ENCORP ISKANDAR DEVELOPMENT SDN BHD v XXXX

Case Significance

Illustrates the interpretation of a developer's interest-bearing (DIBS) obligation using the contra proferentem rule and a business-common-sense reading, holding that the obligation runs until vacant possession is properly delivered and is distinct from liquidated ascertained damages for late delivery.

This Court of Appeal decision concerns the interpretation of a Developer's Interest Bearing Scheme, or DIBS, in agreements between a housing developer and a group of purchasers. Under such a scheme the developer undertakes to bear the interest accruing on the purchasers' end-financing during the construction of the properties. The central question was the meaning of the 'construction period' for which the developer had agreed to bear interest: whether it was limited to the forty-eight-month contract period fixed in the agreements, or whether it extended until the developer actually delivered vacant possession, including where delivery was delayed beyond that period. The developer contended for the shorter, fixed period; the purchasers argued that the obligation continued until vacant possession was in fact delivered. The Court of Appeal approached the drafting through the contra proferentem rule and a business-common-sense reading, supported by contemporaneous documentary evidence, the end-financing agreements and the subsequent conduct of the parties, and it distinguished the developer's DIBS obligation from its separate liability for liquidated ascertained damages for late delivery, which serve a different purpose. It held that the trial judge had not been plainly wrong in finding that the developer was contractually required to bear progressive interest under the DIBS scheme up until the proper delivery of vacant possession, beyond the forty-eight-month contract period where there had been delay. The court reasoned that a scheme designed to shield purchasers from financing costs during construction would make little commercial sense if the developer could bring its interest-bearing obligation to an end merely by allowing the contract period to expire without handing over the completed units. Finding no merit in the appeal, the court dismissed it, affirmed the decision allowing the purchasers' claim, and ordered the developer to pay global costs of RM25,000. The judgment is a useful illustration of the interpretation of a developer's interest-bearing obligation and of the distinction between that obligation and liquidated ascertained damages.