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2013 MarsdenLR 340
HIGH COURT MALAYA JOHOR BAHRU
PERBADANAN PENGURUSAN SRI KENARI – Appellant
Versus
KIP DEVELOPMENT SDN BHD – Respondent
[Civil Suit No: 22-293-2010]
The court affirmed that the use of the Sinking Fund by the developer for maintenance and management was justified based on contractual agreements, and the claims by the management corporation were unproven and thus dismissed.
Headnote:(A) Strata Titles Act 1985 - Sections related to management corporations and Sinking Fund - Plaintiff claims for the amount in Sinking Fund and unlawful deductions by Defendant for management fees. (Paras 1.1, 2.1, 4.1)
(B) Legal Obligations - The Plaintiff, as management corporation, claimed RM501,861.00 from Defendant, who argued the funds were utilized for maintenance and management purposes as per the Deed of Mutual Covenants. (Paras 2.1, 4.1)
(C) Interpretation of Contracts - The court clarified the provisions of the Sale and Purchase Agreement and the Deed of Mutual Covenants, emphasizing holistic interpretation preventing the Plaintiff from selectively interpreting financial statements. (Paras 4.1, 4.2)
Facts of the case:
The Plaintiff managed Sri Kenari Apartments and sought claims for funds held in the Sinking Fund as well as refunds of management fees deducted by the Defendant, who disputed the claims stating the funds were used for the benefit of the residents as justified by the Deed of Mutual Covenants.
Findings of Court:
The Defendant was entitled to utilize the Sinking Fund for maintenance owing to the Sri Kenari Apartments' ongoing deficit. The claims were denied as the Plaintiff failed to substantiate them on a balance of probabilities.
Issues: Whether sums in the Sinking Fund reflected available funds for transfer to the Plaintiff and whether the Defendant could lawfully charge management fees while utilizing the Sinking Fund.
Ratio Decidendi: The court concluded that the Defendant's usage of the Sinking Fund was permitted under the Deed of Mutual Covenants and highlighted that contractual obligations must not be rewritten nor terms implicitly modified unless explicitly stipulated.
Result: Plaintiff's claims dismissed with costs.
[1] Brief Facts
1.1 The Plaintiff is a management corporation of the Sri Kenari Apartments Incorporated under the Strata Titles Act 1985 on 13 July 2008.
1.2 The Defendant was the developer of the Sri Kenari Apartments. The Defendant completed the construction of Sri Kenari Apartments in May 2001 and handed over the vacant possession to the purchasers and thereafter had been managing and maintaining the Sri Kenari Apartments until the handing over of the said apartments to the Plaintiff on 31 August 2008.
[2] The Plaintiff's claim is twofold as follows:-
2.1 For monies held in the "Sinking Fund" by the Defendant amounting to RM501,861.00 as reflected in the audited accounts of Sri Kenari Apartments.
2.2 For the refund of the sum of RM180,750.00 being monies unlawfully deducted by the Defendant as a fee for the management of the Sri Kenari Apartments from May 2001 to 31 August 2008. (The Court has taken note that the Plaintiff had reduced its pleaded claim from RM214,200.00 to RM180,750.00 during the trial).
[3] The Defendant's Case
(a) The sums in the audited accounts of the Sri Kenari Apartments under the heading "Sinking Fund" do not reflect the sums that are available to be delivered to the Plaintiff but are in fact subject to deducting the accrued deficit in the audited accounts;
(b) The Defendant did use the sums collected as "Sinking Fund" to pay for the management and maintenance of the Sri Kenari Apartments and was entitled to do so because:-
(i) the Defendant was empowered to utilize the "Sinking Fund" for the management and maintenance of the Sri Kenari Apartments pursuant to the Deed of Mutual Covenants;
(ii) the Sri Kenari Apartments was running at a deficit;
(iii) the sums were used for the benefit of the residents of the Sri Kenari Apartments.
(c) The Defendant was entitled to pay itself a management fee under the terms of the Deed of Mutual Covenants at its sole discretion;
(d) The Defendant was entitled to be reasonably compensated for services rendered to the Plaintiff and the sums paid to the Defendant are reasonable in any event.
[4] Issues For Determination
4.1 Issue No 1
Whether the sums in the audited accounts of the Sri Kenari Apartments under the heading "Sinking Fund" reflect the sums that are available to be delivered to the Plaintiff or the sums are in fact subject to deducting the accrued deficit in the audited accounts.
(i) Plaintiff's Submission
The Plaintiff submits that in the Plaintiff's audited account the balance carried forward as at 31 August 2008 was RM501,861.00. On p 1 of the said Accounts (p 229 of Bundle B under the heading "Sinking Fund") it is also stated that the amount in the "Sinking Fund" is RM501,861.00 as at 31 August 2008.
The Plaintiff submits that after the formation of the Plaintiff, the said monies in the "Sinking Fund" RM501,861.00 must be transferred to the Plaintiff. This is also stated in Clause 16(d) of the Deed of Mutual Covenants (Exhibit P3 at p 31 of Bundle B) between the Defendant and the purchasers of the Sri Kenari Apartments in the following terms:-
"Upon establishment of a management corporation, any excess funds in the Building Fund shall be credited into the account of the Management Corporation for the benefits of the purchasers."
The Plaintiff also points out that SD1, the Defendant's general manager confirmed that the term "Building Fund" also means "Sinking Fund" and the words are used interchangeably.
(ii) The Defendant's reply:
The Plaintiff's claim is derived exclusively by relying on the audited accounts of the Sri Kenari Apartments. The Plaintiff relies on Exhibit P2 which is at pp 228 - 238 of Bundle B, specifically, the Plaintiff takes the position that because the audited accounts of the Sri Kenari Apartments make reference to a sum RM501,861.00 under a heading marked "Sinking Fund" at p 236 of Bundle B, then that amount must therefore be available with the Defendant and must be paid to the Plaintiff. The Defendant submits that this is a gross misunders
