Better Late than Never

Rosey Lim comments on the Federal Court's recent landmark decision on indefeasibility of title

 


In the recent case of Tan Ying Hong v Tan Sian San & Ors [2010] 2 CLJ 269, the single question posed to the Federal Court was:

 

"Whether an acquirer of a registered charge or other interest or title under the National Land Code 1965 by means of a forged instrument acquires an immediate interest or title."

 

In effect, the Federal Court was asked to review its earlier decision in the case of Adorna Properties Sdn Bhd v Boonsom Boonyanit [2001] 2 CLJ 133, which decided that a purchaser in good faith for valuable consideration could obtain good title to a property even though the instrument of transfer was a forged instrument.

 

Section 340 (1), (2) and (3) of the National Land Code 1965 ("NLC") reads:

 

“(1) The title or interest of any person or 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.

(2) The title or interest of any such person or body shall not be indefeasible:

(a) in any case of fraud or misrepresentation to which the person or body, or any agent of the person or body, was a party or privy; or

(b) where registration was obtained by forgery, or by means of an insufficient or void instrument; or

(c) where the title or interest was unlawfully acquired by the person or body in the purported exercise of any power or authority conferred by any written law.

(3) Where the title of interest of any person or body is defeasible by reason of any of the circumstances specified in subsection (2):

(a) it shall be liable to be set aside in the hands of any person or body to whom it may subsequently be transferred; and

(b) any interest subsequently granted thereout shall be liable to be set aside in the hands of any person or body in whom it is for the time being vested.

 


Provided that nothing in this sub-section shall affect any title or interest acquired by any purchaser in good faith and for valuable consideration, or by any person or body claiming through or under such a purchaser.”


To appreciate the significance of Tan Ying Hong, it is necessary to provide a brief explanation of the principle of indefeasibility of title and its development in Malaysian legal history prior to this decision.

 

 

PRINCIPLE OF INDEFEASIBILITY OF TITLE

Section 340 of the NLC introduced into our land law the concept of indefeasibility of title. This is central to the system of registration of dealings under the Torrens system. Raja Azlan Shah, CJ (Malaya) (as His Royal Highness then was) in PJTV Denson (M) Sdn Bhd v Roxy (M) Sdn Bhd [1980] 1 LNS 55 observed that "the concept of indefeasibility of title is so deeply embedded in our land law that it seems almost trite to restate it."

 

There are 2 types of indefeasibility, immediate or deferred. Immediate indefeasibility means that the immediate registered title or interest of the proprietor or transferee immediately to the vitiating circumstances will be conferred statutory protection despite the existence of any vitiating circumstances. Deferred indefeasibility means that the indefeasibility is conferred to the title or interest only upon a subsequent transfer.

 

Before Adorna Properties, the prevailing view was that Section 340 of the NLC confers deferred indefeasibility as opposed to immediate indefeasibility. This was laid down by the Federal Court in Mohammad bin Buyong v Pemungut Hasil Tanah Gombak & Ors [1981] 1 LNS 114 and the Supreme Court in M&J Frozen Food Sdn Bhd & Anor v Siland Sdn Bhd & Anor [1994] 2 CLJ 14.

 

 

ADORNA PROPERTIES v BOONSOM BOONYANIT

In this case, the Respondent was the registered proprietor of a piece of land which had been sold and transferred to the Appellant. The Respondent claimed that the vendor had forged her signature, sold and transferred the land to the Appellant. The High Court dismissed the Respondent’s claim. The decision of the High Court was reversed by the Court of Appeal and the Appellant appealed. One of the questions of law posed for decision of the court was:

 

Whether the Appellant, a bona fide purchaser for valuable consideration without notice, acquired an indefeasible title to the land by virtue of Section 340(3) of the NLC.”

 

The Federal Court, comprising a panel of 3 judges, unanimously held that by virtue of the proviso to section 340(3) of the NLC, a purchaser in good faith and for valuable consideration is excluded from the application of the substantive provision of Section 340(3). Therefore, this category of registered proprietors obtains immediate indefeasible title to the land even if they acquired title through instruments of transfer which are forged.

 

This decision drew much criticism from the legal academia as being 'clearly wrong'. It also caused grave concern amongst land owners who became vulnerable to losing their land even through the use of forged instruments of transfer. Many courts reluctantly followed Adorna Properties as it was a judgment of the apex court of Malaysia.

 

 

BRIEF FACTS OF TAN YING HONG

The Appellant is the registered owner of a piece of land in Kuantan, Pahang. The 1st Respondent purporting to act under a power of attorney executed 2 charges in favour of United Malayan Banking Corporation Berhad, the 3rd Respondent, to secure two loans granted to Cini Timber Industries Sdn Bhd, the 2nd Respondent.

 

The Appellant claimed that he did not sign the power of attorney and that it was forged. The Appellant only became aware of the forgery when he received a notice of demand from the 3rd Respondent on 9 March 1985.

 

The principal issue in this case is whether Section 340 of the NLC confers immediate or deferred indefeasibility upon the registered proprietor or any person having registered interest in the land.

 

 

DECISION OF THE FEDERAL COURT

The Federal Court, comprising a panel of 5 judges, first considered the question whether Adorna Properties was correctly decided. According to their Lordships:

 

(1) Subsection (3) of Section 340 NLC merely provides that any title or interest which was defeasible by any of the circumstances specified in subsection (2) shall continue to be liable to be set aside in the hands of a subsequent holder of such title or interest.

(2) The proviso at the end of subsection (3) was directed towards the provisions of that subsection only and could not be projected into the sphere or ambit of any other provisions of section 340.

(3) Although subsection (3) of Section 340 NLC made reference to subsection (2), subsection (3) was restricted to subsequent transfers or interests in the land. It did not apply to an immediate transferee of any title or interest in land. As Adorna Properties did not fall under the category of subsequent acquirers, it should not have been allowed to take advantage of the proviso to subsection (3) to avoid its title from being impeached.

 

The Court, in a unanimous decision, concluded that the judges in the Federal Court in Adorna Properties had misconstrued Section 340(1), (2) and (3) of the NLC by coming to the erroneous conclusion that the proviso to subsection (3) applied equally to subsection (2). By so doing, the Federal Court in Adorna Properties gave recognition to the concept of immediate indefeasibility under the NLC contrary to the provisions of Section 340.

 

The Federal Court then applied the re-stated principles of indefeasibility to the facts of Tan Ying Hong and held that the registered charges were liable to be set aside under Section 340(2) NLC as it was not disputed that they were void instruments which were executed pursuant to a forged power of attorney. The Court further held that the 3rd Respondent could not avail itself of the proviso to subsection (3) of Section 340 as it was the immediate holder of those charges.

 

Accordingly, the Federal Court granted the orders sought by the appellant including (i) a declaration that the charges were void ab initio; (ii) an order that the memorialisation of those charges be expunged from the register and issue documents of title to the land; and (iii) an order that the 3rd Respondent deliver-up to the Appellant, the issue document of title to the land.

 

 

OBSERVATIONS

Justitia, the Roman Goddess of Justice, is often depicted wearing a blindfold to symbolize that "Justice is Blind" or "Justice is Impartial". In an ironic way, the former seems to hold true for the parties on whom the fraud or forgery were perpetrated in Tan Ying Hong and Adorna Properties.

 

It appears from the Federal Court's judgment in Tan Ying Hong that the Appellant had admitted that he did not apply for the land and was not aware that the land had been registered in his name until he received the notice of demand from the 3rd Respondent. These facts were raised by the 3rd Respondent in support of its contention that the Appellant should not be entitled to the relief sought. The Federal Court rejected the contention on the basis that none of the parties, including the 3rd Respondent, had challenged that the Appellant was the registered holder of the land.

 

In other words, the end result of the Federal Court's decision in Tan Ying Hong is that the Appellant may have been unjustly enriched as he ended-up being the registered proprietor of a piece of land which he did not apply for or purchase.

 

On the other hand, there is no doubt that Madam Boonyanit was at all material times the legal and beneficial owner of the land in Adorna Properties. All legal avenues to set aside the transfer of the land were exhausted, including 2 unsuccessful applications by her personal representatives to the Federal Court in 2001 and 2004 to review its earlier decision. Madam Boonyanit passed away in 2000 without getting the justice that she rightfully deserved.

 

Tan Yin Hong is a decision which should be welcomed by landowners as it provides them with an additional layer of protection against the loss of their lands by fraudulent means or forged instruments.

 

Tan Yin Hong is a landmark decision as it restores the principle of deferred indefeasibility to Section 340 of the NLC and rectifies, in the words of the learned Chief Justice of Malaysia, Tan Sri Zaki bin Tun Azmi, the "obvious and blatant error" committed in Adorna Properties.

 

The Chief Judge of Malaya, Tan Sri Arifin bin Zakaria, acknowledged in his judgment that, "It is therefore highly regrettable that it has taken some time, before this contentious issue is put to rest". Although it has taken almost a decade for Adorna Properties to be put to rest, it is better late than never.

 

 

ROSEY LIM CHU AI ( This e-mail address is being protected from spambots. You need JavaScript enabled to view it )

 
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