Applicability of the Laws of Limitation to Charge/ Foreclosure Actions

Syed Fadzil Alhabshi
Partner
E: syed@stwd.com.my

William Soon
Senior Associate
E: williamsoon@stwd.com.my

It was about three years ago that the Federal Court in the case of CIMB Bank Bhd v Sivadevi Sivalingam [2020] 2 CLJ 151 (“Sivadevi”) had held, by a majority, that the limitation period as enunciated in s.21(1) of the Limitation Act 1953 (“LA”) does not apply to charge actions brought by chargees to dispose of/realise charged properties by way of an Order for Sale. One of the main reasons on which the Federal Court’s decision in Sivadevi is based is that an Order for Sale is not an “action” within the meaning of s.21(1) of the LA.

For ease of reference, s. 21(1) of the LA is reproduced herewith:-

Limitation of actions to recover money secured by a mortgage or charge or to recover proceeds of the sale of land

21. (1) No action shall be brought to recover any principal sum of money secured by a mortgage or other charge on land or personal property or to enforce such mortgage or charge, or to recover proceeds of the sale of land or personal property after the expiration of twelve years from the date when the right to receive the money accrued.

(2) No foreclosure action in respect of mortgaged personal property shall be brought after the expiration of twelve years from the date on which the right to foreclose accrued:

Provided that if, after that date the mortgagee was in possession of the mortgaged property, the right to foreclose on the property which was in his possession shall not, for the purposes of this subsection, be deemed to have accrued until the date on which his possession discontinued.

Very recently, the Federal Court had an opportunity to revisit its own decision in Sivadevi, vide the case of Thameez Nisha Hasseem (As The Administrator Of The Estate Of Bee Fathima @ Dll, Deceased) v Maybank Allied Bank Berhad [2023] MLRAU 105 (“Thameez”).

Inter alia the multiple questions which were posed to and dealt with by the Federal Court in the case of Thameez, the Federal Court decided that s. 21(1) of the LA is applicable to charge actions brought by chargees to dispose of/realise charged properties by way of an Order for Sale, effectively departing from its own Decision in Sivadevi.

The Federal Court in Thameez, guided by the English case of Canada Sugar Refining Co v R [1898] AC 735 was of the view that the word “action” in s.21(1) of the LA has to be given its ordinary and literal meaning first and foremost, and when necessary, as in this case, to be read together with other relevant provisions within the same legislation and across other relevant legislations to define its meaning.

Therefore, by reading s.21(1) of the LA together with the relevant provisions in the LA, the National Land Code (“NLC”), the Rules of Court 2012 (“ROC”), and the Courts of Judicature Act 1964 (“CJA”), the Federal Court came to the conclusion that an application for an Order for Sale under s.256 of the NLC is an “action” within the meaning of s.21(1) of the LA and is therefore subjected to a limitation period of 12 years.

Another question which was posed to and answered by the Federal Court in Thameez is if limitation applies to charge actions, when does the computation of time begin. In regards to this, the Federal Court held that the computation of time when the limitation period begins is the date of default in repayment and not the date of failure to remedy the breach in the Statutory Notice of Form 16D of the NLC, as held by the minority decision of Justice Ahmad Maarop PCA in Sivadevi.

In coming to its decision, the Federal Court agreed with the Court of Appeal’s observation in Lim Ban Hooi & Anor v Malayan Banking Bhd [2018] 6 CLJ 545 (“Lim Ban Hooi”), which held that a Form 16D cannot be issued without the default in the loan repayment having been triggered first.

Further, according to the Federal Court, there needs to be certainty in the law of limitations and the date of default in repayment is certain as compared to when the Form 16D is issued – for such issuance is dependent upon the chargee’s discretion. The Federal Court quoted the following passage from Lim Ban Hooi:-

“…If the time period of 12 years does not run from when the breach of the agreement took place whence the right to receive money accrued has been disaffected, a chargee may well decide not to do anything for the next 100 years, and still be in time to enforce the ad rem right of order of sale.”

In a nutshell, the Federal Court in Thameez held that the limitation period of 12 years as stated in s.21(1) of the LA applies to applications by chargees to dispose of/realise charged properties by way of an Order for Sale and the limitation period would start to run from the date of default in repayment.

The ultimate result in the event limitation is established, according to the Federal Court in Thameez, is as follows:-

“In effect, when a chargee fails to obtain an Order for Sale timeously or at all, or fail to file proceedings in court to obtain a valid and enforceable Order for Sale of the charged land within the limitation period as prescribed by section 21(1) of the LA 1953, a chargor is entitled to defeat the registered interest of the chargee pursuant to section 340(4)(b) of the NLC and consequently obtain the return of the land title pursuant to section 244(1) of the NLC read with Order 83 rule 1(1) of the ROC…”

What impact does the Decision of Thameez have on chargees of land?

In view of the Federal Court’s Decision in Thameez, chargees of land must now be extra cautious in the event there is any default in repayment by the customer/chargor, as the limitation period of 12 years would start to run from the date of default and no longer from the failure to remedy the breach as demanded in the Form 16D as before.

Further, if limitation is established, a chargor may be entitled to demand for the land title to be returned to them free from the charge. Effectively, this would result in the chargee being left with no security to be enforced upon the default of the debtor.

Therefore, it is in the chargees’ best interest to avoid delay in enforcing their rights to obtain an Order for Sale in the event there is any sign that a customer/chargor will continue to default in paying the monthly repayments as agreed.

At this juncture, we are reminded that although the limitation period would now start to run from the date of default in repayment, any payment (or part-payment) subsequently made towards the outstanding sum under the charge would amount to a “fresh accrual” of the limitation period. We are guided by the Federal Court’s Decision in TENAGA NASIONAL BERHAD v. PEARL ISLAND RESORT DEVELOPMENT SDN BHD [2017] 5 MLRA 382 (“Pearl Island”) which affirmed the application of s.26(2) of the LA, reproduced below:-

26.Fresh accrual of action on acknowledgment or part payment.

(1) Where there has accrued any right of action to recover land or to enforce a mortgage or charge in respect of land or personal property, and-

(a) the person in possession of the land or personal property acknowledges the title of the person to whom the right of action has accrued; or

(b) in the case of any such action by a mortgagee or chargee the person in possession as aforesaid or the person liable for the debt secured by the mortgage or charge makes any payment in respect thereof, whether principal or interest,

the right shall be deemed to have accrued on and not before the date of the acknowledgment or last payment.

(2) Where any right of action has accrued to recover any debt or other liquidated pecuniary claim, or any claim to the personal estate of a deceased person or to any share or interest therein, and the person liable or accountable therefor acknowledges the claim or makes any payment in respect thereof, the right shall be deemed to have accrued on and not before the date of the acknowledgment or the last payment:

Provided that a payment of a part of the rent or interest due at any time shall not extend the period for claiming the remainder of the rent or interest then due, but any payment of interest shall have effect, for the purposes of this subsection only, as if it were a payment in respect of the principal debt.

In conclusion, from a land chargee’s perspective, the Thameez decision brings about an increased risk of a chargee losing a charged land as security for the repayment of a loan, since the law of limitation now applies to charge actions and would start to run from the date of default in repayment. Therefore, chargees are advised to keep a close track of their accounts and avoid unnecessary delay in enforcing their rights to dispose off the charged lands in the event of default.

The contents of this Update are intended to provide general information only and do not contain or intend to convey any legal or other professional advice and should not be relied upon as such. Although we endeavour to ensure the accuracy of the information herein, we do not warrant or guarantee its accuracy or completeness or accept any liability whatsoever for any loss or damage howsoever arising from any reliance thereon.