Landowners still not fully secure

The unanimous decision of the Federal Court in Tan Ying Hong vTan Sian San & 2 Ors (Federal Court Civil Appeal No. 02(f)-19-2009(C), Decided 21.01.2010) has corrected a very grave error in the law.

The position of the law is succinctly stated, and understandable to the lay person, in the concurring judgment of the Chief Justice, Tun Zaki Tun Azmi. For lawyers, the grounds of decision of the Chief Judge of Malaya, Tan Sri Ariffin Zakaria (who delivered the judgment of the Court) gives the legal background and the correct state of the law in succinct terms.

The bane that was Adorna Properties has finally been put to rest.

For a good analysis, see Roger Tan’s commentary at the Malaysian Bar Website where he points out that landowners can still be deprived of their property:

It is apposite to note that in every land scam like in Adorna Properties, there are two victims involved – the genuine landowner and the bona fide purchaser.

As everyone is either a landowner or a purchaser or both, it is indeed a balancing act when deciding whose interest requires more protection and to what extent the landowner should be protected in the entire chain of dealings.

In doing so, it must be borne in mind that if protection is given solely and wholly to the landowner, then Malaysia may not be so conducive for property investments.

In this respect, countries which practise immediate indefeasibility such as Australia, New Zealand and Singapore have an assurance fund to compensate victims of land scams.

That said, as land is a State matter here, implementation of such a fund may not be so straightforward.

Using the Chief Justice’s example, A is the registered proprietor, B the 1st purchaser and C the 2nd purchaser.

What Tan Ying Hong re-establishes is that B cannot get good title even if it is a bona fide purchaser for value without notice of the impropriety in A’s title.

However, if C is such a purchaser – one who buys or lend money on good faith and without notice of the impropriety – then C gets good title, and A who was originally the proprietor who has been swindled out of his property has no recourse.

It might be surprising to some, but when you buy a house with a bank loan, there are in fact two transactions in place. One is the sale and purchase – the other is the loan. Where there is landed property, invariably there is a Transfer document registered in the land office to put the property in the new buyer’s name.

There is also a Charge registered in the land office giving the bank a right to sell the Property if the buyer defaults on his loan. In the Charge transaction, the bank is also considered a “purchaser” of the land for the purposes of the National Land Code, and would be C in our scenario above. Hence, if B got the land in his name through a forged instrument but then signed the Charge document, C would be considered a bona fide purchaser for value without notice. The registered proprietor could still lose his land, unless he pays off the bank loan to C.

Thus, it must be remembered that although Tan Ying Hong correctly restores the balance that the drafters of the National Land Code struck, your land could still disapper. So there is still a need to be vigilant.


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Posts by Shanmuga K

Shanmuga K sometimes sees a purple banana emerging in his sub-conscious. An article seems to then be magically written. He is @shanmuga_k on Twitter. When he does not see those purple bananas, he practices as a lawyer at www.kanesalingam.com

Posted on 25 January 2010. You can follow any responses to this entry through the RSS 2.0.

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3 Responses to Landowners still not fully secure

  1. Nabila

    Dear Sir,

    I beg to differ. if the bank has obtained title through s.340(2)a,b or c, the title it obtained is defeasible. The charge made pursuant to 340(2) becomes a nullity. Also, the bank cannot proceed with Order for Sale as with s340 present, it will be cause to contrary under s.256, and following Low Lee Lian b Ban Hin Lee Bank case. Bank's remedy will be to sue the party in personam.

  2. The definition of a "purchaser" in section 5 of the National Land code includes any person who acquires an interest in land. Hence, lesses and chargees are also "purchasers" for the purposes of the Code, unless the context otherwise requires. For the purposes of section 340, I think it is clear that a subsequent chargee who acquires a charge (being an interest in land) for valuable consideration without notice of the forgery or fraud would have the benefit of the proviso.

  3. Dear Learned Friend,

    I beg to differ, a chargee cannot be considered as "purchaser" as there are specific provisions under s241 to s245 that a charge is only as security for repayment of a loan.

    However, you may be right in relation to Islamic Banking finance where the purchaser enters into a SPA with the bank.