Authored by Tiffany Ding and Tan Yi Xuan
Land law in Malaysia is governed by the Torrens system whereby registration confers indefeasible title or interest on the person whose favour the registration is made. This is also provided in Section 340(1) of the National Land Code (“NLC”) 1965 which states as follows:-
“The title or interest of any person of body for the time being registered as proprietor of any land,
or in whose name any lease, charge or easement is for the time being registered, shall, subject
to the following provisions of this section, be indefeasible.”
While indefeasibility of title provides immunity against adverse claims to the land or interest in question, indefeasibility is not absolute, and it is subjected to a few exceptions laid down in subsection (2) of the NLC.
Subsection (2) of the NLC provides that the title or interest is defeasible if any of the vitiating circumstances mentioned in the subsection takes place. Accordingly, it is liable to be set aside under subsection (3) unless it can be shown that the subsequent purchasers are bona fide purchasers for valuable consideration. This article will focus on the various interpretations given by the Federal Court over the years on the relationship between subsections (2) and (3) of the NLC, especially regarding the issue of indefeasibility of title.
Previously, in the case of Adorna Properties v. Boonsom Boonyanit (2001), the Federal Court has interpreted the proviso to subsection (3) to provide for immediate indefeasibility under the NLC. In this case, the Respondent, Boonsom Boonyanit claimed that she was the registered owner of a piece of land which had been sold and transferred to the Appellant, Adorna Properties by a vendor who had forged her signature. She initiated a civil action in the High Court to get her title to be restored, relying on subsection (2)(b) of the NLC. The main issue posed to the Federal Court was whether Adorna Properties, a purchaser with good faith for valuable consideration, acquires an indefeasible title to the property by virtue of subsection (3) of the NLC.
The Federal Court in this case upheld the decision of the High Court and unanimously ruled that the proviso to subsection (3) of the NLC shall be read together with subsection (2) whereby any purchaser who acts in good faith and for valuable consideration shall be given indefeasible title. In other words, the proviso to subsection (3) of the NLC is not only limited to subsequent transactions, but also applies to the transaction where the vitiating circumstances took place.
Nevertheless, the Federal Court had an opportunity to review the decision made in Adorna Properties after nine (9) years. In the case of Tan Ying Hong v. Tan Sian San & Ors (2010), the Appellant was the registered owner of a piece of land situated in Kuantan, Pahang. The 1st Respondent, who purportedly was acting under a Power of Attorney had executed two charges in favour of the 3rd Respondent bank to secure a loan made by the 2nd Respondent. The Appellant only knew of the charge when he received a notice of demand from the 3rd Respondent bank after the 2nd Respondent defaulted in the repayment of the loan. The Appellant claimed that he has never signed any Power of Attorney, and therefore the charge instruments executed in favour of the 3rd Respondent bank were void.
The Federal Court in this case overturned the decision in Adorna Properties and held that the wordings “this subsection” in the proviso to subsection (3) must be read as a proviso solely to subsection (3) of the NLC. The Federal Court applied the rule of deferred indefeasibility where the proviso to subsection (3) only applies to transactions subsequent to that where the vitiating circumstances took place. It was not in dispute that the charges registered in favour of the 3rd respondent bank were based on void instrument and hence its interest was liable to be set aside under subsection (2)(b) of the NLC regardless that it had acquired the interest in good faith for valuable consideration. As the 3rd respondent was an immediate holder of these charges, it could not rely on the proviso in subsection (3) of the NLC.
This decision was also referred to and reaffirmed by the Federal Court in the recent case of See Leong Chye v. United Overseas Bank (M) Bhd (2021).
In this case, the See brothers jointly owned a piece of land. Pursuant to an agreement (“SPA1”), fraudsters posing as the See brothers sold the land to Heveaplast which took a loan from UOB Bank to part-finance the purchase. After Heveaplast was registered as owner, it created two charges on the land in favour of UOB Bank. Whilst SPA1 was pending completion, Heveaplast entered into an agreement (“SPA2”) to sell the land to Kum Hoi who paid the deposit and took a loan from Public Bank Bhd (“PBB”) to complete the purchase.
The Federal Court agreed with the findings of the Court of Appeal that Heveaplast was an immediate purchaser pursuant to SP1 and UOB was the subsequent holder of interest as it has acquired interest granted by the registered proprietor whose title was defeasible under subsection (2)(a). The Federal Court further held that since UOB was a bona fide purchaser for valuable consideration and there was no evidence to the contrary, the proviso of subsection (3) is applicable to protect the interest acquired by UOB and UOB has an indefeasible charge on the land.