Developers’ Liability for Latent Defects Beyond the Defect Liability Period

Case Summary: Badan Pengurusan Bersama Tropicana Bay Residence @ Penang World City v Mutiara Metropolis Sdn Bhd & Ors [2024] MLJU 1948

Introduction

The issue of defects is not uncommon in construction disputes. More often than not, the extent of the liability of the developer / contractor for defects which appear after the expiry of the defect liability period remains a heavily contested issue at court. The present case offers valuable insight into this issue, providing some clarity on the applicable legal principles.

Parties

The Plaintiff is the joint management body of Tropicana Bay Residence (hereinafter referred to as “the Project”). The 1^st Defendant is the developer of the Project, while the 2^nd and 3^rd Defendants are the subcontractors engaged in the Project.

Facts

There were severe leakages arising from the failure of the waterproofing system throughout the common properties of the Project, i.e at the common areas and roof of the TNB sub-station. Consequently, on behalf of the homeowners, the Plaintiff brought an action against the 1^st Defendant for breach of contract and negligence, and against the 2^nd and 3^rd Defendants for negligence.

Issues

The issues are (1) whether there has been a breach of contract on the part of the 1^st Defendant, (2) whether there has been negligence on the part of the 1^st Defendant, and (3) whether there has been negligence on the part of the 2^nd and 3^rd Defendants.

Decision

Issue 1 and 2 are answered in the affirmative while issue 3 is answered in the negative.

Regarding Issue 1, the express terms of the contract that have been breached are Clause 13 and Clause 29 of the Sale and Purchase Agreement, which, in essence, require the 1^st Defendant to ensure that the construction is completed in accordance with the approved plans, and also to repair and rectify any defects. In addition to these express terms, it is important to note that the Court also found that the 1^st Defendant had breached the three implied terms in construction contracts, namely (1) to supply good and proper materials, (2) to build in a good and workmanlike manner, and (3) to ensure the property is reasonably fit for human habitation.

It is worthwhile to also note that the 1^st Defendant’s argument that the expiration of the Defect Liability Period (“DLP”) and issuance of Certificate of Making Good Defects (“CMGD”) operate as a shield was rejected as the Court found that these did not preclude the Plaintiff from its right to sue for defects that are not reasonably detectable or discoverable during DLP (water leakage in this case, which took time to manifest). The Court further explained that the DLP has two divisible obligations:

• (a) If defects are discovered during the DLP, then contractually the developer is liable to repair the defects and pay for the repairs.
• (b) In the event of defects appearing after the DLP, the developer may still be liable to pay for the repairs even if he is no longer required to repair the same. In such instance, liability to pay for the repairs would depend on whether the defects are attributable to his poor workmanship or use of substandard materials.

Conclusion

The present case underscores the principle that developers and contractors cannot evade liability for construction latent defects that manifest after the expiry of the DLP, particularly when such defects arise from poor workmanship or the use of substandard materials. This judgment is also welcoming as it reaffirms the extent of the responsibility and accountability of developers and contractors in the construction industry to deliver properties which are fit for habitation and constructed in a workmanlike manner, in accordance with their contractual obligation.

About the authors

Lim Ren Wei
Associate
Construction & Energy
Harold & Lam Partnership
renwei@hlplawyers.com

Leong Yu Jing
Pupil-in-Chambers
Construction & Energy
Harold & Lam Partnership

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