Sri Rimba Mentari Development Sdn Bhd v Southeast Asia Special Asset (B-02(A)-918-05/2017)

1 IN THE COURT OF APPEAL, MALAYSIA (APPELLATE JURISDICTION) CIVIL APPEAL NO: B-02(A)-918-05/2017 BETWEEN SRI RIMBA MENTARI DEVELOPMENT SDN BHD [CO. NO.: 209495-M] … APPELLANT AND SOUTHEAST ASIA SPECIAL ASSET MANAGEMENT BERHAD (SEASAM) [Pursuant to Vesting Order granted by High Court at Kuala Lumpur Originating Summons No: 24NCC-104-2009 dated 15.1.2010 wherein all assets together with rights interests and benefits of CIMB Bank Berhad vest in SEASAM] … RESPONDENT [In the Matter of the High Court of Malaya at Shah Alam Originating Summons No.: BA-24FC-1463-10/2016 In the Matter of sections 256 and 257 of the National Land Code 1965; And In the Matter of Charge under Charge 25086/2009 on land held under Grant No. 34366/M1-B/4/47, Lot No. 18262 Building No: M1-B 4th Floor Plot No: 47 2 located in the Mukim of Sungai Buloh, District of Petaling, State of Selangor Darul Ehsan And In the Matter of Order 83 of the Rules of Court 2012. Between Southeast Asia Special Asset Management Berhad (Seasam) [Pursuant to Vesting Order granted by High Court at Kuala Lumpur Originating Summons No: 24NCC-104-2009 dated 15.1.2010 wherein all assets together with rights interests and benefits of CIMB Bank Berhad vests in Seasam] … Plaintiff And Sri Rimba Mentari Development Sdn Bhd [Co. No.: 209495-M] … Defendant] 3 CORAM: HAMID SULTAN BIN ABU BACKER, JCA BADARIAH BINTI SAHAMID, JCA MARY LIM THIAM SUAN, JCA JUDGMENT OF THE COURT [1] This is an appeal against the decision of the High Court allowing the respondent’s application for a judicial sale of land belonging to the appellant. [2] These are the underlying facts. The respondent granted overdraft and term loan facilities amounting to RM220,000.00 to the appellant vide facility agreement, more particularly described as an “Agreement for choice shop-house loan” or “the CSHL Facility” [without title] dated 5.9.1997. The CSHL Facility was to part finance the purchase of an office unit located in Mukim Sungai Buloh, Daerah Petaling [the property], developed by Cahaya Kota Development Sdn Bhd. [3] As the property was held under a master title at the material time of the letter of offer dated 11.4.1997, the appellant agreed to the execution of an assignment pending issuance of the individual or strata title – see section 5.1 of the agreement. This assignment was in fact effected vide the facility agreement cum deed of assignment agreement dated 5.9.1997 – see pages 4 126 to 167 of the record of appeal. Sections 2.02, 2.03 and 3.01 of the assignment acknowledge that under the deed of assignment, the appellant had absolutely assigned to the respondent all its rights and title to and interest whatsoever in the property as security for the indebtedness – see page 219 of the record of appeal. Cahaya Kota Development Sdn Bhd had also given its consent to the assignment – see page 231. A first party charge over the appellant’s property was then created in favour of the respondent. With this arrangement, the appellant thus occupied the property as a licensee. [4] In breach of the terms of the letter of offer, the facility agreement and the charge, the appellant defaulted in its repayments. Consequently, the respondent proceeded to enforce its rights. [5] On 16.3.1998, the respondent issued a letter of demand for payment of the outstanding sum under the facilities – see page 253 of the record of appeal. On 21.5.1998, the respondent issued a letter recalling the loan or facilities and advising the appellant that it would be exercising its right to sell the assigned property by public auction – see page 257 of the record of appeal. [6] The respondent then filed in personam civil proceedings at the Kuala Lumpur Sessions Court vide Summons No. S3-52-13387-1998 and obtained summary judgment on 9.12.1999. On 17.4.2002, the appellant successfully appealed against the summary judgment. 5 [7] On 12.8.2004, the Court, on its own motion, issued the respondent a show cause which led to the KL Sessions Court proceedings being dismissed by the Court on its own motion on 27.8.2004. [8] The respondent reacted by taking two course of action. First, it applied to reinstate the KL Sessions Court proceedings on 10.1.2005. Second, it appealed against the order on 11.1.2005. This appeal was withdrawn the same day that it was filed. Meanwhile, the application to reinstate was dismissed by the Sessions Court on 29.3.2006. So was its appeal against that dismissal. After obtaining leave to appeal against that decision of the High Court on 5.11.2009, the respondent withdrew its appeal at the Court of Appeal on 14.12.2011. [9] Whilst the in personam proceedings were underway, the respondent also commenced an ad rem action towards exercising its right of sale of the assigned property. A public auction was fixed for 6.11.2006. [10] The auction did not take place because the appellant obtained an ex parte injunction on 3.11.2006 – see page 261 of the record of appeal. This order was made inter partes on 4.4.2007. [11] On 6.12.2010, the respondent filed an application under Order 14A of the Rules of the High Court 1980. On 9.3.2011, the Court gave the respondent leave to dispose of the property through an auction conducted under the National Land Code 1965 [the 2011 Order]. 6 [12] The respondent then issued a Form 16D notice dated 2.3.2015 under section 256 of the National Land Code 1965. This is part of the requisite steps that must be taken before any party may approach the Court for an order for a judicial sale of charged properties. The appellant did not respond to the notice; neither did the appellant settle the outstanding amount which by the time of proceedings before the High Court stood at RM646,107.80 for the overdraft facilities and RM390,446.53 for the term loan facilities. [13] On 18.10.2016, the respondent filed its originating summons seeking an order for a judicial sale. [14] The appellant objected to the application on the following grounds: i. the appellant is not familiar with the terms of the charge as it was never given a copy of the charge documents; ii. defective service of the Form 16D – it was served to an address where the appellant no longer resides; iii.

pursuant to earlier proceedings vide S1-22-1092-2006, the respondent had been injuncted from proceeding with a sale of the charged property; iv. the application was time barred by virtue of section 21(1) of the Limitation Act 1953; v. application of the doctrine of res judicata; vi. the respondent lacked locus standi. 7 [15] On 20.4.2017, the learned Judge granted the order for sale after finding that there was no cause to the contrary established by the appellant. The learned Judge agreed with the respondent and rejected all the above objections. [16] At the hearing of this appeal, we understand from learned counsel for the appellant that the main bone of contention rests with the issue of limitation, although the other grounds were by no means, abandoned. The respondent agrees. We have no reason to disagree with the parties and we shall deal with this critical issue first. [17] On the issue of limitation, the arguments are summarized as follow. [18] According to learned counsel for the appellant, section 21(1) of the Limitation Act 1953 bars the recovery action of the respondent; that the action in rem to sell the property arose more than 18 years ago, on 21.5.1998. The fact that the respondent had initiated an auction of the property on 6.11.2006 which though refused by the High Court on 9.3.2011, is acknowledgment that the cause of action had already arisen at that time. When the respondent did not appeal against the refusal of the High Court, the decision of the High Court is therefore final. [19] In response, the respondent focused on the 2011 Order, that until that order, the respondent was not able to sell the property. The respondent’s inability to sell was all due to the appellant and the orders that it procured from the Court. However, with the 2011 Order, the respondent issued the 16D Notice on 2.3.2015. When the appellant failed to remedy within 14 days 8 from the date of service of the notice, time under section 21(1) began. The respondent relied on the Court of Appeal decisions in Peh Lai Huat v MBF Finance Bhd [2011] 3 MLJ 470 and Jigarlal K Doshi @ Jigarlal a/l Kantilal v Resolution Alliance Sdn Bhd & Another [2013] 3 MLJ 61. Since the application for a judicial sale was filed in 2016, the application was clearly filed in time and there was therefore no cause to the contrary shown by the appellant. [20] The learned Judge agreed with the respondent and applied Peh Lai Huat and Jigarlal K Doshi. [21] Broadly, both decisions held that the cause of action which is the right to exercise the statutory remedy of an order for sale does not arise until after the chargee has failed to remedy the default specified in the Form 16D notice issued under section 256 of the National Land Code 1965. The learned Judge found that since the appellant had not remedied the default specified in the Form 16D issued on 2.3.2015, the cause of action and thereby the right to foreclose arose at this point. The Originating Summons filed on 18.10.2016 was consequently found to be valid and filed within time. Our deliberations and decision [22] This Court has in no less than three decisions departed from the two decisions cited and relied on at the High Court. First, in the case of Sivadevi a/p Sivalingam v CIMB Bank Berhad (Civil Appeal No: J-02(A)-59- 01/2017, later in Lim Ban Hooi & Wong Yoke Wan v Malayan Banking 9 Berhad (Civil Appeal No: W-02(A)-842-05/2016) and more recently in Wan Zubaidah bt Wan Mahmood & Another v CIMB Bank Berhad (Civil Appeal No: B-02(A)-831-04/2017). In summary, these decisions hold that the 12- year limitation period under section 21(1) of the Limitation Act 1953 runs from the date when the right to receive the money accrued, and not from the date of default of the 16D notice issued under section 256 of the National Land Code. The date when the right to receive the money accrued would be the date of breach of the charge or underlying agreement. We will elaborate further on this but for now, on the facts and circumstances in the present appeal we do not find any reason to depart from that view. These are our reasons. [23] First, the uncontroverted fact is that the respondent’s right to sell the charged property arose when it recalled the loans after the appellant defaulted in its repayments, thereby terminating the facilities granted under the facility agreement cum deed of assignment agreement. This was on 21.5.1998 as seen from the respondent’s then solicitors’ letter at page 257 of the record of appeal which inter alia stated: “Following the said recall of the loan, our client hereby instructs us that they intend to exercise their right to sell the assigned property i.e. 3rd Floor, Mayang Plaza, Held under master title grant No. 34366 Lot 18262 Mukim Sungai Buluh, District of Petaling, State of Selangor by public auction pursuant to clause 3.03 of the Deed of Assignment dated 5/9/97”. 10 [24] By that same notice, the appellant’s licence to occupy the property was “terminated forthwith”. [25] This letter captioned “Notice to Quit and Vacate” was issued after the appellant failed to settle the outstanding balance following a Notice of Demand dated 16.3.1998 that had been issued to the appellant – see page 253 of the record of appeal. In that earlier Notice of Demand, the appellant’s failure to regularize the account was identified, the amount outstanding was made known, and the appellant was warned that there were instructions to “recall the said Term Loan Facility and the Current Account Overdraft facility and to also demand, which we hereby do, the settlement of the said sum of RM121,285.20 and RM103,07.70 together with the prescribed interest to our clients or to us as Solicitors within fourteen (14) days hereof.” [26] In our view, the respondent’s letter of 21.5.1998 saw the respondent’s solicitors carrying into effect the respondent’s instructions after the facilities had been recalled. And, it is only after the facilities have been recalled that the respondent would have a right to enforce the charge. We are of the firm view that the respondent could not have issued a valid letter of demand and a notice to quit and vacate had its right to action not already arisen by this time. It is the failure to repay as promised that gives the respondent the right to demand for monies that it ought to have received from the appellant, and the right to enforce the charge. [27] On this date, 21.5.1998, the respondent would have an in personam action against the appellant and an in rem action against the security of the charged property. The limitation period in respect of the in personam action 11 would be six years [section 6 of the Limitation Act 1953] while the in rem action is twelve years [section 21 of the Limitation Act 1953]. The fact that the respondent embarked on the two courses of action, before the KL Sessions Court and then the sale by public auction, attests to this. [28] In both circumstances, the limitation period would commence from the date when the cause of action accrued – see the Federal Court’s decisions in Nasri v Mesah [1971] 1 MLJ 32, followed in Tenaga Nasional Bhd v Kamarstone Sdn Bhd [2014] 1 CLJ 207. More specifically, in the case of an action seeking to enforce a charge of land, the time period of twelve years runs from when the right to receive the money accrued. That right would have accrued from the default under the facilities agreement and not from the failure to comply with the Notice 16D issued under the National Land Code 1965. By this reasoning, the limitation period of 12 years under section 21(1) would then set in on 20.5.2010. [29] Recognizing this position of its rights, and this is necessarily assumed, the respondent proceeded to sell the charged property. A public auction was scheduled for 6.11.2006 but an injunction was issued on 3.11.2006 vide KL High Court CS No. S1-22-1092-2006, preventing the auction from taking place until such further order – see page 261 of the record of appeal. This was also an admitted fact in those proceedings where it was further agreed that by an inter partes order of the Court granted on 4.4.2007, the injunction was extended until the full trial – see page 288 of the record of appeal. [30] On 9.3.2011, the appellant obtained a further order in the same proceedings [KL High Court CS No. S1-22-1092-2006] that the respondent 12 be restrained from disposing the charged property save by an order for a judicial sale under the National Land Code 1965 – see page 266 of the record of appeal. [31] Meanwhile, strata titles were issued on 1.11.2001 to the developer [Cahaya Kota Development] of the whole property which till that point in time, was held under a master title. On 18.11.2009, the strata title was transferred and registered in the appellant’s name – see page 250 of the record of appeal. [32] Now, section 21(1) of the Limitation Act which, for the purposes of the present appeal, must be read with section 21(2) that provides as follows:

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

(1) No action shall be brought to recover any principal sum of money secured by a mortgage or other charge of 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 13 his possession shall not, for the purposes of this subsection, be deemed to have accrued until the date on which his possession discontinued. [33] In Sivadevi, applying the Federal Court decision in Nasri v Mesah [1971] 1 MLJ 32 [followed later in Tenaga Nasional Bhd v Kamarstone Sdn Bhd [2014] 1 CLJ 207], this Court decided that pursuant to section 21(1) of the Limitation Act 1953, time runs from the date when the right to receive the money accrued. That right accrued when the appellant was in breach of the agreement and the charge by defaulting in repayment. As decided by the Federal Court in Nasri v Mesah, “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.” The Federal Court further held 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.” [34] That right was therefore dependent on the substantive rights and obligations created pursuant to the contractual arrangements under both the loan agreements and the charge, and not, the 16D notice issued under section 256 of the National Land Code. From the terms of sections 21(1) and (2) of the Limitation Act, the relevant date for the purpose of computation of the period of limitation is the date of default in repayment and thereby the corresponding right to receive the money that had accrued, and not, the date of issuance of the Form 16D. 14 [35] This approach was adopted in Lim Ban Hooi and later in Wan Zubaidah bt Wan Mahmood. In the latter case, the Court of Appeal agreed and adopted the approach in Sivadevi and said: [45] More significantly, the latter (i.e. the issuance of a Form 16D under section 256 of the NLC) cannot be utilised interchangeably with the first (i.e. the date when the Bank gives notice to the debtor of a fundamental breach namely default in the repayment of the debt entitling the Bank to recall the entire loan and terminate the loan facility) so as to conclude that time starts to run from the date when the Form 16D was issued for the purposes of computation of the limitation period, as extensively and comprehensively explained by this Court in Sivadevi’s case as well as Lim Ban Hooi and Wong Yoke Wan v Malayan Banking Berhad (Civil Appeal No: W02(A)-842-05/2016). [46] For these reasons we are of the considered view that the Bank’s application for a judicial sale under section 256 of the NLC is caught by limitation under the provisions of section 21(1) of the Limitation Act 1953. As such the Bank is unable to enforce its charge in view of the fact that more than 12 years have accrued since the date when the default in the repayment of the debt arose in 1987. It is to be noted that the relevant date is the date of default in repayment and not the date of issuance of the Form 16D. [47] In so concluding, we followed and adopted the reasoning in Sivadevi’s case, which, with respect, we concur. It is of considerable importance that the adjectival provision in section 256 of the NLC is not utilised to circumvent the substantive legal provisions of the Limitation Act 1953. It bears repetition that section 256 of the National Land Code serves the specific purpose of providing notice of the chargee’s intention to initiate a judicial sale of the charged land to the debtor. It therefore affords the debtor an opportunity to remedy his failure to repay the debt. It does not amount to the actual enforcement of the creditor’s substantive legal 15 right. That will only ensue upon the pronouncement and effecting of an order for sale judicially. [48] By contrast, the provisions of the Limitation Act 1953 in section 21 prescribe substantive legal rights because it provides that the creditor or chargee cannot pursue any right created by a charge over land after the expiry of a period of twelve years. To that extent it statutorily brings to an end the substantive rights of the chargee to recovery of its debt by way of a judicial sale after a period of twelve years from when the debt first became due. This affords 19 finality and certainty to commercial banking law. That right cannot easily be displaced. It ought not to be displaced simply because a creditor chooses to issue a form indicating that it is about to enforce its rights, if such notice comes well after the period statutorily prescribed by Parliament under the Limitation Act 1953, this would amount, in effect, to a circumvention of section 21. That ought not to be countenanced. To do so would be to give a creditor a free rein as to when it chooses to enforce its rights as chargee. This could theoretically ensue for an indeterminate period. Apart from contravening the express provisions of the Limitation Act 1953, it would cause undue prejudice and hardship to the debtor, who would be burdened with a far increased sum than that envisaged by the initial loan in view of the levy of interest. And that is precisely the case here, where the initial debt was in the region of RM180,000-00 and now stands at no less than RM643,000 odd, some 30 years later. [36] Similarly in the present appeal, the respondent’s right to receive the money accrued when the appellant was in default and that would be 21.5.1998. As decided in Credit Corporation (M) Bhd v Fong Tak Sin [1991] 1 MLJ 409, at that date, there was clearly in existence a person who can sue [the respondent] and another who can be sued [the appellant] and when all the facts have happened which are material to be proved to entitle 16 the plaintiff to succeed [the breach and the ensuing right to receive the money accrued]. [37] The existence of a cause of action was implicitly acknowledged by the respondent in their solicitors’ letter dated 21.5.1998 and by the respondent’s own actions in recalling the facilities and exercising its right to sell the assigned property by way of a public auction. The public auction scheduled for 6.11.2006 was called off pursuant to an order of Court on 3.11.2006. [38] We therefore have no hesitation in applying the decisions of this Court reached in Sivadevi, Lim Ban Hooi and Wan Zubaidah bt Wan Mahmood to the instant appeal. [39] Two questions however, arise for consideration. First, whether by virtue of the various actions of the appellant and the orders granted by the Court, is the computation of the twelve year limitation period in any way affected? Has the period of limitation been postponed or suspended? The second question is whether the fact that the subject property of appellant was held under a master title as opposed to an individual or strata title until 2009, has any bearing whatsoever on the construction of section 21 of the Limitation Act 1953 and thereby the respondent’s right to approach the Court for a judicial sale. [40] The appellant argues that the answer to both question must be in the negative while the respondent obviously contends otherwise. 17 [41] On the first question, we are of the considered view that the period of limitation is not postponed or suspended by reason of the actions of the appellant or the orders granted by the Court. The terms of section 21 as well as the other provisions in the Limitation Act, do not envisage such postponement or suspension, and it is not the function of the Court to read into the legislation words or intentions which are obviously not there. [42] We observe that the respondent did not appeal against the orders made in KL High Court CS No. S1-22-1092-2006, or to even set aside such orders. It was open to the respondent to do so, especially with the limitation period still “running”. Instead, it was only on 6.12.2010 that the respondent approached the Court with an application filed under Order 14A of the Rules of the High Court 1980 for an order that it be allowed to sell the charged land. On 9.3.2011, the respondent was granted leave to dispose the charged property by a judicial sale under the National Land Code 1965. [43] As already expressed, we are of the view that for the purposes of limitation, time continues to run. The order of the Court dated 4.4.2007 injuncting the respondent from proceeding with the order for sale does not suspend the running or computation of the period of limitation. We find justification for the respondent to keep one eye on the limitation clock, so to speak, and the other on any concurrent proceedings. It was incumbent on the respondent, as a vigilant litigant to take active and necessary steps in order to secure for itself the right to diligently proceed to prosecute its claim and seek an order for judicial sale, more so when the period of limitation was expiring. 18 [44] As it is, it was not until 6.12.2010 that the respondent approached the Court for an order under Order 14A which was granted on 9.3.2011. By this time, limitation had already set in. It set in almost six months earlier, on 20.5.2010. It is not available to the respondent to use the orders of Court for its own inactivity and indolence. [45] As expounded by the Federal Court in Credit Corporation [supra]: “The doctrine of limitation is said to be based on two broad considerations. Firstly, there is a presumption that a right not exercised for a long time is non-existent. The other consideration is that it is necessary that matters of right in general should not be left too long in a state of uncertainty or doubt or suspense. The limitation law is promulgated for the primary object of discouraging plaintiffs from sleeping on their actions and more importantly to have a definite end to litigation. This is in accord with the maxim interest reipublicae ut sit finis litium that in the interest of the state there must be an end to litigation. The rationale of the limitation law should be appreciated and enforced by the Courts.” [46] Procuring the order of Court for a judicial sale on 20.4.2017 does not alter the fact that the order was invalid by reason of time-bar, giving rise to real contrary reasons why the order for sale ought not to have been granted by the High Court. If one looks at the time gaps between the various actions of the respondent towards selling the property, it becomes patently clear that the respondent had taken its time to realizing the security. Even after the 2011order, it was not until 2016 that the respondent proceeded to seek an order for sale. 19 [47] On the second issue of whether the status of the title has only bearing on the respondent’s right to enforce the charge, we are of the further view that the answer here is also in the appellant’s favour. [48] On 6.3.2018, we had directed the parties to address us on whether there is any difference between property held under a master title and property held under any other title insofar as section 21 of the Limitation Act is concerned. The respondent had argued that for the purposes of limitation, time can only commence after the individual titles were issued. Since such title was only issued in 2009, and the charge was entered thereafter, time runs only from 2009 in which case, the respondent’s action filed in 2016, was not time-barred. We must say that this is actually the respondent’s alternative argument to the earlier submission that time runs from the date of the 2011 Order. [49] It is our firm view that the status of the title to the charged property does not affect the right of the respondent to apply for an order for sale. The respondent always knew the nature of the title in the property that it was held under a master title and had thus agreed to a security in the form of an assignment. And, it was pursuant to the assignment that the respondent exercised its right to the sale of the assigned property. [50] Section 21(1) further makes no distinction on the character or nature of the title; whether it be master, individual, strata, final or qualified. In fact, section 21 does not focus on the quality of the title at all. Section 21(1) 20 instead, only makes reference to the security being in the form of either a mortgage or “other charge on land”. [51] In any case, where the property is held under a master title, the charge created at the material time is an equitable charge. And, in the Federal Court decision of Mahadevan s/o Mahalingam v Manilal & Sons (M) Sdn Bhd [1984] 1 CLJ 286, the Federal Court was of the view that the words “or other charge on land” in section 21(1) includes equitable charges and liens. [52] We are therefore in full agreement with the appellant that where the exercise of the right of sale of the property is barred under section 21(1) of the Limitation Act 1953, the grant of sale by the learned Judge is indeed, contrary to “some rule of law or equity”. We are amply satisfied that the appellant has shown that granting a sale which is time-barred falls within the three categories of cases that are recognized by the Federal Court in Low Lee Lian v Ban Hin Lee Bank Berhad [1997] 1 MLJ 77 to amount to “cause to the contrary” within section 256(3) of the National Land Code 1965. [53] For all these reasons, the appeal must be allowed with costs. The order of the High Court is set aside. Dated: 25th October 2018 (MARY LIM THIAM SUAN) Judge Court of Appeal Malaysia 21 Counsel/Solicitors For the appellant: W P Leong Messrs W P Leong & Partners Lot 4.01 & 94.02 4th Floor, Sun Complex, Jln Bukit Bintang Bukit Bintang 55100 For the respondent: Gurmeet Kaur Messrs [Shaikh David & Co.] A1-9-9, Arcoris Mont’ Kiara No. 10, Jln Kiara 50480 Kuala Lumpur