Hong Leong Bank Berhad (No. Syarikat: 97141-X) v Soo Ah Chai@Soo Choong Seng (No. KP: 421108-10-5185) (N-02(IM)-2107-10/2018)

Two appeals before us are:

(a) Civil Appeal No. N-02(IM)-2107-10/2018 is in respect of property held under Hakmilik Sementara No. H.S. (D) 43533, No. Lot 16196, Bandar dan Daerah Seremban, Negeri Sembilan: It is an appeal by the Appellant against the decision of the learned Judicial Commissioner, given on 2.10.2018, in allowing the Respondent’s application to set aside the Order for Sale dated 20.12.2017 with costs of RM5,000.00.

(b) Civil Appeal No. N-02(IM)-2108-10/2018 is in respect of property held under Hakmilik Sementara No. H.S. (D) 43532, No. Lot 16195, Bandar dan Daerah Seremban, Negeri Sembilan: It is an appeal by the Appellant against the decision of the learned Judicial Commissioner, given on 2.10.2018, in allowing the Respondent’s application to set aside the Order for Sale dated 20.12.2017 with costs of RM5,000.00. 5

The Appellants in both appeals are the same Plaintiff and the Respondents are the same Defendant in the High Court suit. The parties will be referred to as in the High Court actions.

The factual matrix of the case and the issues raised in this appeal are almost identical. Hence, the two appeals were heard together.

The undisputed facts of the case showed that the Defendant had charged his two parcels of land, that is, Lot 16195 and Lot 16196 [“the Properties”] as security for the overdraft facilities that were granted by the Plaintiff to the borrowers, namely, Hui Say Boon and Loh Kim Meng, pursuant to the Letters of Offer both dated 2.7.1997 and the Facility Agreements both dated 9.7.1997.

Unfortunately, the borrowers defaulted in the repayment of the loans under the facilities which prompted the Plaintiff, in exercise of its right as registered chargee, to initiate the foreclosure proceeding against the Defendant as chargor.

The Plaintiff’s Solicitors issued Form 16D dated 17.10.2017 to the Defendant at the Defendant’s last known addresses including the address at No. 25A, Jalan Mendaling, 43000 Kajang, Selangor [the Defendant’s address as affirmed in the Defendant’s affidavit dated 19.1.2018].

The Defendant did not remedy the default specified in the Form 16D within the stipulated time as stated therein. This led the Plaintiff to file the Originating Summons both dated 28.11.2017 for an order for sale of the Properties. 6

On 20.12.2017, in absence of the Defendant who was duly served with the notice of hearing, the Court granted the order for sale of the Properties [“the Sale Orders”].

Later the Sale Orders were set aside upon application by the Defendant.

The learned Judicial Commissioner allowed the Defendant’s applications to set aside the Sale Orders for the following reasons: a. That the foreclosure proceedings initiated by the Plaintiff was barred by limitation under Section 21(1) of the Limitation Act 1953; and b. That the Defendant’s letters dated 5.6.2014 in which the defendant together with two other third party chargers had proposed to pay to the Plaintiff, a total sum of RM60,000.00 in order to discharge the Property, does not amount to an acknowledgment of debt under section 26 of the Limitation Act 1953.

The Originating Summons herein is founded on Section 156(3) of the National Land Code [“NLC”], which states: 256 Application to Court for order for sale a. This section applies to land held under-

(a) Registry title; 7

(b) the form of qualified title corresponding to Registry title; or

(c) subsidiary title, and to the whole of any undivided share in, or any lease of, any such land. b. Any application for an order for sale under this Chapter by a chargee of any such land or lease shall be made to the Court in accordance with the provisions in that behalf of any law for the time being in force relating to civil procedure. c. On any such application, the Court shall order the sale of the land or lease to which the charge relates unless it is satisfied of the existence of cause to the contrary.

In Low Lee Lian v Ban Hin Lee Bank Bhd1, the Federal Court in their discourse on “cause to the contrary” under subsection 256(3) of the NLC, held:

(i) when a chargor was able to bring his case within any of the exceptions to the indefeasibility doctrine in s 340 of the Code; (ii) when a chargor could demonstrate that the chargee had failed to meet the conditions precedent for the making of an application for an order for sale; and (iii) when a chargor could 1 [1997] 1 MLJ 77 8 demonstrate that the grant of an order for sale would be contrary to some rule of law or equity. If no cause to the contrary could be shown, the court would be obliged to make an order for sale (see pp 82F—G, 83F and 83H—I); Murugappa Chettiar v Letchumanan Chettiar [1939] MLJ 296 and Keng Soon Finance Bhd v MK Retnam Holdings Sdn Bhd & Anor [1989] 1 MLJ 457 followed.

It is now the settled law that the burden is upon the chargor resisting the chargee’s application for an order for sale to show the existence of “cause to the contrary” within the meaning of subsection 256(3) of the NLC. This Court in Wong Soon Kion v CIBM Bank Bhd 2 reiterated the principal of law that “cause to the contrary” can only be successfully established in any of the following three categories of cases:

(i) By demonstrating that the charge is defeasible under any of the exceptions to the indefeasibility doctrine under subsections 340(2) and (4)(b) of the NLC. In essence, this relates to instances of fraud or misrepresentation, forgery or an insufficient or void instrument and/or unlawful acquisition of title or interest;

ISSUES This appeal involved two issues, namely:

(a) Whether the foreclosure proceedings initiated by the Plaintiff was barred by limitation under section 21(1) of the Limitation Act

[“Limitation Issue”].

(b) Whether the Defendant’s letters dated 14.1.2013, 5.6.3014 and 28.11.2017 respectively are an acknowledgement of debt. 10 [“Acknowledgment of Debt Issue”]

ISSUE (a): LIMITATION ISSUE Since this appeal turns on the interpretation of section 21(1) of the Limitation Act 1953, the provision of section 21 is reproduced below for ease of reference.

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

(a) where a prior mortgagee or other incumbrancer has been in possession of the property mortgaged or charged, and an action is brought within one year of the discontinuance of such possession by the subsequent 12 incumbrancer he may recover by that action all the arrears of interest which fell due during the period of possession by the prior incumbrancer or damages in respect thereof, notwithstanding that the period exceeded six years;

(b) where the property subject to the mortgage or charge comprises any future interest or life insurance policy and it is a term of the mortgage or charge that arrears of interest shall be treated as part of the principal sum of money secured by the mortgage or charge, interest shall not be deemed to become due before the right to receive the principal sum of money has accrued or is deemed to have accrued.

In arriving at his decision that the Plaintiff could not obtain the order for sale as it is barred by limitation under section 21(1) of the Limitation Act 1953 and that the Defendant has shown the existence of “cause to the contrary”, learned Judicial Commissioner relied on two cases of this Court, namely, Sivadevi A/P Sivalingam v CIMB Bank Bhd3 and Wan Zubaidah Binti Wan Mahmood (juga 3 [2018] MLJU 521 13 sebagai Wakil diri Harta Pusaka Nik Ab Rahman bin Nik Mat, Si Mati) & Anor v CIMB Bank Bhd4.

In the Grounds of Judgment5, the learned Judicial Commissioner held: [10] Mahkamah Rayuan dalam Sivadevi A/P Sivalingam v CIMB Bank Bhd [2018] MLJU 421 telah menyentuh peruntukan seksyen 21(1) Akta Had Masa 1953 dan menyatakan seperti berikut: [18] From the extensive oral and written submissions made, it may be safely concluded that both parties agree that section 21 of the Limitation Act 1953 applies. The question now is the commencement date of that 12-year period; is it from the date of default in repayment or is it from the date of service of the Form 16D Notice. It is our view that when section 21 is carefully examined, and examined together with section 256 of the National Land Code and Order 83 of the Rules of Court 2012, it will become readily apparent that the 12-year period commences from the date when the right to receive the money accrued. Where and when such a right accrues, action or proceeding is then brought to enforce the charge in question. The enforcement of the charge is necessarily by an order of sale. In the case of a Registry title, the order is made by the High Court under section 256 of the National Land Code, whereas in the case of a Land Office title, the order for sale is made by the Land 4 [2018] MLJU 695 5 Rekod Rayuan (Jilid 1) pages 16-25. 14 Administrator under section 260. In the latter, the sale may be ordered by the High Court under section 265(3). [30] Returning to the terms of section 21, we make the second material observation with particular focus on section 21(1). Breaking down its various components reveals that the provision envisages three contexts or types of actions in its application. The three types of actions are: i. any action to recover any principal sum of money which is secured by a mortgage or other charge of land or personal property; ii. any action to enforce such a charge of land or personal property; iii. any action to recover proceeds of sale of land or personal property. [31] In any of those three contexts, the action must be brought within 12 years from the date when the right to receive the money accrued. The computation of the 12- year period is necessarily by reference to the date when the right to receive the money accrued since no other date is offered under the terms of section 21

It is amply clear from the judgment above that the learned Judicial Commissioner has computed the limitation period for foreclosure proceedings under section 21(1) from the date of default in repayment under the facility.

Learned counsel for the Plaintiff submitted that the learned Judicial Commissioner had erred in deciding that the foreclosure proceedings initiated by the Plaintiff was time barred under section 21(1) of the Limitation Act. It was contended that the cause of action accrued after the Defendant’s failure to remedy the breach as stated in the Form 16D.

In support of his contention, counsel for the Plaintiff relied on Wong Soon Kion case6, supra, Kandiah Peter v Public Bank Bhd,8 Peh Lai Huat v MBF Finance Bhd 7 and Peh Lai Huat v MBF Finance Bhd.8 20. In Wong Sion Kion’s case, supra, the plaintiff CIMB Bank Bhd initiated foreclosure proceedings with the issuance of the statutory notice Form 16D dated 27.6.2011 demanding payment within 30 days of the sum owing. After the expiry of the 30 day deadline, the plaintiff filed an Originating Summons for an order for sale against the next of kin of the deceased chargor. The learned High Court judge rejected the defendant’s contention that the plaintiff’s action 6 See Footnote no. 2. 7 [2011] 3 MLJ 470 [CA]. 8 [2011] 3 MLJ 470. 17 was time barred and held the plaintiff’s claim was not time barred as the 12 years limitation period under section 21 of the Limitation Act started to run after 28.7.2011 and expired on 27.7.2023. The defendant appealed to this Court.

This Court in dismissing the appeal, held as follows: [9] After giving due consideration to the arguments of learned counsel before us, we found no merit in the defendant’s contention relating to limitation issue. The plaintiff’s cause of action is based on the chargor’s default to remedy the breach stated in the Form 16D issued under s 254 of the NLC. As such, the cause of action, i.e. the right to exercise the statutory remedy of an order for sale did not arise until after the chargor failed to remedy the default specified in the Form 16D notice. In this instance, the breach occurred on 28.7.2011 after the expiry of the 30 day timeline. As subsection 21(2) of the LA 1953 provides that any foreclosure action must be brought within 12 years from the date on which the right to foreclose accrued, it follows that limitation set in on 27.7.2023. In this instance, the Originating Summons was filed on 27.10.2015, well within the 12 year timeline stipulated by subsection 21(2) of the LA 1953. 18

We take note that this Court in Wong Soon Kian’s case did not have the opportunity to consider the cases of Sivadevi’s case and Wan Zubaidah’s case, which were decided in the same year.

In Kandiah’s case, 9supra, the appellant charged certain lands to the respondent and the respondent had obtained orders for sale of the appellant’s lands. The appellant unsuccessfully applied to set aside the orders and subsequently brought an action for a declaration that the charges and annexures relating to the lands were null and void and for consequential relief. In his statement of claim, the appellant raised and relied on facts and issues which the trial judge found to be identical to those raised by the appellant in the foreclosure proceedings, the trial judge therefore dismissed the appellant’s claim on the ground that the matter was covered by the doctrines of estoppel and res judicata. The appellant appealed to the Supreme Court.

In allowing the appeal, the Supreme Court in Kandian’s case held as follows: The principles governing the matter are well settled by authority and are not open to question. A chargee who makes an application for an order for sale in foreclosure proceedings under s 256 of the Code does not commence an action. He merely enforces his rights as a chargee by exercising his statutory remedy against the chargor in default. The chargee, therefore, does not sue for a debt. It is also clear that his claim for an order 9 See Footnote No. 7. 19 for sale is not based upon a covenant but under the registered charge. The order for sale when made under s 256 of the Code is not a judgment or a decree. The court hearing the application for foreclosure does not make, and in any event ought not to make, any adjudication upon any substantive issue. ….. …… In our judgment, where a chargor raises issues and relies upon facts to show 'cause to the contrary' in proceedings brought by the chargee under s 256 of the Code, he is not barred from bringing a fresh action against the chargee (notwithstanding that an order for sale has been made) and raising in that action the same or similar facts and issues as those raised by him in the foreclosure proceedings. Neither res judicata nor cause of action estoppel nor issue estoppel are available answers to the chargee to meet the chargor's action.

It is to be noted that the issues before the Supreme Court are issues of res judicata and estoppel, and not about limitation under section 21(1) of the Limitation Act.

In Peh Lai Huat,10 supra, the appellant’s land was charged as security for the loan and there was default in the repayment under the loan agreement. The respondent applied under s 256 of the NLC for an order for sale of the subject land. In resisting the application, the appellant’s counsel submitted that there was a cause to the 10 See Footnote No. 8. 20 contrary within the meaning of s 256(3) of the NLC against the making of an order for sale because the respondent’s action was barred by limitation. According to the appellant, the foreclosure proceedings were barred by limitation since the loan remained inactive for more than six years and the respondent had taken no proceedings to recover the same. The High Court ruled against the appellant and the respondent appealed to this Court.

This Court dismissed the appeal and held:

In our view, notwithstanding that the facts in Peh Lai Huat’s case are similar to ours, it is of no assistance to the Plaintiff. It is pertinent to note that this Court had noticed a point that was central to the case which led to this Court to make the following dictum: [3] In my judgment the appellant overlooks a point that is central to this case. He has treated the respondent's application to have the subject land sold in public auction as an action to recover the debt owed. That it certainly is not. The true nature of such a proceeding was described 21 by Seah SCJ in Malaysian International Merchant Bankers Bhd v Dhanoa Sdn Bhd [1988] 1 MLJ 257 as follows: The claim of the appellant in the court below was in exercise of their statutory remedy against the respondent as chargor in default under the provisions of the National Land Code. The appellant's claim was not under a covenant but under the registered charge. American International Assurance Co Ltd v Union Builders (Malaysia) Sdn Bhd [1973] 1 MLJ 95, was prayed in aid of this conclusion. In that case, Ong CJ (Malaya) said: The chargees' claim herein was not on the covenant but in exercise of their statutory remedy against a chargor in default. Hence there could not have been any merger. In this connection I might add in parenthesis that, ordinarily, a chargee hardly ever has occasion to sue on the covenant, except where the moneys realised fall short of the amount needed to satisfy his claim for principal and interest. Accordingly, s 21(1) of the Limitation Act 1953 which provides that: '(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' has no application to this case. The proceeding in the court below was not — to quote the words of the 22 subsection — 'an action … brought to recover any principal sum of money secured by a mortgage.' [4] Similarly, s 21(2) of the Limitation Act which reads:

It is amply clear from the judgment referred to above that the dictum that section 21(1) of the Limitation Act is not applicable because the appellant mistook the respondent's application to have the subject land sold in public auction as an action to recover the debt owed, which was not the case. 23

In Sivadevi11, supra, the appeal arose from an order for sale ordered by the High Court under section 256 of the NLC in respect of the appellant’s property. The sole issue before this court was whether the foreclosure proceedings or proceedings for an order for sale taken by the respondent was time-barred.

This Court in Sivadevi’s case made an observation [with which, we are in entire agreement] that s 21(1) envisaged three types of action in its application, namely: a. Any action to recover any principal sum of money which is secured by a mortgage or other charge of land or personal property; b. Any action to enforce such a charge of land or personal property; c. Any action to recover proceeds of sale of land or personal property.

This Court having identified that the appellant’s action was an action to enforce a charge of land with the single purpose of receiving money which has accrued, found that such an action falls within the terms of section 21(1), and held as follows: ….. the applicable provision is section 21(1), the right to enforce a charge must be taken within 12 11 See Footnote no. 6. 24 years calculated not from when the right to seek an order for sale accrued, but from when the right to receive the money accrued, as are the clear terms of section 21(1)…

This Court explained the purpose of Form 16D thus: [58] It is evident from section 254, reinforced by section 253, that in the event the chargor breaches any of the express or implied agreements, the chargee has the right to obtain an order for the sale of the charged land. That order of sale is granted by the High Court under sections 256(2) and (3) read together with Order 83 of the Rules of Court 2012, Order 83 being the law relating to civil procedure for the time being in force. Before the application may be properly undertaken, a notice in Form 16D must be issued pursuant to section 254. The notice is intended to first indirectly remind the chargor of his obligations by pointing out the specific breach; telling the chargor to remedy the breach within the time period specified in the notice; before finally warning the chargor that if the notice is not complied with, proceedings to obtain an order for sale will be sought. Where the chargor does not heed the requirements in the notice, the chargee is then entitled to apply to Court for the order for sale under section 256. 25 [59] The above sets out the mechanism or the process that must be followed before the chargor may apply to the Court for an order for sale of the charged property. When does the right to receive the money accrued arise?

The question as to when does the right to receive the money accrued arise had been dealt with comprehensively by this Court in Sivadevi, and its view is expressed by Justice Mary Lim Thiam Suan [JCA] as follows: [60]……….The question that now emerges is when does the right to receive the money accrued arise? That question is both a necessary and appropriate question to pose in the light of the law of limitations on the right of action. The Federal Court decision in Nasri v Mesah [1971] 1 MLJ 32 is that a right to sue would depend on when the cause of action arose. This view was followed in Tenaga Nasional Bhd v Kamarstone Sdn Bhd [2014] 1 CLJ 207. [61] In Nasri v Mesah, the Federal Court was clear that “a cause of action arises when at the time when the debt could first have been recovered by action. The right to bring an action may arise on various events; but it has always been held that the statute runs from the earliest time at which an action could be brought.” The Federal Court was of the further view that the “expressions “the right to sue accrues”, “the cause of 26 action accrues” and “the right of action accrues” mean one and the same thing when one speaks of the time from which the period of limitation as prescribed by law should run. [62] It is a statutorily implied term prescribed under section 249(1)(a) of National Land Code that the chargor has agreed that “he will comply with the provisions thereof as to payment of the sum or sums thereby secured, and with any provision for the payment of interest thereon, if any. Where the chargor breaches that agreement to pay the sum secured by the charge, the chargee correspondingly is deprived of its right to receive the money accrued. It is at this point that the right to enforce the charge arises and the right to sue or the cause of action accrues.

In Wan Zubaidah’s case12, supra, this Court through Justice Nallini Pathmanathan [JCA] held: [31] Section 21(1) provides in essence that proceedings for the recovery or enforcement of security by way of a charge over land carries a limitation period of 12 years. It provides as follows: 12 See Footnote no. 6. 27 “21 Limitation of actions to recover money secured by a mortgage or charge or to recover proceeds of the sale of land.

(i) any action to recover the principal sum secured by a charge is to be initiated within 12 years from the date when the right to receive the money accrued;

However it has to be borne in mind that the substitution of the proceedings pursuant to section 265(3)(b) of the NLC to order for sale proceedings in the High Court pursuant to section 256 does not amount to the accrual of a cause of action as is envisaged in computing when time begins to run for the purposes of limitation. 29 [37]This is because in accordance with well accepted authorities on the computation of the limitation period (see Nasri v Mesah [1971] 1 MLJ 32 and Tenaga Nasional Bhd v Kamarstone Sdn Bhd [2014] 1 CLJ 207), time begins to run from the date when “…….the right to receive the money accrued” pursuant to section 21(1) of the Limitation Act 1953. [38] In Nasri v Mesah, the Federal Court held that “a cause of action arises at the time when the debt could first have been recovered by action. The right to bring an action may arise on various events; but it has always been held that the statute runs from the earliest time at which an action could be brought.” It went on to hold that: “the right of action accrues” means one and the same thing when one speaks of the time from which the period of limitation as prescribed by law should run.” [39] In the instant case, it is undisputable that the right to receive the debt from the 2nd defendant accrued as early as 1987 when the 2nd defendant as borrower defaulted on repayments in respect of the loan facility. [40] It was in that context that the first Form 16D was issued so as to enable the Bank as chargee to commence proceedings under section 265(3) given that the sale of the subject land was to be dealt with by the Land Administrator. 30 [41] As such the issuance of a fresh Form 16D in 2012, after a delay of some eight years does not denote the date when the right to receive the monies accrued. In other words the issuance of the Form 16D does not and cannot enable or facilitate the creation of a “cause of action” for the purposes of limitation.

Our Decision We have no hesitation to find that when the Plaintiff applied for an order of sale of the Property, it is enforcing its right as a registered chargee by exercising its statutory remedy against the chargor, and this action falls under the second type of action under section 21(1) of section 256 of the NLC. The provision under section 21(1) of the Limitation Act 1953 provides a limitation period of 12 years from the date when the right to receive the money accrued.

The question as to when did the act of default of borrower accrue is the central issue in this appeal and it is a mixed question of law and fact. As far as the law is concerned, this Court has decided that it arose on the date when the plaintiff has the right to receive the monies accrued or the date when the debt could first be recovered by action.

ISSUE (a): Limitation As the defendant has raised the defence of limitation, the onus of proof is upon the Defendant to show that the default occurred more than 12 years ago. See, Juahir Sadikon v Perbadanan Kemajuan Ekonomi Negeri Johor [1996] 4 CLJ 1. 31

In the present case, the date of default was not mentioned in any of the affidavits filed by the Plaintiff and the Defendant. Learned counsel for the Defendant submitted that the Plaintiff’s cause of action against the Property was based on the registered Charge which was registered on 2.7.1997 and therefore the cause of action would have accrued around year 1998.

The Judicial Commissioner accepted the Defendant’s submission and made the following assumption: [15] …..Melihat kepada tarikh pada surat tawaran ialah 2 Julai 1997 dan tarikh gandaian didaftarkan ialah 12 November 1997 adalah selamat untuk menyatakan bahawa kebarangkaliannya ialah kemungkiran bayaran balik hutang berlaku dalam tahun 1998.

Learned counsel for the Defendant cited Wan Zubaidah’s case to support the contention that assumption can be made in absence of definite or specific default date.

We note that in Wan Zubaidah’s case, although there was no specific date of default in that case, the Court was able to estimate that the limitation would have ended by end of 1999 or before 2000 based on the evidence that the subject charge was first sought to be enforced vide the issuance of a Form 16D in 1987, a clear indication that there was default in repayment as in 1987. Twelve years from 1987 is 1999. On 31.5.2003, the bank issued a Form 16D against the 2nd Defendant and it was time barred. 32

In the present case, the Defendant only relied on the Letter of Offer issued on 2.7.1997 and the charge registered on 12.11.1997. However, there is absolutely nothing in these two documents to draw a reasonable inference as to when the loan amount became due or when the act of default of borrower accrued. Without such evidence the Court cannot determine when the time start to run and when limitation set in.

It is incumbent on the Defendant to produce the evidence and we regret to say that the Defendant has failed to do so. Accordingly, we find the learned Judicial Commissioner’s finding that the default could have happened in 1998 is plainly wrong. ISSUE (b): ACKNOWLEDGMENT OF DEBT ISSUE

In the Judgment, the learned Judicial Commissioner held that the Defendant’s letter dated 14.1.2013, 5.6.2014 and 28.11.2017 respectively [“the said letters”] are not an acknowledgement of debt.

Suffice it to say that in light of our finding that the Defendant has failed to prove that the limitation has set in, this issue is a non-starter.

For all the reasons aforesaid, it is our unanimous decision that there are appealable reasons to warrant the appellate intervention. The 33 decision of the High Court is therefore set aside and the appeals are allowed with cost of RM10,000.00 subject to allocator. Dated: 14th October 2019 Sgd YEW JEN KIE Court of Appeal Judge Putrajaya For Appellants : Robin Lim Dou Shing (Tan Kit Qian bersamanya) [AZHAR & WONG] For Respondents : Elaine Foong Hui Ling [ELAINE, YUN & ASSOCIATES] Notice: This copy of the court’s reasons for judgment is subject to editorial revision.