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The Risk of Being Indolent

 

yafinaz Vani explains a recent Court of Appeal decision on lien-holder's caveats

The recent case of Wong Kok Leong and Another v RHB Bank Berhad [2014] 1 LNS 1092 was an appeal against the High Court's refusal to order the defendant, RHB Bank Berhad ("Respondent"), to return to the Appellants, the original titles to properties belonging to the Appellants, which were being held by the Respondent based on lien-holder's caveats entered against those properties.

BACKGROUND FACTS

The Respondent's Foreclosure Proceedings

The history of this case is extensive. In essence, the Respondent had lodged lien-holder's caveats in respect of the Appellants' titles in 1991. After 13 years, the Respondent filed an application to foreclose the properties held under the lien-holder's caveats.

The Respondent's application was dismissed by the High Court as it had not obtained a judgment against the Appellants before enforcing the lien-holder's caveats, as required under section 281(2) of the National Land Code 1965 ("NLC") which provides that "Where the holder of any lien has obtained judgment for the amount due to him thereunder, he shall be entitled to apply to the Court for, and obtain forthwith, an order for the sale of the land or lease."

The Court emphasized on the need for the Respondent to comply with section 281 of the NLC to crystallise its cause of action by filing a suit and obtaining a judgment against the Appellants before commencing foreclosure proceedings as provided in the same section. If the Respondent failed to do so, and the limitation period had set in, section 331 of the NLC would apply and enable the Court to grant various reliefs to an aggrieved party, including an order that the lien-holder's caveat be cancelled.

The Appellants' application at the High Court

The Appellants then filed an application in the High Court seeking, inter alia, the following reliefs:

  1. a declaration that no legal action can be brought by the Respondent against the Appellants to recover the debts owed in relation to the lien-holder's caveats entered by the Respondent against the Appellants' properties in view of the time limitation under the law;
  2. that the lien-holder's caveats entered by the Respondent be removed;
  3. that the Respondent returns the original titles to the Appellants or to their solicitors; and
  4. that the Registrar of Titles or the Land Administrator, as the case may be, makes an entry in the register documents of title of the removal of the lien-holder's caveats in respect of the Appellants' properties.

According to the Appellants, the Respondent had granted a loan to a developer and the Appellants had provided the titles to the properties to the Respondent as security for the loan. As the Respondent had terminated the loan granted to the developer in 1989, the Appellants contended that the Respondent's cause of action, if any, against the Appellants would have arisen in 1989 upon the termination of the loan by the Respondent.

The Appellants contended that the Respondent had sat on its rights and limitation had set in, resulting in the Respondent being time-barred from proceeding with an action to obtain a judgment against the Appellants. As the cause of action relating to the lien-holder's caveats had not been crystalized within the time frame provided under the Limitation Act 1953, the prerequisite for the enforcement of the lien-holder's caveats provided under the NLC could not be satisfied. Therefore, the Respondent, not having the right to proceed to foreclose the properties relating to the lien-holder's caveats, should return the original titles of the properties to the Appellants.

The Appellants' application was dismissed by the High Court. The Judge, relying on Sakaap Commodities (M) Sdn Bhd v Cecil Abraham [1998] 4 CLJ 812, held that the Appellant could not rely on limitation as a cause of action to seek the return of the original titles by reason that limitation is available only as a defence to an action.

THE APPEAL

The Appellants appealed to the Court of Appeal. The Court of Appeal held that Sakaap Commodities was not relevant. Hamid Sultan JCA, citing the Privy Council decision of Eng Mee Yong & Ors v Lechumanan [1979] 2 MLJ 212, emphasised that a caveat per se cannot be equated to a cause of action but is only a statutory injunction to preserve rights which have not been crystallised by due process of law.

The learned Judge emphasised that the law does not permit a caveat which has been lodged to be sustained if the said rights are not capable of being protected under the law for various reasons, including laches, i.e. unreasonable delay in asserting a claim.

Among the cases cited was Lim Ah Moi v AMS Periasamy a/l Suppiah Pillay [1997] 3 MLJ 323, where the Court of Appeal held that by reason of the far-reaching effect of a caveat as a statutory injunction, it was vital that claims made by a caveator are enforced by action without undue delay. The Court also held that in hearing an application to remove a caveat, the Court would be guided by the justice of the case.

Hamid Sultan JCA further observed that, based on the cases reviewed by His Lordship, a caveat is not intended to assist the indolent. According to His Lordship, there are sufficient authorities, including Perwira Habib Bank (M) Bhd v Loo & Sons Realty Sdn Bhd & Anor (No. 2) [1996] 3 MLJ 421, which showed that once a lien-holder's caveat is not sustainable in law, the Court can order the title to be returned to the registered owner.

As time limitation in respect of the Respondent's claim had set in and thereby precluded the Respondent from obtaining a judgment which was a prerequisite for commencing foreclosure proceedings in relation to the lien-holder's caveats under section 281 of the NLC, the Court allowed the appeal and ordered that the lien-holder's caveats lodged by the Respondent be removed from the register documents of title to the Appellants' properties and that the removal of such caveats be noted in the register documents of title in respect of the Appellants' properties. The Court also ordered the Respondent to return the original titles to the Appellants.

CONCLUSION

This case re-emphasises that a caveat is a form of statutory injunction, and not a cause of action. It also serves as a reminder to holders of lien-holder's caveats that undue delay in pursuing their rights under such caveats could result in the lien-holder's caveats being removed by the Courts.

Writer's e-mail: This e-mail address is being protected from spambots. You need JavaScript enabled to view it

SUBJECT MATTER: CASE COMMENTARY

WRITER'S NAME: NUR SYAFINAZ VANI

WRITER'S PROFILE:

Syafinaz is an Associate in the Dispute Resolution Division of SKRINE. She holds a Bachelor of Laws degree from the University of London and a Master of Laws degree from University College London.

 

 
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