

In the UAE, the relevant laws are capable of dealing with the above problems. These laws are as follows:

  • Decree No. 21 of 2013
  • Law No. 13 of 2008
  • Executive Council Resolution 6 of 2010, and
  • Decree No. 33 of 2020

In the 2000s, there was a property collapse in the UAE. In response, the UAE government has promulgated certain laws to deal with this problem. On July 23, 2013, through Decree 21, the government introduced a law that specifically deals with the management of litigation cases involving cancelled projects (incomplete, stalled, or abandoned projects). Under this decree, a judicial committee is also established to determine the issues relating to the failure of developers to refund payment of the aggrieved purchasers.

8 April Housing Projects in UAE RERA adaArticle 11(5) of Law Number 13 of 2008 (‘Law 13) (as amended by Law No. 9 of 2009) gives the Real Estate Regulatory Agency (‘RERA’) the power to cancel a problematic housing developer’s project. The procedure, conditions, and circumstances are laid down in Executive Council Resolution 6 of 2010.

Article 23 of the Resolution sets out nine (9) reasons according to which RERA may cancel a housing development project. The reasons are as follows:

  1. If the developer fails, without any good reason, to commence the construction works, although the developer has already obtained all the required approvals from the relevant authorities,
  2. If the developer commits any of the crimes as provided under Article 16 of Law No. 8 of 2007 concerning the escrow accounts for housing developments in the Emirate of Dubai,
  3. If RERA confirms that the developer has no serious intention to perform the project,
  4. If the plot for the intended project is withdrawn due to the breach by the sub-developer of any of its contractual obligations with the master developer,
  5. If the plot is fully affected by planning or re-planning projects undertaken by the relevant authorities in the Emirate,
  6. If the developer fails to perform the project due to gross negligence,
  7. If the developer expresses its intention not to implement the project for reasons satisfactory to RERA,
  8. If the developer declares bankruptcy,
  9. Any other reasons, as determined by RERA

Article 27 Law 13 empowers RERA to do all things that can resolve the problems arising from the cancellation of housing projects, including the failure of the developer to refund purchasers’ money.  This will also include referring the matter to ‘competent judicial authorities’.  Competent judicial authorities mean ‘Judicial Committee’ (‘JC’).  If a housing project has been cancelled by RERA under Article 23 Law 13, then RERA shall give the said housing developer 7 days to appeal against such a decision of cancellation (Article 24 Law 13).  Further, once RERA receives the appeal, RERA is given another 7 days to consider the appeal and deliver the final verdict, whether to allow the appeal or dismiss it.  If RERA dismisses the appeal, then RERA is under an obligation to appoint an auditor to study the financial position of the project.  The auditor is required also to ensures that the purchasers will get a refund of the payment they made to the develop rs. The refund must be made within 14 days after the appointment of the auditor (Article 25 Law 13).

If the developer does not have sufficient money or the available money is not sufficient, RERA will request that the directors use their funds to return all payments made by purchasers within sixty (60) days from the date of cancellation of the project, which period can be extended at the discretion of RERA (Article 26 Law 13).

8 April Housing Projects in UAE Dubai Court ada

If the developer is still unable to refund, RERA will hand the matter to the JC (Article 27 Law  3). The JC will liquidate the developer company and accumulate all assets, money, and properties of the insolvent developer companies to settle the debts of the creditors (Article 2A Decree 21; Articles 25 and 26 Council Resolution).

The JC will investigate whether the liquidation administration is viable or otherwise, for they also have to consider the other secured and unsecured creditors’ claims, such as those of contractors, suppliers, service providers, etc., not just the purchasers. There may be a situation where the purchasers may not get any money from the liquidation, nothing is left. The decision of the JC is final and not appealable (Article 5, Decree 21).

According to Articles 1, 3, and 5 of Decree 21, the constitution of the JC should consist of at least three (3) judges from the Dubai Courts. Further, these provisions emphasise the importance of proper jurisdiction and power to deal with the cases brought under the purview of the JC.

Article 2A of Decree 21 spells out the purpose of the JC. The JC aims to consider and decide such issues, demands, and claims that may arise between the housing developers and purchasers whose housing projects have been cancelled. Thus, problematic, delayed, stalled, incomplete, and abandoned housing projects will not be subjects of the JC’s determination.

To assist in the performance of the JC’s duties, Article 2B Decree 21 provides that the JC may do any of the following without limitation:

  1. To seek the assistance of experts and consultants, in particular from the Dubai Lands Department.
  2. To appoint auditors at the cost of the developer to audit the financial position of the cancelled real estate project and to verify the amounts paid to the developer by the purchasers or deposited in the escrow account of such project and the amounts spent.
  3. To issue such orders to the trustee of the escrow account of the project or the developer in any issue in connection with the liquidation of the project, including refunding the amounts deposited in the account or paid by the developer to the relevant persons.
  4. To take all the required procedures to secure the rights of the purchasers.

Article 3 of Decree 21 establishes the exclusive authority of the JC in relation to cancelled housing projects in the Emirate of Dubai. In particular:

  1. All courts in the Emirate of Dubai, including the Dubai International Financial Centre Courts (DIFC), are prohibited from hearing any matter concerning a cancelled real estate project, and any existing cases are to be referred to the JC to handle.
  2. Judgments issued before the effective date of the New Decree (Decree 21) by any court in the Emirate of Dubai, including concerningction with the liquidation of a cancelled housing development project, must be referred to the JC for consideration.

Judgments, orders, and resolutions issued by the JC shall be final and binding, not subject to appeal, and can be enforced by the Execution Section of the Dubai Courts (Article 5 Decree 21).

Decree No. (33) of 2020 establishes a new special tribunal to review and settle all disputes, grievances and complaints, settling disputes and complaints arising from unfinished, cancelled or liquidated real estate projects and unfinished real estate projects that have been cancelled pursuant to Law No. (13) of 2008. This decree No (33) dissolves the previous committee established under Decree year 2013 and forms the new special tribunal.

Thus, this new special tribunal is a second layer to settle the issues arising from the unfinished, cancelled or liquidated real estate projects.

Finally, it is worth noting that the liquidation procedures of real estate projects, together with all demands, claims, and issues handled by the JC, are exempt from court fees (Article 7 Decree 21).

Examples of housing developers whose housing projects have been cancelled by RERA are as follows:

  • Khyool Investment LLC
    Abjar Tower
    Faras 2
  • Reliance Estate Development
    Reliance 1 to 16
  • High Rise Properties LLC
    Dorna Tower
    Orchid Residences
    The Heights-Golden
    Waves Business Tower
    The Heights-Silver
    Rotating Residence
    High Rise Boulevard 1
    High Rise Boulevard 2
  • Hampstead & Mayfair Development Limited
    Hampstead Residences
  • Dujan Properties Ltd
    Eden Blue
  • Escan Tower

Eden Blue Tower UAE 1 ada

Eden Blue Tower

Eden Blue Tower is a skyscraper housing development project carried out by a housing developer known as Dujan Properties Ltd. It is located at Dubai Marina with 2  storeys. The project is adjacent to ‘Ibn Battuta Mall’, ‘The Walk JBR’, ‘Mall of the Emirates’, ‘Burj al-Arab’, and ‘Palm Umeirah’. The construction of the project commenced in 2008, but in 2009, the housing developer abandoned the project. The project is now a cancelled project which consists of 402 housing units, and 395 have been sold to the public. The price of the units ranges between AED 200,000.00 (USD 54,458.82) – and AED 7 million (USD 1,90,058.54). The majority of the purchasers have paid a substantial part of the purchase price to the developer.

The project land has been auctioned off, and the proceeds will be distributed to purchasers as a refund.

Escan Tower UAE ada

Escan Tower

Escan Tower is an AED 2 billion mixed-development, 60-storey skyscraper property project. A part of the project is for housing. 20 floors for commercial units and 40 floors for housing residences. It is located at Sheikh Zayed Road, Dubai. The housing developer was Escan Real Estate PJS. The project, if completed, would offer half a million, or 570,000 square feet, of mixed-use space. The project is adjacent to Burj Dubai.

The Escan Tower project was stalled and abandoned. The project is a cancelled project by RERA. The developer was also unable to make a refund to all purchasers. Thus, the project was transferred to the JC for liquidation, settlement, and r solution. The JC made the decision on November 19, 2018.

According to the decision, the developer had a mortgage loan of AED 219,250,000.00 from Emirates Islamic Bank in 2009 to finance the development of the project. The mortgaged land was also auctioned off on June 2, 2015, and the proceeds from the auction were used to settle the ban s’ debts. However, the JC found that there was insufficient money to refund all the purchasers’ money.

Upon determination of the dispute, the JC decided to liquidate the project (No. 846 ESCAN TOWER) and distribute the available money according to the following:

  • The amount of AED 116,181,730 for the mortgagee lender bank, Emirates Islamic Bank;
  • The amount of AED 112,294.40 for House of Lights Real Estate Management LLC;
  • The amount of AED 3,443,480.02 to the investors and purchasers listed in the list attached to the judgment and the amounts indicated by each of them

Questions

  • Whether the Islamic Home Finance (IHF) products offered by Islamic banks in the UAE protect the rights and interests of purchaser customers in the cancelled housing development projects by RERA and those that had been subjected to the JC determination
  • Whether the conventional housing loan facility products offered by conventional banks in the UAE protect the rights and interests of purchaser customers in the cancelled housing development projects by RERA and those that had been subjected to the JC determination
  • Whether the rights and interests of the victim purchasers in the unfinished, stalled and abandoned real estate projects will be guaranteed and protected by applying the above laws and procedures, particularly if the developer builders nor the directors do not have sufficient money to make refund payments, compensation and/or to rehabilitate the projects

Information and picture reference sources:

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Housing Delivery System in the United Arab Emirates (UAE) and Related Issues Arising From Housing Transactions

Posted on April 3, 2020 | Leave a comment

UAE2

There are two (2) types of housing delivery system that are applicable in the United Arab Emirates (UAE), viz:

  • ‘Full build then sell’, i.e. the housing developer will fully construct the houses before selling them to public purchasers.
  • ‘Full sell then build’ or ‘buying off-plan’, viz, where the housing developers sell the incomplete housing units to purchasers effected through sale and purchase agreement (‘S&P’), purchasers having paid certain amount of deposit, while the balance purchase price will only be paid on the duly completion of the houses and the houses’ titles are ready for due transmission into purchasers’ name.

The terms in the S&P between the housing developers and the purchasers are up to the discretion of the contracting parties. In other words, both parties are at liberty to incorporate whatever terms they wish to incorporate into the S&P to protect their respective rights and interests. Thus, getting competent and expert lawyers is vital in the UAE. This is because there is no specific government law that regulates and governs standard formatted S&P between housing developers and public purchasers. Thus, for unwary purchasers, they may become victims in the S&P.

UAE4

The dispute settlement and resolution (‘DSS’) arising from the S&P usually is dependent on the terms of the S&P. If there is an arbitration clause, then the disputant parties must settle the dispute through arbitration. If there is no specific DSS mechanism in the S&P, the parties have to resort to court.

In 2015, there was a proposal by the UAE government to provide housing legislation governing public housing development and sales. Further,  in 2019, there are two (2) new laws aimed at boosting investor confidence in the Dubai real estate sector came into force on 18 November 2019. These laws are Dubai Law No. 6 of 2019 on the joint ownership of properties (Joint Ownership Law) and Dubai Law No. 4 of 2019 on the Real Estate Regulatory Agency (RERA Law)

UAE3

In addition, the proposed law is to regulate and improve transparency in the emirate’s real estate sector, requiring brokers and developers to be licensed and introducing rules to protect purchasers of projects that are not yet completed.

According to the 2015 decree, all housing development projects must be registered with the government along with sales transactions listing the purchasers, although it did not specify when the new rules would come into force. Developments cannot be promoted or sold until they receive government approval. For unfinished or abandoned housing projects, payments by purchases will be held in a separate, ring-fenced account, while brokers will not be allowed to represent more than one party in a single transaction.

UAE1

It is evident, there are grievances. losses, sufferings, injustices and unfairness done to public purchasers in housing transactions involving housing development projects. For examples:

  • Issues of late delivery of housing units by developer or project delay.
  • Problems of cancelled housing projects.

This type of projects is projects that have been stalled and abandoned due to the inability of the developers to complete the project. The aggrieved parties may consult the Dubai Real Estate Regulatory Agency (‘RERA’) to cancel the abandoned housing projects/stalled housing projects in Dubai. The investors and purchasers will be entitled to refund of all money they paid to the defaulting developers. If the refund amount is insufficient to pay off the investors and purchasers, RERA will oblige the developers to settle from their personal funds. Should the developers fail to refund the amount to investors, RERA may take any appropriate decision against the developers. This includes bringing the matter to the Judicial Committee for liquidation purpose and protect the rights of the purchasers.

  • Problems in the enforcement of court order. Thus, in this situation, the winning aggrieved purchasers or investors only obtained paper judgment, but they are unable to enforce them due to certain problems, or there is nothing left by the insolvent developers to settle off the creditors’ debts.
  • Problems arising from abandoned housing projects or stalled housing projects. The issue of getting refund and compensation may be impossible if the developers run away or have left nothing to cover the creditors’ debts.

Resolving Disputes in Housing Transactions in the UAE

There are certain methods to resolve disputes of housing purchase in the UAE. In Dubai, UAE, the followings are the common methods used:

  • Amicable Settlement Centre (‘ASC’) at Dubai Land Department (‘DLD’)
  • DLD Legal Affairs Department (‘DLD Legal’)
  • Judicial Committee for Liquidation of stalled projects (‘JCL’)
  • Judicial Committee for bounced cheques
  • Arbitration via Dubai International Arbitration Centre (‘DIAC’) and other institutions
  • Rent Disputes Settlement Centre (‘RDSC’)
  • Dubai Property Court
  • Dubai International Financial Centre (‘DIFC’) free zone court.

The aggrieved purchasers and stakeholders are recommended not to use the court process, as this may take a long time to settle and may involve high cost. Instead, court should only be used as a last resort to resolve housing disputes. Often, non-court approaches are preferred because of their speed, costs and convenience. For example, the amicable settlement centre (ASC) at Dubai Land Department, where the appointed mediator will resolve the issues without any fee and the agreed amicable settlement will be binding over the parties.

The JCL is empowered to deal with the abandoned and cancelled projects. JCL too, will liquidate these projects and provide remedies to the victim stakeholders. Settlement through DIAC is another method to resolve housing disputes. Nevertheless, it may involve costs, and in some cases, the arbitration may refer to court for enforcement and other relevant pressing matters that the arbitration has no jurisdiction. On the other hand, Dubai Property court is also a preferred choice to resolve housing disputes. However, it has certain jurisdiction and limitation in respect of the amount of claim. Further, the method may also take some time before the court can issue any decision.

UAE5

Unlike the above-listed methods, DIFC has its courts and DIFC Law Number 9 of 2004 highlights the roles and responsibilities of DIFC Courts. As opposed to earlier, the Dubai Law number 16 of 2011 permitted the contracting parties to agree to DIFC Court jurisdiction even when there is no connection to DIFC courts. In such cases, DIFC holds exclusive jurisdiction concerning civil and commercial cases, it submitted including housing dispute claims and redresses, falling within the following matters, under the Law Number 9 of 2004, viz:

  1. Commercial or civil claim to which DIFC company is a party;
  2. Any claim arising out of any contract to be performed wholly or partially in DIFC;
  3. Any claim and actions arising out of any transaction which was performed in DIFC or any part thereof;
  4. Appeals against the laws framed by DIFC bodies;
  5. The claim which provides exclusive jurisdiction to DIFC Court under DIFC rules.

Questions:

  • Whether the Islamic Home Finance (IHF) products offered by Islamic banks in the UAE protect the rights and interests of purchaser customers in housing issues?
  • Whether the conventional Housing Loan Facility products offered by conventional banks in the UAE protect the rights and interests of purchaser customers in housing issues?
  • Whether the insolvency law in the UAE protects the rights and interests of the purchaser stakeholders in insolvency administration of the bankrupt housing developer companies?
  • Whether the corporate takeover, merger and acquisition laws protect the rights and interests of purchaser stakeholders in the corporate takeover, merger and acquisition exercises involving housing developer companies in the UAE?

Information and picture reference sources:

https://www.lexology.com/library/detail.aspx?g=c8ae91cf-5913-408f-9bb9-23bdf860d24d (accessed on 3 April 2020).

https://www.arabianbusiness.com/abu-dhabi-introduces-new-law-protect-property-buyers-595790.html(accessed on 3 April 2020).

https://www.bakermckenzie.com/en/insight/publications/2019/11/dubai-changes-regulation-jointly-owned-property(accessed on 3 April 2020).

https://www.arabianbusiness.com/abu-dhabi-introduces-new-law-protect-property-buyers-595790.html (accessed on 3 April 2020).

https://legaladviceme.com/questions/8866/uae-seeking-compensation-or-cancellation-for-delay-in-property-delivery(accessed on 3 April 2020).

https://ivypanda.com/essays/mitigation-of-delayed-projects-in-the-uae/(accessed on 3 April 2020).

https://www.mondaq.com/Real-Estate-and-Construction/707762/How-To-Solve-Property-Disputes-In-Dubai(accessed on 3 April 2020).

https://legaladviceme.com/questions/7784/uae-claiming-refund-from-cancelled-real-estate-project(accessed on 3 April 2020).

https://www.stalawfirm.com/en/blogs/view/cancelled-construction-projects-in-dubai.html(accessed on 3 April 2020).

https://www.constructionweekonline.com/article-32298-listed-166-cancelled-and-stalled-dubai-projects(accessed on 3 April 2020).

https://www.emirates247.com/news/emirates/your-property-project-cancelled-watch-out-for-developers-notices-2013-08-22-1.518302(accessed on 3 April 2020).

https://www.emirates247.com/business/economy-finance/dh30-000-in-savings-new-dubai-committee-to-settle-property-dispute-for-free-2013-09-26-1.522487(accessed on 3 April 2020).

https://legaladviceme.com/questions/429/dubai-enforcement-of-court-decision-against-developer(accessed on 3 April 2020).

https://legaladviceme.com/questions/1028/uae-legal-assistance-in-execution-of-real-estate-case(accessed on 3 April 2020).

https://legaladviceme.com/questions/7784/uae-claiming-refund-from-cancelled-real-estate-project(accessed on 3 April 2020).

https://www.stalawfirm.com/en/blogs/view/cancelled-construction-projects-in-dubai.html(accessed on 3 April 2020).

https://gulfnews.com/business/property/white-knight-investors-rescue-dubais-distressed-projects-1.62253708(accessed on 3 April 2020).

https://www.meed.com/dubai-moves-to-revamp-another-stalled-project/(accessed on 3 April 2020).

https://gulfbusiness.com/top-5-stalled-projects/(accessed on 3 April 2020).

https://www.meedmashreqindustryinsight.com/stalled-real-estate-projects-still-issue-gcc/(accessed on 3 April 2020).

 

 

 

 

 

 

 

 

 

 

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Abandoned housing luxury boutique Cronulla Apartment at 25-29 Tonkin Street, New South Wales

Posted on March 29, 2020 | Leave a comment

NSW Cronulla Apartment E

Despite there are legal framework and housing delivery system that seem to protect the rights and interests of purchasers against abandonment of housing projects, housing abandonment does still occur in New South Wales. An example of the housing project that falls under the category of abandoned housing project in New South Wales, Australia (NSW) is the luxury boutique Cronulla apartment project at 25-29 Tonkin Street on the shores of Gunnamatta Bay. The development included one to three-bedroom apartments as well as penthouses. It will also have two retail units and underground parking. The project consisted of a 28-unit project and was abandoned six months before the scheduled settlement with buyers.

NSW Cronulla Apartment A

NSW Cronulla Apartment

However, in this housing development project, there is no proof that the pending completion units have been sold to public buyers. There is also no evidence to show any losses, sufferings and grievances to buyers due to the termination of the construction works. This might be that the Administrator has addressed the rights and interests of the buyers after the project was taken over.

The reason for the abandonment was that the developer Lainson Holdings was unable to service the loan to its non-bank lender.  The non-bank lender appointed an Administrator to take over the project and subjected the borrower developer Lainson Holdings into an insolvency administration. The administrators were HLB Mann Judd’s Todd Gammel and Barry Taylor.

One of the reasons as to why the developer was unable to complete the project was that the developer found that there were inadequate purchasers. Thus, the developer was unable to ensure healthy cash inflow and outflow of the project money.

NSW Cronulla Apartment D

It is also reported that the developer Lainson had some disputes with the builder of the Cronulla apartment project. The Administrator has put the half-built project on the market for sale. Colliers International’s Matthew Meynell and Miron Solomons are handling the expressions of interest sale. It is understood only about half of the 28-apartment project has sold through local selling agent Highland Property Agents.

The dispute between the developer Lainson and their builder is reported in Duffy Kennedy Pty Ltd v Lainson Holdings Pty Ltd [2016] NSWSC 371 (Supreme Court). In this case, the plaintiff being the builder employed by the defendant developer Lainson was required to complete the construction of the defendant’s housing development project at Cronulla. This reported case concerned an application by the plaintiff builder for a summary judgment. That contract was made on or about 23 June 2015. The plaintiff builder Duffy sought a judgment for unpaid amounts of progress payments alleged to be due under Part 3, Division 1 of the Building and Construction Industry Security of Payment Act 1999 (NSW) (‘the Act’). The amounts claimed were $760,943.41, and in the alternative, $411,942.85. However, the court dismissed the application for summary judgment. The court found that the payment claims were served contrary to the requirement in section 13(7) of the Act, and the defendant should be permitted to withdraw its admission to the contrary. The dismissal of the summary judgment application was due to the failure of the plaintiff builder Duffy to abide by the tripartite agreement between the plaintiff builder Duffy, the defendant developer Lainson and National Australia Bank Ltd (NAB). The agreement stipulated that the plaintiff builder Duffy will be entitled to progress payment if they had provided with a statutory declaration in the form of a supporting statement as required under section 13(9) of the Act. In addition, the plaintiff builder Duffy’s second and third claims had not been supported with the required supporting statements.

Further, the claim pleaded was not the same with the amount of claim that was served on the defendant developer Lainson. These discrepancies in the claims’ service and the pleading were contrary to the requirement under section 13(7) of the Act. The defendant developer Lainson also defended that they were entitled to a set-off for the works that they did in favour of the plaintiff builder Duffy and this set off had not been taken into account for calculating the progress claim. Because of these two failures on part of the plaintiff builder Duffy, their application for the summary judgment was dismissed as the purported application affronted the requirement of the provision under the Act.

NSW Cronulla Apartment B

In another reported case, the developer Lainson Holdings Pty Ltd sued the defendant builder Duff – Lainson Holdings Pty Ltd v Duffy Kennedy Pth Ltd [2017] NSWC 203 (Supreme Court). In this case, the plaintiff developer Lainson sued the defendant builder Duff for 2 declaratory orders, namely:

  1. A declaration that the dispute between the [Builder] and the [Principal], as constituted by the current pleadings in the Expert Determination (the Dispute), is not a ‘dispute’ within the meaning of clause 9 of the [Side Deed]; and
  2. Alternatively, a declaration that on a proper construction of clause 9 of the [Side Deed], the parties did not intend that the Dispute be determined by Expert Determination.”

The legal proceedings was instituted by the plaintiff developer Lainson as the plaintiff was not satisfied with the appointment of an Expert Determination to settle the dispute on the issue of the inability of the plaintiff to secure adequate facility approval to finance and pay the construction costs and works done of the plaintiff’s housing development project at Cronulla pursuant to clause 9 of the side deed. However, the court dismissed the application of the plaintiff on the ground that the term in the Side Deed is clear that if there is any dispute, the dispute should be referred to an Expert Determination.

The plaintiff developer Lainson dissatisfied with the decisions of the court in the above cases again sued the defendant builder Duff on the reasons that the defendant had failed to produce a bank guarantee as security. The plaintiff issued a Notice to Show Cause under clause 39 of their main building contract. Nevertheless, the defendant failed to produce the required guarantee. The plaintiff terminated the building contract. This is reported in Lainson Holdings Pty Ltd v Duffy Kennedy Pty Ltd [2019] NSWSC 576 (Supreme Court).

However, the court dismissed the argument of the plaintiff. According to the court, clause 9 of the Deed mandated an Expert Determination to occur in accordance with specified rules before commencing arbitration or litigation. Under rule 5.1, the expert was required to determine the dispute ‘according to law’. An Expert Determination took place. The expert found that in issuing the Notices, Lainson was subject to an implied condition to act reasonably and in good faith. He found that Lainson had breached this condition and repudiated the contract. Therefore, Lainson was liable to pay Duffy $1, 837, 212 plus interest. The court established that the parties would be bound where the expert did what the contract required. They will not be so bound if the expert exceeded the contract’s limits.

NSW Cronulla Apartment C

Against this background, ‘according to law’ was to be determined objectively using the ‘reasonable person’ test. If ‘according to law’ was construed according to Lainson’s argument, the determination would be open to appeal on any question of law determined, or legal principle relied upon, by the expert. This would create a commercial inconvenience, offending established authorities. Instead, the term ‘according to law’ should be construed to require an expert to determine the dispute in a manner that gives it contractual efficacy and that the law requires of a person in such a position. The expert is to do so honestly, without bias, and while unintoxicated. The court rejected the proposition that expert determination is a ‘record’ in the legal sense (as are records of courts and tribunal, and arbitration awards). Expert Determination is no more than a contractual mechanism. While it creates binding contractual obligations, it does not involve the exercise of judicial power. As such, the determination is not susceptible to the court’s intervention to correct a mistake of law if the expert acts within the ambit of the contract.

Questions:

  • Whether the Cronulla housing development project was subject to Home Building Compensation Scheme (‘HBCS’) protection?
  • Whether the aggrieved purchasers received State Indemnity from New South Wales Government?
  • Are the aggrieved purchasers’ rights and interests protected?
  • Whether the aggrieved purchasers commenced legal actions against the defaulting developer for legal and equitable remedies?
  • What happened to the purchasers’ rights and interests when the project was sold to the third party purchaser?
  • Did the administrator protect the rights and interests of the purchasers in the abandoned housing projects?
  • Had the aggrieved purchasers received any refund and other equitable reliefs from the defaulting parties and/or from the Administrator?

Sources of information and pictures:

https://www.theleader.com.au/story/5837281/builders-quit-unfinished-cronulla-project/ (accessed on 29 March 2020)

https://www.afr.com/property/lainson-holdings-halfbuilt-apartment-project-goes-under-administration-20181221-h19dso(accessed on 29 March 2020)

https://www.abc.net.au/news/2019-03-21/apartment-development-with-receivers-sign/10922542(accessed on 29 March 2020)

https://www.abc.net.au/news/2019-03-21/construction-slowdown-a-major-threat-to-the-economy/10922412(accessed on 29 March 2020)

https://www.millsoakley.com.au/thinking/have-you-been-served-the-importance-of-serving-a-valid-payment-claim/(accessed on 29 March 2020)

http://housingbubble.blog/?p=713(accessed on 29 March 2020)

https://corrs.com.au/site-uploads/images/PDFs/Insights/article-corrs-projects-update-q3-2019.pdf(accessed on 29 March 2020)

Australian Dispute Centre. (2019). Lainson Holdings Pty Ltd v Duffy Kennedy Pty Ltd [2019] NSWSC 576. Retrieved from https://www.disputescentre.com.au/lainson-holdings-pty-ltd-v-duffy-kennedy-pty-ltd-2019-nswsc-576(accessed on 29 March 2020)/

Duffy Kennedy Pty Ltd v Lainson Holdings Pty Ltd [2016] NSWSC 371 (Supreme Court).

Lainson Holdings Pty Ltd v Duffy Kennedy Pth Ltd [2017] NSWC 203 (Supreme Court)

Lainson Holdings Pty Ltd v Duffy Kennedy Pty Ltd [2019] NSWSC 576 (Supreme Court).

 

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Housing Delivery System in New South Wales, Australia and Abandonment of Housing Development Projects

Posted on March 24, 2020 | Leave a comment

NSW Residential Project C

In New South Wales, Australia, (‘NSW’), there exist two types of housing delivery concepts. The first is ‘full build then sell’. The second type is ‘buying off-plan’. Under the first concept, the construction of the houses is duly completed by owner-builders who have owner-builder permits or developers, following the requirements of the law and then they are sold to public purchasers. Thus, under this concept, there is a guarantee that the purchaser will not be aggrieved by any possibility of abandonment. Under the second concept, ‘buying off the plan’ purchasers will need to pay the deposit of the price to the developers while the balance unpaid purchase price will be paid upon the duly completion of the houses. It means that under the concept of ‘buying off the plan’, purchasers buy from developers, the houses that are still pending completion.

‘Owner builder’ means a land proprietor whose land is erected with a residential building. While ‘developer’ means the land proprietor whose land is constructed with four or more residential building units. The joint venture partner of the land proprietor in erecting the residential building unit can also be called a ‘developer’ together with the land proprietor.

Under both concepts, the developers are required to possess Home Building Compensation Scheme (‘HBCS’). The objective of this HBCS is to cover any losses and grievances of the purchaser if the house is not completed due to the inability, death, disappearance and insolvency of the developer to complete the construction of the house. Thus, it is opined, through this method – HBCS, the problems of abandoned housing project and its consequential losses can be minimized in NSW.

NSW Residential Project A

The subject matter and period of coverage of the insurance must include loss arising from non-completion of the work for a period of not less than 12 months after the failure to commence, or cessation of, the residential building works. Other types of losses covered are–structural defect if discovered in 6 years after the completion of the work or the end of the contract relating to the work, whichever is the later. For losses other than structural defect, the insurance can cover defects within 2 years after the completion of the work or the end of the contract relating to the work, whichever is the later. (section 103B(2(b) HBA).  The contract of insurance too must contain a mandatory provision imposing obligation on the part of the insurer to pay any claim once the losses as covered by the policy occurred. For example, in the case of a construction period insurance contract—$340,000 in relation to each dwelling to which the insurance relates, or in the case of a warranty period insurance contract—$340,000 in relation to each dwelling to which the insurance relates.

NSW Residential Project F

Nonetheless, purchasers will not be covered by the insurance coverage if the damage or poor quality of the building occurred after the expiry of the coverage period and the owner-builder or developer is the one who is exempted from possessing the required insurance. Further, there is a certain limit of coverage.

NSW Residential Project B

The obligation of the developers to possess HCBS can be exempted if certain requirements of the law have been fulfilled by the owner-builder or the developer, through application to the Executive Director, Workers and Home Building Compensation Regulation Division, State Insurance Regulatory Authority, New South Wales. The exemption can be due to there are exceptional circumstances, or full compliance is impossible or would cause undue hardship (section 97 HBA; Division 6 of the HBR; State Insurance Regulatory Authority, n.d.c).

NSW Residential Project

The HBCS cover is not required for:

  • residential home building works with a contract price of less than $20,000, including GST
  • work that is excluded from the definition of ‘residential building work’.
  • Work involved in the construction of new multi-storey buildings (buildings with a rise in storeys of more than three and containing two or more separate home units, and where ‘storey’ and ‘rise in storeys’ have the same meaning as they have in the Building Code of Australia of the National Construction Code Series.
  • Certain residential building work in specified types of retirement villages.
  • Contracts to do built-in-furniture work, and any incidental electrical wiring work involved in the installation of lighting as part of built-in furniture.
  • contracts to supply components of kit homes (kit home suppliers do not require a licence or insurance to sell the components of a kit home to a homeowner, as long as the supplier will not be doing any residential building work involved in assembling the house)
  • projects with an exemption approved in writing under section 97 of the Home Building Act 1989 before work starts.
  • House building work is done by or on behalf of public sector agencies from 1 September 2018. An automatic exemption to residential building work done under a contract for public sector agencies will not apply unless the contract specifies that the person is relying on the exemption under section 103E Home Building Act 1989.

NSW Residential Project G

State Indemnity

In NSW, there is a State Indemnity to indemnify insured persons who are victims in housing projects’ works in which the insurer has become insolvent or dissolved, or there is no insurance coverage or other matters that in law the victims cannot get the required coverage (section 103I and 103O HBA).

NSW Residential Project E

Thus, the losses, sufferings and grievances of the purchasers abandoned housing projects in NSW will be covered by the HBCS or if there is none, then the NSW state indemnity will give the required equitable indemnity to the aggrieved purchasers.

The beneficiary (usually the aggrieved purchasers) who are entitled to claim for State Indemnity may claim to the Guarantee Corporation (‘GC’) to pay all the costs for completing the non-completion works and any defective works done.

NSW Minister of Fair TradeGC is a statutory body and body corporate representing the Crown and known in the corporate name as the Building Insurers’ Guarantee Corporation (‘BIGC’). BIGC is constituted under Division 3. BIGC is a fund belonging to GC. GC is managed by the Minister for Fair Trading. One of the functions of the GC is to deal with the residential work claims.

NSW Minister of Fair Trade A

The HBA, empowers the Commissioner for Fair Trading, Department of Finance, Services and Innovation (or the Secretary of the Department of Finance, Services and Innovation) to appoint a suitable person subject to his consent and the consent of the person for whom the work is being done to carry on the supervision and coordination of the uncompleted works left by the earlier developers in the interests of the public, subject to certain terms and conditions he considers fit.

Information and pictures are from the following reference sources:

Home Building Act 1989 (New South Wales).

Home Building Regulations 2014 (New South Wales).

Md Dahlan, Nuarrual Hilal and Md Desa, Rejab (2010) Rehabilitation of abandoned housing projects: A comparative analysis on laws and practices in Peninsular Malaysia, New South Wales and Australia. US-China Law Review, 7 (8). pp. 1-26. ISSN 1548-6605.

State Insurance Regulatory Authority. NSW Government. (n.d.a). Buying off the Plan. Retrieved from https://www.sira.nsw.gov.au/insurance-coverage/home-building-compensation-insurance/advice-for-homeowners/buying-from-a-developer/buying-off-the-plan. (accessed on 23 March 2020).

Fair Trading, NSW Government. (n.d.a). Becoming an owner-builder. Retrieved from https://www.fairtrading.nsw.gov.au/housing-and-property/building-and-renovating/becoming-an-owner-builder. (accessed on 23 March 2020).

Fair Trading, NSW Government. (n.d.b). Retrieved from https://www.fairtrading.nsw.gov.au/housing-and-property/building-and-renovating/preparing-to-build-and-renovate/insurance. (accessed on 23 March 2020).

State Insurance Regulatory Authority. NSW Government. (n.d.b). What is Home Building Compensation? Retrieved from https://www.sira.nsw.gov.au/insurance-coverage/home-building-compensation-insurance/do-i-need-home-building-compensation-insurance. (accessed on 23 March 2020).

State Insurance Regulatory Authority. NSW Government. (n.d.c). HBC Exemptions. Retrieved from https://www.sira.nsw.gov.au/insurance-coverage/home-building-compensation-insurance/getting-home-building-compensation-insurance/hbc-exemptions. (accessed on 23 March 2020).

State Insurance Regulatory Authority. NSW Government. (n.d.d). Buying off the Plan. Retrieved from https://www.sira.nsw.gov.au/insurance-coverage/home-building-compensation-insurance/advice-for-homeowners/buying-from-a-developer/buying-off-the-plan. (accessed on 23 March 2020).

State Insurance Regulatory Authority. NSW Government. (n.d.e). Buying from Spec Builders. Retrieved from https://www.sira.nsw.gov.au/insurance-coverage/home-building-compensation-insurance/advice-for-homeowners/buying-from-spec-builders (accessed on 23 March 2020).

State Insurance Regulatory Authority. NSW Government. (n.d.f). Owner-Builders. Retrieved from https://www.sira.nsw.gov.au/insurance-coverage/home-building-compensation-insurance/advice-for-homeowners/owner-builders (accessed on 23 March 2020).

State Insurance Regulatory Authority. NSW Government. (n.d.g). How you’re protected. Retrieved from https://www.sira.nsw.gov.au/insurance-coverage/home-building-compensation-insurance/advice-for-homeowners/how-youre-protected (accessed on 23 March 2020).

https://chl.org.au/about/where-we-work/new-south-wales/(accessed on 23 March 2020).

https://northcott.com.au/services/shared-housing/ (accessed on 23 March 2020).

https://www.apex.org.uk/accommodation/railway-court/ (accessed on 23 March 2020).

https://www.apex.org.uk/accommodation/the-house-in-the-wells/ (accessed on 23 March 2020).

https://www.apex.org.uk/accommodation/belmont-cottages/(accessed on 23 March 2020).

https://www.theleader.com.au/story/5837281/builders-quit-unfinished-cronulla-project/(accessed on 23 March 2020).

https://www.propertyobserver.com.au/forward-planning/investment-strategy/property-news-and-insights/74969-hurstville-off-the-plan-buys-at-risk-after-developer-default.html (accessed on 23 March 2020).

Building Insurers’ Guarantee Corporation. (n.d.). Annual Report, 2015-16. Retrieved from https://www.parliament.nsw.gov.au/tp/files/69864/Annual%20report%20%20BIG%20CORP.PDF (accessed on 25 March 2020).

Icare. (n.d.). HIH/FAI Rescue Package. Retrieved from https://www.icare.nsw.gov.au/builders-and-homeowners/homeowners/hih-fai-rescue-package/  (accessed on 25 March 2020).

https://en.wikipedia.org/wiki/List_of_New_South_Wales_government_agencies (accessed on 25 March 2020).

https://www.fairtrading.nsw.gov.au/ (accessed on 25 March 2020).

 

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AKTA PENCEGAHAN DAN PENGAWALAN PENYAKIT BERJANGKIT 1988 (AKTA 342) – TANGGUNGJAWAB MEMBERITAHU KEWUJUDAN PENYAKIT DAN PESAKIT BERJANGKIT

Posted on March 20, 2020 | Leave a comment

2020 NST Covid19 C

Di kala kita berdepan dengan cabaran COVID-19 disebabkan oleh virus corona, adalah baik sekiranya penulis berkongsi maklumat dan pengetahuan mengenai suatu akta yang penting iaitu Akta Pencegahan dan Pengawalan Penyakit Berjangkit 1988 (‘Akta 342’).

Tujuan Akta 342 ini adalah untuk mengawal penularan dan jangkitan penyakit serta pencegahannya oleh kerajaan dan rakyat.

Pada masa ini cabaran penyakit COVID-19 adalah amat mencabar di Malaysia.  Ini adalah kerana, bilangan pesakit sentiasa bertambah saban hari tanpa ada tanda-tanda berkurangan.

2020 NST Covid19 E

Di bawah ini, sukacita penulis ingin berkongsi pengetahuan mengenai pencegahan penyakit berjangkit menurut peruntukan Akta 342.

2020 NST Covid19

Untuk pengetahuan, COVID-19 ini tidak dinyatakan sebagai suatu penyakit berjangkit di bawah Akta 342 ini. Namun, menurut Jadual Pertama Akta 342, ia boleh dikategorikan sebagai penyakit berjangkit yang dibawa oleh microbial yang mengancam nyawa.

Penyakit-penyakit berjangkit lain yang dinyatakan dalam Jadual Pertama ini adalah:

  1. Avian Influenza
  2. Batuk Kokol
  3. Campak
  4. Chancroid
  5. Demam denggi dan demam denggi berdarah
  6. Demam kuning
  7. Difteria
  8. Disenteri (Semua jenis)
  9. Ebola
  10. Jangkitan Gonococcal (Semua jenis)
  11. Jangkitan virus Zika
  12. Leptospirosis
  13. Keracunan makanan
  14. Kusta
  15. Malaria
  16. Middle East Respiratory Syndrome Coronavirus (MERS-CoV)
  17. Penyakit tangan, kaki dan mulut (HFMD)
  18. Plague
  19. Poliomielitis (Akut)
  20. Rabies
  21. Relapsing fever
  22. Sifilis (Semua jenis)
  23. Tetanus (Semua jenis)
  24. Tifoid dan paratyphoid
  25. Tifus dan ricketsioses lain
  26. Tuberkulosis (Semua jenis)
  27. Viral ensefalitis
  28. Viral hepatitis

2020 NST Covid19 B

Penyakit COVID-19 ini boleh dianggap sebagai ‘wabak’ menurut maksud di bawah Akta 342 ini iaitu: “wabak” ertinya kemerebakan sesuatu penyakit dengan bertambahnya kes dalam sesuatu kawasan. (seksyen 2).

Adalah merupakan suatu tanggungjawab pihak-pihak tertentu iaitu orang yang menjaga rumah tumpangan (Hotel & Homestay, rumah sewaan dan sebagainya), penghuni rumah, penjaga rumah, pihak yang bersama pesakit berjangkit, bukan pengamal perubatan yang menjaga pesakit berjangkit, pengamal perubatan, polis dan ketua kampung yang menerima maklumat relevan untuk memberitahu tentang kewujudan penyakit berjangkit yang berlaku di sekitar kawasan kediamannya, mengenai orang yang dirawat dan pesakit yang dalam pengetahuannya menghidap penyakit ini, kepada pihak berkuasa paling hampir tanpa kelengahan tentang jangkitan penyakit dan pesakit itu. Pihak berkuasa ini adalah pusat kesihatan daerah, balai polis dan ketua kampung (seksyen 10)

2020 NST Covid19 A

Sekiranya mereka yang di atas gagal melaksanakan tanggungjawab, maka boleh dianggap sebagai bersalah dan boleh dihukum sekiranya terbukti bersalah di bawah Akta 342 ini. (seksyen 22). Hukuman itu adalah denda dan/atau penjara 5 tahun (seksyen 24).

Mereka juga boleh dikenakan denda kompoun tidak melebihi RM1,000 (Seksyen 25).

2020 NST Covid19 D

Rujukan dan sumber gambar:

 

 

 

 

 

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Housing Delivery System in the United Kingdom and an Abandoned Housing Project North Point Global Project (‘NPG’) – North Point Pall Mall, Liverpool

Posted on March 19, 2020 | Leave a comment

2020 UK Liverpool abandoned housing 6

There are two (2) types of residential or housing delivery concept in the United Kingdom (‘UK’). Firstly, ‘full build then sell’ concept. Under this concept, the developer will construct the housing units until duly completion and once completed, only are these units sold to purchasers.

Secondly, in the UK, there is ‘buying new homes off-plan’ or ‘selling off-plan’ concept of housing development. Under this concept, the purchasers are required to pay 10% of the purchase price, and the balance 90% shall be paid on the completion of the house. Under the ‘buying new homes off-plan’, the vendor-developers may obtain a residential insurance home warranty insurance. If in case the construction of the house is abandoned or stopped mid-stream or the developer becomes bankrupt thus terminating the development of the project, the insurance coverage may be utilised to finance the completion or the rehabilitation of the failed and abandoned units.

2020 UK Liverpool abandoned housing 5

2020 UK Liverpool abandoned housing 4

Nonetheless, there is no statutory standard sale and purchase agreement governing residential purchase in the UK. The terms and conditions in the contract of sale of house are dependent on the prudence of the vendor and purchaser or their solicitors. Thus if the vendor developer builder or the purchaser do not possess residential insurance home warranty insurance, and abandonment occurs, the purchaser will become the aggrieved party. However, pursuant to clauses 7.5.1, 7.5.2 and 7.5.3 of the Standard Conditions of Sales (Fifth Ed-2018 revision) if the seller (vendor developer builder) fails to complete the purported housing unit in accordance with a notice to complete (i.e. abandons the construction of the house), the purchaser may rescind the residential contract, and is entitled to the return of the deposit with accrued interest and that the purchaser retains his other rights and remedies against the defaulting seller (vendor developer).

There is also no specific legislation in the United Kingdom, making residential development insurance home warranties compulsory, and there are no statutory builder registration procedures.

2020 UK Liverpool abandoned housing 3

However, in the UK, there is a non-statutory ‘Buildmark’ residential development insurance scheme run by the National House and Building Council (‘NHBC’), being a private association. This insurance covers major defects and against the insolvency of the builder, i.e. when the residential projects fail, this insurance can cover the cost of rehabilitation. The developer builder should possess NHBC buildmark cover.

Other than NHBC, the other warranty bodies, which provide similar protection, are Premier Guarantee, Local Authority Building Control Warranty and Checkmate which provide home warranty. These warranty bodies represent over 95% of the new homes built in the UK. Other than these bodies there are other warranty bodies, for example, the Federation of Master Builders (FMB) and BLP. It is a requirement for mortgage lenders, banks and building societies that the builder and developer must possess home warranty insurance, for otherwise, they will not provide loan mortgage to purchasers.

Another reason as to why housing development insurance is required for all new houses is that it is a standard requirement of the lending institutions in the UK that new residential properties are protected by insurance. Without such protection, the property will become un-mortgageable, and its future marketability adversely affected.

As in the ordinary circumstances, purchasers need to get loan facility from financial institutions to purchase houses and then, in turn, the houses would be mortgaged to the financial institutions as security. It follows that the houses need to be insured to be saleable and mortgageable. Thus, to avoid any possibility of un-saleable houses, it becomes indispensable that the builders/developers need to possess housing development insurance for the houses, be it duly completed or pending completion houses.

2020 UK Liverpool abandoned housing 2

2020 UK Liverpool abandoned housing 1

Thus, it is opined that the problems of abandoned housing projects in the UK can be prevented if the builders and developers possess home warranty insurance. Nonetheless, if the builders and developers do not own the coverage, the rights and interests of the purchasers will be affected if abandonment occurs. This can be seen in the abandoned North Point Global Project (‘NPG’) – North Point Mall, Liverpool, an off-plan housing project. It was launched in 2014 but abandoned since 2016. The Pall Mall site consists of a 2.6-acre site with planning permission for a 4 to 18 storey mixed-use development scheme. Some construction works have already been undertaken in relation to the demolition of the old buildings and the erection of a concrete frame building. The site had been promoted by NPG as a £90m, 366-apartment scheme, and was designed by Blok Architecture.

2020 UK Liverpool abandoned housing 7

This housing development involved apartment units sold to Chinese businesspeople in Liverpool, England, with residential units built alongside leisure units, a luxury spa and Chinese retail space, comprising a  200 million pound sterling scheme. The project was terminated and abandoned as the residential contractor faced insolvency issues and subjected to an administration. The developer builder North Point Global too became embroiled in a legal dispute over payments with the Liverpool City Council, who owns the land. Later, it was reported that North Point Global has been subject to a receivership.

2020 UK Liverpool abandoned housing 8

Until now, the project is still abandoned, and the developer builder is trying hard to refund all payment made to purchasers. As of today, the project is still stalled and that the stalled building is being demolished by Elliot Group who announced that the company had bought the North Point site for an “undisclosed sum” and said it wanted to create a “mixed-use scheme with a range of residential and employment uses”. In January 2020, the Serious Fraud Office announced it had opened a criminal investigation into a suspected fraud concerning three property developments, including the North Point scheme on Pall Mall and the New Chinatown development.

Questions as regards the abandoned North Point Global Project (‘NPG’) – North Point Mall, Liverpool:

  • Whether the aggrieved purchasers have initiated legal actions against the defaulting vendor developer builder?
  • If so, whether they can succeed to obtain legal and equitable remedies? For example, claim for compensation and damages and other equitable remedies.
  • What are the approaches taken by the authority to protect the interests and rights of the aggrieved purchasers?

The sources of information and pictures are from the followings:

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