Is It Possible For Condo Management To Sue A Developer For Defects In A Condominium?

Is it possible for condominium management to sue a developer for defects in a condominium? This issue was recently dealt with in Dua Residency Management Corporation v Edisi Utama Sdn Bhd & Anor.

Brief facts of the case

Edisi Utama developed a portion of the land owned by them into a condominium. One of the purchasers (who was subsequently appointed as an advisor to the joint management committee of the condominium (which includes Edisi Utama)) decided to engage the services of an independent body to inspect his unit and also the common properties in the condominium. It was discovered (upon inspection) that there was a water leakage (coming from the swimming pool) at the car park area and there were also crack lines on the car park floor (caused by, as alleged, the structural integrity of the swimming pool).

At this juncture, certain events happened which lead to the dispute between the parties. There are (briefly):

1. The joint management body (which includes the purchaser) voiced their concerns about the leakage and the crack lines to Edisi Utama. The JMB requested that an independent contractor be appointed to inspect the issues.
2. Edisi Utama disagreed. Instead, they appointed their consultant architects and engineers (from the condominium project) to conduct the inspection. Once that was done, Edisi Utama carried out the necessary rectification works to address the issues observed by the parties involved. 
3. However, the problem persists, even after Edisi Utama’s inspection and done rectification work to it (twice).
4. The JMB decided to appoint an independent body to inspect the issue. In the course of the inspection, they found multiple defects in the common property (the swimming pool included).
5. When the Management Corporation was established (after the strata titles were issued), the Management Corporation asked for certain documents from Edisi Utama (structural drawings and waterproofing warranty) in order to aid the inspection of the independent body. This was duly ignored by Edisi Utama.
6. More hoo-has ensued. Along the way, Edisi Utama claimed that the common property of the Condominium was in “good habitable condition” at the time the management and maintenance of the Condominium were handed over to the Management Corporation, while the Management Corporation claimed otherwise.
7. Since no resolution can be reached between the parties, the Management Corporation decided to hire independent bodies to repair the defects and claim from Edisi Utama. Edisi Utama however, refused to pay, and only offered a nominal sum to the Management Corporation as a full and final settlement to their dispute.
8. Aggrieved, the Management Corporation decided to sue Edisi Utama.

Parties’ Contention

The Management Corporation (amongst others) contended that Edisi Utama is negligent because Edisi Utama owed a duty of care to properly and adequately design, develop and construct the condominium but had failed to do so which caused loss and damage to the Management Corporation.

Edisi Utama contended otherwise, noting that (amongst others) there is no Malaysian case authority in point to date on the duty of care owed by the developer to the management corporation on defects discovered in the building. Essentially, as a management corporation compromises the purchasers, it is the purchasers who should have sued and not the management corporation. 

*ps: we will discuss the topic of “duty of care” in a separate article.

The court’s decision and rationale

The court sided with the Management Corporation on this issue. In coming to its decision, the court has this to say:

“The critical consideration is that the First Defendant (Edisi Utama) has been in continuous participation in the maintenance and management of the Condominium although not alone solely. It is also plain that the Condominium developed by the First Defendant is fraught with defects that are the subject matter of the complaint by Plaintiff (Management Corporation) here and therefore not purely a case of financial-economic loss. In the circumstances, I hold there is on the special facts herein sufficient proximity and hence it is just and reasonable to find a duty of care owed by the First Defendant to the Plaintiff to ensure that the Condominium has been properly constructed with good workmanship in accordance with the agreed specification and approved plans in the SPA…In so finding, I am mindful that there is a possibly contractual remedy available by the individual purchasers of the Condominium against the First Defendant but that is an impractical remedy that will require all of them to sue. Plaintiff is, practically speaking, representing these purchasers because the management and maintenance of the Condominium are directly under its care and responsibility of the Plaintiff as conferred by statute…”

Essentially, the management committee can actually sue a developer for loss suffered due to the developer’s poor workmanship.

And there you have it. However, it must be noted that: 

1. The decision of this case is of factual dependant i.e. the court sided with the Management Corporation solely on the facts itself; and
2. This case was determined in High Court- parties might/ might not appeal. We will update you in the future if there is an appeal.