IN THE FEDERAL COURT OF MALAYSIA
AT PUTRAJAYA
(APPELLATE DIVISION)
CIVIL APPEAL NO. 02-14 OF 2003 (W)
BETWEEN
TAN KONG MIN … APPELLANT
AND
MALAYSIAN NASIONAL INSURANCE … RESPONDENT
SDN BHD
CORAM:
SITI NORMA YAAKOB, FCJ
ALAUDDIN MOHD. SHERIFF, FCJ
JUDGMENT OF THE COURT
BACKGROUND FACTS:
1. The
Respondent had, on
2. By
way of security, the Appellant, had among others created a first legal charge
over his land held under Title No. G.M. 1984, Lot No 11393, Mukim of Kuantan,
District of Kuantan, Pahang (‘the said land’) in favour of the Respondent.
3. The
Appellant had defaulted in the repayment of the housing loan and Respondent
thereafter exercised their statutory rights and foreclosed the said land by way
of a public auction on
4. The
said land was sold for RM80,100.00 leaving a balance of RM336,012.52 still due
and owing from the Appellant to the Respondent.
5. Pursuant
to Clause 7 of the Annexure to the charge, the Appellant, as chargor, had
agreed that he shall pay to the Respondent the difference between the amount
due and the amount realised from the sale and, until such payment, will also
pay interest on the balance due at the prescribed rate with monthly rests.
6. Relying
on Clause 7 of the Annexure to the charge, the Respondent had through their
solicitors, Messrs Azim Ong & Krishnan, demanded for the principal sum and
interest remaining due from the Appellant by letters dated
7. The
Respondent’s claim was dismissed by the learned Judicial Commissioner, on
8.
Dissatisfied with
the decision of the Court of Appeal, the Appellant applied to this court for
leave to appeal which was granted on
THE ORDER GRANTING LEAVE:
9. The
order granting leave, posed the following questions for the determination of
this Court.
Question (1): Whether a claim for balance after sale is a claim
founded on contract and therefore subject to the limitation period of 6 years
under section 6(1)(a) of the Limitation Act 1957 (‘the Act’) or a claim for
money secured by charge on land and thereafter subject to the limitation period
of 12 years under section 21(1) of the Act?
Question (2): If a claim for balance after sale is a contractual
claim and therefore subject to the limitation period of 6 years under section
6(1)(a) of the Act, when does the cause of action accrue and the limitation
period begin?
Question (3): If a claim for balance after sale is a claim for money
secured by a charge on land and therefore subject to the limitation period of
12 years under section 21(1) of the Act:-
(i)
when does the cause
of action accrue and the limitation period begin?
(ii)
is the interest
component of the claim subject to section 21(5) of the Act?
(iii)
for section 21(5)
of the Act, when does the cause of action for interest in arrears accrue and
the 6 years limitation period begin?
(iv)
if the claim for
the balance after sale consists of mixture of both principal sum and interest
and the claim for interest is barred by section 21(5) of the Act, is the claim
barred altogether?
QUESTION (1):
10. The
primary issue in this appeal concerns the provisions of the Act. It is the Appellant’s contention that the Respondent’s
claim for the balance after sale is a claim founded on contract and therefore
subject to the limitation period of 6 years under section 6(1)(a) of the Act
whilst the Respondent contends that the claim is a claim for money secured by
charge on land and therefore subject to the limitation period of 12 years under
section 21(1) of the Act.
11. Section
6 provides as follows:-
“6. Limitation
of actions of contract and tort and certain other actions.
(1)
Save as hereinafter provided the following actions
shall not be brought after the expiration of six years from the date on which
the cause of action accrued that is to say –
(a)
actions founded on contract or on tort;
(b)
……………..…………………………………………..…..;
(c)
………..…………………………………………………....;
(d)
…..………………………………………………………....;
(2)
...………………………...……………………………………….;
(3)
………………………………....……………………………...…;
(4)
……………………………………...……………………...…….;
(5)
Nothing in this section shall apply to –
(a)
………………………...………………….………….…; or
(b)
any action to recover money secured by any mortgage of
or charge on land or personal property.
(6) …………………………………………………………………...”
12. Section
21 provides as follows:-
“21. Limitation of actions to recover money
secured by a mortgage or charge or to recover proceeds of the sale of land.
(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.
(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…………………………………………………………………”
13. Having
had a close look at both sections mentioned above, we are of the view that
section 6 cannot apply in this case in view of the express exclusion of “any
action to recover money secured by any mortgage of or charge on land” in section
6(5)(b). The action is therefore not
founded on a claim on contract under section 6.
14. In
our judgment, the applicable provision is section 21. Section 21(1)
specifically refers to an action to recover moneys secured by a charge which is
an action in personam, whilst section 21(2) specifically refers to a foreclosure
action in respect of mortgaged personal property which is an action in
rem. The limitation period is therefore
twelve (12) years from the date when the right to receive the money accrued or
twelve (12) years from the date on which the right to foreclose accrued
respectively.
15.
What we have said
thus far would answer Question (1) posed by the Appellant. Our answer to Question (1) above makes
Question (2) superfluous. We would,
therefore, refrain from answering it.
Having said that, we shall now proceed to consider Question (3) (i)
above.
QUESTION (3)(i)
16.
As we have mentioned
earlier, the claim by the Respondent against the Appellant is for the
difference between the amount due under the housing loan and the amount
realised from the sale of the said land charged to the Respondent by the Appellant
and interest thereon based on the Respondent’s contractual right pursuant to Clause
7 of the Annexure to the charge signed by the Appellant in his capacity as the
chargor.
17.
Clause 7 of the
Annexure to the charge which carries the heading “Personal Liability of
Chargor” provides as follows:-
“If the amount
realised by the Lender on a sale of the Said Land under the provisions of the
National Land Code after deduction and payment from the proceeds of such sale
of all fees, dues, costs, rents, rates, taxes and other outgoings on the Said Land
is less than the amount due to the Lender and whether at such sale the Lender
is the purchaser or otherwise the chargor (s) shall pay to the Lender the
difference between the amount due and the amount so realised and until such
payment will also pay interest on such balance at the Prescribed Rate as
aforesaid with monthly rests.”
18. From
the reading of Clause 7 above, it is obvious to us that prior to the auction,
it would not be possible for the Respondent to ascertain the exact amount that
can be realised from the sale of the said land and whether there will still
remain any excess amount due to the Respondent.
19. It
follows, therefore, that the Respondent can only enforce their right against
the personal liability of the Appellant under Clause 7 when the sale has been
conducted and the excess amount due, if any, has been ascertained.
20. Only
after the auction was conducted on 16th March, 1992 and a sum of
RM80,100.00 was realised from the sale did the Respondent manage to ascertain
that a sum of RM336,015.52 was still due and owing from the Appellant to the Respondent
with interest still accruing thereon until full settlement.
21. The
question that comes to mind is when does the cause of action with regard to the
personal liability of the chargor arise or deemed to have accrued?
22. In
determining when a cause of action is deemed to have accrued, Yong J. in Lim Kean v. Choo Koon (1970) 1 MLJ 158
had this to say-
“A cause of action
normally accrues when there is in existence a person who can sue and another
who can be sued, and when all the facts have happened which are material to be
proved to entitle the plaintiff to succeed. (See Halsbury’s Laws of England. 3rd
Edn. pages 193 and 194).
In Cooke v Gill (1),
Brett J. defined “a cause of action” to mean “every fact which is material to
be proved to entitle the plaintiff to succeed.”
This definition was approved by the Court of Appeal in Read v Browne (2)
in which Lord Esher M.R. in his grounds of judgment said that it included
“every fact which if would be necessary for plaintiff to prove, if traversed,
in order to support his right to the judgment of the court.”
After reviewing
these and other authorities including Barton v North Staffordshire Rly. Co. (3)
and Welch v. Bank of England (4), I have come to the conclusion that
the period of limitation does not begin to run until there is a complete cause
of action, and a cause of action is not complete when all the facts have not
happened which are material to be proved to entitle the plaintiff to succeed.”
23. The
Supreme Court in Credit Corporation (M)
Bhd. v. Fong Tak Sin (1991) 1 MLJ 409 referred to Lim Kean v. Choo Koon
(supra) and the authorities cited therein and held that it is established that
the cause of action normally accrues where there is in existence a person who
can sue and another who can be sued and when all the facts have happened which
are material to be proved to entitle the plaintiff to succeed.
24. In
the circumstances of the present appeal before us, we are of the view that the
point in time where all the material facts are said to be in existence to
render the cause of action complete would be after the sale has been conducted
and the differential amount remaining due to the Respondent has been
ascertained.
25. Therefore,
the earliest possible date the Respondent could bring an action against the Appellant for breach of
his personal covenant under Clause 7 is on
26. Since
the Respondent’s cause of action arose on
27. In the
course of his submissions, learned counsel for the Respondent drew our
attention to the case of Hongkong &
Shanghai Banking Corp. Ltd. v. Wan Mohd bin Wan Ngah (1991) 3 MLJ 119 (HSBC’s
case). We find that the facts in that
case are somewhat similar to the facts of the case under appeal.
28. In
that case, the plaintiff bank had granted a housing loan to the defendant on
the security of the latter’s land which was charged to the plaintiff bank. The
outstanding amount due as at
29. Subsequently,
there was an application by the plaintiff bank for the decision of the High
Court, Kuantan on the following questions: ‘whether the plaintiff being also
the chargee of property comprised under HS(M) 13399 Lot 3134/29 in the Mukim of
Kuala Kuantan (‘the said land’) was entitled at law and in equity to proceed by
way of a civil suit before first realizing the security under the charge and if
so, whether the plaintiff was entitled to proceed concurrently on all its
remedies.’
30. The
learned High Court Judge, Lamin J (as he then was) answered the question in the
negative and held that if the amount realized by the chargee on the sale of the
charged land was less than the amount due to the chargee, the chargor shall pay
to the chargee the difference between the amount due and the amount so
realized. So the personal liability of
the chargor was only to the extent of the balance of the amount due (Clause 8). Upon reading the charge annexure as a whole,
both the chargee and chargor were bound by the terms and conditions of the
charge and to realize that amount owing, the land must be sold in accordance
with the provisions of the National Land Code 1965. If the amount realized from the sale was not
sufficient to cover the amount due then it was implied that a separate action
may be taken against the debtor/chargor to recover the balance should he fail
to pay the difference. The plaintiff’s
appeal to the Supreme Court vide Civil Appeal No 02-65-1991 was heard on
31. Clause
7 of the Annexure to the charge in the present appeal as quoted earlier is in
pari materia with Clause 8 of the Annexure to the charge in HSBC’s case above.
32. This
would therefore mean that the cause of action against the Appellant as chargor
as regards his personal liability in the present appeal will only accrue after
the differential amount has been ascertained i.e. after the land has been sold.
33. In
short, the contractual provisions of the Annexure to the charge provides for
two (2) separate causes of action. The
first is statutory in nature i.e. the foreclosure action under the National Land
Code 1965 (action in rem). The second
which arises only after the foreclosure action (and if there is still a surplus
owing) is the action in personam against the chargor.
34. The
decision of Lamin J (as he than was) in HSBC’s case (supra) was also followed
by Haidar J (as he then was) in Leong
Yick Realty Co. Sdn. Bhd. v. Asia Commercial Finance (M) Sdn. Bhd. (1994) 2 MLJ
308 where his Lordship held (at page 313) –
“In any event, as
the debt is disputed by the plaintiff, the defendant should proceed by way of a
separate action against the plaintiff to recover for the shortfall. In fact,
the case of the Hongkong & Shanghai Banking Corp. Ltd. v. Wan Mohd. bin Wan
Ngah 4, relied on by counsel for the defendant, would seem to
support that a separate action need to be taken against the plaintiff to
recover the shortfall.”
35. At
the risk of repetition, we would reiterate that the personal liability of the Appellant
as chargor is in respect of the difference between the amount due under the
housing loan and the amount realised from the sale of the said land only and the
cause of action against the Appellant is only complete upon the conclusion of
the sale of the said land. Indeed, if a
suit is brought against the chargor before the completion of the foreclosure
action and the determination that there is a balance still owing, such a suit
could be struck-off as being premature.
36. That
brings us to the next question i.e. when does the period of limitation commence?
37. It
is the Respondent’s contention that the limitation period begins to run when a
demand is made by the Respondent on the Appellant not as chargor but as a
debtor for the payment of the difference between the amount due under the
housing loan and the amount realised from the sale of the said land.
38. The
first notice of demand was issued by the Respondent’s solicitors on
39. The
Appellant, on the other hand, relying on section 6 (1)(a) of the Act, contends
that there is only one cause of action i.e. an action founded on contract. The moment the Appellant fails to pay the
first instalment due (i.e. on
40. To
our minds, the Appellant’s contention, if allowed to succeed, would result in a
perverse outcome. If, as suggested by the Appellant, time begins to run from
the time the Appellant first defaulted i.e. 25th September, 1986 (7 days
after the first demand was made), this would mean that the Respondent should
have proceeded by way of a civil suit (when the Appellant defaulted in
repayment of his housing loan) concurrently with realizing the security under
the charge in order to avoid the danger of being caught by limitation, instead
of realizing the security under the charge first and, upon the sale being
concluded, to institute a separate action to recover the insufficient amount
from the chargor personally as being done here.
This, if implemented, it would run counter to the decision in HSBC’s
case which in our judgment is the correct decision.
41. As
is the case here, where the Respondent is also a chargee of the property and the only terms that bind the
parties are the terms set out in the Annexure to the charge, the Respondent is
not entitled at law and in equity to proceed by way of a civil suit before
first realizing the security under the charge. The proper mode of recovery is
to proceed by way of foreclosure and if there arises any difference to the
amount due after deducting the amount realised from the sale, a separate action
should be taken against the chargor on his personal liability to recover the balance.
42. The
facts in the present appeal are different and can be distinguished from the
facts In re McHenry. McDermott v. Boyd (Barkers claim) (1894) 3 Ch. 290 CA relied
upon by counsel for the Appellant.
43. In
the present appeal, the only form of agreement or covenant agreed to by both
the Respondent (chargee) and the Appellant (chargor) is the Annexure to the
charge which stipulates the terms and conditions of the charge. To realize the amount owing, the land must be
sold in accordance with the provisions of the National Land Code 1965. As we
have said earlier, the personal liability of the chargor is only for the difference
between the amount due and the amount realized from the sale of the said land.
44. In
McHenry’s case, there is no requirement that in order for the plaintiff to
realize the amount owing, he must first sell the bonds deposited by the
defendant. In that case Lindley L.J.
was right when he said :-
“It means that, if
the amount is not paid when it becomes payable, Barker may realize the
securities, giving Mc Henry credit for the amount of the proceeds. The promise to pay the deficiency does not create
a new obligation to pay: it only applies the old obligation to a reduced
sum. The realization of the security
does not add to the cause of action; the cause of action accrued long before.”
45. Unlike
the facts of the present appeal where the right of the Respondent chargee and
the mode of realizing the amount due has been prescribed in the Annexure to the
charge, the plaintiff in McHenry’s case was free to recover the amount due upon
default by way of a civil suit whether solely or concurrently and the sale of
the security was just to reduce the amount owing.
QUESTIONS (3) (ii) (iii) AND (iv)
46. All
these questions refer to section 21(5) of the Act. In the course of his submissions, learned
counsel for the Respondent urged upon us to refrain from answering these questions
on the ground that they did not come within the ambit of section 96(a) of the Courts of Judicature Act 1964. He
submitted that, in the first place, leave should not have been granted in
respect of these questions. In support,
he cited the Federal Court case of Sri
Kelangkota – Rakan Engineering JV Sdn Bhd & Anor v. Arab-Malaysian Prima
Realty Sdn Bhd & 7 Ors. (2003) 4 AMR 337.
47. The
issue which arose in Sri Kelangkota was whether leave ought to have been
granted in the first place based on the circumstances in that case and whether
the judgment must be based on issues raised in the application for leave.
48. The
Court there held that, whether leave should have been given or not, it had been
dealt on the merits by the High Court and the Court of Appeal. It was not simply a matter of lack of
jurisdiction. Further, no preliminary
objection had been raised at the appeal stage against the granting of the
leave. In the light of the authorities,
the Court was not prevented from reconsidering the issue of leave.
49. Delivering
the judgment of the Court, Abdul Malek Ahmad, FCJ (as he then was) had this to
say (at page 358) –
“Despite that, in
the light of the authorities, we would hold that we are not prevented from
reconsidering the issue of leave again.
Coming back to the questions formulated for determination by this court,
it is our view that the questions do not involve a question of importance upon
which further argument and a decision of this court would be to public
advantage. The questions merely relate to the set of facts in the appeal and
the application of the settled principles of law as is plain from the judgment
of the Court of Appeal. As such, they do
not come within the ambit of section 96(a) of the CJA and, therefore, there is
no necessity or purpose for this court to answer the questions posed regardless
of the fact that leave to appeal has in fact been granted at an earlier
hearing.”
50. For
the same reasons, we would agree with the submission of learned counsel for the
Respondent that these questions do not come within the ambit of section 96(a)
of the CJA and we would refrain from answering them.
51. There
is one other reason why we feel this issue concerning section 21(5) of the Act
ought not to be considered in this appeal.
A perusal of the notes of evidence shows that, in fact, the Appellant
was all along relying on section 6 of the Act as a complete defence to defeat
the whole claim. The amount claimed was
not disputed. Since this is an issue of
law dependent upon a finding of facts, the Court of Appeal was correct when it
refrained from deciding on the effect of section 21(5) of the Act in this case
since it was not pleaded nor was any evidence presented to substantiate it nor
was any arguments made by the Appellant on it in the High Court or Court of
Appeal.
52. The
same issue was addressed by this court in Lim
Geak Liang v. East
53. In
that case, the plaintiff took a policy of insurance (‘the policy’) from the
defendant. During the currency of the
policy, he accidentally chopped off his left thumb. The plaintiff later gave notice of the
accident and submitted his claim for compensation for permanent disablement
which the defendant refused on the grounds, inter alia, that he was in breach
of condition 4 of the policy when he failed to inform the defendant that during
the currency of the policy, another policy had been issued to him by another
insurance company. The plaintiff had
become a member of a discount card scheme and had been insured under the Group
Personal Policies.
54.
In the Sessions Court,
the plaintiff contended that he was not required under condition 4 to disclose
any other insurance effected against accident where such insurance was effected
after or during the policy with the defendant.
The Sessions Court Judge rejected the plaintiff’s claim and the High
Court affirmed the decision. The
plaintiff appealed to the Federal Court on the ground that by virtue of the
words ‘excluding coupon’ appearing in condition 4, the High Court Judge had
erred in finding that the plaintiff should have notified the defendant of the
insurance coverage under the Group Personal Policies. Counsel for the defendant objected to this
new issue which was never pleaded and argued in the courts below.
55. This
Court held that whether or not the plaintiff’s second policy came under the
exclusion clause must necessarily depend on the facts. The evidential burden was on the plaintiff to
bring himself within the exception. This
can only be resolved by the court below after hearing the evidence adduced by
the plaintiff.
56. Mohamed
Dzaiddin FCJ (as he then was) in delivering the judgment of the Court had this
to say (at page 523) -
“In Yong Mok Hin
v. United Malay States Sugar Industries Ltd [1967] 2 MLJ 9 at p 16, the Federal
Court adopted the observations of Reay J and Lord Finlay LC in A-G v Pang Ah
Yew [1934] MLJ 184 at p 187 and Banbury v Bank of Montreal [1918] AC 626
respectively, that on general principles, where a decision on a question of law
is dependant upon a finding of fact which was not made by a judge or jury
because the question was not raised or put at the trial or where the question
of law cannot be resolved without further evidence not available on the
record, a court of appeal would not
interfere with the judgment or verdict of the lower court.”
57. From
the notes of proceedings in the courts below, we are satisfied that the issue
of section 21(5) of the Act was never raised by the Appellant’s former
counsel. In fact, the argument of the Appellant’s
counsel before the learned High Court Judge merely centred around section 6 of
the Act in order to defeat the whole claim.
Nowhere was the issue of section 21(5) of the Act addressed or argued
before the judges below, because otherwise, something would have been said in
their respective judgments.
58. For
the reasons we have stated above, we decline to answer Questions 3 (ii) (iii)
and (iv) above.
59. Even
assuming that we have to answer these questions, our answer would be that section
21(5) of the Act would apply since the Respondent’s action is governed by section
21 thereof.
60. However,
the Respondent’s right of action to recover interest is not time-barred since
their right to bring the action to recover the shortfall sum and interest
thereon crystallised on
CONCLUSION
61. For
the reasons advanced, we are unanimous that this appeal should be dismissed
with costs. The deposit is to be paid
out to the Respondent to account of their taxed costs.
62. My
learned brother Abdul Malek Ahmad, PCA and my learned sister Siti Norma Yaakob,
FCJ have seen this judgment in draft and expressed their agreement with it.
Dated:
ALAUDDIN MOHD. SHERIFF
Judge
Federal Court Malaysia
Date of Hearing : 3rd November 2004
Date of Decision :
Counsel:
Jacob Goldie (Majdah Muda with him) for the Appellant
(Solicitors : Messrs Sooriyar & Co.)
Wong Hok Mun (John Wong with him) for the Respondent
(Solicitors : Messrs Azim, Tunku Farik & Wong)