Section 21(1) of the Limitation Act 1953 (LA 1953) reads:
“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.”
Several cases that have dealt with the application and effect of the 12 year limitation period on charge actions have resulted in contradictory decisions. The Federal Court in Thameez Nisha Hasseem v Maybank Allied Bank Bhd [2023] 5 CLJ 874 dealt with the question of whether the 12 year limitation period under Section 21(1) of the LA 1953 applied to charge actions, and if so, what was the effect of the limitation on a chargee’s interest. The Federal Court held that Section 21(1) applied to charge actions and that once the statutory limitation lapsed, Section 340(4)(b) of the National Land Code (NLC) would be engaged and the chargee’s interest would be extinguished by operation of law.
This article discusses the Federal Court’s decision and its implications.
Background Facts
The Appellant (Thameez) was the administrator of the estate of Bee Fatima (the Deceased). The Deceased’s land was charged to Maybank Allied Bank Bhd (MABB) by Charijah who had been granted power of attorney by the Deceased to manage the property. Charijah defaulted in the repayments and MABB obtained an order for sale in 1984 after a statutory notice in Form 16D was ignored. In 2010, the order for sale was set aside by the High Court. Subsequently, no further action was taken by MABB to enforce the charge or recover the loan from Charijah.
Thameez sought clarification from MABB in 2015 on the status of the charge and actions taken by them against Charijah but MABB did not reply. As a result, Thameez filed originating summons against Charijah in 2016. MABB intervened in the action and was made party to the suit as the 2nd Defendant.
In the High Court, Thameez sought a declaration against Charijah that the estate of the Deceased was entitled to be discharged and exonerated from the liability of the charge, as well as for Charijah to assume liability for all repayments and costs related to the charge. As against MABB, Thameez sought a declaration that the MABB ceased to have any estate or interest in the land and that MABB’s rights to enforce the charge had extinguished by operation of law. The High Court held that equity and common sense dictated that the bank cannot discharge the charge until the debt was fully settled, despite the fact that the bank was barred by limitation to foreclose the property, and thereby, dismissed the claim against MABB.
On appeal, the Court of Appeal affirmed the High Court’s decision and dismissed Thameez’s appeal primarily on the reliance on the case of RHB Bank Bhd v Wong Kok Leong & Wong Kok Sun & Anor [2017] 6 CLJ 1 which rejected the use of limitation as a cause of action to seek a declaration. The Court of Appeal was of the view that Thameez’s application to get title without payment of what was due and owed to MABB failed based on Wong Kok Leong.
Six questions of law were posed to the Federal Court in which the court condensed into three issues namely:
(a)Determination of title or interest “by operation of law”
(b)The application of the 12 years limitation period on charge actions.
(c) The nature and legal effect of the limitation period.
Federal Court’s Decision
Are charge actions covered by Section 21(1) of the LA 1953?
The court answered this question in the affirmative, finding that charge actions were covered by Section 21(1) of the LA 1953.
The court held that firstly, among all the cases cited before them, the minority views in CIMB Bank Bhd v Sivadevi Sivalingam [2020] 2 CLJ 151 and Peh Lai Huat v MBF Finance Bhd [2011] 3 MLJ 470 took the position that Section 21 was inapplicable to charge actions. Meanwhile, cases such as Lim Ban Hooi & Anor v Malayan Banking Bhd [2018] 6 CLJ 545 and Wan Zubaidah Wan Mahmood (As The Representative Of The Estate Of Nik Ab Rahman Nik Mat, Deceased) & Anor v CIMB Bank Bhd [2019] 8 CLJ 197 have ruled that Section 21 was applicable to charge actions.
Secondly, the court rejected MABB’s arguments that an application for an order for sale under the NLC was merely a proceeding to enforce a statutory right and therefore, was not considered an “action” under Section 21(1). This was because although an order for sale was a statutory remedy, it could only be enforced if an application was first made by originating summons pursuant to the procedure in Order 83 Rules of Court 2012 (ROC 2012). Since the definition of “action” in Section 2 of the LA 1953 included “a suit or any other proceeding in a court of law”, the court considered that this was sufficient to cover an application for an order for sale.
Thirdly, the court evaluated the “ordinary and literal” meaning of Section 21(1) and held that it provided for three categories of actions namely (1) recovery of principal sum of money secured by mortgage or charge on land or personal property; (2) enforcement of mortgage or charge and (3) recovery of proceeds of sale of land or personal property. This finding departed from the minority view finding in Sivadevi that there were only two categories and followed the majority view in Sivadevi thatan order for sale of land charged under the NLC came within the ambit of an action “to enforce such mortgage or charge”.
If a charge action is time barred under Section 21(1) of the LA 1953, would the Chargee’s interest in the land be considered as determined “by operation of law” under Section 340(4)(b) of the NLC?
The court also answered this question in the affirmative stating that when a charge action was time barred, it was effectively unenforceable and therefore, the interest in the land would be determined “by operation of law” under Section 340(4)(b).
The result of this was that the chargee’s registered interest could be defeated and that the chargor was entitled to obtain the return of the land title pursuant to Section 244(1) of the NLC (read together with Order 83 Rule 1(1) of the ROC 2012).
When does the period of limitation begin to run?
The 12 period was determined to run from the date of the failure to repay the debt, and not from the failure to remedy the Form 16D notice as held in Lim Ban Hooi & Anor v Malayan Banking Bhd [2018] 6 CLJ 545.
This was because the court considered that the date of default of repayment could be determined with sufficient certainty, making it easier to calculate when time began to run. It would also encourage chargees to not sleep on their right to issue the Form 16D in a timely manner.
Conclusion
This Federal Court case brings clarity to the application of Section 21(1) on charge actions and its effect on the indefeasibility of title under Section 340.
The 12 year limitation period begins from the date of the borrower’s failure to repay the debt. 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, a chargor is entitled to defeat the registered interest of the chargee under Section 340 and consequently, obtain the return of the land title.
The reasoning of the Federal Court is in line with the general rationale for prescribing limitation periods to discourage parties from sleeping on their actions and relieving potential defendants from the uncertainty of claims against them.
22 August 2023