Land Law Malaysia - Indefeasibility of Title

Indefeasibility of Title

Immediate indefeasibility

Registration immediately establishes indefeasibility except in cases of fraud. A purchaser in good faith for value immediately gets a good title.

Deferred indefeasibility

Registration of title obtained without fraud remains potentially open to attack if certain circumstances exist until the title is transferred to another (bona fide third party).

Effect of registration – s.340(1) – the title is indefeasible subject to subsection 2

S.89 – Conclusiveness of RDT

S.92 – indefeasibility of final title

S.341 – no adverse possession against an indefeasible title

Ways title becomes defeasible

Fraud [s.340(2)(a)], Misrepresentation [s.340(2)(a)], Forgery (b), Void/insufficient instrument (b), unlawful acquisition (c), operation of law [s.340(4)], claim in personam [s.206(3)], operation of other statutes

General rule:

Frazer v Walker (PC)

Facts: Mr. Frazer and his wife were registered owners of a farm. Mrs. Frazer borrowed money from a third party using the farm as security without her husband’s consent. She forged her husband’s signature since both of their signatures were needed for the mortgage contract. The land was sold to Mr.Walker who was unaware of the forgery. Court held that Mr. Walker had an indefeasible title as he was a bona fide purchaser for value without notice.

Indefeasibility of title and interests … is a convenient description of the immunity from attack by adverse claim to the land or interest in respect of which … a registered proprietor enjoys.

Exceptions:

Kesarmal v Valiappa Chettiar – ‘...title of a proprietor is liable to be defeated’.

S.340(2) –(a), (b), (c)

Fraud : s.340(2)(a)

Not defined in the NLC

1. Assets Co v Mere Roihi

fraud … means actual fraud, that is, dishonesty of some sort … Further, it appears to their Lordships that the fraud which must be proved in order to invalidate the title of a registered proprietor for value … must be brought home to the person whose registered title is impeached or to his agents.

2. Waimiha Sawmilling Co v Waione Timber Co

Dishonesty – a wilful and conscious disregard and violation of the rights of other persons

Principle

Fraud must have been brought home to the person whose registered title or interest is being impeached, i.e. he or his agent must be a party or privy to the fraud: Doshi v Yeoh Tiong Lay where the question was whether the knowledge which the solicitor (agent) had of the illegality and fraud of the transaction could be imputed to the client (Principal).

3. Doshi v Yeoh Tiong Lay

The appellant was the registered owner of premises in KL. He obtained a loan from a lawyer and deposited his documents of title together with 2 blank transfer forms duly executed by him to the lawyer. Upon default of payment, the lawyer transferred the premises to a company which was subsequently transferred to YTL, the current registered proprietor. YTL charged the land back to the company. The lawyer was involved in both transactions. The argument is that the knowledge is imputed on the client to know about the fraud committed earlier.

Held: YTL can retain the title. The solicitor’s knowledge cannot be imputed on the client to know about the fraud. Need to prove actual knowledge, not constructive knowledge.

4. Tai Lee Finance Co Sdn Bhd v Official Assignee & Ors

Principle: the fraud complained of must have resulted in the registration of the title or interest and must have been committed before or at the time of registration

 - Whether it is a civil or criminal case, fraud has to be proved beyond reasonable doubt. It is a question of fact, from case to case.

5. Owe Then Kooi v Au Thiam Seng [1990] 1 MLJ 234

There were 2 actions.

i) Suit brought by Owe Then Kooi against Au Thiam Seng, his half-brother and a bank

ii) Foreclosure action brought by the bank against Au Thiam Seng and 5 others, all of them were registered owners of a piece of land charged to the bank.

Owe Then Kooi contended that he was the registered owner of 1/7 undivided share of the land in dispute and argued that Au Thiam Seng had fraudulently transferred that 1/7 share to himself. Here, Owe Then Kooi was sent to prison for conviction of murder which was reduced to culpable homicide. When sent to prison, he asked Au Thiam Seng to hold the 1/7 share as trust for him until he finishes his sentence. In prison, Owe Then Kooi signed certain documents brought by a lawyer’s clerk thinking that it was to create a trust for him. He could only converse in Chinese, so he did not know the contents of the documents which were in English. When he was released from prison, Au Thiam Seng gave him the sum of 4,350 ringgit purportedly being his share of rentals paid in respect of the land and due to him. Owe didn’t suspect anything until he received a notice of real property gains tax levied on the disposal of his 1/7 share, which led to the civil suit.

Held:  Au Thiam Seng had effected the transfer of Owe Then Kooi’s share to himself fraudulently. The payment of rental arrears was only his attempt to delay the discovery of fraud by Owe. Furthermore, his subsequent charging of the property with the other co-owners and failure to attend court proceedings cemented the fact that he had in fact acted fraudulently.

The title to the property reverted to Owe Then Kooi, but the charge remained vested in the bank. The bank only acquired an interest as charge in the land and not a title to the land. The registered proprietor can still sell the land to a third party who will take it subject to the registered lease or charge.

6. OCBC Bank (M) Bhd v Pendaftar Hakmilik, Negeri Johor Darul Takzim

In this case, the appellant bank was the chargee of a land granted by one Ng See Chow. Due to a default in payment, the appellant applied for the sale of the land. However, one Ng Kim Hwa claimed that he did not execute any transfer in favour of Ng See Chow and that the land was his. Court held that the appellant’s interest as chargee over the land was liable to be defeated under s.340(2)(b) and the proviso to s.340(3) didn’t apply although it was an innocent purchaser for value.

The principle established in OCBC case is that a chargee can only rely on the proviso in s.340(3) if the charge was granted after the land title was subsequently transferred, i.e. 2 transfers had taken place.

Mere knowledge of unregistered claim/interest amount to fraud?

(1) fraud against a previous holder of a registered title or interest

Datuk Jagindar Singh & Ors v Tara Rajaratnam

The respondent (Tara) was a registered proprietor of a land in Kulai, Johor. The 1^st (Jagindar) and the 2^nd (Suppiah) appellants were advocates and solicitors practicing in Johor. The 3^rd appellant Arul was a partner in the Singapore firm of Rodyk and Davidson. 

Tara’s brother-in-law, Dr.Das had financial difficulties and needed to get a loan from HKBC in Singapore where Jagindar was the guarantor. Jagindar wanted Tara’s land as security for the loan. At the time, the land was charged as security to Chung Khiaw Bank. Later, Suppiah asked Tara to sign a document which purported to put the land as security. However, the form used the word ‘transfer’ and when Tara questioned about it; he said that the transaction was going to be a security. Suppiah inserted a manuscript to the agreement, where there were 2 undertakings:

i) the land was not to be sold to anyone for one year without the respondent’s consent.

ii) The land would be transferred back to the respondent upon the repayment of 220k within 1 year.

Contrary to the undertakings, Suppiah transferred the property 18 days later to the 3^rd appellant, Arul. Then, on instruction from Jagindar, the land was transferred to Jet Age Construction Company, which was almost wholly owned by Jagindar. The property was then subdivided into 70 lots and sold to the public, so Tara couldn’t get the property back.

Held: The 1^st and 2^nd appellants never really intended to fulfill the conditions of the agreement and that they only wanted the respondent to sign the transfer form as they wanted the property. The 3^rd appellant colluded with the other appellants to get possession of the property. Datuk Jagindar was the one who wanted the property, while Suppiah and Arul were merely acting for Jagindar, since Jagindar was the one who instructed them.

(2) fraud against the holder of an unregistered interest.

Loke Yew v Port Swettenham Rubber Co Ltd

In this case, Eusope was the registered owner of 322 acres of land, and the appellant (Loke Yew) was in possession of 58 acres of it under unregistered Malay documents, making him the owner subject to payment of rent. The respondents, who knew about the appellant’s interest bought from Eusope the 322 acres excepting the said 58 acres. However, a transfer for the whole of the 322 acres were prepared, and the respondents induced Eusope to sign it by saying that they would purchase the appellant’s interest and this was reduced into writing. After obtaining the entire 322 acres, the respondents ordered the appellant to give up possession of the 58 acres.

Held: The Privy Council found for Loke Yew and that the respondents acquired title through fraud. The respondents had more than mere knowledge of Loke Yew’s unregistered interest. The assurances it made to Eusope had been made to induce Eusope to execute the transfer of the land and amounted to a deliberate plan to deprive Loke Yew of his interest. 

Misrepresentation: s.340(2)(a)

Contracts Act 1950 – fraudulent, negligent, innocent

1. Loke Yew v Port Swettenham Rubber Co Ltd

2. Datuk Jagindar Singh & Ors v Tara Rajaratnam – fraudulent misrepresentation

                                                                     

Forgery: s.340(2)(b)

Where registration is obtained by forgery, the registered title or interest of that person or body who is a party to the forgery may be defeasible by reason of fraud under s.340(2)(a) or forgery under s.340(2)(b). It would appear to apply even where that person or body is a purchaser in good faith and for value.

Paragraph (b) is easier to prove and also on a lower burden of proof. It is much more difficult to prove fraud.

1. Boonsom Boonyanit v Adorna Properties Sdn Bhd (HC)

Facts: The issue was over the sale of two lots of land in Penang belonging to Boonsom Boonyanit. The defendant, Adorna, wanted to purchase those lots from her. The defendant’s solicitors obtained the vendor’s name from a land search, and her passport number from the solicitors. The vendor’s solicitors had also prepared a statutory declaration to correct the name of the title from Sun Yok Eng @ Boonsom Boonyanit to Mrs. Boonsoom Boonyanit. The transfer was registered in favour of the defendant. Later, the plaintiff, Mrs. Boonsom claimed that she was the true owner of the properties and had never sold them to the defendant. The plaintiff claimed that the title acquired by the defendant was defeasible due to forgery.

Held: (i) The standard of proof in proving fraud is beyond reasonable doubt and not on a balance of probabilities.

(ii) Even if the plaintiff had proved forgery, the defendant had acquired an indefeasible title as a purchaser in good faith for value under the proviso to s.340(3).

2. Boonsom Boonyanit v Adorna Properties Sdn Bhd (COA)

(i) The standard of proof to be applied in civil forgery suits is on the balance of probabilities.

(ii) The words any purchaser in s.340 of the code refers to a subsequent purchaser, not an immediate purchaser. Therefore, deferred indefeasibility is practised and not immediate indefeasibility.

3. Adorna Properties Sdn Bhd v Boonsom Boonyanit @ Sun Yok Eng (FC)

(i) Agreed that the standard of proof is on the balance of probabilities

(ii) Reversed the COA decision and held that by virtue of the proviso to s.340(3), any purchaser in good faith for valuable consideration obtains an immediate indefeasible title to the land. Even if there was forgery, the respondent still obtained an indefeasible title to the land.

4. Tan Ying Hong v Tan Sian San (FC) [2010]

The appellant was the registered owner of a land which was charged to UMBC, the 3^rd respondent, to secure loans made in favour of the 2^nd respondent. The 1^st respondent who acted under a power of attorney had executed the charges in favour of the 3^rd respondent bank. The appellant claimed that he did not sign the power of attorney, that it was forged and that the charge was void.

Held: The charges registered in favour of the 3^rd respondent were liable to be set aside under s.340(2)(b) on the ground of void instruments. Since the 3^rd respondent was an immediate holder of the charges, it could not rely on the proviso to s.340(3).

Principle: This case has overruled the decision in Adorna Properties and held that deferred indefeasibility is practised, and not immediate indefeasibility.

Forgery v Fraud

The very fact of forgery suffices by itself in making a registered title defeasible irrespective of the absence of knowledge or implication on the part of the proprietor. ... it affects immediate proprietor even if he be an innocent purchaser for value: Chiew Lip Seng v Perwira Habib Bank (M) Bhd.

The forgery does not need to relate to the party whose title is to be defeated. An instrument which is forged is void: OCBC Bank (M) Bhd v Pendaftar Hakmilik Negeri Johor Darul Takzim

Burden of proof of forgery is on balance of probabilities: EON Bank Bhd v Hotel Flamingo and Another Case and not beyond reasonable doubt (HC in Boonsom Boonyanit case). FC and CA – on balance of probabilities.

How to prevent forgery?

Take all necessary precautions to ensure that the person who appeared before the lawyer is who he said he is.

Forgery and transfer to a bona fide purchaser for value

Boonsom Boonyanit – allowed the transfer to stand in the case of bona fide purchaser for value

cf

Tan Ying Hong v Tan Sian San & Ors

In this case, the registered proprietor had never paid for the land although the land was alienated by the State.

1. Aik Ming (M) Sdn Bhd v Chang Ching Chuen  

2. Pekan Nenas Industries Sdn Bhd v Chang Ching Chuen