Introduction
 
In the recent case of Thameez Nisha Hasseem v Maybank Allied Bank Berhad [2023] 5 CLJ 874, the Federal Court (“FC”) was asked to consider the time limitation applicable to an application for an order for sale, and whether the chargee’s rights will be extinguished by operation of law upon the expiration of the time limitation.
 
Thameez Nisha Hasseem (“Appellant”) is the administrator of the Estate of Bee Fatima (Deceased) (“Estate”). Prior to her demise, Bee Fatima granted a power of attorney to one Charijah to manage her land (“Land”). Charijah obtained a loan from Co-operative Central Bank Ltd (“CCB”) in 1984 and created a charge over the Land (“Charge”) as security for the said loan. CCB was subsequently taken over by Maybank Allied Bank Berhad (“Bank”), who stepped into the shoes of CCB as the chargee of the Land. As Charijah defaulted in the loan repayment, an order for sale of the Land was granted in favour of the Bank after a statutory notice (Form 16D) dated 30 July 1986 served on Charijah under section 254 National Land Code 1965 (“NLC”) was ignored. The said order for sale was set aside in 2010. Since then, no action was taken by the Bank to either enforce the Charge or to recover the loan from Charijah.
 
In 2016, the Appellant filed an Originating Summons against Charijah for a declaration to discharge the Estate from liability under the Charge and for an order compelling Charijah:
 

 
The Bank intervened in the proceedings, claiming that it has an interest as chargee of the Land, and was made the 2^nd Defendant, while Charijah became the 1^st Defendant. The pleadings were amended and the Appellant sought, inter alia, a declaration that the Bank ceased to have any estate or interest in the Land and that the Bank’s rights to enforce the Charge had extinguished by operation of law and an order that the Bank discharge the Charge.
 
Decision of the High Court and the Court of Appeal
 
The Appellant’s claim was dismissed by the High Court (“HC”). The HC found that the Appellant had no cause of action against Charijah, as there was agreement between the Appellant and Charijah in relation to the loan taken by Charijah. Further, since the Bank was not taking steps to enforce the Charge, the Appellant’s claim was a non-starter. The HC also held that whilst the Bank was barred by time limitation from enforcing the Charge, the Bank cannot be compelled to discharge the Charge until the debt is fully settled. Otherwise, this would result in unjust enrichment for the Appellant.
 
The HC’s decision was affirmed by the Court of Appeal which held that time limitation can only be used as a defence and not to support a claim. As such, the fact that the Bank was time barred from enforcing the Charge was not a ground to support the Appellant’s argument that the Charge should thus be discharged.
 
The FC’s Decision
 
The FC granted leave to consider six questions of law, but decided that there were only three primary issues that are determinative of the appeal, namely:
 

2^nd Issue of Law : The application of the 12 years limitation period to charge actions pursuant to section 21(1) of the Act
 
The FC agreed with the findings made in an earlier FC case of CIMB Bank Bhd v Sivadevi Sivalingam [2020] 2 CLJ 151 wherein it was held the word “action” in section 21(1) of the Act includes an application for an order for sale of charged properties. The FC then considered whether the 12 years limitation period under section 21(1) of the Act begins from the date of default in payment of the loan secured by the charge or from the time of default in complying with the statutory demand in Form 16D. In this regard, the FC agreed with the findings made by the Court of Appeal in Lim Ban Hooi & Anor v Malayan Banking Bhd [2018] 6 CLJ 545, that:

“[65] If the time period of 12 years runs only from when the chargee decides to issue the Form 16D notice and then only after the failure to remedy the default, as is suggested in the case of Peh Lai Huat and Jigarlal, the time requirements of ‘at least one month or such other alternative period as may be specified in the charge’ mentioned in s.253, would have been rendered meaningless and of no effect. If the time period of 12 years does not run from when the breach of the agreement took place whence the right to receive money accrued has been disaffected, a chargee may well decide not to do anything for the next 100 years, and still be in time to enforce the ad rem right of order of sale.”

Thus, in answer to the 2^nd Issue of Law, the FC held that the 12 years limitation period in section 21(1) of the Act applies to an application for an order for sale under the NLC, and time begins from the date of default in payment of the loan secured by the Charge.
 
3^rd Issue of Law : The nature and the legal effect of the limitation period
 
The Appellant argued that since the Bank was time barred from enforcing the Charge, the Bank’s registered interest over the Land has been determined by operation of law, it follows that the Bank is not entitled to the custody of the issue document of title, since there is no longer any liability subsisting under the Charge. On the other hand, the Bank argued that the issue of time limitation only bars the enforcement of rights, and does not have the effect of extinguishing the Bank’s rights and interest under the Charge. As such, there could be no discharge of the Charge until full realisation of the debt secured by the Charge.
 
The FC held that the Bank’s rights or interests under the Charge have become legally unenforceable by the lapse of the time limitation in section 21(1) of the Act. In such a case, section 340(4)(b) of the NLC is engaged, allowing for the determination of title or interest by operation of law. The FC went on to hold as follows:

"[124] In effect, when a chargee fails to obtain an order for sale timeously or at all, or fail to file proceedings in court to obtain a valid and enforceable order for sale of the charged land within the limitation period as prescribed by s.21(1) of the LA 1953, a chargor is entitled to defeat the registered interest of the chargee pursuant to s.340(4)(b) of the NLC and consequently obtain the return of the land title pursuant to s.244(1) of the NLC read with O.83 rule 1(1) of the ROC…” ¹ 

In the premises, the FC allowed the appeal and held that the Bank ceased to have any estate or interest in the Land, as its rights to enforce the Charge had been extinguished by operation of law. Consequently, the Bank was ordered to discharge the Charge and return the issue of document of title of the Land to the Appellant.  

From the foregoing, it appears that once limitation under section 21(1) of the Act has set in, section 340(4)(b) of the NLC is triggered and the chargor will be able to compel the chargee to discharge the charge and return the issue document of title pursuant to section 244(1) of the NLC and O. 83 r. 1(1) of the Rules of Court 2012.
 
Commentary
 
The FC’s decision has a significant impact on the banking and finance industry, whereby lands are frequently accepted as collateral to secure the financing given. Sometimes, the chargee may have its own reasons for not enforcing the land charge as timeously as its recovery proceedings against the borrower or other security parties. Moving forward, the chargee must be mindful that the 12 years’ time limitation to enforce the charge commences immediately upon the default in repayment of the financing, whether or not a statutory notice of demand in Form 16D has been issued. Upon the expiry of the 12 years’ time limitation, the chargee’s rights and interests over the charged property would be determined or extinguished by operation of law and the chargor is entitled to demand for a discharge of charge and return of the property, without settling the amount secured by the charge.
 
A further point worthy of discussion in this case is the suggestion that contrary to existing law (see Sakapp Commodities (M) Sdn Bhd v Cecil Abraham [1998] 4 CLJ 812 (CA)), the Act has been used by the Appellant as a cause of action and not as defence. According to Abang Iskandar PCA, the peculiarity of the facts of this case has to be considered to determine whether the Appellant had invoked limitation as a defence or as a cause of action. Recounting the events, the Federal Court noted that the Appellant only commenced proceedings against Charijah and not the Bank. It was the Bank that intervened in the proceedings to claim an interest as chargee of the Land. Hence, the Appellant had no choice but to rely on limitation as a defence against the Bank’s claim.
 
The practical impact of the FC’s decision is that section 21(2) of the Act is a substantive provision and not merely procedural in nature. Whether this is the intended outcome of the decision is debatable. Whilst the said section provides that no action shall be brought to enforce a charge after the expiration of 12 years from the date on which the right to receive the money accrued, it does not provide that the rights and interests under the charge shall be extinguished if the action is not brought within time. With this decision, the door may now be open for argument that the other sections in the Act are also substantive and one’s rights would be extinguished upon expiration of the time limitation stipulated.
 
Case commentary by Claudia Cheah Pek Yee (Partner) and Wong Chee Lin (Partner) of the Dispute Resolution Practice of Skrine.²