Does Receipt of the Proceeds of an Auction Sale Constitute a Fresh Accrual of Action Under Section 26 Act
Does Receipt of the Proceeds of an Auction Sale Constitute a Fresh Accrual of Action Under Section 26 of the Limitation Act 1953?
The question of whether the receipt of proceeds from an auction sale constitutes a fresh accrual of action under Section 26 of the Limitation Act 1953 (Act 254) in Malaysia has been raised by secured creditors on various occasions. While one may argue that proceeds from an auction sale could amount to a form of debt payment, thereby invoking Section 26, judicial decisions have clarified the position on this issue.
Proceeds from Auction Sales as Part Payment
Section 26 of the Limitation Act 1953 provides that an acknowledgment of a debt or part payment by a debtor may reset the limitation period, provided it is in writing and signed by the person liable or their authorized agent. Based on this, it might be contended that proceeds received from an auction sale represent part payment of a debt, thereby constituting a fresh accrual of action.
However, such an argument is not without limitations (pun intended). Case law, particularly decisions by the Federal Court and Supreme Court, has set clear boundaries regarding the implications of auction proceeds in the context of debt recovery.
Judicial Clarifications
1. Chan Boi Loi v. Public Bank Bhd & Another Application [2009] 6 CLJ 81- Federal Court
In Chan Boi Loi, the Federal Court addressed the interplay between auction proceeds and the accrual of action, emphasizing the Supreme Court’s earlier decision in Low Lee Lian v. Ban Hin Lee Bank Bhd [1997] 2 CLJ 36. The court reiterated that a chargee or creditor has the right to pursue remedies—whether simultaneously, contemporaneously, or successively—to recover the monies lent, barring any agreement to the contrary.
This principle underscores the independent nature of remedies available to creditors and rejects the notion that the receipt of auction proceeds necessarily resets the limitation period under Section 26.
2. Bank Simpanan Nasional v. Tham Lai Ling [2016] 6 CLJ 880
The High Court in this case expanded on the principles established in Chan Boi Loi, categorically rejecting the idea of a fresh cause of action to recover shortfalls post-auction. The judgment stated:
- “It is also noteworthy that overruling of Wan Mohd Wan Ngah by the Federal Court in Chan Boi Loi, the rationale for the proposition that a fresh cause of action in personam for a shortfall arising only upon determining the amount after a successful auction must be taken to have been ‘impliedly overruled’.”
- “Accordingly, the position in law presently is one that should rightfully be construed as being settled, in that there is no fresh cause of action available to the chargee to claim the recovery of any shortfall after the sale of the charged property. It cannot be denied that the bank certainly has the right to recover the shortfall but that right of recovery in personam accrues from the date of default...”
The court clarified that the right to recover shortfalls accrues from the date of default and not from the date of receipt of auction proceeds.
3. Ambank (M) Bhd v. Jayabhalan Ramachandran [2013] 2 CLJ 776
Similarly, in Ambank, the court emphasized that the reasoning in Wan Mohd Wan Ngah (which had earlier supported the idea of fresh causes of action post-auction) was no longer applicable. The court stated:
- “In as much as Wan Mohd Wan Ngah’s case (supra) has been overruled, the raison d’etre for holding that a fresh cause of action in personam for the shortfall only arises upon ascertaining the amount after a successful auction must be taken as have been impliedly overruled too.”
Conclusion
The combined weight of these judicial decisions establishes a settled legal position in Malaysia: the receipt of proceeds from an auction sale does not constitute a fresh accrual of action under Section 26 of the Limitation Act 1953. In light of the above, the right to recover any shortfall remains tied to the original cause of action, which accrues from the date of default, rather than being contingent upon the outcome of an auction.
Article By
Tan Cheu Yuen
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