High Court upholds Commissioner of Building’s decision to allow separate building maintenance accounts and management during Joint Management Body Period

In Gurney Paragon Residential Joint Management Body v Hunza Properties (Gurney) Sdn Bhd & 3 Ors (Pulau Pinang High Court Civil Suit No: PA-22NCVC-247-12/2017), Hunza Properties (Gurney) Sdn Bhd, Hunza Properties (Penang) Sdn Bhd and Beachfront Services Sdn Bhd (collectively Defendants) successfully defended a claim of approximately RM57 million brought by Gurney Paragon Residential Joint Management Body (GPRJMB) in the Penang High Court.
On 26 June 2024, the learned Judicial Commissioner, YA Kenneth Yoong Ken Chinson St James JC dismissed the entire claim brought by the GPRJMB and awarded RM200,000.00 costs to the Defendants.
Brief Facts
At the time when the GPRJMB was established in 2014, resolutions were unanimously passed by the parcel owners of the residential component of the development whereby it was resolved, amongst others, that the management and maintenance of the Gurney Paragon Residential is to be kept separate from the commercial components. About three years thereafter, the GPRJMB disputed the validity of these resolutions and claimed for maintenance charges and sinking fund contributions from the parcel owners and developers of the commercial components amounting to approximately RM57 million and for the return of all common properties in the Gurney Paragon Development which the GPRJMB contends belong to them.
Broad Grounds of Judgment
In his broad grounds of judgment, the learned Judicial Commissioner referred to Aikbee Timbers Sdn Bhd & Anor v Yii Sing Chiu & Anor And Another Appeal [2024] 2 MLRA 196 (“Aikbee”) and interpreted the Building and Common Property (Maintenance and Management) Act 2007 (BCPA) and Strata Management Act 2013 (SMA) as social legislation:
So to me the ratio decidendi of Aikbee is that the SMA and the HDA are to be interpreted by the courts as social legislation which necessitates interpreting them to achieve a just and reasonable, and a fair and justifiable outcome. If we are interpreting the SMA we must try to achieve a just and reasonable outcome.
The learned Judicial Commissioner applied a flexible approach “intended to achieve a common goal for the common good of society as enunciated in Aikbee in his interpretation of the BCPA and SMA. In essence, the learned Judicial Commissioner allowed for a separate maintenance and sinking fund account for the residential component and the commercial components. Apart from pointing out the various procedural breaches on the part of the GPRJMB in mounting its claim against the Defendants, St. James, JC also relied on the unanimous resolutions passed at the first AGM and a letter dated 7 April 2017 which the learned Judicial Commissioner held to be a decision by the Commissioner of Buildings (“COB”).
I hold that I should read the BCPA and the SMA as a social legislation which is not rigid but rather flexible to bring about what is just and reasonable and fair and justifiable, and to allow a separate maintenance and sinking fund account for the residential component and the commercial components. As decided by the COB and resolved at the first AGM, I let the JMB to maintain and manage the common property for the residential component and I let D1 and D2 to maintain the common property for the commercial components.
The learned Judicial Commissioner also considered the alternative approach, i.e. to start over and regularise what is not done according to the SMA and for the GPRJMB to hold a general meeting to determine a uniform rate with the attendance of all parcel owners and voting rights exercised by all parcel owners, including the residential and commercial parcel owners. However, the learned Judicial Commissioner was of the view that such an approach would lead to an undesired outcome given the disparity in the share units of the commercial parcel owners and the residential parcel owners.
The residential parcel owners have 24.4% share units and the commercial parcel owners have the remaining 75.6% share units. Any decisions will likely to be made based on these share unit proportions. With that circumstance in my mind, it is very likely that this alternative would bring about even more disputes between the JMB and D1 and D2, which is not a desired outcome at all. So, I am not prepared to make that alternative order.
Further, the Court also relied on the following grounds in dismissing the GPRJMB’s claim: 
  1. The GPRJMB did not invite all parcel owners to attend its AGM to determine the rate chargeable under sections 21(1)(b) and 21(1)(c) of the SMA. 

  2. The 1st and 2nd Defendants did not procure the passing of the resolution passed at the first AGM as it was the residential parcel owners who voted and passed that resolution. 

  3. The first AGM resolutions were not invalidated in subsequent AGMs and the budgets presented by the GPRJMB disclosed only expenses for the residential component. This demonstrates that the GPRJMB has accepted the division, the separation of the maintenance and management into the residential component and the commercial components. 

  4. The GPRJMB’s treatment of its invoices is inconsistent with its claim. The GPRJMB’s invoices were not issued in compliance with the statutory procedures and were not disclosed as contingent assets in its audited accounts. The GPRJMB’s expenses disclosed in the audited accounts are also all limited to the residential parcels. 

  5. The GPRJMB has not incurred any expense at all to maintain any of the common properties of the commercial components. 
This case is noteworthy as it marks a significant shift in the approach taken in the interpretation of the SMA. The Court in this case moved from a rigid, strict and literal interpretation in Muhamad Nazri Bin Muhamad v JMB Menara Rajawali and Denflow Sdn Bhd [2018] 9 CLJ 547 to the social legislation approach taken in Aikbee. The Court referred to and adopted the social legislation interpretation in Aikbee and placed emphasis on the concept of “just and reasonable” and “fair and justifiable” in interpreting the SMA. The Court also stood guided by the unchallenged administrative decision of the COB. The Court relied on Section 16(5) of the BCPA in giving effect to separate maintenance and management of the residential component and the commercial components during the period when the common properties are to be managed by the joint management body.
It is pertinent to note that this decision is based on the peculiar facts of the case, and there were various non-compliances of the procedures under the SMA  and the inconsistent conduct on the part of the GPRJMB leading to the dismissal of its claim.
It is also interesting to note that the Court also considered the alternative position stemming from the series of disputes involving Tropicana Macalister Avenue (Penang) Sdn Bhd and Badan Pengurusan Bersama Tropicana 218 Macalister1 where it was held that if the chargeable rate was found to be contrary to the SMA and thus invalid, there will be no rate due and payable until a general meeting of the joint management body with all the proprietors being invited is held to determine the new chargeable rate. Even though this position was rejected by the learned Judicial Commissioner due to the disparity in the share units held by the residential and the commercial components, such an option is now available for the courts to consider rather than applying a rigid approach without alleviating the dispute at hand.
Lastly, it is to be noted that the BCPA was repealed and replaced by the SMA when the latter came into operation. In relation to Penang, the foregoing took effect on 12 June 2015 pursuant to Gazette Notification P.U.(B) 248/2015.
Ashok Kumar Mahadev Ranai (Partner) and Lim Chin Lun (Associate) of the Construction and Engineering Practice of Skrine represented Hunza Properties (Gurney) Sdn Bhd, Hunza Properties (Penang) Sdn Bhd and Beachfront Services Sdn Bhd in this case.

1 Tropicana Macalister Avenue (Penang) Sdn Bhd and Badan Pengurusan Bersama Tropicana 218 Macalister  [2022] 1 LNS 2945, Tropicana Macalister Avenue (Penang) Sdn Bhd v Badan Pengurusan Bersama Tropicana 218 Macalister [2023] 1 LNS 1544 and Badan Pengurusan Bersama Tropicana 218 Macalister v Tropicana Macalister Avenue (Penang) Sdn Bhd (P02(NCVC)(A)-1043-06/2023).

This alert contains general information only. It does not constitute legal advice nor an expression of legal opinion and should not be relied upon as such. For further information, kindly contact skrine@skrine.com.