The above Federal Court decision discusses the position of law on limitation for Originating Summons to obtain order for sale. Among others, the issues raised were (i) whether proceedings commenced by banks for an order for sale is subject to s. 21(1) or (2) of the Limitation Act 1953 and (ii) whether the ‘right of action to receive money’ under s. 21 of the Limitation Act 1953 accrues and will begin to run following failure to make payment of loan instalments or upon failure to comply with the statutory demand in Form 16D.
The Appellant (Plaintiff in the original action in High Court) granted a loan to the Respondent (Defendant) and the Defendant charged a piece of land to the Plaintiff as a security for the said loan.
When the Defendant defaulted in the repayment of the loan, the Plaintiff issued and served on the Defendant the notice of default with respect to a charge, in Form 16D pursuant to s. 254 of the National Land Code ('NLC'). The notice inter-alia gave the Defendant 30 days to remedy the breach of the NLC charge but the Defendant failed to remedy the same.
The Plaintiff then filed an Originating Summons ('OS') at the High Court, inter-alia for an order for sale of the land, by way of a public auction and the OS was allowed by the High Court.
Dissatisfied with the High Court decision, the Defendant appealed against the said decision at the Court of Appeal. The sole issue that arose at the Court of Appeal was whether the foreclosure proceeding or an order for sale by the Plaintiff through the OS, was time-barred. Allowing the appeal, the Court of Appeal held that (i) the event in default was the breach, which occurred on 12 May 2003 when the defendant failed to service the repayment, and the law of limitation set in on 12 May 2015 (i.e. 12 years after); and (ii) since the OS seeking an order for sale was filed on 8 August 2016, the action was barred under s. 21(1) of the Limitation Act 1953 ('Act').
Questions of Law at the Federal Court
The following questions of law were raised for the determination by the Federal Court:-
Whether proceedings commenced by a chargee, for sale of land pursuant to s. 256 or 260 of the NLC, is subject to s. 21(1) or (2) of the Act; and
if s. 21(1) of the Act applies to such proceedings, does the right of action to receive the money accrued, or limitation period begins to run following the failure to make payment of loan instalments, even when the loan only becomes payable upon demand issued by the charge, or upon failure to comply with the statutory demand in Form 16D.
Decision of the Federal Court
Ahmad Maarop PCA in delivering the majority judgment of the Federal Court held inter-alia that:
When the Plaintiff filed the OS in the High Court, the Plaintiff in effect applied to enforce the charge registered under the NLC by way of an order for sale of the charged land. Thus, s. 21(1) of the Limitation Act applies to such an action. Section 21(1) provides:
(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.
The ‘right to receive the money accrued' in s. 21(1) must refer to the time when the Defendant defaulted in her obligation to make payment after being served with the Form 16D notice (in February 2016). Time (12 years limitation) then starts to run. The OS filed by the plaintiff on 8 August 2016 for an order for sale in this case was not barred by limitation under s. 21(1) of the Limitation Act.
In consequence of the above, the Federal Court answers to:-
Question (i) whether proceedings commenced by a chargee for a sale of land pursuant to s. 256 or s. 260 of the NLC subject to s. 21(1) of the Limitation Act; and
Question (ii) is that in its application to proceedings by a chargee for sale of land pursuant to s. 256 or 260 of the NLC, the right to receive the money (the right of action) or limitation period begin to run upon failure to comply with the statutory notice in Form 16D of the NLC.
The following are the principles laid down by the Federal Court in the above case:-
When any party files an Originating Summons at the High Court for an order for sale, the said party in effect is applying to enforce the charge registered under the NLC by way of an order for sale of the charged land. In such action, the provision of Section 21(1) of the Limitation Act will be applicable.
Under Section 21(1) of the Limitation Act, no action shall be brought to enforce such charge (i.e. charge on land) after the expiration of 12 years from the date when the “right to receive the money accrued”.
Under the purview of Section 21(1) of the Limitation Act, a non-payment of loan or a breach by the chargor of the agreement in the charge does not make 'the right to receive the money accrued' for the chargee to initiate an action in court for order for sale.
The chargee must serve on the chargor a notice in Form 16D specifying the breach in question, requiring the chargor to remedy the breach within one month from the date of service of the notice, and warning the chargor that if the notice is not complied with, the chargee will take proceedings to obtain an order for sale. Only if, at the expiry of the period specified in the notice in Form 16D, the breach in question has not been remedied, then the 'whole sum secured by the charge shall become due and payable to the chargee'. It is on this date that 'the right to receive the money accrued' and the cause of action arises for an action pertaining to order for sale.
Despite the non-payment of loan by chargor is more than 12 years, ‘the right to receive the money accrued' under s. 21(1) of the Limitation Act refers to the time when the chargor defaults in obligation to make payment after being served with the Form 16D notice. Even if the Form 16D is issued after the period of 12 years, any Originating Summons filed by the chargee thereafter will not be barred by limitation under s. 21(1) of the Limitation Act.
For further advice on the above, you may contact Cik Azreen Latif at 03-2171 1484 or at email@example.com.