STRICT ADHERENCE TO THE STATUTORY SCHEME

 Loo Peh Fern provides a summary of a landmark case on private caveats in Malaysia
 

INTRODUCTION

The Federal Court in Score Options Sdn Bhd v Mexaland Development Sdn Bhd [2012] 7 CLJ 802 emphasised that all interests in land in Malaysia are creatures of the National Land Code 1965 (“NLC”) and protection can only be extended to such interests which are the subject of the schemes of dealings as provided under Division IV of the NLC.


BRIEF FACTS

The Appellant landowner entered into a joint venture cum project management agreement (“Agreement”) with the Respondent to develop part of its land into a housing estate (“the project land”). The remaining part of the land had been sold to another company which was not involved in the case. Upon executing the Agreement, the Appellant and Respondent simultaneously executed two powers of attorney whereby the Respondent was granted certain rights in respect of the development project.

Under the Agreement, the parties had agreed that the Respondent would launch the development project by 1 June 2006. The Agreement also expressly permitted the Respondent to enter a private caveat on the project land. The Respondent entered a private caveat on the entire land, instead of the project land. Subsequently a dispute arose between the parties and the Appellant sought to terminate the Agreement on the ground that the Respondent had breached the agreement by failing to launch the development project by 1 June 2006.

The Respondent commenced a suit against the Appellant for wrongful termination of the Agreement. In the meantime, the Appellant applied to the Registrar of Titles to remove the caveat entered on the entire land. When the Respondent received notice of this application, it made an ex-parte interlocutory application to extend the caveat until the final determination of its suit against the Appellant.

The High Court dismissed the Respondent’s application on the grounds that it had no caveatable interest to lodge or extend the caveat.

The Respondent, dissatisfied with the High Court’s decision, appealed to the Court of Appeal. The Court of Appeal, by a 2:1 majority decision, allowed the Respondent’s appeal.

The Appellant then obtained leave to appeal to the Federal Court on the following questions of law –

(i)     With reference to section 326(2) of the NLC, what are the requirements to be satisfied by a caveator before the court may allow an extension of a private caveat on an ex-parte basis?

(ii)    Whether a party to a joint venture agreement to develop land for profit has a caveatable interest in land?

(iii)   Whether a private caveat lodged over the whole of a land can be permitted to remain if the caveator’s alleged interest is only limited to part of the land?

(iv)   Whether a person must demonstrate that he comes within section 323(1) of the NLC to be entitled to lodge/maintain a private caveat on the land, notwithstanding the existence of an agreement which allows him to so enter such private caveat?


THE PARTIES’ CONTENTIONS

It was the Appellant’s case that the Agreement, including the powers of attorney created thereunder, only gave the Respondent a contractual right to manage and develop the project land and not a right of ownership or any caveatable interest in the land.

On the other hand, the Respondent claimed that it had a registrable interest in the land by virtue of the Agreement. The Respondent argued that by virtue of the powers of attorney executed under the Agreement, the Appellant had relinquished its ownership of the land to it. The Respondent further submitted that clause 6 in the Agreement had given it the right to lodge the caveat.


DECISION OF THE FEDERAL COURT

Tun Arifin bin Zakaria CJ, in delivering the judgment of the Federal Court, stated that the sole question for determination by the Federal Court was whether or not the Respondent had a caveatable interest as contemplated by section 323(1)(a) of the NLC.

Caveatable interest

Having considered the analysis by Gopal Sri Ram JCA (as he then was) in Luggage Distributors (M) Sdn Bhd v Tan Hor Teng [1995] 1 MLJ 719 as to the scope of protection under section 323(1)(a) of the NLC, the learned Chief Justice went on to hold that the only parties who are authorised to lodge a private caveat are those who may effect dealings in a particular interest in the land, and such interest was either (i) a registered title; or (ii) a registrable interest that falls short of ownership, such as leases, charges and easements; or (iii) a claim to an interest that falls under (i) or (ii).

Tun Arifin bin Zakaria CJ held that a caveat is a creature of the NLC and can only be lodged by a claimant who has a caveatable interest under the NLC. His Lordship then stated that section 323(1) of the NLC which governs the entry of a private caveat only permits a party to lodge a private caveat if he has a “registrable interest” in the land. To be caveatable, the interest must be an interest in land or that interest must be capable of registration. In other words, it must represent a transaction that can ultimately lead to its registration on the register.  

Applying the law to the facts of the case, His Lordship held that although the Appellant had conferred numerous rights on the Respondent under the Agreement and the powers of attorney, all those rights were merely rights to develop the land that would give rise only to a monetary interest, i.e. a right in personam against the Appellant, and did not create any interest in the land.

His Lordship held that the case Zemine Development Sdn Bhd v Hong Kong Realty Sdn Bhd [2009] 5 CLJ 218, cited by the Respondent, was distinguishable on the facts. His Lordship observed that both the High Court and the Court of Appeal held that the respondent in that case had a caveatable interest by virtue of its entitlement to 80% of the subdivided lots of the land. This was unlike the present case where the Respondent was not entitled to any share of the subdivided units under the Agreement but only to a share in the profits of the development.

Potential interests

The learned Chief Justice also held that it was the considered view of the Court that a caveator under section 323(1)(a) of the NLC must have a present interest, as opposed to a potential interest, in the land. The caveator must be limited to those who are claiming an existing interest in the land or a right to such existing interest and could not include potential interest or interest in futuro.

The learned Judge referred to Goo Hee Sing v Will Raja Peruma & Anor [1993] 3 MLJ 610 where Mahadev Shankar J (as he then was) expressed this proposition in the following terms –

The point however is that the claim must be to title or a right thereto in praesentii, and not to some contingent title or right thereto in futuro.

His Lordship held that the Torrens system, which is the applicable land registration system in Malaysia, would not have room for interests in the land which are unascertainable and cited Tan Heng Poh v Tan Boon Thong & Ors [1992] 2 MLJ 1 as an authority for this principle. The Federal Court also noted that this principle is applied by other jurisdictions which have adopted the Torrens system.

Turning to the instant case, Tun Arifin bin Zakaria CJ held that even though the Respondent was given the option to purchase the units it developed and to transfer the units to itself if it chose to do so, that right had yet to be exercised at the time when the caveat was lodged. Therefore, the right had not ripened into an interest in land.

His Lordship reiterated that a caveat was purely a creature of statute and could only be lodged and maintained according to the statute by a person who was authorised to do so by the statute. Accordingly, His Lordship held that parties could not by agreement between themselves create a caveatable interest.

His Lordship also approved of the judgment in Wong Kuan Tan v Gambut Development Sdn Bhd [1984] 2 MLJ 113, where it was held that a contract could not override a statute by inventing a right which is not recognised by the statute and that the court could not give recognition to such a right (see also Luggage Distributors (M) Sdn Bhd v Tan Hor Teng @ Tan Tien Chi & Anor).

Tun Arifin bin Zakaria CJ also held that the burden is on the caveator to show that his caveat comes within the scope of section 323 of the NLC.

As the Court concluded that the Respondent did not have a caveatable interest in the project land under section 323 of the NLC, the Court allowed the appeal and ordered the private caveat lodged by the Respondent to be removed. Accordingly, the Court answered question (ii) in the negative and question (iv) in the positive. The Court also ruled that it was not necessary to answer the remaining questions.


CONCLUSION

This decision of the Federal Court is significant in three respects. First, it clarifies the meaning of ‘registrable interest’ in section 323 of the NLC. Second, it makes it clear that only a person who has a present interest, as opposed to a future or contingent interest, in land is entitled to lodge a caveat. Third, it affirms that an agreement between parties to allow a caveat to be entered on title cannot in itself create a caveatable interest for the purposes of the NLC.

The principles laid down by the Federal Court in Score Options will provide guidance for the Malaysian courts in subsequent cases.

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