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Can the monies in the maintenance account and sinking fund account be garnished?

CASE UPDATE: TRANSPACC PROPERTY MANAGEMENT SDN BHD V BADAN PENGURUSAN BERSAMA PANGSAPURI AMAN LARKIN & ANOR [KUALA LUMPUR HIGH COURT CIVIL APPEAL NO. BA-12ANCVC-110-07/2021]

Facts

The Appellant is a company providing property management services. R1 is the joint management body (JMB) of the subdivided building known as Scott Tower Condominium (“Scott Tower”). R2 is a bank. The JMB’s maintenance account and sinking fund account for Scott Tower are maintained at R2.

The Appellant provided building management services however the JMB failed to and/or refused to pay the sums due and owing to the Appellant for the building service provided. The Appellant terminated their services and demanded the sum due and owing to the Appellant.

A judgment in default was obtained against the JMB. In executing the judgment, the Appellant had filed a garnishee proceeding against R2 in the Sessions Court.

The Sessions Court dismissed the Appellant’s garnishee order on the grounds that the accounts are held on trust pursuant to sections 10(4), 11(4), 23(1) and 24(1) of the Strata Management Act 2013 (“SMA 2013”).

Decision of the High Court on Appeal

Held:

  • Once the monies in the developer’s maintenance account and sinking fund account are transferred to the maintenance account and sinking fund account of the JMB, the monies are no longer trust monies but belong to the JMB.
  • Monies standing to the credit of the JMB maintenance account may be garnished towards the settlement of the JMB’s judgment debt to the Appellant as Section 23(3) of the SMA 2013 provides that JMB may use the monies standing to the credit of the maintenance account for the purposes of meeting expenditure for paying the costs, expenses or expenditure in relation to the services procured from the Appellant for building management services.
  • Monies standing to the credit of the JMB’s sinking fund account cannot be garnished because section 24(2) of the SMA 2013 stipulates that such monies shall only be used for meeting capital expenditures. The judgment debt is not for a capital expenditure but it is for an unpaid operating expenditure due and owing by the JMB to the Appellant for the provision of building management service.

Takeaway:

  1. During the developer’s maintenance period[1], the monies in the developer’s maintenance account and the sinking fund account are held by the developer on trust for the purchaser.
  • JMB / MC’s maintenance account and sinking fund account are not trust accounts.
  • Monies standing to the credit of the JMB / MC’s maintenance account may be garnished towards settlement of judgment debt if it is in line with Section 23(3) of the SMA 2013.
  • Monies standing to the credit of the JMB / MC’s sinking fund account may be garnished towards settlement of judgment debt if it is in line with Section 24(2) of the SMA 2013.

[1] “developer’s maintenance period” means the period commencing from the date of delivery of vacant possession of a parcel to a purchaser by the developer until one month after the establishment of the joint management body or such other time as may be extended by the Commissioner.

Author
Senior Legal Associate at Chee Hoe & Associates.
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