Published on:
10 Oct 2022
3
min read
On defects, delayed action, and dismissed claims.
In 2015 and 2016, the residents of a condominium moved in. In 2019, they discovered various building defects.
The MCST¹ turned to the main contractor. Discussions took place, but...
...there was no resolution, and in August 2021, the main contractor declared that it was insolvent.²
The MCST then turned to the developer, SH, but...
...SH said it was not the developer.
It turned out that the condominium was a joint development by SH and another company. In 2013, they had incorporated an entity, CE, to develop the condominium. CE was the entity who had sold condominium units to the subsidiary proprietors ("SPs").
The MCST then turned to CE, but...
...it turned out that CE had already been liquidated.
In 2019, CE's shareholders resolved to wind up CE. CE's liquidators duly placed an advertisement for CE's creditors to file their claims. CE's surplus assets were paid out, and it was dissolved in November 2020.³ The MCST only turned its attention to CE in September 2021.
The MCST then applied to Court for an order to reverse the dissolution of CE. It did not succeed.⁴
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Several takeaways, but I will just zoom in on the most important one:
Get advice early.
The defects were discovered in 2019, but it appears that the MCST only sought legal advice in September 2021. Bearing in mind that CE was only dissolved in November 2020, the MCST may have had more options for recourse if it had obtained advice earlier.
Having served on management councils ("MCs") in multiple MCSTs, I understand the aversion to incurring legal costs, and the need for MCs to answer to SPs as to whether funds are well spent.
But - at the risk of sounding dismissive - it wouldn't have been expensive for the MCST to seek legal advice on, at the very least, the potential parties to any claim, and conduct basis searches on them. After all, wouldn't the MCST have to establish, early on, who it had the right to sue, and whether it was able to sue them?⁵
Such advice would have revealed, early on, that (a) the MCST might not be able to seek recourse against SH (and contrary to its expectations); and that (b) it should file a proof of debt with the liquidators of CE. This information may well have changed the eventual outcome for the MCST.
The MCST claims that the cost of rectifying the defects comes up to S$3.9 million. That's more than S$10,000 per SP.⁶ Assuming that the MCST had initially held off engaging lawyers due to cost considerations, the SPs will now have to pay the price for that decision.
So:
1) Speak to a lawyer early, on an exploratory basis;
2) Provide the background facts and ask whether they can propose a limited scope of work and provide a cost estimate;
3) Compare the estimated cost against the potential risks of not obtaining advice; and
4) Make the practical and commercial judgment call.
Disclaimer:
The content of this article is intended for informational and educational purposes only and does not constitute legal advice.
¹ Broadly speaking, this is the managing body of the condominium.
² Some of you may wonder about the process involved, and may have something like this in mind: https://www.youtube.com/watch?v=C-m3RtoguAQ. I assure you that the actual process is nothing like this.
³ There is nothing to suggest that CE and or its liquidators acted wrongly in any way.
⁴ Due to space constraints, I will not do a deep dive into the reasons for the Court's decision. That being said, for the practitioners amongst us, the judgment is just 19 pages long - a quick read, if you're interested.
⁵ Perhaps the MCST relied solely on the advice of its managing agent as to whether it was necessary to seek legal advice. If so, my sympathies lie with the MCST and the MC, but it does not change the outcome.
⁶ That's S$3.9 million divided by 373 SPs.
[2022] SGHC 250
