Pushing the Limit on Limitation (Part 2)

If you intend to sue someone in a civil action, the law requires that you act with reasonable speed. As an example, if you seek to initiate a lawsuit claiming breach of contract or negligence, you typically have 6 years from the date the cause of action accrued to take action. 

In Part 1 of the article series on limitation periods (which can be accessed here), we discussed when a limitation period may be extended beyond the usual time-frame. Such extension may occur when a litigant is underage and/or mentally incapacitated. In the present article forming Part 2 in the series, we explore a) when a limitation period may be postponed and b) the practical factors that litigants should take note of before commencing a civil suit. 

Introduction

Section 29 of the Limitation Act 1953 (“the Act”) provides, inter alia, as follows: 

“29. (1) Where, in the case of any action for which a period of limitation is prescribed by this Act, either—

(a) the action is based upon the fraud of the defendant or his agent or of any person through whom he claims or his agent; or

(b) the right of action is concealed by the fraud of any such person as aforesaid; or

(c) the action is for relief from the consequences of a mistake, the period of limitation shall not begin to run until the plaintiff has discovered the fraud or the mistake, as the case may be, or could with reasonable diligence have discovered it.

…”

Thus, in a given situation, a relevant period of limitation would not begin to run until the plaintiff has discovered or could with reasonable diligence have discovered any of the following:  

1. Fraud - where such fraud forms the essential ingredient of the plaintiff’s cause of action – for example, where a claim is brought based on fraudulent misappropriation of monies; or
2. Fraud - which has the effect of concealing the plaintiff’s remedy or right of action in all cases – for example, where a plaintiff’s claim for damages in negligence was concealed by the fraud of the defendant; or 
3. Mistake - where the plaintiff’s action is for relief from the consequences of said mistake. 

In the paragraphs below, we explore the issues surrounding fraud and mistake in greater detail. At the outset, why might the postponement of a period of limitation matter to litigants? Well, among others, the law recognises that a plaintiff’s right of action may be hidden from them through no fault of theirs. Postponement of the period of limitation is a mechanism to taper the oftentimes strict timelines of limitation and effectively affords the plaintiff an opportunity to initiate a civil suit only upon due discovery of all relevant available facts. 

Fraud

For the purposes of this article, emphasis is placed on section 29(1)(b) of the Act, i.e. the concealment of a right of action due to fraud. Interestingly, the reference to “fraud” as envisaged in section 29(1)(b) (as opposed to that in section 29(1)(a)) does not only cover instances where dishonest behaviour or deceit is displayed. As stated in the Federal Court decision of Yong & Co v Wee Hood Teck Development Corporation [1984] 2 MLJ 39, fraud referred to in section 29(1)(b) can extend to equitable or constructive fraud where the concealment does not involve dishonesty. In other words, unconscionable behaviour suffices.  

A case that successfully invoked section 29(1)(b) of the Act to postpone a period of limitation is the Supreme Court decision of Lim Yoke Kong v Sivapiran A/L Sabapathy [1992] 2 MLJ 571.  Here, the plaintiff was knocked down by a motorcycle and faced exceptional difficulties in his attempts to identify the insurer of the motorcycle to bring a claim in negligence. In this regard, Motor Insurers’ Bureau (MIB), engaged by the plaintiff’s solicitors, had issued a circular letter to all insurance companies in West Malaysia to identify the relevant insurer well before the expiry of the limitation period on 31 March 1983. However, it was only after the limitation period had expired that the plaintiff finally found out the identity of the insurance company. 

It was held that by intentionally refusing to come forward in response to the MIB circular letter, the insurance company had concealed the plaintiff's right of action by fraud. The six-year limitation period which expired on 31 March 1983 should thus be postponed until the plaintiff had discovered the fraud with reasonable diligence for the first time on 28 March 1984. 

As for the English Court of Appeal decision of Archer v Moss, Applegate v Moss [1971] All ER 747, a builder had performed exceptionally poor work on two houses where he was grossly negligent in mixing the concrete. The evidence showed that he had put up “rubbishy foundations”. Crucially, the builder had covered up his disgraceful work. Both houses were found to be unfit for occupation only much later and had to be pulled down. It was held that due to the fraudulent concealment of the plaintiffs’ remedy for breach of contract, time only started to run when the cause of action could have been discovered with reasonable diligence. 

As explained above, a litigant seeking to fall within the ambit of section 29 must be able to demonstrate that they could not, with reasonable diligence, have discovered the fraud. See the Court of Appeal judgment in Lin Kai Wing & Anor v Lin Kai Lam & Ors [2016] 10 CLJ 77. Reasonable diligence is defined as the doing of that which an ordinarily prudent person would do having regard to all the circumstances. That said, the law does not require litigants to be extraordinarily prudent, only to follow a reasonable line of enquiry. The observation in the Court of Appeal decision of CIMB Bank Bhd v Lee Kim Kee & ors and Another Appeal [2018] 3 MLJ 72 shows the court’s understanding of the fact-finding exercise that litigants would need to go through before filing a suit: 

“…although the plaintiff was made aware that her solicitor had absconded via a newspaper reporting sometime in August 2001, that information alone did not and could not have constituted actual discovery of the negligence/fraud. At most, it was only an indicator that something was not right.” 

Here, the court found that the actual discovery of the negligence/fraud was only made after the plaintiff, together with her new solicitors, with reasonable diligence, had obtained all the relevant documents from the bank in August 2002. 

Notwithstanding the leeway provided in section 29, note that no action can be brought in respect of a property that had been purchased for valuable consideration by a person. This is so long as the bona fide purchaser was not a party to the fraud and importantly, did not at the time of purchase know or have reason to believe any fraud had been committed.  

For completeness, it should be noted that section 29(2) of the Limitation Act 1953 provides that “Section 6A shall not apply to any action to which paragraph (1)(b) applies.” Section 6A essentially applies to actions for negligence not involving personal injuries and allows a litigant to bring an action 6 years after a cause of action arose – so long as it is brought within 3 years after the discovery of the damage and where no more than 15 years has passed from the date of accrual of the cause of action. However, where a litigant’s allegation pertains to a right of action that has been concealed by fraud, recourse should be had under section 29(1)(b) instead. 

Mistake

In relation to section 29(1)(c) of the Act, the “mistake” referred to therein must be an essential ingredient of the cause of action.  The following cases are helpful to illustrate the application of the section:  

(a) The Supreme Court decision of Credit Corporation (M) Bhd v Fong Tak Sin [1991] 1 MLJ 409 - in referring to the English decision of Phillips-Higgins v Harper [1954] 1 QB 411 when considering the corresponding section in English law, it was held that the section is indicated in causes of action where a mistake had been made which resulted in certain consequences and where the plaintiff seeks to be relieved from those consequences. Familiar examples of mistake include: 

1. Money paid in consequences of a mistake. Here an action lies in recovery of the money; 
2. Contract entered into consequence of a mistake. An action lies in rescission of the contract; and 
3. An account settled in consequence of a mistake. There may be recourse to the reopening of an account. 

(b) The Federal Court decision of Tenaga Nasional Bhd v Kamarstone Sdn Bhd [2014] 2 MLJ 749. In January 2003, Tenaga Nasional Bhd (TNB) found that it had undercharged the defendant for electricity supply from October 1996 to October 2002. In October 2005, TNB commenced proceedings to recover the shortfall from the defendant. As TNB’s cause of action was rooted in contract and thus arose when the debt was not paid, TNB could not rely upon section 29 of the Limitation Act 1953 to say that the limitation period, with respect to the shortfall incurred during the period prior to 26 October 1999, should be postponed to January 2003. In this regard, TNB’s cause of action did not entail mistake as an essential ingredient for a cause of action. The cause of action was for the breach of contract simpliciter. (That said, it was ultimately adjudged that TNB’s claim was not time-barred due to an acknowledgment of debt by the defendant in 2003.)

As explained in the section on fraud above, the application of section 29(1)(c) necessitates reasonable diligence to be used by the plaintiff to discover the mistake. Similarly, no action lies against a property which had been purchased for valuable consideration, after a transaction in which a mistake was made, by a person who did not know or had no reason to believe that a mistake had been made. 

Practical Notes 

In general, the framework of section 29 as it stands is a useful mechanism that litigants can employ to their advantage when their right of action had been concealed by fraud or where they seek to commence an action grounded on a mistake which was discovered much later. In so doing, here are a few practical considerations that litigants should take notice of: 

1. The burden of proving fraud and fraudulent concealment (to attract the application of section 29) rests on the party alleging the same. In Lin Kai Wing (supra), the Court of Appeal found that the High Court Judge had erroneously reversed this burden. The Judge accepted that fraud was established in that case simply by reason of undisputed withdrawals from company accounts. His Lordship then placed the burden on the appellants to rebut the allegation of fraud which was assumed to be established fully. On the evidence, however, the Court of Appeal found that fraud had not even been established in the first place. 
2. On a very similar vein as (a) above, to avail itself of the terms of section 29, a party has to first convincingly establish its case by proving that fraud does exist. See the Court of Appeal decision of Tan Mei Li & Ors v Ksch Property Sdn Bhd [2019] 1 LNS 1186 which concerned a claim premised on fraud. In other words, a mere allegation of fraud in pleadings does not assist a plaintiff who seeks the shelter of section 29. 
3. Section 29 merely postpones the starting date of the limitation period but does not remove it altogether. This means that a litigant cannot sit on his rights the moment that fraud is uncovered. In the Court of Appeal case of Tung Kean Hin & Anor v Yuen Heng Phong [2019] 9 CLJ 493, the Court held that the failure of the plaintiff to commence any action after the discovery of the purported fraud against the deceased rendered the claim time-barred, as the plaintiff was already aware of the purported fraud more than 50 years ago. A litigant is thus cautioned to take note of the different periods of limitation that apply to different causes of action. 
4. In a claim alleging that a period of limitation should be postponed, it is important for the plaintiff to plead i) when he discovered his right of action; ii) why the right of action could not have been discovered earlier and iii) the steps undertaken to uncover a right of action (i.e. to show that reasonable diligence was used). 

Final Observations

Section 29 of the Limitation Act 1953 is arguably an equitable provision that affords justice to a litigant affected by fraud or concealment of a right of action due to fraud. That said, litigants should avoid thinking of section 29 as a free pass to sit on their rights based on caselaw explaining  how the section should be used.

If you have any queries about this article, kindly contact the authors of the same.