The phrase "time is of the essence" has become so ubiquitous that it is almost a standard term in contracts. It is a clause that contracting parties readily expect, as timely delivery of promises is a fundamental expectation in any agreement. Often, such clauses are accompanied by a penalty mechanism to enforce compliance. If one party fails to meet the agreed timeline, they are typically required to compensate the other. In the construction industry, for example, this penalty often takes the form of liquidated ascertained damages (LAD).
Nonetheless, the insertion of such a standard term, with the intention to maximise the safeguarding of contracting parties, can backfire, especially where a contracting party on goodwill indulges the delay of the other party. In such a circumstance, the indulging party might be trapped in an awkward position that the limitation period begins to run at the earliest possible moment, given the clear contractual term that time is of the essence.
By the time the indulging party’s patience wears off, it might have already been caught by the defence of limitation. The Court of Appeal’s recent decision in Yeng Chong Realty Bhd (Sebelum Ini Dikenali Sebagai Yeng Chong Realty Sdn Bhd) v Edward Stanislaus De Silva & Ors [2024] MLJU 2995 is a perfect illustration.
Facts
The plaintiffs (at the High Court, i.e. Edward Stanislaus De Silva & Ors) entered into Sale and Purchase Agreements (SPAs) with the defendant ( at the High Court, i.e. Yeng Chong Realty Bhd) to buy bungalow plots in a to-be-developed luxurious golf resort known as Bandar Golden Valley Golf Resort. Clause 16(1) of the SPAs specified the date for the delivery of vacant possession of the bungalow plots to the respective plaintiffs as not later than 36 months from the date of the SPAs. Clause 25 of the SPAs further stipulated that time was of the essence of the SPAs.
The date for the delivery of vacant possession had lapsed between 20.4.2002 to 29.4.2003. Regardless, the plaintiffs continued with their monthly payments for their respective bungalow plots. As the defendant still failed to deliver
vacant possession, on 5.8.2020, the plaintiffs filed an action at the High Court against the defendant alleging fraud and unjust enrichment. The defendant raised the defence of limitation. Eventually, the High Court decided the case in the plaintiffs’ favour and ordered the defendant to deliver vacant possession of the bungalow plots to the plaintiffs. Being aggrieved, the defendant appealed to the Court of Appeal.
The Law On The Defence Of Limitation
Secion 9 of the Limitation Act 1953 (LA) provides that no action to recover any land shall be brought after the expiration of 12 years from the date of accrual of the cause of action.
Essentially, the statute of limitations serves to limit the time by which action in court or arbitration may be commenced. Upon expiration of the limitation period, the claim is barred, hence the phrase, “time-barred” (see Julian Chong Sook Keok & Anor v Lee Kim Noor & Anor [2024] 3 MLJ 544).
The doctrine of limitation is said to be based on two broad considerations. First, there is a presumption that a right not exercised for a long time is non-existent. Plaintiffs must not sleep on their actions. Second, it is necessary that matters of right should not be left too long in a state of uncertainty. There must be a definite end to litigation (see Credit Corporation (M) Bhd v Fong Tak Sin [1991] 1 MLJ 409).
The Court of Appeal’s Decision
The Court of Appeal took note of the trite law that a cause of action accrued when there was in existence a person who could sue and another who could be sued, and when all the facts had happened which were material to be proved to entitle the plaintiffs to succeed. The Court agreed that the period of limitation began to run only from the first clear and unequivocal threat to the plaintiffs’ right to the transfer of the land.
In this regard, the Court of Appeal disagreed with the High Court concerning when the first clear and unequivocal threat to the plaintiffs’ rights arose. The High Court dismissed the defence of limitation raised by the defendant by deciding that the first clear and unequivocal threat to the plaintiffs’ right over the bungalow plots only occurred when the defendant filed leave to enter appearance and to file its defence against the plaintiffs’ claim, which was on
7.10.2020. The High Court was of the view that this was the first time the defendant clearly disputed the plaintiffs’ rights to the bungalow plots – prior to that, the defendant merely accepted the monthly instalment by the plaintiffs, which indicated the defendant’s acknowledgment of the SPAs and its obligations thereunder. Further, the defendant never offered any explanation to the plaintiffs after the expiry of the date of delivery of vacant possession. Accordingly, there was no clear and unequivocal refusal to deliver vacant possession on the defendant’s part.
However, the Court of Appeal was of the view that the first clear and unequivocal threat to the plaintiffs’ right had, in fact, emerged when the defendant did not live up to its promise under clause 16(1) of the SPAs to deliver vacant possession not later than 36 months from the date of the SPAs. The breach of the express term of the SPAs must be a clear and unequivocal threat to the plaintiffs’ right, and amounted to the earliest moment where the plaintiffs’ cause of action against the defendant was complete. The parties’ contractual commitment was also made clear by the “time is of the essence” clause. On the expiry of the said 36 months, the plaintiffs could already opt to sue for liquidated damages for late delivery (clause 16(4) of the SPAs), to terminate the SPAs for breach of contract and sue for damages, or to file an action for specific performance. Accordingly, time must begin to run from the expiry of the said 36 months which meant the limitation would have set in from March 2014 to April 2015.
Consequently, the Court of Appeal allowed the defendant’s appeal and dismissed the plaintiffs’ claim. However harsh the outcome might be, the Court of Appeal referred to Majlis Peguam & Anor v Tan Sri Dato’ Mohamed Yusoff Mohamed [1997] 2 MLJ 271 and agreed that there was no judicial discretion outside the LA that enabled the Court to relieve the plaintiffs from the provisions of the LA on the ground of hardship and the Court could not override the provisions of the LA on equitable considerations.
Commentary
While some might argue that the defence of limitation operates as a procedural technicality resulting in harsh
outcomes for plaintiffs, it is undeniable that the broader policy consideration underpinning this doctrine – protecting defendants from indefinite uncertainty – serves a vital purpose. The intriguing facts of the case discussed suggest, that the plaintiffs likely relied on a segregated approach: entrusting documentation related to the bungalow plot purchase to their solicitors while navigating their dealings with the defendant using business common sense, possibly without full appreciation of the contractual implications.
While such practices may be prevalent, the Court of Appeal’s decision stands as a crucial reminder: contractual rights must be exercised with both diligence and vigilance to avoid unintended pitfalls. It is equally crucial to understand the full extent of the bargain one chooses to strike, for even a contractual term as standard as “time is of the essence” might backfire.
14 January 2025