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Interrelationship of Law and Society – The rule of Rylands v Fletcher
As humankind progressed from a nomadic hunter-gatherer existence to an agrarian society, and subsequently, toward an industrialised civilisation, a common feature emerged. We found ourselves living in increasingly close proximity. This led to the concept of “urbanisation”.
With increased human proximity, any actions gone awry have a higher risk of affecting our neighbours adversely. Common examples include dust, noise pollution, fallen trees, or fires-spreading whereas incidents which are less typical may be the escape of water or chemical substances causing floods or pollution.
When something does happen and it affects others, then these inconveniences may be actionable on a case-to-case basis under negligence, nuisance, rule of Rylands v Fletcher, or a combination of any of the above.
One of the main distinguishing factors under the Rylands v Fletcher rule is the requirement for an accumulation of dangerous substance which constitutes an unusual use of land. Once this has been established and there has been foreseeable damage due to the escape of the substance, the liability attributed to the defendant is of a strict nature, i.e., the absence of fault or blame worthiness is immaterial.
Strict or selective liability?
The justification for strict liability was elaborated in the case of inception ̶ he who for his own purposes brings unto his lands and keeps there anything likely to do mischief must keep it at his peril. In Rylands v Fletcher, the defendants had employed independent contractors to construct a reservoir on their land. While digging on the lands, the contractors found disused mines that they failed to seal properly. As a result, water flooded through the mineshafts into the plaintiff’s mines on the adjoining property.
As the activities of storage and accumulation of substances caught under the rule of Rylands v Fletcher by themselves are already potentially risky, it is only fair and right that such activities conducted intentionally and deliberately comes with a high price. This is reflected through the assignment of strict liability.
The rule’s reasoning is easily relatable due to empathy towards the innocent victims. However, it is increasingly difficult for the rule to remain operative given the developments in judicial stance and concern that the rule is overly harsh towards defendants who may be similarly blameless.
Firstly, the creation of several defences and exceptions by the judiciary effectively restricts and restrains the applicability of the rule to a certain extent.
Secondly, the adjudication in Cambridge Water Co Ltd v Eastern Counties Leather plc provides that the foreseeability of the type of damage is a prerequisite to liability. This appears to be an attempt to attribute a certain extent of culpability to the rule.
Thirdly, ever since the occurrence of industrial and scientific evolution, lands have been increasingly used for industrial processes. Gone are the days where land was used primarily for agricultural activities and human habitation. Advances in science and technology not only reduced instances of land used for natural purposes, but also mitigated previous reservations on using land for artificial or non-natural purposes.
There is no exception to the rule that every rule has an exception. - James Thurber
Types of Defences
Default of the plaintiff
If the damage is caused by the plaintiff’s own action or wrongdoing, he will not be compensated. In Ponting v Noakes, the plaintiff's horse died after nibbling on some poisonous vegetation near the defendant's boundary. The English court held that the defendant was not liable for the horse’s own intrusion and action. Where the plaintiff is contributorily negligent, however, section 12 of the Civil Law Act 1956 will apply.
Consent of the plaintiff
In Malaysia, where the plaintiff had agreed to the non-natural use of land, he has no right of action unless he is able to prove negligence. This was seen in the case of Sheikh Amin bin Salleh v Chop Hup Seng, which is in line with the English case of Kennard v Cory Bros & Co Ltd.
Implied consent may also be raised if a tenant of the premise, allows the condition of adjoining premises to become such that the likelihood of an escape under the Rylands v Fletcher rule is probable, as decided in the English authority of Kiddle v City Business Properties Ltd.
It is important to note that implied consent cannot be presumed just because the occupied land is situated near or adjacent to a premise where dangerous substances are accumulated on a daily/ordinary basis. Similarly, occupation of a land in proximity to inherently dangerous and unsafe state of affairs or installations does not equate to implied consent.
All of the above are not contradictory as the defence is only available within the context of a tenant-landlord relationship rather than just neighbours or tenants who are renting from the same landlord, as ruled in the case of Humphries v Cousins. Parties who are neighbours are not deemed to have consented to inherently dangerous activities just by way of proximity.
Where the source of the danger is maintained for the common benefit of the plaintiff and the defendant, the rule under Rylands v Fletcher will not be established. This is by analogy similar to the defence of consent.
In the English cases of Carstairs v Taylor and Dunne v North Western Gas Board, the defendants were found to be not liable, subject of course, to the defendants’ non-negligence.
However, commentators no longer regard this as a defence. It is submitted that perhaps common benefit ought to be considered only as a factor in determining whether the plaintiff has consented to the risk of damage. This would eliminate common benefit as an independent defence and include it as an element of consent.
Act of third party
The defendant is not liable where the escape of accumulated substance is due to an unforeseen act of a third party, provided that there is no negligence on the part of the defendant. In the English Court of Appeal case of Perry v Kendricks Transport Ltd, the court held that the basis of the defence is the absence of any control by the defendant over the acts of a stranger on his land.
Notwithstanding that, a cause of action would succeed if the plaintiff could show that the act that caused the escape was one that the owner could have contemplated and taken reasonable precautions against. In Hale v Jenning Brothers, the proprietor of a chair-o-plane was held liable for the escape of a chair caused by a passenger’s tampering that resulted in the plaintiff suffering severe injuries, whereas in North Western Utilities Ltd v London Guarantee & Accident Co Ltd, the construction of a storm sewer beneath the defendant's underground gas pressure main caused it to crack and destroyed the hotel by fire.
However, academicians have argued that the legal doctrine upon which the cases ought to have been decided is mistaken as such cases involve common negligence and should not be classified as Rylands v Fletcher cases. The reasoning is that the Rylands v Fletcher rule is a strict liability tort and therefore any negligence – as in breach of duty of care – on the part of the defendant is irrelevant in determining liability. It should not matter that the defendant could or could not have reasonably foreseen the act of the stranger.
Act of God
An act of God refers to circumstances that are beyond anyone’s control which cannot be foreseen or guarded against. This defence will apply for natural disasters that is not within the foresight of the defendant. Examples includes extraordinary rainfall, high wind and high tide tsunami, lightning, earthquakes, cloud burst and tornadoes.
Nonetheless, in situations where such natural disaster can be foreseen, the defence will not apply. In Kwan Sun Ming v Chak Chee Hing, it was held that in a towage contract, a storm must be expected and would have to be guarded against. For a storm at sea to be regarded as an act of God, it would have to be a storm that could not have been reasonably foreseen.
It can be deduced that the objection against the defence for an act of a third party would similarly apply here since both are events with randomised probability beyond control. The Rylands v Fletcher rule is a strict liability tort and therefore it should not matter that the defendant could or could not have reasonably foreseen the act of God.
Sometimes statutes, like section 95 of the Street, Drainage and Building Act 1974, affords state authorities or officers with immunity and exempts them from liability. Whether they are exempted or not, and to what extent, is a question of statutory interpretation. For instance, sections 5, 6 and 7 of the Government Proceedings Act 1956 relating to proceedings by and against the Federal Government and the Governments of the States have been relied upon to establish legal actions against officers and vicariously, the government.
We must not look at a past incident with the spectacles from the future. - Lord Denning
Foreseeability of damage
The general tenor of Justice Blackburn's statement of principle Cambridge Water Co Ltd v Eastern Counties Leather plc is that knowledge, or at least foreseeability of the risk, is a prerequisite of the recovery of damages under the principle.
What is unclear is whether it is only the kind of damage that needs to be foreseeable or that the escape must be foreseeable too. Lord Goff, in holding that the seepage of the chemical through the factory floor into the earth and subsequently into the water was unforeseeable, seemed to suggest that the escape too, need be foreseeable.
In Malaysia, there is yet to be any case which relates specifically to the question regarding which element does foreseeability pertain to – the type of damage or the possibility of escape, but cases often quote the English judgment in verbatim, i.e. “it could not possibly have foreseen that damage of the type now complained of might be caused.”.
In Projek Lebuh Raya Utara-Selatan Sdn Bhd v Kim Seng Enterprise (Kedah) Sdn Bhd, the Court of Appeal stated that liability arose only if the defendant knew or ought reasonably to have foreseen that those things might, if they escaped, cause damage.
Many academicians have also submitted that if the escape must also be foreseeable, the notion that the rule in Rylands v Fletcher connotes with it a strict liability would no longer hold true. There will no longer be any element that is independent from the establishment of blameworthiness. The accumulation of dangerous substance which constitutes an unusual use of land, the foreseeability of type of damage and the foreseeability of escape will all be associated with fault. In Ellison v Ministry of Defence, it was suggested that it is only the type of damage and not the escape that must be foreseeable.
What would be a nuisance in Belgrave square would not necessarily be so in Bermondsey. – Lord Justice Thesiger
Non-natural use of land
The judiciary has managed to keep up with the times when it comes to the development of the rule in Rylands v Fletcher. The case of Rainham Chemical Works v Belvedere Fish Guano ruled that the use of land to build a factory for the manufacture of explosives was a non-natural use in 1920, but later in the 1940s, the House of Lords refused to consider itself bound by the same finding in light of the industrial activities during war time.
Whether the use of the land is non-natural is a question of fact – factors such as time, location and ordinary activities of mankind must be taken into consideration. Since storage of ammunitions is not a non-natural use of the land during wartime, the legal regime will not provide protection. Plaintiffs will have to resort to the tort of negligence, which is a separate cause of action with its own technicalities.
In British Celanese Ltd v AH Hunt (Capacitors) Ltd, the court refused to adjudge the manufacturing and storage of electrical and electronic components on a factory situated in an industrial area planned and laid out for the purpose of accommodating manufacturers in the year 1964 to be a special use of land.
In Mason v Levy Auto Parts of England, the utilisation of land for the storage of spare parts for vehicles and other combustible materials was held by the judge to be non-natural because of three factors, one of it being the character of the neighbourhood.
However, Lord Goff said in Cambridge Water Co Ltd v Eastern Counties Leather plc that “the storage of substantial quantities of chemicals on industrial premises should be regarded as an almost classic case of non-natural use”. Malaysian academicians have expressed their reservations towards the statement and opine the decision to have been delivered by way of per incuriam.
This was arguably settled in Transco plc v Stockport Metropolitan Borough Council where Lord Bingham made it clear that the rule will only apply to extraordinary and unusual use. In line with majority of the cases mentioned above, it appears that locality is in fact a significant factor to be taken into consideration, similar to the quote under nuisance that “what would be a nuisance in Belgrave Square would not be so in Bermondsey”.
Taking into consideration the Malaysian landscape, locality, custom and usual practice, the fact that city planning is mostly conducted based on functionality in most parts of the country (i.e., segregated into residential, business, and industrial areas), this would pose considerable challenge for plaintiffs as they need to establish that the use of land must be non-natural.
The study of interrelationships explores the connections between people and system. In the context of law and society, this perspective examines how urbanization has prompted the establishment of and reforms to legal frameworks to address disruptions among neighbours in land-related matters. It emphasizes the evolving dynamics between people and the legal system in response to societal changes.
In the attempt to keep up with times, the rule in Rylands v Fletcher has been expanded gradually over the years through the evolving judicial stance and interpretation as well as introduction of defences. Unfortunately, this has led to various differing views and dissents among the judiciary.
The attribution of the element of fault increasingly blurred the lines between negligence claims and Rylands v Fletcher actions, thereby causing greater confusion and uncertainty in relation to the continued relevancy and applicability of the latter in this age and time. This phenomenon is reflected in the limited number of case authorities in this respect compared to other causes of action in Malaysia.
Some academicians have suggested for the rule to apply to instances of ultra-hazardous activities or extraordinary use of land to avoid the rule from becoming obsolete. It would be interesting to witness the fate of the rule in Rylands v Fletcher within the Malaysian landscape from hereon – whether it would fall into disuse and lead a quiet death or be revived and transformed by the judiciary to adapt with the times.
If you have any questions or require any additional information, please contact Jeyakuhan Jeyasingam or the partner you usually deal with at Zaid Ibrahim & Co (in association with KPMG Law). This article was prepared with the assistance of Viviana Goh Wen Li, a Trainee Associate in Zaid Ibrahim & Co (in association with KPMG Law).
This article is for general information only and is not a substitute for legal advice.
 John Rylands and Jehu Horrocks v Thomas Fletcher (1868) LR 330 (HL).
 Norchaya Talib, Torts in Malaysia (Sweet&Maxwell, 2021) p 442.
 Cambridge Water Co Ltd v Eastern Counties Leather plc  2 AC 264.
 Ponting v Noakes  2 QB 281.
 Sheikh Amin bin Salleh v Chop Hup Seng  2 MLJ 125.
 Kennard v Cory Bros & Co Ltd  AC 521.
 Kiddle v City Business Properties Ltd  2 All ER 216.
 Thomas v Lewis  1 All ER 137.
 Prosser & Sons Ltd v Levy  3 All ER 577.
 Humphries v Cousins (1877) 2 CPD 239.
 Carstairs v Taylor  LR 6 Ex 217.
 Dunne v North Western Gas Board  QB 806.
 Donal Nolan and James Goudkamp, Winfield and Jolowicz on Tort (20th edn, Sweet & Maxwell, 2020) at 16-019 and 16-027. Common benefit is not included as a defence in Christian Witting, Street on Torts (15thedn, OUP, 2018).
 Perry v Kendricks Transport Ltd  1 WLR 85.
 Hale v Jenning Brothers  1 All ER 579.
 North Western Utilities Ltd v London Guarantee & Accident Co Ltd  AC 108.
 Christian Witting, Street on Torts (15th edn, OUP, 2018) pp 466 and 467.
 Supra note 3 at p 442.
 Dr Syed Ahmad S A Alsagoff, The Law of Torts in Malaysia (LexisNexis, 2017) p 423.
 Kwan Sun Ming v Chak Chee Hing  1 MLJ 236 at 237.
 Supra note 4.
 Supra note 3 p 438.
 Projek Lebuh Raya Utara-Selatan Sdn Bhd v Kim Seng Enterprise (Kedah) Sdn Bhd  5 MLJ 360 at .
 Supranote 3 at pp 438 and 439.
 Ellison v Ministry of Defence (1996) 81 BLR 101.
 Rainham Chemical Works v Belvedere Fish Guano  2 AC 465.
 Read v J Lyons & Co Ltd  AC 156.
 Ibid at 176.
 British Celanese v Hunt  1 WLR at 963.
 Mason v Levy Auto Parts of England  2 QB 530.
 Supra note 4.
 Supra note 20 at p 420.
 Transco plc v Stockport Metropolitan Borough Council  2 AC 1.
 Sturges v Bridgman (1879) 11 ChD 852.
Interrelationship of Law and Society – The rule of Rylands v Fletcher
In our previous article, we discussed the initiatives implemented by the Government to ease the process of discharge of bankrupts. This included the conditions and procedures for discharging bankrupts with small-scale debts, as well as proposed amendments to the Insolvency Act 1967aimed at enhancing the provisions for discharge of bankrupt and the administration of a bankrupt’s estate.
The recent enactment of the Insolvency (Amendment) Act 2023 has now come into effect, implementing the proposed amendments.
Below, we summarize the key amendments to Malaysian insolvency law.
Additional categories of bankrupt individuals eligible for discharge
Prior to the amendment, the discharge of a bankrupt under section 33A was at the discretion of the Director General of Insolvency (DGI), with a minimum waiting period of five years from the bankruptcy order and subject to section 33B, which allowed creditors to object to the discharge. However, the recent amendment expands section 33B(2A) of the Insolvency Act to include two additional categories where creditors are not permitted to object to the discharge, namely:
- a bankrupt who is incapable of managing himself and his affairs due to any mental disorder, as certified by a psychiatrist from any government hospital;
- a bankrupt aged seventy years and above and in the opinion of the DGI, is incapable of contributing to the administration of his estate.
Streamlined discharge process & enhanced powers for the DGI
The Amendment Act revises section 33C governing the automatic discharge of bankrupts. Previously, a bankrupt will be automatically discharged after three years if they fulfilled specific criteria, such as reaching the targeted contribution towards their provable debt and complying with obligations related to rendering an account of money and property.
Post-amendment, the financial capability of the bankrupt is taken into consideration, and the conditions for automatic discharge under section 33C are eased. The requirement to achieve the targeted contribution towards the provable debt is replaced with the obligation to pay a sum determined by the DGI for estate administration purposes, provided that the bankrupt has fulfilled his or her obligations under the Act.
In this regard, the Amendment Act introduces the suspension of automatic discharge for up to two years if the bankrupt fails to fulfil his or her obligations. The DGI is granted the power to suspend automatic discharge for a maximum of two years if the debtor does not meet his or her obligations. Additionally, the DGI may request further information regarding the debtor's income, expected income, and properties. The suspension, as per the newly inserted section 33C(1)(b), takes effect when the DGI serves a notice to creditors who filed a proof of debt within six months before the original three-year mark.
Furthermore, in line with the ‘second chance policy’, the amendments to sections 33C and 33B(2A) are applied retrospectively to cover individuals who had been declared bankrupt before the passing of this Amendment Act.
Adoption of remote communication technology and electronic communications
To align with the judiciary's transition to remote hearings, and in line with the insertion of section 15A of Court of Judicature Act 1964, the Act has been amended to accommodate remote communication technology in the administration of bankruptcy in Malaysia.
Communication pertaining to insolvency matters, including service of notices under the amended section 130 of the Insolvency Act, 1967, may now be carried out by electronic means, where consent has been obtained to do so.
It is also pertinent to note that, prior to the amendment, the Act only allowed the DGI to hold a meeting at such a place which the DGI considers to be convenient for the majority of the creditors. Now, meetings of creditors under amended Schedule A of the Insolvency Act may be conducted through remote communication technology, among others, video link, video conferences, or any other electronic means of communication.
Dispensation of the mandatory requirement of holding the first meeting of creditors
Previously, section 15 of the Act made it mandatory for the first meeting of creditors to be held as soon as may be after a bankruptcy order is made. The meeting is confined to consider proposals for the composition or arrangement and the mode of dealing with the bankrupt’s property.
Post-amendment, the mandatory nature of the first meeting of creditors has been replaced with a discretionary power of the DGI. Nonetheless, the purpose of the section is maintained with the additional scope of any other purpose as prescribed by the Minister. The Amendment Act also replaced all references to the “first meeting of creditors” in the Insolvency Act 1967 with “meeting of creditors”.
Thus, pursuant to the Amendment Act, a meeting of creditors is no longer mandatory and will only take place upon request or when deemed necessary.
In addition to the above, the Amendment Act also introduces changes related to summary administration in cases where the debt is small. To provide greater flexibility in bankruptcy administration, certain monetary amounts specified in the Insolvency Act 1967 have been replaced with amounts to be prescribed by the Minister. This allows for adjustments based on prevailing economic conditions and circumstances without the need for legislative amendments.
The newly enacted amendments establish a more effective and inclusive bankruptcy administration system, aligning with the government's commitment to help bankrupt individuals secure a fresh financial start. While many are still grappling with their prior financial missteps, the enforcement of these amendments brings some relief. It is hoped that the government’s initiative to fostering bankruptcy administration will ultimately contribute to the nation’s economic development.
If you have any questions or require any additional information, please contact Khoo Kay Ping, Chuah Jo-Shua, or the Zaid Ibrahim & Co (in association with KPMG Law) partner you usually deal with. This article was prepared with the assistance of Chong Siau Fong, a Senior Associate at Zaid Ibrahim & Co (in association with KPMG Law).
This alert is for general information only and is not a substitute for legal advice.
Update to Insolvency Laws: Simplifying Bankruptcy Procedures
With the passing of a property owner, a grant of representation is required in order to deal with the property. If the property owner is a foreigner and a grant of representation has been obtained in their country of domicile, a letter of representation would first need to be recognised by the Malaysian courts before it can be enforced. This process is known as resealing letters of representation. This article will delve into the process of resealing letters of representation in Malaysia.
The resealing process in Malaysia
The law relating to resealing grant of representation can be found in Part IV of the Probate and Administration Act 1959. Section 52 allows the Malaysian High Courts to reseal both the grant of probate and the letter of administration granted by the court of probate of any Commonwealth country. This means that if the deceased’s family has already obtained a letter of representation in the country of domicile and wishes to deal with the deceased’s assets in Malaysia, they merely need to reseal the representation letter. They do not need to go through the process of applying for a grant of probate or administration in Malaysia, provided that they have already obtained a grant in a Commonwealth country.
It is important to note that in a resealing application the power of the Malaysian courts to reseal a letter of representation is discretionary. The High Court may not allow such application if it appears that the deceased was not, at the time of his death, domiciled within the jurisdiction of the court from which the grant is issued. In determining whether such seal should be affixed on a grant of probate or letter of administration, the court may require any evidence it thinks fit to determine the domicile of the deceased person.
In an application to reseal a letter of representation, while it may be common for convenience’s sake to sign a power of attorney to allow the appointed solicitors to deal with the necessary procedures, the petition for the resealing application must be filed in the executor’s name notwithstanding the existence of any power of attorney. The solicitors appointed may affirm the affidavit verifying the petition on behalf of the executor, but the petitioner must still be the executor.
In relation to the rights and obligations of the executor, the representative will only acquire the rights and obligations of a lawful executor or administrator on the date when the foreign grant of representation is resealed by the court, not from the date of the original grant. This is important to determine when the representative shall have the right to institute a suit on behalf of the estate of the deceased.
Another matter to note is that where a grant of letter of administration is concerned, similar to a fresh application for letter of administration, a security by way of bond for the administration of the estates must be placed with the courts before the court could affix the seal on such letter of administration.
Letter of representation from non-Commonwealth countries
It is also prudent to note that the Malaysian law does not recognise letters of representation obtained from a non-Commonwealth country. While there are no laws explicitly stating this, it can be inferred from the Probate and Administration Act 1959 which states that the Malaysian High Court will recognise letters of representation made in Commonwealth countries and therefore will reseal them.
It is more of a general principle as the rationale behind this is due to the reciprocal arrangement with other Commonwealth countries to recognise and enforce their grants of probates. This can also be seen in the UK by way of the Colonial Probates Act Application Order 1965 which lists all Commonwealth countries that are allowed to reseal their grants of probates in the UK.
In order to administer the deceased’s properties in Malaysia, the representative must apply for a fresh grant of probate or letter of administration in Malaysia. This application is more time consuming than resealing the letter of representation. However, in such a situation where the letter of representation was obtained in a non-Commonwealth country, a fresh grant or letter of representation will be the only option.
Without a valid grant of probate or letter of administration, it would be legally impossible to deal with any of the deceased’s assets in Malaysia. All relevant authorities require a letter of representation recognized by the Malaysian Court in order to allow a purported representative to deal with the property.
It can be said when resealing letters of representation, there are two processes to follow depending on where the grant of probate and letter of administration were granted. If it were granted by probate courts in Commonwealth countries, then under the Probate and Administration Act 1959, the High Courts have the discretion to reseal the grant of probate and letter of administration. For non-Commonwealth countries, a fresh grant of probate or letter of administration in Malaysia would be needed in order to deal with the deceased’s assets in Malaysia.
If you have any questions or require any additional information, please contact Jeyakuhan Jeyasingam or the partner you usually deal with at Zaid Ibrahim & Co (in association with KPMG Law). This article was prepared with the assistance of Nurul Izzah Isa, a Trainee Associate in Zaid Ibrahim & Co.
This article is for general information only and is not a substitute for legal advice.
 Section 52(a) Probate and Administration Act 1959.
 Section 52(b) Probate and Administration Act 1959.
 Re Azhar Azizan Harun (As the Absolute Representative of Eleanor Dulcie Robinson) (1998) 7 MLJ 89.
 Chung Kok Yeang v Public Prosecutor (1941) 1 MLJ 163.
 Issar Singh Son of Bhola Singh & Anor v Samund Singh Son of Mayiah (1941) 1 MLJ 28.
 Section 35 Probate and Administration Act 1959.
 Section 52 Probate and Administration Act 1959.
 Schedule 1 Colonial Probates Act Application Order 1965
 Application to reseal a letter of representation takes approximately 2-3 months, while an application for a fresh grant would take an estimated period of 4-6 months.
Resealing Letters of Representation in Malaysia
In recent years, the Malaysian government has taken various initiatives to revamp insolvency laws with the goal of assisting the public to cope with financial difficulties arising from the Covid-19 pandemic.
With the amendment to the Insolvency Act in 2020, the bankruptcy threshold in Malaysia is currently set at RM100,000, which was raised from the original RM50,000. This was the second increase of the bankruptcy threshold within the span of a few years, with the previous increase from RM30,000 to RM50,000 in 2017.
As it stands today, a creditor may not file for bankruptcy action against a debtor if the amount of the debt is less than RM100,000.
Automatic and faster discharge of bankruptcy?
Bankruptcy is a serious matter and has grave implications on the bankrupt individual. A discharge, in essence, is a reset button, releasing the bankrupt from his debts to allow him to start afresh.
During the Budget 2023 Presentation, Prime Minister Datuk Seri Anwar Ibrahim announced that the government is looking to further revamp the Insolvency Act 1967 to ensure that individuals who are bankrupt could be discharged more quickly.
Among the immediate initiatives to be implemented would be individuals, whose bankruptcy cases are of a debt of less than RM50,000 (small-scale debt), could be discharged by the Director General of Insolvency’s Certificate with effect from 1 March 2023.
The Guidelines, issued by the Malaysian Department of Insolvency, for the discharge of bankruptcy with small-scale debts are summarised in the table below:
For more detailed information, please refer to the Malaysia Department of Insolvency.
The proposed amendments to the Insolvency Act 1967, which is expected to be tabled in the next parliamentary sitting in May-June 2023, if passed, would further ease the process of discharge of bankrupts. Among the amendments proposed are:
- the setting of time limits for the filing of Proof of Debt Forms by Creditors (section 42 and Schedule C of Insolvency Act 1967) to avoid the issue of late filing which could make it difficult to discharge bankrupt individuals;
- to make improvements to the automatic discharge provisions under section 33C of Insolvency Act 1967 so that bankrupt individuals can be discharged from bankruptcy in a shorter period or automatically;
- to make improvements to section 42 and Schedule C of Insolvency Act 1967 by abolishing the obligation to hold the first meeting of creditors so that the bankruptcy administration can continue immediately; and
- to add category of cases that can be discharged using the Director General of Insolvency’s Certificate, for example, bankrupt individuals aged 70 and above, for bankrupt individuals who are incapacitated because they have been diagnosed as mentally ill under the Mental Health Act 2001.
If you have any questions or require any additional information, please contact Khoo Kay Ping, Chuah Jo-Shua, Chong Siau Fong, or the Zaid Ibrahim & Co (in association with KPMG Law) partner you usually deal with.
This alert is for general information only and is not a substitute for legal advice.
Revamp of bankruptcy laws in Malaysia
In general, a homebuyer who wishes to file a claim with the Homebuyer Claims Tribunal (“the Tribunal”) can only do so if the award sought does not exceed RM50,000. This is prescribed by section 16M of the Housing Development (Control and Licensing) Act 1966 (“HDA 1966”). Further, section 16Q provides that the claim in the same matter cannot be split for the purpose of meeting the monetary threshold to fall under the jurisdiction of the HDA 1966 and the Tribunal.
In the case of Remeggious Krishnan v SKS Southern Sdn Bhd  4 CLJ 36, the Federal Court held that the Tribunal is allowed to hear split claims in respect of the same property. The monetary limit of RM50,000 applies for each claim and not a combination of the split claims.
In this case, the purchaser bought an apartment unit (“Property”) in a residential project developed by SKS Southern Sdn Bhd. Under the sale and purchase agreement (“SPA”) entered into by both parties, the developer agreed to deliver vacant possession of the Property to the purchaser when the water and electricity supplies are ready for connection to the unit. However, the Property was delivered with no electricity connection to the Property.
The purchaser filed two separate claims with the Tribunal against the developer:
- a non-technical claim, grounded on the breach of manner of delivery of the Property with the claim amounting to RM49,832; and
- a technical claim, grounded on the failure of the respondent to provide adequate ceiling height and protruding beams and pillars with the claim amounting to RM40,000.
The Tribunal only heard the non-technical claim and awarded a sum of RM16,452.05 and costs of RM400 in favour of the purchaser (“award”) for the delay in connection of electricity.
Aggrieved with the award, the developer applied for leave to apply for a judicial review against the Tribunal and the purchaser. In the application for judicial review, the developer sought to declare the impugned decision as invalid, null and void and of no effect and that an order of certiorari be issued to quash the award.
The High Court held that the split claims were for different matters and dismissed the application. The developer appealed to the Court of Appeal, which held that there is no prohibition against filing split claims, provided that the total amount is within the jurisdiction of the Tribunal. Dissatisfied, the purchaser obtained leave to file an appeal with the Federal Court.
Questions of law
Two issues on questions of law were raised:
- in view of sections 16Q and 16M of the had 1966, whether there was a jurisdiction for the Tribunal to hear two separate claims in respect of the same subject property, where the total amount of dispute of these two claims exceeded the monetary jurisdiction of RM50,000; and
- whether the developer could be exempted to pay damages to the purchaser when the developer was in breach of the manner of delivery of vacant possession of the property as prescribed in Schedule H of the HDA 1966 so long as the developer was still within the time frame to deliver vacant possession of the property.
Decision by the Federal Court
Question 1: Held in the affirmative.
- The purchaser may file split claims in respect of different and distinct matters. The words “same matter” in section 16Q of the HDA 1966 could only mean the same issue or type of claim and not the same property. There were two different matters in the present case i.e., one was for technical matter and the other was for non-technical matter. As such, section 16Q of the HDA 1966 was inoperative.
- The monetary jurisdiction of the Tribunal of RM50,000 in section 16M of the HDA 1966 only applies to “a claim” and not “all the claims”. Thus, as long as each of the purchaser’s claims in respect of different and distinct matters did not exceed the monetary jurisdiction of the Tribunal, the purchaser was not in violation of section 16M of the HDA 1966.
Question 2: Held in the negative.
- The time frame for delivery of vacant possession was separate from the manner of delivery of vacant possession.
- The purchaser was entitled to claim compensatory damages for breach of clause 27 of the SPA which provides “ready for connection”. This means that the electrical points should be fully functional and supply is available for tapping into the property. The developer breached the manner of the delivery of vacant possession of the property since there was no electrical supply ready for connection at the time.
The Federal Court was of the view that the HDA was enacted as a piece of social legislation to protect house buyers. With that in mind, any term or provision in the statute must be interpreted in a way which ensures maximum protection for the house buyers against the developer. It was therefore imperative that section 16M and section 16Q of the HDA 1966 be interpreted in such a way as to provide protection of house buyers in keeping with the intention of Parliament.
The objective is to protect the aggrieved purchasers of their rights to resort to the Tribunal, which provides for an easier, cheaper and quicker avenue for aggrieved purchasers to claim damages or compensation from the housing developers.
Based on this latest Federal Court’s decision especially with regards to the monetary jurisdiction, it is clear that a house buyer can now lodge with the Homebuyer Claims Tribunal separate claims for different matters in respect of the same property, as long as each claim does not exceed the Tribunal’s jurisdiction of RM50,000.
If you have any questions or require any additional information, please contact Chuah Jo-Shua or the partner you usually deal with at Zaid Ibrahim & Co (in association with KPMG Law). This article was prepared with the assistance of Desmond Tang Soon Ze, a Trainee Associate at Zaid Ibrahim & Co (in association with KPMG Law).
This article is for general information only and is not a substitute for legal advice.
Federal Court clarifies monetary jurisdiction of the Homebuyer Claims Tribunal
Short-Term Accommodation (“STA”) or Short-Term Rental Accommodation (“STRA”) has become a popular option amongst tourists, offering affordably priced accommodation coupled with different choices of lodging. The benefits are also felt by the community, bringing about economic opportunities to the area.
Yet, STA is not without its downside. Public nuisance issues have arisen from the influx of tourists causing noise pollution, traffic congestion and other manners of disturbance. Residents of stratified buildings (i.e., apartments and condominiums) have also raised concerns regarding the adequacy of the safety and protection of their homes. They believe that their safety has been compromised by unregistered guests, giving rise to increased risk of break-ins, theft, drug abuse, sex crimes, illegal gambling, money laundering, vandalism as well as increased risk of COVID-19 transmission amongst the tenants.
To address these problems, the Penang State Government intends to issue guidelines to regulate STA through by-laws set down by the Joint Management Bodies (“JMB”) and Management Corporations (“MC”) of each of the stratified buildings (“Proposed Guidelines”).
Under the Proposed Guidelines, STA will be regulated in the following manner:
- owners or operators of stratified premises/units will be required to register with the local authorities after obtaining approval from the JMB/MC through a special resolution which is supported by no less than ¾ valid votes which are counted at the AGM or EGM or any special meetings under section 70(2) of the Strata Management Act 2013 (“SMA”);
- the maximum annual rental period is 30 days (except for service apartments). The operational days for every rental transaction are limited to three days. Any additional days requires approval from the relevant JMB/MC. This would mean that each rental transaction can only be for a period of three days subject to further approval from JMB/MC, but any such period shall be subject to the maximum annual cap of 30 days;
- body temperature scanning and MySejahtera verification is mandatory;
- the number of tenants in one premise/unit is controlled according to the size of the particular premise – a maximum of two people are allowed for each room; and
- the owner or operator of the premises/units is required to produce annual statements and a STA operation report to the JMB/MC. The JMB/MC will then submit the reports to the Commissioner of Buildings (COB) with the Yearly Meeting Report.
Current interpretation of section 70(2) Strata Management Act 2013 – are the Proposed Guidelines in line with it?
Pursuant to section 70(2) of the SMA, MC may, by special resolution, make additional by-laws to regulate the control, management, administration, use and enjoyment of the subdivided building or land and the common property, which includes for safety and security measures.
Furthermore, the ability of MC to create by-laws restricting the engagement in short-term rentals have been clarified by the Federal Court in Innab Salil & Ors v Verve Suites Mont’ Kiara Management Corporation  12 MLJ 16 (“Innab”). In Innab, the Federal Court held that management bodies may pass additional by-laws to restrict the use of parcels for short-term rentals. The Federal Court suggested that the defendants intended their premises to be utilised like a hotel or lodging facility, which amounted to the grant of a license instead of a tenancy.
Section 70(5) of the SMA states that no additional by-law shall be capable of operating:
- to prohibit or restrict the transfer, lease or charge of, or any other dealing with any parcel of a subdivided building or land; and
- to destroy or modify any easement expressly or impliedly created by or under the Strata Titles Act 1985 (“1985 Act”).
While “dealing” is not a defined term under the SMA, section 3 of the SMA provides that the SMA 2013 will need to be read with the 1985 Act as long as the provisions are not inconsistent. Within the 1985 Act, section 5 provides that it shall be read and construed as part of the National Land Code (“NLC”). Naturally, moving to section 5 of the NLC, dealing is defined as “any transaction with respect to alienated land effected under the powers conferred by Division IV, and any like transaction effected under the provisions of any previous land law, but does not include any caveat or prohibitory order”. Section 213 of the NLC (which is contained in Division IV), states that a “tenancy exempt from registration” is a dealing. In this case, the defendants argued that their transactions were “dealings” as short-term rental constitutes “tenancies exempt from registration” under section 213 of the NLC, and therefore the house rule prohibiting the use of parcels for short-term rentals was ultra vires. On this issue, the court held that when there is no proof of exclusive possession on the part of short-term renters and there is no evidence to suggest that occupancy of the renters is intended to be a tenancy, the said arrangements are nothing more than mere licenses and do not amount in law to ‘dealings’ within the ambit of section 70(5) of the SMA.
Guidelines passed by the JMB/MC will be considered as additional by-laws under section 70(2) of the SMA. The ratified by-laws will regulate the administration of the property on matters stated in section 70(2) of the SMA, to the extent that it is not inconsistent with the prescribed regulations under section 150 of the SMA (namely the Strata Management (Maintenance and Management) Regulations 2015) (“Strata Management Regulations”). They will be treated as additional conditions for purposes of regulation. The Strata Management Regulations covers the duties and powers of the JMB/MC, including regulations on matters such as inter-floor leakages, damage to party walls and requirements for the first annual general meeting held by the JMB/MC. Any by-laws passed under section 70(2) of the SMA must not be inconsistent with these regulations to be effective.
Premised on the above, the Proposed Guidelines are in line with the current interpretation of section 70(2) of the SMA.
Do the Proposed Guidelines have any force of law?
It should however be noted that without anything further, the Proposed Guidelines do not have any force of law. The issuance of the Proposed Guidelines alone is insufficient for the Penang State Government to compel MC to pass them.
The method and basis under which the Penang State Government intends to bring the Proposed Guidelines currently remains unclear. It therefore remains to be seen whether the Proposed Guidelines will have any legal force.
A considerable possibility of implementing the Proposed Guidelines would be through the implementation of a license requirement by the Penang State Government. Pursuant to section 102 of the Local Government Act 1976 (“LGA”), every local authority may from time to time make, amend and revoke by-laws for matters that are necessary or desirable for the maintenance of the health, safety and well-being of the inhabitants or for the good order and government of the local authority area and in particular for purposes specified under the section. Notably, under section 102(s) of the LGA, local authorities are allowed to make by-laws to control and supervise, by registration, licensing or otherwise, including in proper cases by prohibition, a trade, business or industry which is of an obnoxious nature or which could be a source of nuisance to the public or a class of the public.
As an illustration, the city council of Kuala Lumpur – Dewan Bandaraya Kuala Lumpur (Kuala Lumpur City Hall, “DBKL”), under its authority under section 102(s) of the LGA, implemented the Licensing of Trades, Businesses and Industries (Federal Territory of Kuala Lumpur) By-Laws 2016 (“2016 By-Laws”), which brought into effect the requirement of a business premises license. Pursuant to paragraph 3 of the 2016 By-Laws, any person who utilises a premise to carry out a business activity, as defined in the Schedule to the 2016 By-Laws, is required to obtain a business premise license from DBKL. Failure to comply attracts a fine not exceeding RM2,000 or imprisonment for a term not exceeding one year or both. If the offence continues, a fine not exceeding RM200 for each day during which the offence is continued after conviction.
As the operation of STA may be considered as an industry of its own, it is possible for the Penang State Government to pass a by-law requiring STA operators to register with the Penang State Government to operate as STA. The requirements for license registration could mirror the Proposed Guidelines, thereby bringing the Proposed Guidelines into effect.
Parallels to New South Wales STRA Code
In Australia, the New South Wales (“NSW”) government, in particular the NSW Fair Trading Department of Customer Service, has implemented the Code of Conduct for the Short-term Rental Accommodation Industry (“Code”). The Code lays down the rights and obligations of STRA industry participants and facilitates the oversight of the STRA industry as a whole.
The Code implements the requirement of a premises register, whereby premises used as STA must be registered on a premises register. Notably, hosts are required to take reasonable steps to ensure that guests comply with their obligations in the Code, which include not to:
- create noise that because of its level, nature, character, or quality, or the time it is made, is likely to harm, offend, or unreasonably disrupt or interfere with the peace and comfort of neighbours and other occupants of the premises;
- act in a violent or threatening manner towards neighbours or other occupants of the premises;
- act in a manner that could reasonably be expected to cause alarm or distress to neighbours and other occupants of the premises;
- use or enjoy the premises in a manner, or for a purpose, which interferes unreasonably with the use or enjoyment of common property by neighbours and other occupants of the premises;
- intentionally, recklessly or negligently cause damage to premises, any common property or any other communal facilities within the immediate vicinity of the premises, or any public property in the vicinity of the premises; or
- intentionally, recklessly or negligently damage the personal property of neighbours of the premises or other occupants of a strata or community scheme.
Guests are also responsible for the actions of visitors that they invite onto the premises during the occupancy period. They must ensure that visitors to the premises comply with the same obligations as if they were guests on the premises.
A notable difference between the Code and the Proposed Guidelines is that in addition to the hosts, obligations are placed on booking platforms and letting agents as well. The Code represents a comprehensive guideline that regulates the STRA industry in NSW. We believe that the Code may serve as a suitable reference point for the Proposed Guidelines moving forward.
Treatment from stakeholders
Hotels, represented by the Malaysia Budget and Business Hotel Association (MyBHA), have refuted Airbnb’s claim that the Proposed Guidelines may affect Malaysia’s tourism industry and Penang’s economic growth. They have stated that they “do not agree [with] and refute the claim as … an accommodation through STRA is a business that does not have laws or regulations to regulate the business, and an unlicensed business is an illegal business”. Based on public news sources, the hotel industry generally welcomes the Proposed Guidelines, stating that it will directly help to restore the hotel and tourism industry in Penang.
Airbnb has urged the Penang State Government to reconsider the Proposed Guidelines, noting that the Proposed Guidelines will affect the recovery of the tourism industry as well as the Penang economy. The Malaysian Association of Homestay (Short-Term Rental) Practitioners has also joined the call, urging the Penang State Government to reconsider the Proposed Guidelines in high-rise buildings. They have pointed out that this would make it harder for owners who rely on STA to pay off their housing loans.
The Proposed Guidelines introduced by the Penang State Government will significantly alter the STA industry as it will change the landscape of the STA industry in Penang. Penang stratified homeowners may expect an improvement in the quality of living through the increased protection offered by the Proposed Guidelines.
In contrast, the effect of the Proposed Guidelines on STA platforms such as Airbnb, Agoda Homes, and Booking.com remains to be seen. In complying with the Proposed Guidelines, these STA platforms would need to adapt, through creative methods, to remain relevant in the tourist accommodation industry.
We believe that the introduction of the guidelines will improve competition in the hotel industry. STA homeowners and platforms will now be required to innovate to remain competitive with hotels.
If you have any questions or require any additional information, please contact Jeyakuhan S K Jeyasingam or the Zaid Ibrahim & Co. partner you usually deal with. This article was prepared with the assistance of Tee Kai Yan, a Trainee Associate in Zaid Ibrahim & Co.
This article is for general information only and is not a substitute for legal advice
 Article 17 of the Guidelines.
 Article 18 of the Guidelines.
 Article 19 of the Guidelines.
 Article 19 of the Guidelines.
 Article 20 of the Guidelines.
 https://www.theedgemarkets.com/article/malaysian-hoteliers-refute-airbnbs-claim-shortterm-rental-accommodation accessed 29 September 2022
 https://www.theedgemarkets.com/article/airbnb-urges-penang-govt-reconsider-draft-proposal-shortterm-rental-accommodation accessed 29 September 2022
 https://www.penangpropertytalk.com/2022/09/high-rise-owners-urge-penang-govt-to-review-homestay-restrictions/ accessed 29 September 2022