Malaysia-whether a purchaser of real property who never became registered as a proprietor is entitled to invoke s 340 of the National Land Code 1965 ('the NLC'), or whether only persons who were previously registered as proprietors may do so

In Dato' Capt Mohd Najib bin Abdullah v Natarjaya Sdn Bhd & Ors [2016] 7 MLJ 532, it was held that:-

"...[21] Counsel for the fourth defendant argued that the plaintiff, because he was never registered as proprietor of the subject property, could not avail himself of s 340 of the NLC to defeat the title of the fourth defendant.

[22] However, a plain reading of s 340 does not support his proposition. Section 340(2) is not drafted in the active voice, which is to say that it does not specify the identity of the person who may defeat the title of a registered holder. The plaintiff, having paid the purchase price, became the beneficial owner of the property, with the vendor holding the legal title to the property on a bare trust for the plaintiff. There is nothing in s 340 of the NLC that proscribes the ability of a beneficial owner to avail himself of the protection of that provision.

[23] That the vendor became a bare trustee is clear from cases such as Macon Engineers Sdn Bhd v Goh Hooi Yin [1976] 2 MLJ 53. In the present case, the relevant memorandum of transfer for the property had not been executed in favour of the plaintiff, but in my judgment that does not prevent the bare trust from arising. The true test as to the circumstances which give rise to a bare trust is that set out in Howard v Miller [1915] AC 318, a decision of the judicial committee of the Privy Council on appeal from British Columbia:

It is sometimes said that under a contract for the sale of an interest in land the vendor becomes a trustee for the purchaser of the interest contracted to be sold subject to a lien for the purchase-money; but however useful such a statement may be as illustrating a general principle of equity, it is only true if and so far as a Court of Equity would under all the circumstances of the case grant specific performance of the contract.


[24] In the present instance, the plaintiff had paid the full purchase price for the property, and would have been entitled to specific performance against Natarjaya. Natarjaya accordingly held the legal title to the property as trustee for the plaintiff.

[25] Of course, the existence of a bare trust in and of itself is of no consequence to the present case, as this was not a case involving competing equities. The existence of a bare trust should not have the effect of defeating the title of a registered proprietor in a system of title by registration. The only way in which the title of a registered proprietor may be challenged is under the NLC itself.

[26] The proposition that a beneficial owner who was not previously registered as proprietor may avail himself of s 340 to defeat the title of an existing registered proprietor is supported by the decision in Ong Chat Pang v Valliappa Chettiar [1971] 1 MLJ 224. The facts in Ong Chat Pang bear similarity to those of the present case.

[27] In Ong Chat Pang, the plaintiff, Valliappa Chettiar, entered into a written agreement with the first and second defendants to purchase a piece of land in Klang on which a house was being constructed. The plaintiff paid half of the purchase price to the vendors. Approximately two months later, the plaintiff received word that the vendors were facing financial difficulties, as a result of which the plaintiff prepared a caveat, which was presented on 24 January 1958. On 30 January, the plaintiff was informed that his caveat had been rejected and that a transfer had been presented and registered that very same day in favour of the third and fourth defendants.

[28] The Federal Court in Ong Chat Pang held that the plaintiff was entitled to rely upon s 40 of the FMS Land Code to defeat the title of the third and fourth defendants in that case, who were the registered proprietors and who had purchased the property after the plaintiff.

[29] It is important to note that there was no finding of fraud by the trial judge against the third and fourth defendants in Ong Chat Pang. Nonetheless, they bore the burden of proving that they were bona fide purchasers for valuable consideration. Their failure to do so meant that their title was defeasible at the instance of Valliappa Chettiar, the plaintiff and appellant. The plaintiff, it will be remembered, was never registered as proprietor.

[30] A preliminary observation may be made that although the wording used in s 40 of the FMS Land Code was different from that contained in s 340, the differences in wording do not have any impact on their legal effect: see the dicta of Abdul Hamid FJ in Tai Lee Finance Co Sdn Bhd v Official Assignee & Ors [1983] 1 MLJ 81; [1983] 1 CLJ 183:

We have, for purposes of the present case, examined the wording of ss 42(i) and (ii) of the Land Code 1926 and s 340(1) and (2) of the National Land Code and do find that though the words used in both these sections are not the same we are of the view that the meaning they bear, in short their legal effect, cannot be said to be different.

[31] A more serious objection to the plaintiff's case is the criticism of the decision in Ong Chat Pang by Teo Keang Sood and Khaw Lake Tee in their book Land Law in Malaysia (3rd Ed, at p 200). This was what they had to say:

[4.46] As was the position under s 42 of the FMS Land Code (Cap 138), s 340 of the National Land Code 1965 sets out the circumstances under which a title will be rendered defeasible in the hands of a registered proprietor. Section 340 of the Code thus operates to make the title of the registered proprietor prima facie indefeasible in the absence of the title being acquired under any of the circumstances specified therein. Accordingly, it is not clear how the title to the land registered in the names of the third and fourth defendants could be set aside or rendered defeasible when none of the vitiating circumstances was present.
[4.47] It would appear that the third and fourth defendants pleaded s 42(iv) of the FMS Land Code (Cap 138) as one of the bases of their good title. Subsection (iv), like s 340(3) of the National Land Code, is, however, only operative where a purchaser is taking from a proprietor whose registration was procured by means of fraud, forgery or any insufficient or void instrument. In such a situation, the title of the purchaser is indefeasible if he has taken the property bona fide and for valuable consideration. There being nothing in the case to indicate that the vendor's title was affected by either subsection (ii) or (iii) of s 42, the basis of the third and fourth defendants' claim could only rest on s 42(i) and not subsection (iv) as pleaded.



[32] The gist of the argument is that the third and fourth defendants need not even show that they were bona fide purchasers for valuable consideration, as the title of the vendors was not defeasible under any of the predecessor provisions of s 340(2), and accordingly, the predecessor to s 340(3) would not apply to the third and fourth defendants.

[33] In my opinion, the learned authors overlooked a critical fact. The plaintiff had pleaded that the transfer in favour of the third and fourth defendants was effected fraudulently. When the suit came to be heard by Abdul Hamid J at first instance, the first and second defendants (being the vendors) never entered appearance. It follows therefore that the plaintiff's claim of fraud, as against the first and second defendants, was proven. Abdul Hamid J had made a finding that the court could not infer fraud on the part of the third and fourth defendants, and there was no appeal by the plaintiff on this finding.

[34] The true analysis of Ong Chat Pang is as follows. The vendors, having received part of the purchase price from the plaintiff, held the legal title to the property on a bare trust for the plaintiff. When they sold or purported to sell the property a second time to the third and fourth defendants, they had done so fraudulently. At this point, their title became defeasible by virtue of s 340(2)(a) (references are made to the present provisions of the NLC, for convenience). When the property was transferred to the third and fourth defendants, their title too became defeasible, pursuant to s 340(3)(a). They then bore the burden of showing that they came within the proviso to s 340(3) and were bona fide purchasers for valuable consideration. Their failure to do so meant that the plaintiff, the erstwhile beneficial owner, was able to defeat their title.

[35] In the present case, the first defendant, being the vendor, never entered appearance. Accordingly and as explained in para 12 ante, the plaintiff's case of fraud as against Natarjaya and its directors the second and third defendants is taken to have been proven.

[36] Having paid the purchase price for the property, the plaintiff became the beneficial owner. The developer held the property as bare trustee for the plaintiff. When Natarjaya entered into an agreement to sell the property a second time to the fourth defendant, it committed a fraud and its title became defeasible on account of such fraud. (Up until then, Natarjaya's title was indefeasible, pursuant to s 340(1).) It does not matter that no conveyance had yet taken place, as s 340(2)(a) (unlike sub-para (b) of that sub-section) places no requirement that there must be a registration for the characterisation of the title of the proprietor to change.

[37] When the property was transferred to the fourth defendant, her title was defeasible by virtue of s 340(3)(a), due to the vitiating circumstance of the fraud by Natarjaya and its directors. It then became incumbent on the fourth defendant to show that it was a purchaser in good faith and for valuable consideration. This is considered at para 48 below. Of course, if it is determined that the fourth defendant was, in purchasing the property, complicit in the fraud committed by the first to third defendants, then her title would be defeasible pursuant to s 340(2)(a). The claim of fraud against the fourth defendant is addressed at para 39 et seq.

[38] Counsel for the plaintiff cited other cases where a person other than a previously registered proprietor was able to rely on s 340 to defeat the title of a registered proprietor. It will only be necessary to mention one of them, being the case of Samuel Naik Siang Ting & Ors v Public Bank Bhd [2015] 6 CLJ 914, affirmed by the Federal Court on 30 September 2015; see  [2015] MLJU 519, where it was held by the Court of Appeal that an equitable mortgagee could avail itself of s 340(2) to defeat the transfer of the subject properties to the defendants."

Popular Posts