Basic Of Indefeasiblity under National Land Code

Monday, 29 October 2007 07:21PM

Basics of Indefeasibility under the National Land Code*

Teo Keang Sood, Professor, Faculty of Law, National University of Singapore

 

I.   Introduction

With its decision in Adorna Properties Sdn Bhd v Boonsom Boonyanit @ Sun Yok Eng[1],

the Malaysian Federal Court has not only spawned academic article[2] on the subject of indefeasibility of title and interests under the National Land Code 1965[3] (hereinafter referred to as “the NLC”), but has, unfortunately, also left an unwanted trail of uncertainty and insecurity of title for landowners which the Torrens system of land registration embodied in the NLC seeks to avoid, not to mention the slew of conflicting decisions pronounced in its aftermath.

It is trite that the concept of indefeasibility of title and interests is central in any Torrens system of land registration.[4] In essence, the Torrens system provides for, inter alia, the concept of indefeasibility wherein all registered title and interests are guaranteed by the State to be good against the whole world in the absence of fraud or other vitiating circumstances statutorily specified or judicially laid down.

The concept of indefeasibility is, however, not defined in the NLC.[5] In Frazer v Walker,[6] a Privy Council case on appeal from New Zealand, Lord Wilberforce explained the concept as follows:

“The expression [“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. This conception is central in the system of registration. It does not involve that the registered proprietor is protected against any claim whatsoever: … there are provisions by which the entry on which he relies may be cancelled or corrected, or he may be exposed to claims in personam. These are matters not to be overlooked when a total description of his rights is required. But as registered proprietor, and while he remains such, no adverse claim (except asspecifically admitted) may be brought against him.”[7] Recent case law developments have added their fair share of ambiguities as to the concept of indefeasibility embodied in the NLC.

 It is well-known that the Torrens system of registration seeks to provide for, inter alia, certainty of title and interests.[8] However, this objective is now undermined given recent judicial interpretations which pay scant regard to the spirit and intent of the indefeasibility provision in the NLCwhich we now turn to.

 II. The Statutory Analytical Framework

Section 340 of the NLC provides for the concept of indefeasibility. This paper will focus principally on the vitiating circumstances of fraud and forgery which the cases deal with. It is proposed to set out below the relevant provisions pertaining to these two vitiating factors so as to better understand the discussion which follows. The relevant parts of the section read as follows:“S 340(1) The title or interest of any person or body for the time being 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… 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 (c) …

(3) Where the title or 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 timebeing 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.

(4) …”Given the language employed in section 340, the analytical framework of the provision is as ollows: pursuant to section 340(1), the proprietor in whose favour registration has been effected will obtain an indefeasible title to or interest in the land.However, the title or interest so acquired is liable to be set aside under section 340(2) where it has been obtained by, inter alia, fraud or forgery. In the case of fraud, section 340(2)(a) provides for the title or interest obtained to be defeasible where the proprietor or his agent is a party or privy to the fraud. In the case of forgery, section 340(2)(b) provides for the title or interest so acquired by the proprietor or transferee immediately to the forgery to be defeasible and liable to be set aside. This is so irrespective of whether the said proprietor or transferee acted in good faith in acquiring the title or interest. This is because there is no similar requirement, as in the case of fraud, that he must also be a party or privy to the forgery.

In these circumstances, where the title or interest is subsequently transferred, section 340(3)(a) provides that the subsequent proprietor or transferee will similarly obtained defeasible title or interest. Also under section 340(3)(b), any interest subsequently granted out of a title which is defeasible under section 340(2)(a) and (b) will attract the same consequence. However, where the subsequent proprietor or transferee acts in good faith and gives valuable consideration for the title or interest in question, section 340(3) proviso confers protection on such a subsequent proprietor or transferee such that his title or interest will be indefeasible. In effect, section 340 provides for what iscalled the concept of deferred indefeasibility.[9] At this juncture, it may be pertinent to note by way of comparison that under section 46(2)(a) of the Singapore Land Titles Act (Cap 157),[10] which provides for the concept of indefeasibility, the vitiating factor of forgery is placed side by side with fraud wherein it must be established that either the proprietor or his agent was a party to or had colluded in the fraud or forgery before the title may be rendered defeasible. It can be seen then that the application of both exceptions lead to the same result. In this regard, the Singapore provision, in effect, embraces the concept of immediate indefeasibility.[11] In section 340(2)(b) of the NLC, however, forgery is a distinct ground on its own and given the different language employed in section 340(2)(a) and (b), the vitiating factor of forgery is sufficient in itself to render the registered title or interest defeasible notwithstanding that the immediate registered proprietor or transferee is innocent and has acted in good faith in addition to giving valuable consideration.

 III. Competing Theories of Indefeasibility

As noted above, there are two competing theories of indefeasibility, namely, immediate and deferred indefeasibility.[12] Policy considerations play a role in determining which theory is adopted in a particular Torrens jurisdiction.

In the case of immediate indefeasibility, the registered title or interest of the proprietor or transferee immediately to the vitiating factors will be conferred statutory protection i.e. the quality of indefeasibility, the vitiating factors notwithstanding.

Immediate indefeasibility will attach so long as the immediate proprietor or transferee acts in good faith and gives valuable consideration for the title or interest acquired.[13] As for deferred indefeasibility, statutory protection is conferred on the subsequent transferee after, say, a forged transfer. In other words, the quality of indefeasibility is postponed in favour of a proprietor or transferee who subsequently acquires the title or interest. By way of illustration, take for instance a case where X forges the signature of A to whom the land belongs and transfers the land straight to B (i.e. immediate proprietor or transferee to the forgery) who purchases it in good faith and for valuable consideration. Under the theory of deferred indefeasibility, B will get only a defeasible title. If B subsequently transfers the land to C (i.e. subsequent proprietor or transferee to the forgery) who acts in good faith and gives valuable  consideration for it, the quality of indefeasiblity will only then attach to the title to the land acquired by C.

 IV. The Federal Court Decision in Adorna Properties Sdn Bhd v Boonsom Boonyanit

Notwithstanding the clear language of section 340 of the NLC noted above, the highest court in Malaysia, nevertheless, construed the provision as embracing the concept of immediate indefeasibility. In the instant case, the respondent was the registered proprietor of the lands in question. She discovered that the lands had been transferred to and registered in the name of the appellant company. A person bearing her name, Boonsom Boonyanit, had forged her signature on the documents of transfer and sold the lands to the appellant company. It was established that the latter had no knowledge that the transfer documents were forged and had no reason to suspect that they were forged. It was not in dispute that the sale was an arm’s length transaction with the parties represented by different solicitors. The respondent brought an action to, inter alia, restore her name as the registered owner on the register.

The High Court found in favour of the appellant company.[14] Vincent Ng J held, inter alia, that there was sufficient evidence that the respondent was the registered owner of the lands prior to the transfer to the appellant company. However, the respondent failed to discharge the burden of proving that there was a forgery in regard to the transfer. In any event, even if the respondent had succeeded in establishing forgery, the appellant company was a bona fide purchaser for value and thus came within the proviso to section 340(3), with the result that they obtained a good title to the lands notwithstanding the forgery.

The Court of Appeal, in reversing the decision of the High Court, reinstated the deferred indefeasibility concept in section 340.[15] Their Lordships held that the appellant company’s registered title was defeasible under section 340(2) and that the proviso to section 340(3) had no application.

In a brief four-page judgment, the then Chief Justice Eusoff Chin, in delivering the judgment of the Federal Court, allowed the appeal of the appellant company. The then Chief Justice had rightly stated that the proper approach to take in dealing with the issue at hand is to interpret section 340 as a whole, uninfluenced by any judicial or academic comment on its scope and effect. As he elaborated:

“We are aware that any sovereign country may adopt and apply the Torrens system, but in adopting the system, it may modify the system to suit its own needs. Our Parliament did not slavishly follow the ordings of ss 62, 182 and 183 of Land Transfer Act 1952 of New Zealand, nor the wordings of s 42 of the FMS Land Code.

Therefore, to follow the arguments in earlier decisions not based on s 340 of the NLC would only lead to utter confusion. We would therefore proceed to interpret s 340 NLC as it stands, and find what the real intention of Parliament was when enacting it, for the object of interpretation is to discover the intention of Parliament, and the intention of Parliament must be deduced from the language used.”[16] In deducing the intention of Parliament, he analysed section 340 as follows:

“Subsection (1) of s 340 NLC is worded in plain language. It says that the ‘title or interest of any person for the time being registered as proprietor of any land…shall be indefeasible’ subject to the provisions contained in the section. …So long as his name is on the land register, his title or interest is indefeasible unlesscaught by sub-s (2) and (3). Subsection (2) of s 340 NLC uses the word ‘such’. When the word ‘such’ occurs in a section it must not be ignored, but must be read as referring back to the preceding provision – Ellis v Ellis [1962] 1 WLR 227. Subsection (2) states that the title of any such person, ie any registered proprietor or co-proprietor for the time being, is defeasible if one of the three circumstances in subs (2)(a), (b) or (c) occurs. We are concerned here with sub-s (2)(b) where the registration had been obtained by forgery. Subsection (3) says that where that title is defeasible under any of the three circumstances enumerated under sub-s (2), the title of the registered proprietor to whom the land was subsequently transferred under the forged document, is liable to be set aside. Similarly, sub-s (3)(b) says any interest under any lease, charge or easement subsequently ‘granted thereout’, ie out of the forged document may be set aside.

However, sub-s (3) of s 340 NLC does not stop there. It contains a proviso. It is a cardinal rule of interpretation that a proviso to a particular section or provision of a statute only embraces the field which is covered by the main provision.

The object of a proviso is to qualify or limit something which has gone before it. Its proper function is to except and deal with a case which would otherwise fall within the general language of the main provision of the statute, and its effect is confined to that case. In other words, the object of a proviso is to carve out from the substantive section or clause of a statute, a class or category of persons or things to whom or to which the main section does not apply. The proviso cannot be divorced from the main clause to which it is attached. It must be considered together with the section or subsection of the statute to which it stands as a proviso.

The proviso to sub-s (3) of s 340 of the NLC deals with only one class or category of registered proprietors for the time being. It excludes from the main provision of sub-s(3) this category of registered proprietors so that these proprietors are not caught by the main provision of this subsection. Who are these proprietors? The proviso says that any purchaser in good faith and for valuable consideration or any person or body claiming through or under him are excluded from the application of the substantive provision of sub-s (3). For this category of registered proprietors, they obtained immediate indefeasibility notwithstanding that they acquired their titles under a forged document.

We therefore, agree with the High Court Judge that, on the facts of this case, even if the instrument of transfer was forged, the respondent (sic)[17] the said lands.”[18] As indicated elsewhere,[19] the then Chief Justice was correct in stating that the title or interest of a registered proprietor appearing on the land register is prima facie indefeasible under section 340(1). This would encompass everyone who is currently registered as proprietor, irrespective of how he came onto the land register, be it that he purchased the property or acquired it by way of a gift or by way of transmission.[20] The title or interest is, however, rendered defeasible under section 340(2) if it has been acquired in any of the circumstances set out therein, including by way of fraud or forgery. It would have been helpful, at this stage, for the then Chief Justice to caution that the requirement to render a title or interest defeasible for fraud and forgery in section 340(2)(a) and (b) respectively is not the same. In the case of fraud, one (or one’s agent) has to be a party or privy to it before a title or interest is rendered defeasible but this is not a requirement in the case of forgery. It is equally important to highlight at this stage that the vitiating factors set out in section 340(2) render the title or interest of a registered proprietor immediately to, say, a forgery defeasible. Except for fraud, this is the position notwithstanding that the immediate registered proprietor acted in good faith and gave valuable consideration. With these differences in mind, one would better appreciate the respective roles played by section 340(2) and section340(3). The then Chief Justice’s explanation of the effect of section 340(3)(a) and (b) is correct except that it lacked clarity in one important respect. He should have gone further and clarified that section 340(3)(a) and (b) only apply to a  subsequent registered proprietor, that is, a proprietor who subsequently acquires his title or interest from the proprietor immediately to the vitiating factors set out in section 340(2) and whose registered title or interest is rendered defeasible under the latter provision. The  language of section 340(3) says as much as can be seen in the expressions employed therein such as “…in the hands of any person or body to whom it [the title or interest] may subsequently be transferred…” in paragraph (a) and “…any interest subsequently granted thereout…” in paragaph (b). Such  title or interest of the subsequent registered proprietor is similarly rendered defeasible by section 340(3)(a) and (b). It is, thus, clear that there is no room for the application of section 340(3) unless section 340(2) first applies, namely, that there is a title or interest rendered defeasible in the latter provision which is subsequently acquired by or transferred to another proprietor. Accordingly, the question which arises is whether given the facts in Boonsom Boonyanit, did the appellant company’s title come within section 340(3)? The Federal Court thought so which unfortunately cannot be correct.

 The person who forged the signature of the respondent did not transfer the title to herself first. In other words, the person who committed the forgery did not register the lands in her own name but sold them straight to the appellant company. As such, the appellant company was the immediate registered proprietor from the respondent,being a proprietor immediately to the forgery. The appellant company, thus, came within section 340(2) and not, as the Federal Court held, section 340(3).

There were also a number of ambiguities in the explanation of the then Chief Justice of the proviso to section 340(3). While he rightly pointed out that the proviso excluded from section 340(3) the category of registered proprietors who acted in good faith and gave valuable consideration,[21] he did not, however, have in mind the different categories of registered proprietors who come within section 340(2) and section 340(3), namely, immediate registered proprietors and subsequent registered proprietors respectively as explained above. Accordingly, he did not limit the benefit of the proviso to section 340(3) to the latter category. He thought that the proviso applies also to immediate registered proprietors who come within section 340(2) so long as they acted in good faith and gave valuable consideration. As a result, in his opinion, this category of registered proprietors coming within section 340(2) obtains immediate indefeasibilty by virtue of the proviso to section 340(3) notwithstanding that they obtained their titles under a forged document.[22] Support for the view that the proviso to section 340(3) applies exclusively  to situations covered by section 340(3) is further reinforced by the language used in the proviso itself. The expression “Provided that nothing in this sub-section…” must clearly refer to subsection (3) of section 340. Read together with the reference therein to any title or interest acquired by any purchaser in good faith and for valuable consideration must similarly refer to a proprietor who comes within section 340(3) only, namely, a subsequent registered proprietor, and not just any proprietor who has acted in good faith and for value. The construction put forth by the Federal Court, if correct, will render section 340(2) redundant. In fact, to say that the benefit of the proviso applies also to immediate registered proprietors coming within section 340(2) is to do away with the concept of deferred indefeasibility entrenched in the NLC and goes against the clear intention of Parliament. This insatisfactory decision of the Federal Court, which misconstrued the legislative intent in section 340, is clearly wrongly decided and should not be followed on the issue of indefeasibility involving forgery. This unsatisfactory state of the law left behind by the Federal Court may undermine confidence in land dealings in the country. It has in fact given rise to much concern and unhappiness among landowners and the legal fraternity.

 V. Position of A Subsequent Interest Created Out of A Defeasible Title

The concept of deferred indefeasibility had earlier been misunderstood and misapplied by the Court of Appeal in the case of OCBC Bank (M) Bhd v Pendaftar Hakmilik, Negeri Johor Darul Takzim.[23] Ng See Chow, the registered proprietor of the land in question, had charged the land to the appellant to secure an Overdraft facility from the latter. Upon failure to pay for the overdraft facility, the appellant applied for and was granted an order by the court for sale of the land. Subsequently, a registrar’s caveat was entered by the respondent against the land preventing its sale by the appellant. It transpired that the caveat was entered because of a police report lodged by one Ng Kim Hwa. The latter claimed that the land belonged to him as evidenced in the title when his name was shown as the previous registered proprietor that was before the name of Ng See Chow. Ng Kim Hwa claimed that he had never executed any instrument of transfer of his land to Ng See Chow by using his thumbprint on the instrument. In the instrument of transfer, a thumbprint impression was imprinted on the document as the signature of the transferor. The Appellant applied to have the caveat removed contending that the charge created in their favour was indefeasible as they had no knowledge of the forgery that was perpetrated. The High Court dismissed the application and the appellant appealed. The Court of Appeal, comprising NH Chan, Abdul Malek and Mokhtar Sidin JJCA, dismissed the appeal of the appellant holding that the charge was defeasible given that the concept of deferred indefeasibility applied in section 340. Abdul Malek JCA merely concurred with the reasoning and conclusions in the judgments of NH Chan and Mokhtar Sidin JJCA. Mokhtar Sidin JCA, in his judgment, relied extensively on the Court of Appeal decision in Boonsom Boonyanit v Adorna Properties Sdn Bhd[24] to support his conclusion that the charge created in favour of the appellant was defeasible under section 340.[25] While there was no doubt that the registered title of Ng See Chow was defeasible pursuant to section 340(2)(b), there was nothing in the Court of Appeal decision in Boonsom Boonyanit to justify extending the deferred indefeasibility concept to the charge of the appellant. Boonsom Boonyanit was concerned with the position of the registered title of a proprietor immediately to a forgery which the Court of Appeal correctly decided was defeasible under section 340(2)(b). The decision in Boonsom Boonyanit does not stand for the proposition that an interest (such as the charge of the appellant) granted out of such a defeasible title issimilarly defeasible hereunder.

NH Chan JCA, who delivered the main judgment of the court, reasoned as follows:“The result is this. If the registered title of the land in Ng See Chow’s name is defeasible under s 340(2)(b) because its registration was obtained by forgery, it (ie the registered title in the name of Ng See Chow) is liable to be annulled by the true registered owner Mr Ng Kim Hwa (Boonsom Boonyanit). This is because a forged instrument is a nullity. It is void and of no effect. And, as a consequence, the setting aside of Ng See Chow’s title to the land will also make the charge, which Ng See Chow had created by using his defective title to charge the interest in the land (which is not Ng See Chow’s in the first place) to the appellant bank…, similarly liable to annulment. This is because a forged instrument is a nullity, incapable of conferring any right, interest or title in favour of the acquirer of immovable property, which in this case is Ng See Chow. And, if Ng See Chow had no right, interest or title in the land then, he had nothing that was his to charge to the appellant.”[26] What NH Chan JCA has set out is the position at general law. This position at general law cannot prevail where there is express statutory direction to the contrary. As will be argued below, there is such an express statutory direction to the contrary in the proviso to section 340(3) given the facts in OCBC Bank (M) Bhd.

To further support his view that the charge of the appellant was defeasible, NH Chan JCA further laborated on the legislative scheme of section 340 thus: “We must reiterate that the proviso to s 340(3) applies exclusively to those situations which are covered by sub-s (3) which is that s 340(3) will only take effect after the immediate registered proprietor or holder in s 340(2) has transferred his defeasible title or interest to someone else (see s 340(3)(a)).

Is there then any difference between the two sets of situations in s 340(2) and s340(3)? The difference is this: In s 340(2) where a registered title or interest is rendered defeasible by reason of any of the circumstances set out in s 340(2), that title or interest in the hands of the immediate registered proprietor or holder of an interest (for example, any charge or lease) is liable to be set aside. And any interest granted by such immediate proprietor or holder is also liable to be set aside. In effect, s340(2)(a) and (b) affect the immediate proprietor, chargee or lessee even if he be a purchaser for value under sub-s (2)(a), or, an innocent purchaser for value under sub-s(2)(b). It is important to be reminded that there is no proviso to this subsection. On the other hand, s 340(3) applies only to a situation after the immediate Registered proprietor or holder in s 340(2) has transferred his defeasible title or interest to someone else. The result will be virtually the same in s 340(3) as in s 340(2) but for one important difference. Under s 340(2) the title or interest in the hands of the immediate registered proprietor or holder of an interest in the land (such as a charge or a lease) is liable to be set aside. But, in s 340(3) although the title or interest which is in the hands of the subsequent purchaser is also liable to be set aside, the subsequent purchaser has the benefit of the protection of the proviso to sub-s (3) which the immediate proprietor or holder in s 340(2) does not have.

Now, if we apply this to the facts of the present case, what we have is this. If the registered title of the land (which is in Ng See Chow’s name) is defeasible under s340(2)(b) because its registration was obtained by forgery, it (ie Ng See Chow’s title) is liable to be set aside at the instance of the true owner Mr Ng Kim Hwa (even though Ng See Chow was an innocent purchaser for value) and any interest (for example, any charge or lease) granted by Ng See Chow is similarly liable to be setaside. This is because in s 340(2) there is no proviso (as there is in s 340(3)) to protect the innocent purchaser (who is the immediate acquirer) for value or to protect anyone claiming through or under the immediate acquirer (even though that person be an innocent purchaser for value). So that, the charge which Ng See Chow has granted thereout to the appellant bank (OCBC Bank (M) Bhd) as chargee is not protected because there is no proviso in sub-s (2) to protect the chargee bank which is a person claiming through or under Ng See Chow. The charge, therefore, is also liable to be set aside by Mr Ng Kim Hwa.”[27] The explanation of NH Chan JCA above is open to several criticisms. Section 340(1) provides for registration to confer, in general, indefeasible title or interest. Section 340(2) provides for the registered title or interest to be defeasible where the vitiating factors set out therein apply. It is important to also note that section 340(2) only applies to the immediate registered proprietor. On the facts in OCBC Bank (M) Bhd, Ng See Chow was the immediate registered proprietor insofar as the registered title to the land was concerned. As this was a case involving forgery under section 340(2)(b), it matters not whether Ng See Chow was a party or privy to the forgery; his title would still have been rendered defeasible by the concept of deferred indefeasibility provided therein.[28] The question which arises is whether section 340(2) still applies to the charge created in favour of the appellant? On the facts, contrary to what NH Chan JCA said, the appellant was no longer an immediate registered proprietor to any vitiating factor set out therein. The registered proprietor at the material time was Ng See Chow and his defeasible title can operate as the root of a good interest in favour of a subsequent purchaser who comes within the proviso to section 340(3). The appellant is such a subsequent purchaser who gets the protection of the proviso. The charge created out of such a defeasible title of Ng See Chow is prima facie defeasible under section 340(3)(b) which provides that “any interest subsequently granted thereout [ie out of the defeasible title] shall be liable to be set aside in the hands of any person or body [ie the appellant] in whom it is for the time being vested”.

As the charge was acquired by the appellant as a purchaser in good faith and for valuable consideration, they are accordingly accorded the protection of the proviso to section 340(3) which reads: “Provided that nothing in this sub-section [ie subsection (3) to section 340] shall affect any…interest acquired by any purchaser in good faith and for valuable consideration…”.

Contrary to what NH Chan 340(2) to provide for a similar proviso to section 340(3) because the appellant being a subsequent registered proprietor or holder of an interest (which was granted out of a defeasible title under section 340(2)(b)) comes squarely within section 340(3)(b) and the proviso to section 340(3) as explained above. It is also crucial to note that section 340(2) does not provide that any interest subsequently granted by an immediate registered proprietor with a defeasible title (such as the defeasible title held by Ng See Chow) is also liable to be set aside thereunder, contrary to what was stated by NH Chan JCA in that part of his judgment reproduced above which is italicised.

Being an interest subsequently created out of a title rendered defeasible under section 340(2), it comes within section 340(3)(b) which is enacted to deal with the position of a subsequent registered proprietor or holder of such an interest.If NH Chan JCA’s interpretation of section 340(2) is correct, it would mean that no subsequent interest created out of a defeasible title can ever come within section 340(3) and the proviso therein notwithstanding that the acquirer has acted in good faith and given valuable consideration. This is stretching the concept of deferred indefeasibility a little too far. All that section 340 intended is that the immediate registered proprietor should not have the benefit of the quality of indefeasibility conferred on him where the vitiating factors apply. No where in section 340 is it suggested that a subsequent registered proprietor or holder of an interest should suffer the same fate, especially where he has acted in good faith and given valuable consideration. It is unwarranted to restrict the scope of section 340(3) and the proviso thereto in such a manner. In fact, section 340(3) and the proviso thereto embrace and give effect to the well-known Torrens concept of a defeasible title operating as the root of a good title or interest in favour of a subsequent purchaser so long as the latter acts in good faith and gives valuable consideration.

VI. Brief Review of Cases Decided After the Federal Court Decision in Adorna Properties

The concept of immediate indefeasibility laid down by the Federal Court in Adorna Properties has been adopted in a number of decisions by the High Court. In the subsequent High Court case of Ismail bin Mohmad & Anor v Ismail bin Husin & 4 Ors[29], a case involving forgery, the learned judge held himself bound by the Decision of the Federal Court in Adorna Properties on the principle of stare decisis “despite whatever criticism that may be levelled against it”[30] as “to hold otherwise would be to go against the principle of stare decisis.”[31] In the instant case, it was found on the evidence that the registered chargee (a bank) had no knowledge of the fraud/forgery perpetrated by the other defendants on the plaintiffs who were the Registered proprietors and vendors of the lands in question. Accordingly, the bank, being a purchaser in good faith and for valuable consideration, acquired an indefeasible interest i.e. registered charge, pursuant to the proviso to section 340(3), notwithstanding that the signatures on the charge document and annexure were forged (as found by the court). It is respectfully submitted that given the language in section 340(2)(b), the charge in favour of the bank would have been rendered defeasible (if not for the Federal Court decision in Adorna Properties) as the bank was the immediate purchaser to the forgery committed by the other defendants in the transaction creating the charge in favour of the bank. The facts in this case are different from that in OCBC Bank (M) Bhd v Pendaftar Hakmilik, Negeri Johor Darul Takzim[32] above where there was no finding of forgery in the transaction between Ng See Chow (whose title was obtained by forgery) and the appellant bank. In the result, the charge created in favour of the appellant bank should have been ruled indefeasible under the proviso to section 340(3).

In Liew Yok Yin v AGS Harta Sdn Bhd,[33] the effect of section 340 was similarly misconstrued. The High Court had correctly ruled that as the signature of the plaintiff, the original registered owner of the land, was forged on the sale documentation, comprising, inter alia, the sale and purchase agreement and the instrument of transfer, it did not constitute a sufficient instrument to convey the title to the land to the defendant.[34] The defendant, accordingly, came within the ambit of section 340(2)(b).

However, given the binding authority of the Federal Court in Adorna Properties, it was not surprising that the learned judge went on to adopt the reasoning in that case  to consider whether the defendant was a purchaser in good faith and for value for the purpose of the proviso to section 340(3). The learned judge came to the conclusion on the evidence that the said proviso did not apply in favour of the defendant as they had not discharged the burden of showing that they were a purchaser in good faith, notwithstanding that they had given valuable consideration for the purchase.

The plaintiff’s claim for, inter alia, rectification of the register in her favour was, accordingly, allowed. With respect, even if the defendant is able to show that they were a bona fide purchaser for value, section 340(2)(b) would still apply to them as they were the immediate purchasers to the forgery given the concept of deferred indefeasibility embodied in section 340. The proviso to section 340(3) would not have been applicable to them but only to a purchaser to whom the defendant may subsequently transfer the land to, provided this subsequent purchaser is one who acts in good faith and gives value. In short, on the facts in Liew Yok Yin, the defendant was still at the section 340(2)(b) stage and the proviso to section 340(3) did not avail them in light of the concept of deferred indefeasibility.

Another High Court case, Mok Yong Chuan v Mok Yong Kong & Anor,[35] , on the vitiating factor of fraud which, as noted earlier in Part II of the paper, is on a different footing from that  of the other vitiating factors set out in section 340(2)(b), such as forgery and insufficient instrument. On the evidence, the learned judge held that the plaintiff failed to prove his case based on fraud against the first and second defendants. The two-third share of the property in question was registered in the name of “Boh Yong Kwang” which the first defendant claimed was a variant spelling of his name in the Hailanese dialect.

The first defendant had subsequently effected a rectification of the spelling of the said name on the documents of title to his name “Mok Yong Kong” and thereafter transferred the two-third share to the second defendant. As the plaintiff failed to discharge the burden of proving fraud against the defendants, the learned judge held that this was sufficient to dispose of the plaintiff’s claim to the said two-third share in the property. The learned judge, however, went on to discuss the issue of indefeasibility involving the position of the second defendant. He found that the second defendant, at the time of accepting the transfer of the two-third share, had absolutely no knowledge of any matter or dispute that might have transpired or arisen between the plaintiff and the first defendant. He took the view that as this fact was not disputed by the plaintiff who practically abandoned his allegation of fraud and conspiracy against the second defendant during trial, it followed that the latter had acquired an indefeasible title whatever the position may be between the plaintiff and the first defendant.[36] Reference was made by the learned judge to the Federal Court’s decision in Adorna Properties for the proposition that the concept of immediate for the proposition that the concept of immediate indefeasibility applies in section 340. However, it should be made clear that as fraud was not established against the first defendant, his title was indefeasible under section 340(1) and the second defendant, similarly, acquired an indefeasible title under section 340(1).[37] If, however, the title of the first defendant was defeasible for fraud such that it came within section 340(2)(a), then the second defendant, being a bona fide purchaser for value, would acquire an indefeasible title within the proviso to section 340(3), with the defeasible title of the first defendant operating as the root of a good title in favour of the second defendant.

Interestingly, the learned judge was of the view that the same result would have obtained in the case even if one were to apply the concept of deferred indefeasibility. In his opinion, as the transaction between the first and second defendants did not involve forgery and was subsequent to the allegation of fraud, the second defendant, being a purchaser in good faith and for value, could not be tainted by the allegation of fraud and, accordingly, obtained an indefeasible title[38] (presumably pursuant to the proviso to section 340(3)). This reasoning would withstand scrutiny if the first defendant was found guilty of fraud. However, since the first defendant did not have fraud proved against him as found by the learned judge, the second defendant need not come within the proviso to section 340(3) to acquire an indefeasible title.

As noted in the immediately preceding paragraph, the second defendant would acquire an indefeasible title pursuant to section 340(1) given that the first defendant’s title was itself indefeasible under section 340(1) too as section 340(2) was not applicable to the latter’s title, there being no fraud established against the first defendant in the first place. There was, accordingly, no room for the application of deferred indefeasibilityin respect of the title of the second defendant on the facts of the case.

Attempts have been made, in particular, by the Court of Appeal not to follow the Federal Court decision in Adorna Properties but this has met with little success so far.

This can be seen in the latest Court of Appeal decision in Au Meng Nam & Anor v Ung Yak Chew & Ors[39] where the judges of appeal were not unanimous in declining to uphold the authority of the Federal Court in Adorna Properties. While the judges of appeal were unanimous in holding, on the facts, that the first respondent did not obtain an indefeasible title to the property via an instrument of transfer that was forged as he had not discharged the burden of proving that he was a purchaser in good faith and for value, they took different approaches in dealing with the binding effect of the Federal Court decision in Adorna Properties.

Gopal Sri Ram JCA had no hesitation in declaring that the Federal Court decision in Adorna Properties was not good law and should not be followed henceforth as it was decided per incuriam given that it had misconstrued section 340. Some of the reasonshe convincingly articulated in Au Meng Nam for declining to follow Adorna Properties were an extension of the grounds he had earlier given in the Court of Appeal decision in Subramaniam a/l NS Dhurai v Sandrakasan a/l Retnasamy & 7 Ors.40[40] Among others, it was pointed out in both the Court of Appeal decisions that the Federal Court in Adorna Properties failed to differentiate between the meaning of the words “proprietor”[41] and “purchaser”[42] in section 340. The Federal Court had used the words to mean one and the same, without realising that they provided for Distinct statutory concepts. One would have thought that the significance of the distinction is rendered somewhat less important where the purchaser is also the registered proprietor of the land. What is crucial is whether the person concerned as the holder of the title or interest, who acted in good faith and gave valuable consideration in acquiring title to or an interest in the land, is a subsequent transferee so as to avail himself of the benefit of the proviso to section 340(3). That the same requirements in the definition of “purchaser” appear in the proviso to section 340(3) itself suggest that the word purchaser” is intended to play a significant role in the other provisions[43] of the NLC where it appears and not where section 340(3) proviso is concerned.

Raus Sharif JCA adopted a more cautious approach in Au Meng Nam when dealing with the Federal Court decision in Adorna Properties. He was not prepared to ignore or disregard the decision as to do so would be to go against the doctrine of  stare decisis.[44] As noted earlier, he and the other judges of appeal did distinguish the case before them on the facts. Nevertheless, he did express the view that the Federal Court should review its decision in Adorna Properties.[45]

 VII. Review by Apex Court of its Own Decision.

As can be seen in Adorna Properties Sdn Bhd v Kobchai Sosothikul,[46] this is unlikely to happen any time soon. In that case, Boonsom Boonyanit’s personal representative applied to the Federal Court for a review of its own decision in Adorna Properties in the interest of justice. In fact, an earlier application, which was dismissed, had been made by the same personal representative to the Federal Court to set aside the decision in Adorna Properties on the ground of coram failure as one of the judges who had presided had retired before the main judgment in Adorna Properties was delivered by the Federal Court. In dismissing the present application, PS Gill FCJ, in delivering the judgment of the Federal Court, had this to say: “…although the consequence and effect of the main judgment [in Adorna Properties]may be harsh when viewed without the benefit of the relevant statutory provision, we do not think this is a case where ‘grave injustice had occasioned’ due to clear infringement of any principle of law thereby making it permissible for successive application to be made…And having read the reasoning [in Adorna Properties] and bearing in mind the words used in [section 340(3)] including the proviso we are not convinced that the interpretation given in the main judgment is patently wrong thereby resulting in grave injustice…And even if we are wrong in our view it should be left to another occasion to further debate on the issue. …”[47] The Federal Court may also decline to review a decision of their own out of respect for their learned brothers’ judgment. However, in appropriate cases, they may distinguish the decision on the facts. In declining to review their decision in Adorna Properties, the Federal Court may indirectly help to entrench the decision in the Malaysian jurisprudence of indefeasibility under the NLC such that there will be few opportunities for the Federal Court to review the decision in subsequent years. After all, by and large, courts of law are the hostages of the arguments deployed by counsel who may not wish to directly challenge the entrenched decision should a similar issue go before the Federal Court. Instead of mounting a direct attack on the entrenched decision which may be viewed as futile, counsel may be contented just to distinguish the decision on the facts. This will, in turn, lead to further entrenchment of the decision in Adorna Properties.

 VIII. Conclusion

While it is hoped that the Federal Court will have the opportunity, in the not too distant future, to make a correct pronouncement on the law relating to indefeasibility for the sake of certainty in land transactions, the assistance of Parliament may have to be relied upon as a last resort. Legislative intervention appears to be the more attractive option, given that apex courts are generally conservative in reviewing their own decisions. Legislative intervention can rectify the situation in a more focused and effective fashion by making clearer the position of deferred indefeasibility under the NLC. In the interim, pending the resolution of the matter by the court and/or Parliament, landowners may, in appropriate cases, request for a Registrar’s caveat to be entered over the land for the prevention of fraud or improper dealings.[48]