One of the towers at the Maritime, Karpal Singh Drive, which was used by MWS as a hotel. (Facebook pic)

PETALING JAYA: Local councils have no right to arbitrarily withdraw temporary operating permits from hotels, the Federal Court decided today when it ruled in favour of a hotel operator who had sued the Penang Island City Council (MBPP).

The council had revoked its temporary operating permit six months before it expired in 2016.

The landmark decision effectively means that local councils in the country have no absolute power or unfettered discretion to make decisions and can be subject to judicial scrutiny.

In an unanimous decision, a three-member bench chaired by Nallini Pathmanathan upheld an earlier High Court and Appeals Court ruling where MBPP was found to have acted illegally by withdrawing the temporary permit given to hotel operator Maritime Waterfront Suites Sdn Bhd (MWS) and its owner Noorzaina Mat Zain.

The High Court in Penang and Appeals Court had earlier found MBPP’s decision to terminate the temporary permit “illegal, irrational, unreasonable, and disproportionate”.

The apex court today also ordered the High Court in Penang to assess damages and compensation to be paid by MBPP to MWS as a result of the council’s decision to revoke the permit.

Nallini, who sat with Vernon Ong Lam Kiat and Zaleha Yusof via a Zoom meeting today, also awarded costs of RM80,000 to MWS.

MWS used to operate a hotel at Karpal Singh Drive in Jelutong. They had obtained a temporary operating permit for a year starting Nov 1, 2015, with an expiry date of Oct 31, 2016.

The hotel had applied for the temporary permit as the Penang government then had begun a moratorium programme for unlicensed hotels, so as to legalise them. The applicants would then have to apply for relevant permissions from the local council in the state in the meantime.

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Jelutong Development Sdn Bhd (JDSB), which owns the land and building where the hotel operates, had applied to MBPP to have the building rezoned from “commercial-offices” to “commercial-hotel”, so as to qualify MWS to operate a hotel there legally.

MBPP declined the conversion request by JDSB and at the same time, decided to revoke the permit earlier granted to MWS on April 22, 2016.

The hotel operators then sued MBPP, seeking compensation and asking for the permit to be reinstated.

The High Court ruled in the hotel’s favour on Sept 26, 2017, rejecting MBPP’s argument that it had “absolute powers” to revoke and terminate any business operators’ permit any time without any reason.

In making his ruling, Justice Azmi Abdullah cited late Chief Justice Raja Azlan Shah in a 1979 judgment in the Pengarah Tanah dan Galian Wilayah Persekutuan v Sri Lempah Enterprise Sdn Bhd case, where Raja Azlan warned that “every legal power must have legal limits, otherwise there is dictatorship”.

MBPP then filed an appeal but the Appeals Court later upheld the earlier decision. The appellate court, however, did not allow the High Court’s order for damages to be assessed as a result of the permit being revoked.

In her judgment on July 31, 2018, appeals judge Mary Lim found that MBPP’s decision to terminate the temporary permit to MWS was “clearly unfair, unreasonable and irrational”, saying the council’s powers were wrongly exercised.

MWS was represented by Ong Yu Shin and Marcia Geraldine Lopez, while MBPP was represented by Karin Lim, Murgan Maniam and Kiran Raj.

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