In the case of Dua Residency Management Corporation v Edisi Utama Sdn Bhd and E&O Customer Services Sdn Bhd, an action was brought by Dua Residency Management Corporation, the management corporation of Dua Residency Condominium (“DRMC”) for the following:

  1. That Edisi Utama Sdn Bhd (“Edisi”) as developer of Dua Residency failed to adequately design and construct certain common areas in Dua Residency;
  2. That E&O Customer Services Sdn Bhd (“E&O CS”) as property manager of Dua Residency failed to adequately maintain and manage the common areas in Dua Residency.

DRMC based its causes of action against Edisi on the following:-

  1. Breach of contract;
  2. Breach of statutory duties; and
  3. Breach of duty of care.

DRMC's cause of action against E&O CS was based on a breach of duty of care.

The gist of DRMC's case against Edisi and E&O CS was with regard to alleged defects which resulted in water seepage from the following areas:-

  1. The construction movement joints (“CMJs”);
  2. The Swimming Pool; and
  3. The Open Deck surrounding the Swimming Pool (“Open Deck”).

The case against E&O CS

DRMC relied on the Scottish case of Martin Hines & Anor v King Strurge LLP [2010] CSIH 86 where a property manager was sued in negligence by tenants for failing to regularly check and maintain a fire alarm system. DRMC further attempted to rely on the Valuers, Appraisers and Estate Agents Act 1981 (“VAEAA”) and the fact that E&O CS should have been registered under the same and the Property Management Standards issued by the Board of Valuers, Appraisers and Estate Agents (“the Board”) to allege that the statutory duties prescribed in the Property Management Standards justified an imposition of a common law duty of care.

It was argued on behalf of E&O CS that the VAEAA did not apply to E&O CS and that it did not confer a private cause of action to a management corporation. It was also argued that the Property Management Standards did not have any force in law and thereby was not binding on E&O CS. Furthermore, E&O CS at all times acted on instructions of DRMC and its predecessor, the joint management body, and thus did not have sole control over the common property of Dua Residency.

The High Court found that although no formal agreement was executed between DRMC and E&O CS, there was an implied contract between the parties. Thus, as there was an alternative contractual remedy, the existence of the duty of care is negated on policy consideration. Notwithstanding this, the High Court also agreed with the arguments of the counsel for E&O CS in that E&O CS was not an independent and autonomous body that could unilaterally make decisions as regards the maintenance and repair of the common property in Dua Residency and thus this negates the existence of a duty of care on policy consideration. The High Court also held that the VAEAA does not confer a private law cause of action on DRMC.

The case against Edisi

Breach of contract

DRMC relied on the clauses in the Sale and Purchase Agreements (“SPAs”) executed between Edisi and the owners of the units in Dua Residency and the three-fold implied terms principle which was accepted in the Malaysia case The Khem On & Anor v Yeoh & Wu Development Sdn Bhd & Ors [1995] 2 MLJ 663 in order to launch it's cause of action under a breach of contract. DRMC alleged that the defects in the CMJs, Swimming Pool and Open Deck amounted to breaches of the terms in the SPAs and the three-fold implied terms principle.

Counsel for Edisi argued that the there was plainly no contract between Edisi and DRMC and that DRMC could not take the benefit of the SPAs as it was not privy to the same. Reliance was placed on the Singapore Court of Appeal case of RSP Architects Planners & Engineers v Ocean Front Pte Ltd and another appeal [1995] 3 SLR(R) 653 (“the Ocean Front case”) which expressly stated that a management corporation does not have a cause of action in contract as against the developer as the sale and purchase agreements for a development are intended to govern the relations only between the developer and purchasers and clearly a developer did not intend to extend the benefit of the provisions in the agreements to others down the line.

The High Court agreed with the Ocean Front case and held that a management corporation cannot sue a developer based on sale and purchase agreements.

Breach of statutory duties

DRMC contended that Edisi had breached its statutory duties owed to DRMC pursuant to the Uniform Building By-Laws 1984 (“UBBL”) which imposed a uniform minimum standard of design and construction. In doing so, counsel for DRMC relied on the case of X (Minors) v Bedfordshire County Council [1995] 2 AC 633 (HL) to establish that the UBBL conferred a private law cause of action to proprietors and residents in a building as against a developer.

Counsel for Edisi relied on the case of KL Eco City Sdn Bhd v Tuck Sin Engineering & Construction Sdn Bhd & Anor [2020] MLJU 435  and submitted that the UBBL, which was enacted under the Street, Drainage and Building Act (“SDBA”), was enacted to primarily govern the relationship between local authorities and qualified persons. A developer is not defined as a qualified person under the SDBA. Thus, the UBBL cannot confer a private law cause of action to DRMC against a Edisi. This view was also expressly stated in the case of KL Eco City (supra).

The High Court agreed with the views stated in KL Eco City and further stated that responsibility for any failure to comply with provisions under the UBBL would lie with the qualified persons defined under SDBA and therefore could not arbitrarily interpreted to impose a statutory duty upon the developer which was not within the contemplation of the legislation.

Breach of duty of care

DRMC alleged that Edisi owed a duty of care to DRMC to properly and adequately design, develop and construct Dua Residency but that Edisi had breached the said duty thereby causing DRMC to suffer loss and damage.

There has been no case in Malaysia whereby a management corporation has successfully brought an action under negligence against a developer. Thus, DRMC relied on the Ocean Front Case wherein the Singapore Court of Appeal had allowed a claim for negligence by a management corporation against a developer. In summary, the Singapore Court of Appeal based it's decision on the following:-

  1. That the developer is the party who conceived and developed the entire condominium;
  2. The developers had undertaken with the purchasers to construct in a good and workmanlike manner, among other things, the common property;
  3. The developer was the original owner and first proprietor of the property and upon incorporation, the developer formed the management corporation. Thus, the management corporation was the developer's alter ego;
  4. Once the management corporation was constituted, it took over from the developer the control, management and administration of the common property;
  5. The management corporation in turn had its own statutory obligations which are very much dependent on the developers having exercised reasonable care and applied good workmanship in the construction of the common property;
  6. Thus, there existed a very close proximity in the relationship between the developers and the management corporation.
  7. It was therefore clearly foreseeable by the developers that if in the construction of the common property, they failed to exercise reasonable care and skill, the burden of making good any defects arising from their failure would inevitably redound on their successor, being the management corporation.
  8. In considering the policy consideration, the amount recoverable which is the cost of repair cannot be said to be indeterminate. The class of persons involved is finite and definable thus imposing such a liability did not result ‘in an indeterminate amount for an indeterminate time to an indeterminate class'.

Counsel for DRMC applied the above points to the facts of this case and submitted that accordingly, Edisi owed a duty of care to DRMC. Counsel for Edisi contended that reliance should not be placed on the Ocean Front case for the following reasons:-

  1. The Ocean Front case was decided against the backdrop of the Singapore Building Maintenance and Strata Management Act which is dissimilar to the Strata Titles Act 1985 and Building and Common Property (Maintenance and Management) Act 2007 in Malaysia. In Singapore, the management corporation is a direct successor of the developer whereas in Malaysia, the joint management body (which consist of the developer and the purchasers) is the successor of the developer until the incorporation of the management corporation. Thus, DRMC cannot be said to be a lone and direct successor of Edisi;
  2. In the subsequent Singapore Court of Appeal Case of Man B&W Diesel SE Asia Pte Ltd and another v PT Bumi International Tankers and another appeal [2004] SGCA 8 (“the PT Bumi case”), the Singapore Court of Appeal had cautioned that the Ocean Front case is confined to the peculiar facts of the case. The PT Bumi case was adopted by the Malaysian Federal Court in The Co-operative Central Bank Ltd v KGV & Associates Sdn Bhd [2008] 2 MLJ 233.

The High Court Judge was of the view that there is no reason not to adopt the analysis and conclusions of the Ocean Front case herein. He held that although the applicable statutes in Singapore and Malaysia are not identical, they are closely similar and the differences did not really matter. The High Court Judge further held that the critical consideration is that Edisi had been in continuous participation in the maintenance and management of Dua Residency although not alone solely. Thus, the High Court decided that on the special facts of this case there is sufficient proximity and hence it is just and reasonable to find a duty of care owed by  Edisi to DRMC to ensure that Dua Residency has been constructed with good workmanship in accordance with agreed specification and approved plans in the SPA.

The learned High Court Judge also noted that although there may be a possible contractual remedy by the individual purchasers of Dua Residency against Edisi, it would be an impractical remedy to require all of them to sue. DRMC therefore is representing the purchasers as the management and maintenance of the common property is directly under the care and responsibility of DRMC as conferred by statute. Furthermore, it was also noted that as held in the Ocean Front case, contractual obligations did not preclude the existence of a developer's liability in tort under the ordinary law of negligence to their purchasers and other parties not privy to the sale and purchase agreements.

In conclusion, by virtue of the High Court's decision above, it may now be open to management corporations to bring an action for breach of duty of care against a developer for the developer's failure to adequately and properly construct a development in a good and workmanlike manner. Thus, developers have to be aware of this possible liability and ensure that both the design and construction of the buildings are up to standard and supported by sufficient documentation to prove the same.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.