CASE REVIEW: JULIAN CHONG SOOK KEOK & ANOR v. LEE KIM NOOR & ANOR
In the realm of professional negligence, particularly in legal matters, the concept of limitation plays a crucial role in determining when a claim ought to be commenced. The Limitation Act 1953 of Malaysia establishes the timeframe within which actions related to contract, tort, recovery of sums, or enforcement of awards must be initiated. Under the Act, Section 6 provides that actions relating to contract, tort, recovery of sum, enforcement of award or recognizance should not be brought after the expiration of 6 years from the date on which the cause of action accrued.
The case of Julian Chong Sook Keok & Anor v. Lee Kim Noor & Anor[1] centres around allegations of professional negligence and negligent misstatement against solicitors involved in the preparation of a Sales and Purchase Agreement for a property transaction in 2004. The purchasers claimed that the solicitors failed to conduct a necessary land search and did not disclose that the property was encumbered by a bank charge. Subsequently, the bank demanded a significant sum for redemption of the property, prompting the purchasers to sue for damages.
Background Facts
The purchasers executed a Sales and Purchase Agreement for the purchase of a piece of land from the developer. The issue arises when the solicitors for the purchasers did not conduct a land search of the said property and the Sales and Purchase Agreement did not state that the said property was charged to any bank. A few months after the purchase, the purchasers were served a letter from a bank, who turns out to be the chargee of the said property, demanding the plaintiffs to pay the sum of RM900,000.00 as redemption amount to redeem the said property. In High Court, the judge identified three main breaches of duty of care by the defendants which are (1) negligence in preparation of the Sales and Purchase Agreement, (2) the failure to conduct land search and (3) the deliberate covering up of the negligence and thereafter granted judgment in favour of the purchasers and ordered the solicitors to pay damages.
On appeal however, the Court of Appeal overturned the decision of the High Court on the ground that the claim was time barred as time ran from the date the SPA was executed or when the purchase price for the property was fully paid, which was on 2004 and not from the time the appellants discovered that their property had been charged to the bank or when the bank formally notified the purchasers of its intention to foreclose the property.
The purchasers then appealed to the Federal Court against the decision in the Court of Appeal.
Salient Findings of the Federal Court
The Federal Court allowed the purchasers’ appeal and overturned the Court of Appeal’s decision thereby restoring the High Court’s decision for the following reasons:-
- damage was an essential element in tort and without it, the claim is not complete and actionable. Hence, the time ran from when the damage occurred and not from when the negligent act or omission occurred. Based on the facts, the damage occurred when the bank exercised its rights under the charge[2];
- it was unjust and unreasonable to require the purchasers to institute a claim before the contingency which was the claim by the bank was fulfilled. Since the claim was initiated in 2016, the claim was not time-barred[3]; and
- the solicitors’ negligence in the preparation of the Sales and Purchase Agreement only gave rise to contingent loss, which is dependent on whether the bank decided to enforces the charge. When the Bank decided to enforce it, only then was there actual damage suffered by the purchasers[4].
Comment
While some legal cases are clear on when a cause of action would accrue, cases like the above in which the damage was discovered later pose a question on when does the cause of action begin. The Federal Court in this case, however, has cleared the air in clarifying on when a cause of action deems to run in a tortious claim of negligent misstatement.
In the discussion surrounding Section 6 of the Act, the Federal Court has held that the case of Sabarudin Othman & Anor v Malayan Banking Bhd and Anor[5] and Ambank (M) Bhd v Kamariyah bt Hamdan & Anor[6] referred to the High Court was accurate whereby knowledge or discoverability of the breach with reasonable diligence was essential in determining whether a cause of action had accrued.[7] The FC has also agreed with the approaches taken in the above cases where actual loss and damage must be determined as opposed to only a prospective or contingent loss or damage.
The Federal Court in addition disagreed with the approach taken in Ambank (M) Bhd v Abdul Aziz bin Hassan & Ors[8] whereby the Court of Appeal in the case held that knowledge or discoverability of the breach was immaterial for the purpose of determining whether a cause of action had accrued.
The above principles were since incorporated into the Act in 2018 in the form of Section 6A to allow the element of knowledge and discoverability of negligence to be considered in negligent cases not involving personal injuries whereby a timeline of 3 years from the earliest date on which a plaintiff had the knowledge required to bring an action and a limitation of 15 years from the date on which the cause of action first arose.
It is therefore important that as solicitors, we owe a duty of care to the client to ensure that all their interests are protected and covered. In drafting an agreement, we must pay extra attention to the client’s rights and ensure all encumbrances has been cleared or declared, which may be completed by initiating a due diligence on the property or subject matter of the agreement as client relies strongly on the opinion of their solicitors.
It is also important to educate clients that they must ensure complete documentations of the transaction are handed over to them upon completion of transaction to observe and determine whether there is any information not made available or misrepresentation made by the other party. For instances, clients must understand that warranties, representations, indemnities and undertakings play important roles in seeking remedies for any post-transaction issues.
Author:
- Aryn Rozali
References:
[1] [2024] 4 MLRA 131
[2] See para 2, 52 and 72 of the Judgment
[3] See para 71 of the Judgment
[4] See para 65-66 of the Judgment
[5] [2018] MLJU 304
[6] [2013] 5 MLJ 448
[7] See para 68, 74-75 and 83 of the Judgment
[8] [2010] 3 MLJ 784