1.

Easements

● Definition of easement -section 282(1) NLC

“Easement” means any right granted by one proprietor to another for the beneficial
enjoyment of land.

● Tam Kam Cheong v Stephen Leong Kon Sang & Anor [1980] (FC)

Following the case of Re Ellenborough [1956], ct held that for the a claim of easement to
be established, every easement must possess four characteristics:

(1) There must be a dominant and servient tenement;

(2) An easement must accommodate the dominant tenement, ie appurtenant to it and

connected with the normal enjoyment of the dominant tenement;

(3) Dominant and servient owners must be different persons; and

(4) The right over land is capable of forming the subject matter of a grant (being an
easement.) Only a person or body for the time being registered as the proprietor of the land
is able to create an easement

Process of registration -section 286 NLC

(1) The grant of any easement under this Chapter shall be effected by an instrument in Form
17a or, in the case of the grant by adjacent proprietors of cross easements of support in
respect of any party wall, by an instrument in Form 17b; and the easement shall come into
existence on the date on which the instrument is registered.

How to make the easement effective?

● Seah Sye Kim v Chua Mui Ying [1991]

The court held there was no necessity for an easement to be granted to the plaintiff
pursuant to the fact that there was no common intention between the developers and
defendants as to give an easement of right of way over defendant’s property in favour of the
plaintiff. Hence, the plaintiff did not have a right of way over the defendant’s driveway.

On top of that, a grant must consist of a description of use, that is who may use the
land, in what manner it can be used, the extent of its use and agreement between the
servient proprietor and dominant proprietor. This can be seen in Form 17A which
requires the servient proprietor to execute for easement to be effected as stated in section
286(1) of NLC and will only take effect from the date of registration of the instrument.

This is evident by the fact that NLC has recognized easement as a registrable interest in
land and will not be effective until it is registered by virtue of section 206 (1) of NLC.
 ● Tan Wee Choon v Ong Peck Seng & Anor [1986]

The plaintiff bought a piece of land of which existed a path used by the defendants as
access to their house. The plaintiff fenced the entire area of his land but the fence was
forcibly pulled down by the defendant who continued to use the path for access of his
vehicles to his house. The plaintiff then sought declaration that he was entitled to the
exclusive possession of the land and restraining defendants from trespassing the land.
However, the defendants argued that they have acquired an equitable right of way to use the
path.

Court held that as the easement for right of way was never registered, therefore, the
defendant did not have the right of way over the plaintiff ’s land.

The main effect of registration of the easement is that it preserves the easement for the
benefit of the dominant land as against the servient land, even when both the dominant
land and the servient land are no longer held by the original parties to the easement as
promulgated in section 286(5) of NLC.

*Section 286(5)

The registered easement would be binding on the owner of the land as well as his successor
in title. Whoever buys the land, takes the land subject to that easement

Can be positive or negative easement -section 283

“283. (1) The rights capable of being granted as easements are,

subject to subsection (2)—
(a) any right to do something in, over or upon the servient
land; and
(b) any right that something should not be so done.”

● Wong See Lee Ors v Ting Siik Lay [1996] (FC)

What is an easement? In common law an easement is a right attaching to one piece of land
(the dominant tenement) entitling the owner thereof to exercise some right over
adjacent land in other ownership (the servient tenement) though not to take away part
thereof or to take any of its natural produce, or to prevent the owner of the other land from
utilising his land in some particular manner.

Easements may be positive or negative according to whether the right is to do

something or to prevent another from doing something. They may be enacted by statute
or by grant, express or implied, or by prescription based on long use or present grant.

Among the common recognised easements are right of way, right to light, watercourse and
support of buildings. Interference with an easement is a private nuisance and actionable
It is thus distinct from the natural right to support a landowner from a neighbour’s land.
No right in the nature of an easement shall be capable of being acquired by prescription -
Section 284(1)
No right in easement acquired by implied grant -Section 284(2)

● EW Talalla v Ng Yee Fong Anor (1985)

The plaintiff filed a suit against the defendants to remove a part of their house and the septic
tank which had been erected on the plaintiffs land.The defendants' defences were that after
the plaintiff became owner of the land he did nothing about the encroachment for a long time
although he was aware of it, and he acquiesced in the state of affairs that existed and was
guilty of laches in not having taken action at the earliest possible opportunity and he was
estopped from making this claim.

Wan Hamzah J: After considering ss 282, 283, 284 and 286 of the Code, allowed the
plaintiff’s claim. Acquiescence on the part of the plaintiff is not sufficient to create an
easement. There must be an express grant of easement in accordance with the
provisions of the above sections. In this case, there is no evidence that an express grant of
easement was made at any time by the plaintiff in favour of the defendants.(The defendant
defence / allegation that the plaintiff did nothing for 22yrs failed - Didn’t matter, even though
there is delay, grant of easement need to be expressly given)

● Cottage Home Sdn Bhd v Wong Kau @ Wong Kon Lin & Anor (2014)

The appellant and the respondents owned lands adjacent to each other. The respondents
claimed the only access to their land was a 12-foot wide road over the appellant’s land which
they had been using for about 2 decades with the consent of the former owner of the
appellant’s land. When the appellant became owner of the land it cut off the access road by
erecting a 10-foot high metal gate across it and fenced up its land and dug a deep trench
which, the respondents claimed, encroached onto their land and diverted the course of a
natural stream resulting in floods that damaged the respondents’ property.

Section 284 expressly states that no right in the nature of an easement shall be capable
of being acquired by prescription (and impliedly) (that is to say by any presumption of a
grant from a long and uninterrupted user).

Thus, in law, the right in the nature of an easement cannot be presumed to have been
granted by the proprietor of the servient land (Lot 1706) based on mere evidence of long and
uninterrupted usage.

Section 286(1) of the code clearly states that the grant of any easement shall be effected
by an instrument in Form 17A, or in the case of the grant by adjacent proprietors of
cross- easements of support in respect of any party wall, by an instrument in Form 17B;
and the easement shall come into existence on the date on which the instrument is
registered.

There was no written or formal application by the respondents to the proprietor of Lot 1706
for a right in the nature of an easement. There can be no equitable right of way.
 ● Datin Siti Hajar V Murugasu [1970]

Section 282(1) defines to mean ‘any right granted by one proprietor to another in his
capacity as such and for the beneficial enjoyment of his land in accordance with the
following provisions of (Chapter 1).

The rights capable of being granted as easements are those specified in section 283 which
includes the right of way. Section 284 expressly prohibits the acquirement of any right
in the nature of easement by way of prescription, i e by any presumption of a grant from
a long and uninterrupted user, and also acquirement of such right by implied grant.

Granting of easement must be by express grant, and, as provided under section 286 such
grant can only be made with the agreement of the proprietor of the servient tenement
and effected by way of executing an instrument in Form 17 A. Such express grant may
be either with or without consideration, and may either be in perpetuity or for any term
of years.

It also makes it possible for the proprietors of those lands by way of agreement to contribute
towards the cost of constructing, maintaining or repairing any way, wall, drain or other
installation or work which forms the subject matter of the easement. (Entirely up to the
parties to decide what they want)

**S284 clearly stipulates that there can never be an easement impliedly granted /
granted by prescription / long use of the land - Must be an express grant of easement

Express Grant - Need to execute Form 17A & Register, to give a valid grant

Implied ancillary rights

Section 286 (3) There shall be implied in every grant of easement such ancillary rights as
may be reasonably necessary for the full and effective enjoyment thereof.
-ie easement must be expressly granted but along with it comes implied rights

● Alfred Templeton & Ors V Low Yat Holdings Sdn Bhd & Anor [1989]

Section 282(1) provides that easement means 'any right granted by one proprietor to
another, in his capacity as such and for the beneficial enjoyment of his land in
accordance with the provisions of the Code'.

s 286(3) states that no such right shall be capable of being acquired by any implied
grant except in the case of 'ancillary rights' for the enjoyment of an easement which are to
be implied in the grant of an easement.
Equitable easement , Section 206(3) NLC

Yes, can have equitable easement :

● Templeton & Ors v Lowyat Holdings Sdn Bhd & Anor [1993]

The plaintiff sold 5 lots of land to the defendant and retained 3 other neighbouring lots of
land for the benefit of right of way. According to their sale and purchase agreement, the sale
of land is subject to the right of way to owners of neighbouring land. However, their
agreement was silent on the execution and registration of the forms prescribed under
NLC for the creation of an easement of way, and the plaintiff only came to know about
these requirements after the completion of the sale.

It was later found out that the defendant company did not execute the forms prescribed
under the Code for the creation of an easement of way and had carried out construction
works which blocked access from the plaintiff's lots to the public highway resulting in the
plaintiff’s land becoming landlocked.

Court: The defendant company has, by its words and conduct, led the plaintiffs to believe
that they would be provided a right of way from their lots, the plaintiff was entitled to an
equitable easement of way and consequently, entitled to claim for the remedy under contract
law for the defendant’s breach of agreement pursuant to section 206(3) of NLC which states
that the non-compliance with the requirement for the easement to be registered does not
affect the contractual operation of the agreement to create easement.

There was equitable easement granted as there is an agreement that it would be done -
Despite the fact of non-registration

● Qiristar Bricks Contractor Sdn Bhd & Anor v Loo Ngan Keong & Anor [2013]

Crt: The four requirements (Re Ellenborough Park) for the creation of an easement of
way are satisfied. The effect of s 284 of the Code is that an easement can only be
created by express grant followed by registration of an instrument in Form 17A or Form B
prescribed by s 286(1), as the case may be.

But, s 206(3) of the Code contains an express provision which states that the provisions of
the Code requiring dealings to be effected in the statutorily prescribed manner shall, not
affect the contractual operation of any transaction relating to alienated land or any interest
therein. An equitable easement can arise as a result of the operation of the principles
of equity relating to proprietary estoppels.

Proprietary estoppels or ‘estoppels by acquiescence’ is essentially a means by which

proprietary rights may be affected or created.

The court has wide discretion as to the manner in which it will give effect to the
equity, having regard to all the circumstances of the case and to the expectations and
conduct of both parties. A declaratory order that the plaintiffs are entitled to an equitable
easement over the existing road on PT 20213 was granted.
No, must register:
● Cottage Home Sdn Bhd v Wong Kau @ Wong Kon Lin & Anor (2014)

The appellant and the respondents owned lands adjacent to each other. The respondents
claimed the only access to their land was a 12-foot wide laterite road over the appellant’s
land which they had been using for about 2 decades with the consent of the former owner of
the appellant’s land. When the appellant became owner of the land it cut off the access road
by erecting a 10-foot high metal gate across it and fenced up its land and dug a deep trench
which, the respondents claimed, encroached onto their land and diverted the course of a
natural stream resulting in floods that damaged the respondents’ property.

Section 284 expressly states that no right in the nature of an easement shall be capable
of being acquired by prescription (and impliedly) (that is to say by any presumption of a
grant from a long and uninterrupted user). Thus, in law, the right in the nature of an
easement cannot be presumed to have been granted by the proprietor of the servient land
(Lot 1706) based on mere evidence of long and uninterrupted usage.

Section 286(1) of the code clearly states that the grant of any easement shall be effected
by an instrument in Form 17A, or in the case of the grant by adjacent proprietors of
cross- easements of support in respect of any party wall, by an instrument in Form 17B;
and the easement shall come into existence on the date on which the instrument is
registered. There was no written or formal application by the respondents to the proprietor
of Lot 1706 for a right in the nature of an easement. There can be no equitable right of
way.

RELEASE AND EXTINGUISHMENT OF EASEMENT(3 ways - Consent, Extinguish by

operation of law, Cancellation by Registrar)

S 289. (1) Subject to subsection (3), any easement granted may be released at any time
by the proprietor of the dominant land.

(2) Any such release shall be effected by an instrument in Form 17C, and the easement
shall cease to exist on the date on which the instrument is registered.

(3) The consent of any lessee, tenant or chargee for the time being entitled to the benefit
of any easement by virtue of section 287 shall be necessary for its release pursuant to this
section, and any such consent shall be signified in the instrument of release, as
indicated in Form 17C.

S 290. Any easement shall be extinguished破灭/消亡 by operation of law if at any time

thereafter all of the following conditions are satisfied:

(a) The dominant land and the servient land are vested in the same proprietor;

(b) No lessee,tenant or chargee is, by virtue of section 287, entitled to the benefit thereof;
and
(c) The servient land or, as the case may be, that part thereof the enjoyment of which is
affected by the easement is neither subject to any lease or tenancy nor occupied by
any chargee.

S 291. Section 315 shall have effect for the purpose of enabling the Registrar to cancel
the registration of any easement on any of the following grounds:

(a) That it has been extinguished as mentioned in section 290;

(b) That the term for which it was granted has expired, or any event on the occurrence of
which it was expressed to determine has taken place; (i.e The parties stated that if xx
happens, the easement will be extinguished, and xx did happen)

(c) That it has been abandoned; or

(d) That it is obsolete过时/废弃, or impedes阻止/妨碍 the reasonable use of the servient

land, and that its cancellation will not injure any person entitled to the benefit thereof
 2. Bare trustee
What is a bare trust?
● Where the vendor has done everything that is required of him to transfer the title to
the purchaser such as where the purchase money has been paid under the SPA and
the vendor has handed over to the purchaser a duly executed, valid and registrable
instrument of transfer (MOT), the vendor then becomes a ‘bare trustee’ for the
purchaser with the beneficial ownership in the land passing to the purchaser.

● The purchaser has performed his or her contractual obligation upon the full
settlement of the purchase price besides executing all the formal documents to effect
the registration of ownership, equity accords him or her with all the rights and
privileges of a legal owner over the property. The purchaser thus enjoys the
benefit of being the owner of the acquired property even though he or she has yet to
become its registered owner. The court may enforce the contractual relationship
between the parties and order for specific performance.

Subject to registration, the beneficial ownership will become a legal ownership.

Legal ownership had not passed as registration had not taken place, but everything
else had been done - Vendor became bare trustee, and the purchaser became
beneficial owner.

● Yeong Ah Chee v Lee Chong Hai & Anor and other appeals [1994]

Supreme Court: "It is an old and well settled rule of equity that under a valid contract for sale
of land, the beneficial ownership of the land passes to the purchaser who becomes the
equitable owner, the vendor having a right to the purchase money for which he has a lien
on the land. When the full purchase price is paid, the vendor becomes a bare trustee for the
purchaser."

Jessel M.R. in Lysaght v Edwards [1876]

"… It is that the moment you have a valid contract for sale the vendor becomes in equity a
trustee for the purchaser of the estate sold, and the beneficial ownership passes to the
purchaser, the vendor having a right to the purchase-money, a charge or lien on the estate
for the security of that purchase-money, and a right to retain possession of the estate until
the purchase-money is paid, in the absence of express contract as to the time of delivering
possession.“

Macon Engineers Sdn Bhd v Goh Hooi Yin [1976]

What passes under a contract for sale is only the beneficial ownership. In saying that the
vendor becomes in equity a trustee. Jessel M.R. must have meant that the vendor who still
holds the interest in land does so hold as trustee and not as owner. This must be so as
beneficial ownership does not carry with it any interest in land. Legal or registered ownership
does carry with it an interest in land. -beneficial ownership doesn’t carry legal rights with it
Munah v Fatimah [1968]

The plaintiff entered into an agreement with the defendant and her brother, who were the
beneficiaries to the estate of one Hamat (deceased), to purchase a piece of padi land, which
was registered in the name of the deceased, for a consideration of $500. She went into
occupation of the said land and cultivated it with padi and had since reaped the economic
crops and enjoyed possession and profit without hindrance from the beneficiaries for a
period of 19 years. She had also paid the annual quit rents for the land. She had repeatedly
asked the beneficiaries to take out letters of administration in respect of the deceased's
estate so that they could transfer the said land to her, but they did nothing.

After unsuccessful attempts by the plaintiffs to get the land transferred to her, she instituted
these proceedings claiming inter alia, that the land in question be transmitted and registered
in her name.

Held:

(1) As from the time the plaintiff went into occupation she was the equitable owner of the
said land. What was required now was to clothe the equitable estate with a legal title.
She was therefore entitled to the relief claimed; (to convert equitable interest into legal
interest)

(2) Time did not run against the plaintiff as it was not that species of laches which would
prevail against the equitable title. (19 yrs passed - Equitable does not comes with
restriction)

Ong Chat Pang v Valliappa Chettiar [1971] (FC)

The 1st and 2nd defendants (original owner) agreed in writing to sell their land to the plaintiff
who paid $15,000 and later lodged a caveat. On 30.1.1958, he called at the land office and
discovered his caveat was rejected and that the land had been registered in the names of
the 3rd and 4th defendants who had earlier approached him to withdraw his caveat.

The plaintiff obtained an order directing the Registrar of Titles to register his caveat as on the
date of its presentation. The plaintiff succeeded in an action for specific performance of the
sale agreement against the 1st and 2nd defendants which restored the status quo as
between the parties on 24.1.1958.

Crt: The doctrines of English equity do not apply to a system of registration of title to land
contained in our Land Code. Unregistered interests in land may be recognised as
interests in land if they do not violate the principles and purposes of the Code, where
the intention is to establish one estate in land so as to ensure protection to bona fide
purchasers for valuable consideration or decide priorities in the case of competing equities.

A purchaser has a caveatable interest (to protect the interest in land). The court, in the
exercise of its equitable jurisdiction, may grant him specific performance of the contract by
ordering the vendor to execute a valid and registrable document of transfer. The 3rd and 4th
defendants were not bona fide as they knew of the plaintiff’s purchase (and asked him to
withdraw the caveat).
As the plaintiff's contract of sale was prior in point of time to the transfer to the third
and fourth defendants, his rights are prima facie superior to the rights of the
defendants. The maxim of equity which applies is "qui prior est tempore potior est jure" (he
has the better title who was first in point of time), unless upon well-settled principles
there is some reason why the later equity should be regarded as having priority over that
which was earlier in point of time.

Court did not remove the registration of 3rd & 4th def - But the caveat invalidated the later
registration of 3rd & 4th def

Caveat should not be rejected - Then only look at competing equities

When there is a caveat on the land, it should stop the subsequent dealings of the land -
There cannot be any interest being registered subject to the caveat been removed

When purchaser buys property, he has equitable & caveatable interest - but does not require
that he must put a caveat

Karuppiah Chettiar v Subramaniam [1971] (FC)

By virtue of the memorandum of transfer, the respondent obtained an equitable title to the
land.

To put it in other words, the judgement-debtor in this case, by executing a memorandum of

transfer on receipt of the purchase price in full, had divested himself of all beneficial
interest in the land and vested it in the respondent. S. K. Das on the Torrens System in
Malaya at page 381 goes so far as to say that "if the purchase money is paid to the
vendor in his lifetime he becomes a trustee of the legal estate. It is otherwise if it has
not been fully paid and discharged.”

A PO (Prohibitory Order - Does not take effect even though registration had yet to be carried
out) entered after the execution of the MOT and before the registration is not valid.

Prohibitory order can only be lodge by those that have judgement from the Court (Civil case)

Temenggong Securities Ltd & Anor V Registrar Of Titles, Johore [1974] (FC)

The appellant entered into an agreement for the purchase of certain lands belonging to a
private company Li-Ta Company Pvt Ltd. The purchase price was fully paid and the vendors
executed transfer of the land to the appellant and the memorandum of transfer was
presented for registration later that year. The Government obtained judgement against the
vendor for income tax and as well as two prohibitory orders which were entered on the
register of documents of titles. The appellants (purchaser) were informed that the
instruments had been rejected on the grounds that the Registrar's caveat had been entered
against the land.

Held: Vendors after receipt of the full purchase price and surrender of possession of the
lands to the appellant are bare trustees for the appellant of the said land and it must
consequently follow that the vendors have no interest in the land which can be the
subject matter of a caveat. The prohibitory order cannot have any effect on any
instrument presented prior to the time from which the order takes effect.

(Holding the property as trustee for the beneficial owner, the land no longer legally belongs
to the vendor as he had give the beneficiary interest to the purchaser - does not have rights
to obtain prohibitory order /enter into caveat)

"The law is clear that the vendors, after receipt of the full purchase price and surrender of
possession of the lands to the appellants are bare trustees for the appellants of the said land
and it must consequently follow, as night must day, that the vendors have no interest in the
lands which can be the subject matter of a caveat."

**Borneo Housing Mortgage Finance Bhd v Time Engineering Bhd [1996]

In March 1982, United Lands Development Sdn Bhd ('the developer') applied to the
appellant ('the finance company') for a loan to finance its development project. The
developer created a charge over the lands in favour of the finance company to secure the
repayment of the loan. The developer sold an industrial building to be built on one of the
lands to the purchaser. By 23.5.1986, the purchaser paid the full purchase price. The
developer defaulted in repayment of the loan. The finance company commenced
proceedings to enforce the charge. Order for sale was made (by the Court) and the property
was sold.

"In our view, the contractual events, which result in the vendor becoming a bare trustee of
the land, the subject matter of the agreement of sale and purchase for the purchaser, is on
completion, that is to say, upon receipt by the vendor of the full purchase price, timeously
paid and when the vendor has given the purchaser a duly executed, valid and registrable
transfer of the land in due form, in favour of the purchaser, for it is then that the vendor
divests夺去 himself of his interest in the land."

In case when there is charge, it acts to prevent further dealing in the land - Not done
deliberately, but serve as a notice other than there is an interest (Normally people won’t buy
when they notice there is a mortgage binding on the land)

Samuel Naik Siang Ting v Public Bank Berhad [2015] (FC)

"There is nothing in the NLC which expressly or by necessary implication excludes or

prohibits any equitable interest in alienated land, and the court ought to give effect to
ordinary commercial transactions and not to invalidate any equitable mortgage created by
contracts outside any statutory provisions for registration of title under the NLC.“

Once the vendor had received full payment of the purchase price from the purchaser, the
vendor becomes a bare trustee. And in that legal capacity, the vendor was not permitted in
law to sell or transfer the land to new purchasers. Any subsequent conveyances of the
same property to new purchasers would thus be void as the vendor, by then being a
bare trustee, did not have the requisite capacity to enter into such agreement.
A registered title of a bona fide immediate purchaser for value without notice under the NLC
can be defeated by a non-registered valid equitable interest of an absolute assignee
under an earlier SPA in respect of the same piece of land.

Chin Choy & Ors v Collector Of Stamp Duties [1981] (PC)

… the principle that once a valid contract for sale is concluded the vendor becomes in equity
a trustee for the purchaser of the estate sold is a peculiarity of English land law. But s 6 of
the Civil Law Ordinance 1956 of the Federation of Malaya expressly provides that nothing in
that part of the statute should be taken to introduce into the Federation any part of the law of
England relating to the tenure or conveyance or assurance of or succession to any
immovable property or any estate right or interest therein.

This Privy Council case would suggest that, given the prohibition contained in s 6 of the Civil
Law Act 1956 (disallow the application of English Land Law) and that the National Land
Code 1965 is a complete and comprehensive code of law governing the tenure of land in the
Malaysian Torrens system, to allow the application of English land law and equitable
principles related thereto would only serve to erode the policy objectives of the Malaysian
Torrens system as noted above. (PC decision persuasive decision only - Not binding)

-to allow application of English land law would erode policy objectives of Malaysian Torrens
system in prohibition of s6 of the CLA and NLC which is a complete and comprehensive
code of law.
3. Solicitors & Stakeholders

ROLES AND DUTIES OF A SOLICITORS

PRE–CONTRACTUAL STAGE
Prior to preparing the sales and purchase agreement, the solicitor is under a duty to
conduct a personal search on the purchaser of land, including a NRIC search, bankruptcy
search or winding–up search. Besides, the solicitor has to conduct a title search on the RDT.
The solicitor plays a crucial role in this part as to obtain necessary information of the land
which would be inserted into the SPA and used in preparing other relevant documentation of
the transfer.

Furthermore, the solicitor would have to ensure that all express conditions of title, if
any, are complied with, such as obtaining consent from the State Authority. The solicitor also
has to ascertain if there are any restrictions in interest that could affect the purchaser.

The case of Ngeoh Soo Oh & Ors v G. Rethinasamy (1984) illustrates how a
solicitor would be held accountable when failing in his duty to use reasonable care and skill
in the pre-contractual stage. In this case, the plaintiff engaged the defendant solicitor to act
for him in purchase of a piece of land. The plaintiff was not aware that the land had actually
been acquired by the government. The court held that the solicitor had failed in his duty to
make a search and enquiry with the land office regarding the land as how a competent
solicitor would have done. Therefore, the solicitor was held liable in breach of contractual
duty and also liable in tort.

There is also the case of Lai Foh & Sons Sdn Bhd v Skrine & Co [2001] (HC)
which illustrates the solicitor’s duty to exercise a high degree of skill and caution for the
purpose of protecting their clients' interest against possible fraud or forgery. In this case, the
solicitor had failed to seek verification on a forged letter of authorisation, and had
subsequently released land titles to a 3rd party who had no right to receive them. Thus, the
solicitor was held to fall below the standards expected of a prudent conveyancing solicitor,
both for breach of contractual duty and for negligence.

CONTRACTUAL STAGE
– draft the Sale and Purchase Agreement. There are no standard conditions of sale and the
terms of sale that have to be negotiated between the parties.
-unique requirements for SPA -if purchase price is not paid in lump sum payment, usually
need to pay 10% deposit and the balance to be paid within 3 months -1 month extension
subject to interest being paid
-if there is condition that state authority’s consent is to be obtained, the 3+1 period starts
after the consent is obtained

–Where an option has been granted, to ensure that the option is duly and properly
exercised.
– If property is charged, to ascertain that redemption sum and retention for real property
gains tax does not exceed the purchase price.
– To advise on the party's responsibility to submit real property gains tax return.
– To ascertain that payment of quit rent, assessment and utilities that are current.
– If sale of property is subject to existing tenancy, to examine and ensure enforceability of
the tenancy.

MOHD RAFFI BIN ABDULLAH V KUMARESAN A/L K. NAGGIAH & ANOR [2019] MLJU
207 1
Going by established and normal conveyancing practice the deposit sum is always paid to
the Vendor after the execution of all the relevant documents namely the SPA, the MOT, the
CKHT forms, letter of undertaking and others. Based on Clause 6 of the SPA it is mandatory
that the SPA and the MOT are executed by the parties before the Solicitor releases the
deposit sum to the Vendor.

Hence, the Appellant was right in contending that in the instant case as the MOT was not
executed by the parties the 2nd Respondent cannot release the deposit sum to the 1st
Respondent until the MOT is executed and kept in escrow.(safekeeping)

It was admitted by the 2nd Respondent himself that the MOT was prepared only after the
execution of the SPA contrary to its express terms.

This is a clear instance where the 2nd Respondent appears to have negligently released the
deposit sum to the 1st Defendant which he was then holding in his Client’s Account as
stakeholder without taking the necessary steps and precautions and steps to protect and
secure the Appellant’s interests before the release.

POST-CONTRACTUAL STAGE
– To prepare and lodge a private caveat that is fit for registration, to protect the purchaser's
interest. -apply to withdraw the caveat once the name is registered on title
– Make necessary applications to comply with restrictions in interest.
– If the purchaser is a foreigner, to apply for FIC or State Authority approvals.
– May need to submit relevant notification of disposal/acquisition to the Inland Revenue.
–– Ensure that the instrument of transfer is fit for registration.
– Submitting an instrument of transfer for adjudication. (assessment of tax)
– Stamp instrument of transfer within time allowed upon receipt of stamping notice.
- prepare and approve various undertakings. If acting for the purchaser and/or financier,
need to ensure that funds are released for completion.

COMPLETION STAGE
– Presentation of instruments of dealings for registration.
– apportionment of outgoings.(utility bills)
– Monitor delivery of possession of keys and property
– Following up with the land registry or land office for title to be registered.
– Other post completion work may include, notifying tenants of change of ownership and
arranging for payment of rentals where applicable, notifying the local authority of change of
ownership.

PROFESSION NEGLIGENCE
What is negligence?
Professional negligence means that lawyers are expected to conform to the standards that
are termed as a ‘reasonable competent practitioner’.

A breach occurs if a lawyer has fallen below the standards normally adopted by lawyers. The
conduct and etiquette of advocates and solicitors in Malaysia pertaining to their duty towards
the client are regulated by written rules, which include the Legal Profession Act 1976,
Legal Profession (Practice and Etiquette) Rules 1978, Solicitors’ Accounts Rules 1990
and Bar Council Rulings.

Failure to comply with these rules amounts to misconduct and would likely cause an
advocate and solicitor to be liable for disciplinary proceedings.

S 117 (4) of the LPA 1976 - a provision in any agreement that states the advocates and
solicitors shall not be liable for negligence or shall be relieved from any responsibility shall
be void.
This clearly indicates that advocates and solicitors are not immune from being sued by the
clients for misconduct or negligence committed.

When a client engages the solicitor of his or her choice, he basically is placing his utmost
trust in the solicitor to act in his best interest in handling the case. The solicitor now owes the
client a duty to take care of the matter entrusted upon him and not abuse the confidence
reposed in him by the client.

Breach of the duty of care will entitle the client to bring a suit based on negligence against
his/her solicitor under both tort and contract.

Arab Malaysian Finance Berhad v Steven Phoa Cheng Lon & Ors [2003]
There are four conditions that need to be established in order for a client to successfully
bring the professional negligence suit against his or her lawyer.

Firstly, the plaintiff must show that he was owed a duty by the defendant to take reasonable
care.
Secondly, the defendant has breached that duty.
Thirdly, the breach of duty has caused the harm in question.
Lastly, the plaintiff has suffered damage that is not too remote.

Yong & Co v. Wee Hood Teck Development Corporation [1984] 2 MLJ 39

The liability of a solicitor may be viewed in two aspects. At common law the retainer imposes
upon him an obligation to be skillful and careful and for failure to fulfill this obligation he may
be made liable in contract for negligence whether he is acting for reward or gratuitously.
(Solicitor does not have to be remunerated or earn fees in order for him to owe a duty, he
may be liable once he acts for his client)
On the other hand, like any other individual, a solicitor is liable for his wrongful acts and if the
circumstances justify the charge, he may be made liable to his client in tort. He owes a duty
not to injure his client by failing to do that which he had undertaken to do and which his client
has relied on him to do…”

Au Meng Nam v Ung Yak Chew (2007)(CA)

The plaintiffs were previously the registered proprietors of the land. On 17.9.1997, they
came to know that the land had been transferred to the first defendant and the MOT was on
9.10.1996. The plaintiffs contended that they had never entered into any agreement or
signed any document to transfer the land to the first defendant. The first defendant filed a
third party notice for compensation or indemnity against the second and third defendants
who were their solicitors for the purchase and subsequent transfer of the land alleging they
were negligent.

Court: the second and third defendants were not liable.The first defendant had adduced no
evidence that they were negligent. (1st def had to show DOC, breach of DOC etc) The
first defendant took a commercial decision to purchase the land which he admitted was a
good bargain. In a single day, he visited the land, decided to purchase it and agreed to the
terms of the sale including an initial payment of 80% of the purchase price in cash. (1st def
himself rushed through the sale). These were done before he consulted the second
defendant. The second defendant informed the first defendant of the risk but the first
defendant, who was a regular client and was familiar with sales and purchase of real
property, wanted to proceed with the transaction urgently. Instructions were given to him to
prepare the terms as have already been agreed upon.

Mulpha Kluang Maritime Carriers Sdn Bhd v Philip Koh Tong Ngee & Ors [2016]
The plaintiff has succeeded in suing the defendant, specifically the solicitors handling the
plaintiff’s sale and purchase of two lots of land.

This is due to the breach of contractual duty and/or negligence towards the plaintiff because,
at the end of the sale, the plaintiff discovered that a portion of both of the lots purchased had
been surrendered by the vendor to the state authority all the way back in 1988 and in fact,
the plaintiff had ended up paying for the whole portion of the two lots while owning a lesser
area than agreed.

The Court was satisfied that the defendant had a duty and failed to notify and advise the
plaintiff on the implication of the surrendered portion of the land because if they have had
first advised the matter to the plaintiff, the plaintiff would have a chance to decide whether to
proceed with the purchase at the original price or at a reduced price after considering the
surrendered portion.
STAKEHOLDER

INTRODUCTION
A stakeholder is one who holds documents, money or any form of property pending the
outcome of a future event. For example, in sale and purchase transactions involving land, a
stakeholder holds the purchase price monies as a stakeholder pending the completion of the
Sale and Purchase Agreement ("SPA"). In most of these transactions, the stakeholder is
often the lawyer representing the purchaser or vendor as opposed to an independent third
party. However, a lawyer called upon to act as a stakeholder must remain neutral in his duty
as a stakeholder DESPITE his appointment to represent either the purchaser or vendor.

Lawyers who become stakeholders in conveyancing transactions have a duty to hold the
monies or documents deposited to them on behalf of either the vendor or the purchaser until
the conclusion of certain transactions.

TOH THEAM HOCK V KEMAJUAN PERWIRA MANAGEMENT CORPORATION SDN

BHD [1988]
The word ‘stake’ is “in common parlance used to apply to any money to be disposed of in
accordance with what may happen in future: and whoever is in possession of the money is
often described as a stakeholder. The manner in which the money is to be disposed of
depends on the terms on which it is held”.

Lawyers as stakeholders cannot release the money to either party until the registration of
transfer or assignment has been completed, the Sale and Purchase Agreement (“SPA”)
comes to an end through termination or when the deposit is forfeited by the vendor in
accordance with the terms of the SPA.

MEANING OF STAKEHOLDER

Burt v Claude Cousins & Co Ltd & Another [1971]

Lord Denning MR in his dissenting judgment: If an estate agent or a solicitor, being duly
authorised in that behalf, receives a deposit 'as stakeholder', he is under a duty to hold it in
medio pending the outcome of a future event. He does not hold it as agent for the vendor,
nor as agent for the purchaser. He holds it as trustee for both to await the event.

TAN SUAN SIM V CHANG FOOK SHEN

it is not merely the usual practice but an almost inevitably necessary requirement in any
agreement of sale under the Torrens system to appoint a stakeholder, who, need not be
but is ordinarily the solicitor for the vendor and who undertakes to hold the money
which would be paid over by the purchaser upon the execution of the relevant transfer
until the registration of the transfer, when he would pay it to the vendor.

If for any reason the registration is not effected or proceeded with, then his undertaking
would be to return the money to the contending purchaser. For the same reason, where the
money is to be paid by a third person, e.g. a chargee as the bank in this case, who would
require a charge to be executed by the purchaser to secure the repayment of the loan,
the appointment of a stakeholder would be just as necessary and his undertaking would
be to retain the money until the transfer and the charge had been registered and after
that to pass the money over to the vendor, since the transfer and the charge would
ordinarily be registered at the same time, one immediately after the other. All this is
elementary conveyancing practice under theTorrens system.

-stakeholder should be neutral to both parties, acting for both of them, although he is usually
appointed by the purchaser

OCBC BANK (M) SDN BHD V LEE LEE FAH & ORS [2000] 1 MLJ 134(CA)
The purchaser entered into 2 SPAs with the vendors in respect of 2 pieces of land. Upon the
execution of the agreements, the purchaser paid a deposit and the balance purchase price
was to be paid on or before the completion date of the agreement, to Messrs Francis Yong,
Sulastry & Co as stakeholder (‘the solicitors’).

The purchaser obtained a bank loan of RM250,000 from OCBC Bank (M) Bhd and as
security created 2 charges over the lands in favour of the bank. The purchaser then settled
the difference between the balance purchase price and the loan. The bank's solicitors
released the RM250,000 to the solicitors upon presentation of the MOT and charges over
the lands.

It was eventually discovered that solicitors who acted as the stakeholder absconded潜逃
with the money. 2 main issues arose for determination of the court were: (i) on whom the
loss of the balance of the purchase price should fall; and (ii) whether the bank, as an
innocent party, should be deprived of its rights as a registered chargee.

CA – both parties mutually agreed the solicitors be the stakeholder even though the
solicitors were nominated by the purchaser. By handing over the balance of the purchase
price to the stakeholder, the purchaser had done everything that needed to be done under
the agreement. The purchaser was under no duty to ensure the money in the stakeholder’s
hands was actually handed to the vendors. The loss had to remain where it fell in the hands
of the vendors and their remedy lay only against the stakeholder.

The solicitors as stakeholders were legally bound to pay out the balance of the purchase
price deposited with them to the respondents once the transfers and charges over the lands
had been registered — events that triggered their liability to pay out the balance of the
purchase money in their hands. The loss of the balance purchase price had to be borne by
the stakeholders and no other person. The respondents had to look to the stakeholders to
account and not to the purchaser who was under no duty to ensure that the vendors would
receive the money from the stakeholders.

YEN CHONG REALTY SDN BHD V JIDDI JONED ENTERPRISE SDN BHD & ORS [2016]
(CA)
The appellant entered into SPAs with the first to fourth respondents for the purchase of four
pieces of land located in Mukim Ayer Panas, Melaka. The fifth respondent was the solicitor
for the appellant for the said sale and purchase transactions.
By a letter dated 5.11.1997, the fifth respondent confirmed the appellant had deposited a
sum of RM14,800,351.36 with them and a sum of RM4,148,836.28 (‘the retention sum’) had
already been set aside for the payment of ‘RPGT’.

Dispute arose when the appellant and the fifth respondent failed to pay the RPGT when
requested by the IRB. The fifth respondent contended that the appellant instructed them to
write the said letter but did not deposit with them the sum of RM14,800,351.36. The first to
fourth respondents commenced an action against the appellant and the fifth respondent for
the return of the said retention sum.

CA: a stakeholder does not effectively become liable in law unless and until the monies are
deposited with the stakeholder. There was no proof of payment to the stakeholder. The
monies were never deposited into their account.The second defendant was not a
stakeholder as defined by law.

SOLICITORS AS TRUSTEES
Solicitors who hold funds which are paid to them as stakeholders hold those funds as
trustees for the client, whose property the funds remains at all times. Such funds are not
held in a contractual or quasi contractual capacity’

‘… the obligations arising under a solicitor’s undertaking go beyond contractual effect. They
are obligations which a solicitor has a professional duty, as well as a contractual duty, to
observe’ (Bentley and another v Gaisford and another [1997] 1 All ER 842)

a stakeholder is a trustee and that the breach of a stakeholding term is not just a breach of
undertaking but also a breach of trust. Datuk M Kayveas & Anor v Bar Council [2013] 4
AMR 802

So from these it can be concluded that whether the appellant held the money as stakeholder
(or trustee) or not depends on the terms of the agreement between him and his clients. We
must not forget here that the appellant was acting as stakeholder for both the vendors and
purchaser. Both were his clients. It is not as if the was acting only for one party to the
transaction. That sum was held by him not just for the benefit of the respondent alone but
rather for the vendors as well. He was therefore a trustee for both parties. (Selvaratnam a/l
Vellupillai v Dr Jayabalan Karrupiah [2009] 1 MLJ 794 (FC))

IGMA ELEVATOR (M) SDN BHD V FADASON HOLDINGS SDN BHD & ANOR [2014]
… a stakeholder sum is trust money cannot take possession of that trust money for their own
private benefit, except at the risk of being liable to refund it in the event of the trust being
broken by the payment of the money.

…the stakeholder sum being RM495,000 is held in trust for the benefit of the plaintiff.
Accordingly, it is to be applied only for the special purpose as agreed and is payable to the
plaintiff. In the present case, the stakeholder sum is to be utilised for that special purpose
and as instructed by the first defendant.
Based on the letter of undertaking given by the second defendant to the plaintiff with the
consent of the first defendant, he ought to release the stakeholder sum to the plaintiff. The
second defendant cannot conscientiously retain the stakeholders' money which is trust
money against the wishes and instructions of the first defendant. He cannot misapply the
said stakeholder sum for any other purpose, knowingly that that money is held in trust for the
benefit of the plaintiff.

…this is a clear case for the second defendant to release the said stakeholder sum to the
plaintiff without any further delay. It is inequitable on the ground of justice and good
conscious that the second defendant should be permitted to take the trust money of the
plaintiff and unilaterally convert the same as client's money for the second defendant to have
a lien over fees to an unrelated matter allegedly owing by the first defendant.

When a solicitor receives a trust money with the express notice of the trust, he is, in equity,
as in the present case, and coupled with his undertaking, in the position of an express
trustee.

SOLICITORS AS AGENTS
Abu Bakar bin Ismail & Anor v Ismail bin Husin & Ors and other appeals [2007]
Low Hop Bing JCA(dissenting): the solicitors were at the material time in law and in fact the
agents of the fifth defendant. In other words, the fifth defendant was the client and hence the
principal of the solicitors. Section 3 of the Legal Profession Act 1976, where relevant, defines
the word 'client' as including, in relation to non-contentious business, any person, who as a
principal, retains or employs an advocate and solicitor, and any person for the time being
liable to pay an advocate and solicitor for his service and costs.

-contradictory because as agents, the solicitor would only owe duty to his principal, and not
to any other 3rd party -as a stakeholder, he must be neutral to both parties

'Contentious business' is defined in s 3 as meaning business done by an advocate and

solicitor in or for the purpose of proceedings begun before a court of justice,tribunal, board,
commission, council,statutory body or arbitrator. [going to court/litigation]

The preparation and presentation of the charge documents did not involve proceedings
before a court etc. That business comes within the ambit of 'non-contentious business' in
which the fifth defendant has retained, and so is the principal of, the solicitors.The retainer
provides for the contractual relationship between the fifth defendant and the solicitors.

Under s 3, even a person for the time being liable to pay an advocate and solicitor for his
service and costs is included in the definition of a client. A fortiori, in the instant appeal, as
the fifth defendant had paid the fees and costs for the solicitors' service, the fifth defendant is
most certainly the client and principal of the solicitors. The chargee bank was neither the
person liable to pay nor has it ever paid the solicitors for their service and costs in the
preparation and presentation of the charge documents. Hence,the chargee bank cannot be a
client and principal of the solicitors.
14.10 Stakeholder

RULING 14.1(3) OF THE BAR COUNCIL RULING

A Solicitor acting as stakeholder for two or more parties must strictly adhere to the terms of
the stakeholding at all times. No money or document held by a Solicitor as stakeholder shall
be released, utilised, applied or otherwise dealt with by such Solicitor except in accordance
with the terms of the stakeholding or with the express written consent of all relevant parties.

For example, a Solicitor holding the final 5% of the purchase price under a Sale and
Purchase Agreement prescribed by the Housing Development (Control & Licensing)
Regulations 1989 must not (for whatever reason) release the same before the expiry of the
stakeholding period(s) and/or in contravention of Schedule G Agreement or Schedule H
Agreement as the case may be.

Conveyancing practice rulings, section 24-26

Section 94(3) LPA -misconduct -dishonest or fraudulent conduct in the discharge of
his duties
Section 100(8) LPA -power of DB to order restitution

Majlis Peguam Malaysia v Lim Yin Yin (2019) 4 MLRA

En Isnin Rahim (the complainant') dated 30 January 2015 against the respondent relating to
the respondent's failure to release the sum of RM 815, 120 (the Monies') being the balance
of the purchase price which the respondent held as stakeholder on behalf of her clients
which were the complainant. The respondent had used up the Monies from the clients'
account and was unable to release such monies on the specified date.
solicitor client relationship has long been recognised as a fiduciary relationship. The fiduciary
relationship binds the solicitor to a scrupulous fidelity to the cause of his client which
precludes the solicitor from any personal advantage from the abuse of that reposed
confidence.
In this case, the respondent was acting for the clients in a sale and purchase transaction. In
the capacity as the clients' solicitor the respondent was entrusted with the balance purchase
price of RM 815,120.00 as a stakeholder. Upon completion of the sale and purchase
transaction, the respondent was obliged to immediately release the said sum to the clients
on 29 December

Hassan Hussin v Tengku Azhar Adib T Yusuf (2016) CLJ 864

BREACH OF STAKEHOLDING
Datuk M Kayveas & Anor v Bar Council [2013] 5 MLJ 640(FC)
that the breach of duty as a stakeholder is not only contractual but also fiduciary. In that
case, the issue was whether the breach of stakeholding terms was only a mere breach of
contract that can be remedied with damages, or whether it would amount to misconduct. The
court held that mere civil liability in itself, such as a breach of contract would not amount to
misconduct. Nonetheless, a breach of contract with elements of contravention of
professional rules is misconduct. The court further held that the relationship between the
stakeholders and the parties in the transaction is fiduciary in nature, akin to the relationship
between trustees and beneficiaries and as such, the breach of duty as stakeholders is a
breach of duty as trustees. Therefore it is beyond argument that the breach of stakeholding
terms is a breach of trust and the failure to honour such terms and duties is prima facie
evidence of professional misconduct.

G Balan a/l Govindasamy v Lee Moi Moi & Ors and another appeal [2017] MLJU
266(CA)
The word ‘stake’ is generally used to apply to any money to be disposed of in accordance
with the occurrence of a future event; and the party in possession of the money is often
described as a stakeholder. How the money is to be disposed of depends on the terms on
which it is held
. A stakeholder is defined as a person who receives money and holds it in medio (in the
middle) pending the outcome of a future event (Kuldip Singh v Lembaga Letrik Negara
[1983] 1 MLJ 256). As a rule the duty of a stakeholder is to hold the money as trustee for
both parties to await that event and until that event is known, it is his duty to keep it in his
own hands (Hampden v Walsh [1876] 1 QBD 189).
4. Charges
Charge is a security for a loan & interest in land
- Security held by chargee/bank/lender
- The chargee will have interest in the land
- The land is never transferred to the chargee -all he has interest in land
- The title/ownership remains with the chargor at all times
- Prevents others to register rights to the land (provides security to the chargee - but
the chargee must register his charge)

**(Main points)

OCBC BANK MALAYSIA BERHAD V. PROLINK MARKETING SDN BHD [2021]

(a) A registered charge is not a contract. It is statutory instrument under the NLC. It is
a dealing authorised by the NLC. Enforcement of the charge is the assertion of a statutory
right: see Malaysian International Merchant Bankers Bhd v. Dhanoa Sdn Bhd [1988] 1 CLJ
Rep 193; [1988] 1 MLJ 257; Co-operative Central Bank Ltd v. Y & W Development Sdn Bhd
[1997] 4 CLJ 170;[1997] 3 MLJ 373 CA.

(b) A chargee who makes an application for an order for sale in foreclosure
proceedings under section 256 of the NLC enforces his statutory rights as a chargee
against the chargor in default. The chargee who makes an application for an order for sale
does not commence an action and does not sue for a debt. The chargee’s claim for an
order for sale is based on the registered charge and not upon a covenant. The Court
hearing an application for an order for sale in foreclosure proceedings does not, and ought
not to make, any adjudication on any substantive issues:see Kandiah Peter v. Public Bank
Bhd [1993] 4 CLJ 332; [1994] 1 MLJ 119.

(c) In an application for an order for sale, the chargee does not need to prove the amount
owed by the chargor. All the chargee must show is the chargor’s inability to settle the
amount owing by the chargor to the chargee: see Siong Holdings SB v. Development &
Commercial Bank Bhd [1997] 1 CLJ 590;[1997] 1 MLJ 340.

(d) A Court is legally obliged to make an order for sale under section 256 of the NLC,
unless it is satisfied there is “cause to the contrary”: see section 256 of the NLC. Low
Lee Lian v. Ban Hin Lee Bank [1997] 2 CLJ 36; [1997] 1 MLJ 77 SC; Keng Soon Finance
Bhd v. M.K. Retnam Holdings Sdn Bhd & Anor [1989] 1 CLJ 1 (Rep) PC.

T Damodaran v Choe Kuan Him (1979)

“Interests in land, short of proprietorship, which are capable of being registered are leases,
charges and easements”

Metroplex Holdings Sdn Bhd v Commerce International Merchant Bankers Bhd [2013]

The registered proprietor of any alienated land has the power to create a first legal and
subsequent charges to secure repayment of any debt or a sum of money under s 241 of the
NLC. Such powers are always subject to any legal prohibition or restriction in interest
imposed on the title to the alienated land in s 241(3) of the NLC.

Now, once a charge is registered, the legal title or proprietorship of the charged land
does not pass to or vest in the chargee. And the effect of charges is set out in s 243. It
must be emphasised that under the NLC, the chargee is not the registered proprietor. As
chargee, his interest is protected upon registration of the charge under the NLC.

When the chargor defaults in making repayment, two remedies are available to the chargee.
Firstly, the land is to be sold by public auction. Secondly, by way of possession (and keep
the land - process slightly different - need to get the tenant & licence terminated, not take the
land subject to the interest) under Chapter 4 of Part 16.

Southern Bank Bhd v Chuah Beng Hock [1999]

It is necessary for me to refer to s 243 of the NLC. Parliament in ringing terms had
promulgated that every charge created under this Code shall take effect upon
registration, so as to render the land or lease in question liable as security. In simple words,
no charge is effective unless registered.

The case of Mahadevan & Anor v Manilal & Sons (M) Sdn Bhd, where the Federal Court
commented, that there were no provisions in the NLC prohibiting the creation of
equitable charges or liens. In Oriental Bank v Chup Seng Restaurant (Butterworth) Sdn
Bhd [1990], after considering the case of Mahadevan & Anor, adjudged that whilst the NLC
did not prohibit the creation of an equitable charge, the NLC requires the charge to be
registered in its prescribed form before it could be enforced.

It must, first and foremost, be recognized that the NLC 1965 adheres strictly to the
principle of registration and recognizes only parties who are registered under the
Code …. Secondly, s 243 clearly stipulates that every charge created shall take effect
upon registration so as to render the land or lease liable as security …. Thus, from the
above sections of the Code it is abundantly clear that the Code recognizes only registered
charges.

Section 241 NLC, section 242 (Form 16 A)

Section 241. A charge can be created over

(a) The whole, but not a part only, of any alienated land;

(b) The whole, but not a part only, of any undivided share in alienated land; and

(c) Any lease of alienated land, (Leasehold property can be charged for security as well)

For the repayment of any debt, or the payment of any sum other than a debt; or the payment
of any annuity or other periodic sum.
(2) The powers conferred by subsection (1) shall include power to create second and
subsequent charges. (One piece of land can be subject to numerous charges - 1st,
2nd, 3rd legal charge)

Example: The property valued for high amount (i.e 10 million), and the borrower charge the
property to different lenders for different amount (to get the whole 10 million amount) - value
of the land far exceeds the amount of loan

The subsequent charge is subject to the 1st legal charge

If there is default in payment, property will be sold, and the chargees will be paid of
accordingly

(3) The said powers shall be exercisable in any particular case subject to any prohibition
or limitation imposed by this Act or any other written law for the time being in force; any
restriction in interest to which the land in question is for the time being subject; and in
relation to leases, the provisions thereof, express or implied.

Section 242 (1)

Every charge to secure the repayment of a debt, or the payment of any sum other than a
debt, shall be effected by an instrument in Form 16A.

(2) Every charge to secure the payment of an annuity or other periodic sum—

(a) Shall be effected by an instrument in Form 16B; and

(b) May if the parties think fit include provision whereby, in the event of the chargee
exercising his power of sale, the proceeds of sale (so far as available for the purpose) are to
be utilised in or towards the satisfaction of payments subsequently falling due

Section 243. Effect of charge

Every charge created under this Act shall take effect upon registration so as to render the
land or lease in question liable as security.

Section 244. A first chargee of any land or lease shall, be entitled to the custody of the
issue document of title to the land or, as the case may be, duplicate lease so long as any
liability subsists under the charge (Denotes can be more than 1 chargee)

If there is subsequent chargee, it is for the subsequent chargee to get from the first chargee
the document and register their charge, subject to undertaking that such document will be
returned - If both parties agree that the subsequent chargee should hold the document then
it is fine

Default in payment for one of the chargee - That chargee can exercise the right to sale, but
need to take the IDT from the first chargee - All chargees will be repaid & all the charge have
to be cleared.
Remedies for chargee if the loan is not repaid

Sale / possession
- Chargee has the right to sell the land & get his money back
- **Chargee must ensure that he complied with the process required, if not, his sale
will be invalid
- Section 253 The provisions of this Chapter shall have effect of enabling a chargee
to obtain the sale of the land or lease to which his charge relates in the event of a
breach by the chargor of any of the agreements

- Section 254(1). Breach of agreement as is mentioned in s 253 1 must have been

continued for at least one month or such alternative period as specified in the
charge which shall not be less than one month, the chargee may serve on the
chargor a notice in Form 16D

- Section 254(2) once the notice is served, would be valid and effectual against the
person whom it was served.

- Section 255(1) Where the principal sum secured by any charge is payable by the
chargor on demand, the chargee may make the demand by a notice in Form 16E,
and in that event, if the sum in question is not paid to him within one month of the
date on which the notice is served, may apply forthwith for an order for sale without
being required to serve a notice in Form 16D under subsection 254(1).

Section 255 (2)- Subsection 254 (2) shall apply to notices in Form 16E as they apply
to notices in Form 16D

● Form 16 D is used when it involves a loan payable by instalments (usually used)

● Form 16 E is applicable when the loan is payable by demand in one payment
(Perwira Affin Bank Bhd v Lim Weow (1998) - principal sum - may apply for an
order for sale without serve notice in Form 16 D)

Form 16 D

Form may be issued after at least 1 month of continued breach (Minimum period allowed by
the statute) - But if the chargee is willing to give more than 1 month he can do so

(a) Specifying the breach in question

(b) Requiring it to be remedied within one month of the date on which the notice is served,
or the alternative period specified and (Can’t be less than 1 month)

(c) Warning the chargor that, if the notice is not complied with, he will take proceedings to
obtain an order for sale

If the breach had not been remedied within the period, chargee may then obtain order of
sale
At least 1m breach + 1m notice to pay / remedy + Warning = At least 2 months before
can get Order of Sale

Public Bank Bhd v Chan Siok Lie Ors (1989)

There is no requirement to serve prior notice.

The writ (by required Form) itself is a notice. see Malayan Banking Bhd v Lim Ghee Leng.

No rule that requires the precise amount owing to be correctly stated in notice, which would
otherwise invalidate the notice.

Breach (s253) > issue form 16 d /e according to s254 requiring remedy (2 months) > apply
for order of sale under s256(2),(3) read tgt with order 83 of the rules of court 2012

**Lim Ban Hooi Anor v Malayan Banking Bhd (2018)

It is evident from s 254 reinforced by s 253 that in the event the chargor breaches any of the
express or implied agreements, the chargee has the right to obtain an order for the sale
of the charged land.

That order of sale is granted by the High Court under ss 256(2) and (3) read together with
Order 83 of the Rules of Court 2012. Order 83 being the law relating to civil procedure for
the time being in force.

Before the application may be properly undertaken, a notice in Form 16 D must be

issued pursuant to s 254. The notice is intended to first indirectly remind the chargor of his
obligations by pointing out the specific breach telling the chargor to remedy the breach within
the time period specified in the notice before finally warning the chargor that if the notice is
not complied with, proceedings to obtain an order for sale will be sought. Where the chargor
does not heed the requirements in the notice, the chargee is then entitled to apply to court
for the order for sale under s 256.

The above sets out the mechanism or the process that must be followed before the chargor
may apply to the court for an order for sale of the charged property.

Section 256(1) Application to Court for order for sale

This section applies to land held under—

(a) Registry title;

(b) the form of qualified title corresponding to Registry title; or

(c) subsidiary title,

and to the whole of any undivided share in, or any lease of, any such land.
(2) Any application for an order for sale under this Chapter by a chargee of any such land or
lease shall be made to the Court in accordance with the provisions in that behalf of any law
for the time being in force relating to civil procedure.

(3) On any such application, the Court shall order the sale of the land or lease to which the
charge relates unless it is satisfied of the existence of cause to the contrary.

Jacob v Oversea Chinese Banking Corporation, Ipoh [1974]

Section 255(1) does not say that the chargee shall make the demand by a notice in
Form 16 E, so that it is open to it to make the demand in any other way. If the chargee here
had simply made its demand by the letter of 2nd December, 1971 the demand might have
been defective, but here it followed it up by serving on the chargor a notice in Form 16
D, which clearly set out its complaint and fairly warned the chargor that, if he failed to pay
the money due, the chargee would apply for an order of sale.

May serve, so not necessarily need to serve notice by 16 D - But if do it in any other way, the
content & mode of service will be scrutinised by Court as the bottom line is: Whether the
chargor aware intends to claim what he is owing & when did he breach

CIMB BANK BHD V SIVADEVI A/P SIVALINGAM [2020] (FC)

Cause of action does not arise yet to entitle the chargee to apply for an order for sale.
The chargee then has to serve on the chargor a notice in Form 16D specifying the breach in
question, requiring the chargor to remedy the breach within one month from the date of
service of the notice, and warning the chargor that if the notice is not complied with, the
chargee will take proceedings to obtain an order for sale (ss 254(2) of the NLC). Then ss
254(3) of the NLC comes into play.

If at the expiry of the period specified in the notice in Form 16D, the breach in question has
not been remedied, then the “whole sum secured by the charge shall become due and
payable to the chargee”: (ss 254(3) of the NLC). It is on this date that ‘the right to receive
the money accrued’.

It is on this date that the cause of action arises as it is at this stage that it is established
that there is an existence a person who can sue and another who can be sued and all the
facts have happened which are material to be proved to entitle the plaintiff to succeed.
Hence, it is upon the occurrence of the event under ss 254(3) of the NLC as aforesaid which
entitles the chargee to take proceedings to apply for an order for sale from the court (ss
254(3) of the NLC).

Even Form 16E also requires 2 months after the breach, not immediately upon the breach

Cause of action accrues upon non-payment / non-satisfaction or non-compliance of the

Form
Series of cases provides cause of action arise upon breach, but they omit the process to be
followed - Just general statement made (CIMB’s case state when the chargee can sue or
apply for order to sale, and the procedure to be follow)

KANDIAH PETER V PUBLIC BANK BHD [1994]

A chargee who makes an application for an order for sale in foreclosure proceedings under s
256 of the Code enforces his rights as a chargee by exercising his statutory remedy
against the chargor in default.

The Court doesn’t question the Order of Sale, S256 requires the Court to grant the Order
when the application has been made, unless they were satisfied that there is some cause to
the contrary - Circumstances to refuse the grant is limited to the existence of the cause to
the contrary.

AMBANK BHD V CHIDAMBARA NATHAN MST MUTHUSAMY & ANOR [2014]

Creditor had the right to go for Order of Sale to sale the land & can simultaneously sue the
borrower under the terms of loan agreement for the default payment
Applying for order of sale does not prohibit the applicant from suing the chargor for breach of
personal covenant

Equitable mortgage not recognised under NLC

Mahadevan S/O Mahallingam v Manilal Sons Sdn Bhd (1984) (FC)

Our land law does not recognise a mortgage in the sense of English land law whereby the
legal estate, i e ownership of the land is transferred to the mortgagee and what is left with
the mortgagor is only an equitable right to redeem. But our land law certainly recognises
a mortgage in the sense of Torrens system, where the mortgagor retains the legal
ownership whilst the mortgagee acquires a statutory right to enforce his security. For
the purpose of avoiding confusion, our National Land Code uses the word "charge” in place
of Torrens mortgage.

There is, however, no provision in the National Land Code prohibiting the creation of
equitable charges and liens. The Code is silent as to the effect of securities which do not
conform to the Code's charge or lien. Therefore, equitable charge and liens are
permissible under our land law.

Malayan Banking Bhd v Zahari bin Ahmad [1988]

The bank was an equitable chargee due to the fact that there was no issuance of
document of title in respect of the said property. The Court then held that the equitable
chargee has the right to sell the property by way of application for sale under Order 83
of the Rules of Court 1980.

-look at civil law procedure -bcs the process of sale is not provided in the NLC
An equitable mortgage can also be created by way of loan agreement cum absolute
assignment. This usually applies to high rise and/or strata properties. Despite the fact that
the word ‘mortgage’ was not used in the agreement, the loan agreement would still amount
to an equitable mortgage because the assignment of the right, title and interest in the land
was expressly or obviously for the purpose of securing the loan given to the borrower to
purchase the land.

Under this type of agreement, the borrower has assigned unto the lender all his rights, title
and interest in land by way of security for loan, the lender is entitled to claim the entire loan
sum in the event of a default.

Bank Bumiputera Malaysia Bhd v Doric Development Sdn Bhd & Ors (1988)

In the first place, the premise that a charge under NLC is the same as an English mortgage
at common law is patently erroneous. A charge is governed by detailed statutory provisions
of the NLC while an English mortgage at common law is a diff thing altogether. In an English
mortgage at common law, the mortgaged property was transferred to the name of the
mortgagee on the creation of the mortgage with a proviso for redemption. (Charge is not)

Under the said proviso, the mortgagee agreed to re-transfer the mortgaged property by a
certain date beyond which it was stated to be irredeemable. Equity stepped in and provided
the equity of redemption, by which the right to redeem was extended beyond the said date
and would be lost only on foreclosure or sale.

CHUAH ENG KHONG V MALAYAN BANKING BHD (1998)

Under the said loan agreement, the borrower bought land and borrowed the purchase price
from the lender, assigning all the rights, title and interest of the borrower in the said loan
agreement to the lender.

The borrower agreed to execute a charge over the said land once the document of title was
issued, the said land which was under the process of subdivision for which sub-divisional
documents of titles would be issued later.

Under rules of equity, the said loan agreement would amount to an equitable mortgage
because the assignment of the right, title and interest in the said land was for the purpose of
securing the loan given to the borrower to purchase the said land.

This view is reinforced by the promise that when the document of title of the said land
was available after the completion of the subdivision aforesaid, the borrower would
execute a charge in favour of the lender according to the provisions of the NLC.

It is true that nowhere in the said loan agreement has the word 'mortgage’ been used,
but it is a security transaction in connection with the loan given by the lender with a
provision for repayment. Thus, we have the loan, the contractual right to repay or to redeem
the said land and the assignment of all 'title and interest' in the said land pending the
exercise of such contractual right to redeem.
The borrower at the time of signing the said loan agreement had no legal estate (or
registered proprietorship of a grant of land) but only an equitable interest as a
purchaser by contract from a housing developer, pending the issuance of a separate
document of title aforesaid.

Like a legal mortgage, the borrower has obtained a second right to redeem after the
contractual date for redemption has expired.

Rules of equity in general are applicable by virtue of the Civil Law Act 1956 and those rules
of equity relating to equitable interests in land have no doubt always been recognized and
applied in Malaysia unless they are expressly or by necessary implication precluded by the
NLC.

Ambank Bhd v Aim Edition Sdn Bhd (2021) (FC)

-mortgages not recognised under the NLC, but does not say that it is not recognised under
other aspects -can actually be reconciled.

Today, mortgages are not recognized under the National Land Code 1965 even less the
existence and principle of equitable mortgages.

Can be reconcile with Charge in NLC - Totally distinct from Charge - Apply for property that
has no IDT yet (Cover complete different situation)

Not the Court trying to use Equity to go around with the NLC provision (Matter of policy -
Need to be recognise - S4(3) CLA 1956 to allow - Bank draft a separate agreement that
conforms with S4(3) (LACA))

The public auction is a judicial sale of the subject property, judicial as it is ordered by the
Court after the Court is satisfied that the grounds for ordering a sale under the National Land
Code 1965 have been met. If there are any shortcomings in that sale, the remedy lies
elsewhere but not in contract as there is none to begin with. The judicial sale of the
property which is subject of the charge was sought for by the chargee bank who was merely
enforcing its statutory rights as a chargee when the chargor defaulted or was in breach of
the underlying contract between them. Such statutory rights which are available under
section 256 of the National Land Code 1965 read with Order 83 of the Rules of Court 2012
are mandatory and not permissive. In pursuing those rights, the chargee does not displace
the chargor as owner of the property concerned. At all times, the chargor remains the
owner.
Order 83
- Order 83 does not specifically state that it governs sale under the NLC (pursuant to
the NLC)
- *subsection (2) charge includes legal & equitable charge

Section 4(3) Civil Law Act 1956

- Under loan agreement cum assignment (LACA)-
*Assignor assigns to the Bank his benefits, rights, title and interest and to the SPA
and in the Property, together with the Assignor’s right of enforcement

- Damai Freight (M) Sdn Bhd (photo)

-assignment must be absolute : depending on the instrument itself
-absolute assignment is equitable mortgage
-chose in action -it is a transfer of everything (all the rights, the chargor doesn't own
the property anymore, unlike a mortgage
-the rights must be reassigned back to the chargor upon repayment
-bank still have rights even though IDT is not issued
-the assignment will remain valid upon the issuance of IDT, unless stipulated in the
LACA that the assignment would be terminated

- Pancaran Nilam (M) sdn bhd v malayan banking sdn bhd and another appeal [2000]
4 mlj 625 (ca) (photo)

- Make sure that the documents are in compliance with CLA - so that the courts will
recognise their right to sale

Sivadevi a/p Sivalingam v CIMB Bank Bhd [2018] (CA)

The express agreements are to be found in the charge documents, while the implied
agreements are as provided under s 249 of the National Land Code.

We find further support for this in the view of learned author Judith Sihombing in National
Land Code: A Commentary (2nd Ed) at p 566:

The power of sale can be exercised on the breach of any covenant, not only on the
breach of the covenant to pay. Thus, breach, of any agreement implied into the charge
under ss 249 to 251 or any express agreements inserted by the parties, will give rise
to the right to seek exercise of the power of sale.

Court: Once there is a breach, rights of the parties under both contractual
agreements, terms of the charge, and impliedly under terms of the provision, will arise

Judith Sihombing: Breach give rise to power of sale - But this is general, doesn’t mean once
there is breach can straightaway sell the property (Still need to refer to S249-S251)
 ● LIM BAN HOOI & ANOR V MALAYAN BANKING BHD [2018]

It is a statutorily implied term prescribed under s 249(1)(a) of the National Land Code that
the chargor has agreed that ‘he will comply with the provisions thereof as to payment of the
sum or sums thereby secured’. Where the chargor breaches that agreement to pay the
sum secured by the charge, the chargee correspondingly is deprived of its right to
receive the money accrued. It is at this point that the right to enforce the charge arises
and the right to sue or the cause of action accrues.

right to enforce arises when breach the agreement to pay & chargee being deprive the right
to receive the money, then only the right to enforce the charge arise (But to exercise the
right, need to comply with the requirement stated)

Before the chargee may proceed to enforce its right in relation to the charge, the chargee is
required to comply with the provisions under the National Land Code. Here, the additional
safeguards provided under s254 requires the breach of the express or implied agreement
must have ‘continued for a period of at least one month or such alternative period as
may be specified in the charge before the charge can be enforced.

The object of this notice was expressed by the Federal Court in Jacob v Overseas Banking
Corporation Ipoh [1974] 2 MLJ 161: … was to see that sufficient notice was given to the
chargor before the chargee applied for an order of sale and in this case the chargee had
given the chargor sufficient notice before coming to the court.

If Form 16E is used:

Upon breach 16E is served giving one month to pay the sum demanded -s255
One month lapse from breach to application for order for sale
Should the contents of 16E be the same as 16D (the warning) -kim lin case yes, s255 no

Order 83, order 34

-sell property by public auction
-Fix auction date, fix market value, appoint auctioneer
Auctioneer prepares proclamation of sale & approved by the chargee, then sent to the
registrar
Land office only 2 times auction, court - as many times
If there’s 2nd auction-
Cut off date for the new valuation is the auction date

Cause to the contrary - low lee lian case *** (in notes)
*picture -3rd para not in low lee lian

THE PROCEDURE - ORDER 83(1) RULES OF THE HIGH COURT 2012

1. (1) This Order applies to any action (whether begun by writ or originating summons) by a
chargee or chargor or by any person having the right to foreclose or redeem any charge,
being an action in which there is a claim for any of the following reliefs:

(a) Payment of moneys secured by the charge;

(b) Sale of the charged property;

(c) Foreclosure; (Or redeem the charge)

(d) Delivery of possession (Whether before or after foreclosure or without foreclosure) to

the chargee by the chargor or by any other person who is or is alleged to be in possession of
the property;

(2) In this Order, “charge” includes a legal and an equitable charge.

(3) An action to which this Order applies is referred to in this Order as a charge action.

2. (1) Where in a charge action begun by originating summons, being an action in which the
plaintiff is the chargee and claims delivery of possession or payments of moneys secured
by the charge or both, the following rules shall apply.

(2) Not less than 4 clear days before the day fixed for the first hearing of the originating
summons the plaintiff shall serve on the defendant the originating summons and a copy of
the affidavit in support of the summons.

(3) Where the plaintiff claims delivery of possession, there shall be endorsed on the
outside fold of the affidavit served a notice informing the defendant that the plaintiff
intends at the hearing to apply for an order to the defendant to deliver up to the
plaintiff possession of the charged property and other reliefs as the plaintiff intends to
apply for at the hearing. (affidavit + endorsement)

(4) Where the hearing is adjourned and the defendant was absent from the hearing, the
plaintiff shall serve a written notice of the adjourned hearing, together with a copy of any
further affidavit intended to be used at the hearing, on the defendant not less than 2 clear
days before the day fixed for the hearing. (Just need to inform the next meeting, no need to
reserve the originating summon - But need to serve a further affidavit)

3. (1) The affidavit in support of the originating summons shall comply with the following
provisions.

(2) The affidavit shall exhibit a copy of the charge.

(3) Where the plaintiff claims delivery of possession the affidavit shall show the
circumstances under which the right to possession arises and, the particulars of the
amount remaining due under the charge as at the hearing date of the originating
summons.

(4) Where the plaintiff claims delivery of possession, the affidavit shall give particulars of
every person who to the best of the plaintiff’s knowledge is in possession of the charged
property.

(5) If the charge creates a tenancy between the chargor and chargee, the affidavit shall
show how and when the tenancy was determined and when the notice was served. (If
there is tenancy, need to show tenancy had been terminated)
(6) Where the plaintiff claims payment of moneys secured by the charge, the affidavit shall
prove that the money is due and payable and give the particulars mentioned in paragraph
(3).

● Sivadevi a/p Sivalingam v CIMB Bank Bhd [2018] (FC)

In order to enforce a charge, two steps are mandatory: compliance with the requirements
of s 256 of the National Land Code; and compliance with the requirements of Order 83 of the
Rules of Court 2012.

Compliance of the various requirements is strict, an order for sale will not be allowed
where there is noncompliance of (rule) 3(6) and 3(3) of O 83 of the Rules of Court 2012
concerning the amount of the repayments and the amount of instalments in arrears,
that these matters must be clearly stated.

● Perwira Habib Bank Malaysia Bhd v Lum Choon Realty Sdn Bhd [2006] (FC)

Order 83 is not land law and it cannot override or add to the provisions of the NLC regarding
substantive land law.

The Code only requires three things to be stated in the notice:

specifying the breach, requiring the breach to be remedied and warning of the danger
of non-compliance with the notice — s 254. When the order is made, the order should
specify the total amount due as on the date the order is made — s 257(1)(e). That is all that
is required to be disclosed to court regarding the amount due, to enable the court to specify
the amount in the order.

Coming now to rule 3 of O 83. That rule itself bears the heading 'Action for possession or
payment'. It must be noted that 'Remedies of chargees: Possession' is also specifically and
separately provided for in the NLC in ss 270–277.

Rule 3(1) - means what it says: It only applies to a charge action in which the plaintiff is
the chargee and claims delivery of or for payment of moneys secured by the chargee or
both.

It may be thought that where a chargee applies for an order for sale under the NLC, he is in
effect bringing an action in which there is a claim for payment of moneys secured by the
charge, that is a type (a) charge action, because the purpose of the sale is to get in moneys
from the charged property in or towards settlement of the debt secured by the charge.

But such an interpretation ignores the plain meaning of the words 'A claim for (a) payment
of moneys secured by the charge’. Where the amount secured by a charge is now, say,
RM500,000 and the chargee applies for an order for sale of the security, he is not asking the
court to order the chargor to pay him that amount. He is, as the Supreme Court said in
Kandiah Peter v Public Bank Berhad [1993], not suing for a debt but merely asking that
the security that he holds be sold.

Under s 254 of the NLC, for a chargee to be entitled to apply for an order for sale, there must
have been a breach by the chargor of any of his obligations under the charge for the
prescribed period, followed by a notice in Form D specifying the breach and requiring it to be
remedied within the prescribed period and warning that the chargee will take proceedings to
obtain an order for sale if the notice is not complied with, and there must have been a failure
to remedy the breach at the expiry of the period. If all those requirements are met, the
chargee is entitled to apply for an order for sale.

Under s 255, to be entitled to apply for an order for sale, the chargee need only show that
the principal sum secured by the charge is payable on demand, that there has been a
demand in Form 16E, and there has been a failure to pay within the prescribed period.

Under those sections, there would be no necessity for the chargee, to qualify him to apply for
an order for sale, to show the state of the account between the chargor and the chargee by
giving the particulars specified in para (3) of r 3.

In fact, by virtue of sub-s (3) of s 256, the chargee, if his application shows the NLC
preconditions for applying have been fulfilled, he is prima facie entitled to an order unless
the existence of a cause to the contrary is shown.

If the correctness of the account between the chargor and chargee is relevant to determining
whether in law there is cause against the making of an order for sale, that question may be
raised by the chargor at a stage subsequent to the chargee's making of his application,
without the chargee having to show particulars of the state of the account at the time that he
makes his application.

CIMB ISLAMIC BANK BHD V DAVID CHUA KOK TEE [2022]

All that the Plaintiff needs to adduce under sub rules 3 3 and 3 6 are particulars of the
amount remaining due under the charge as at the date of hearing. The Latest Statement
of Account does that Order 83 rules 3(3) and 3(6) of the Rules of Court, 2012 do not require
the Plaintiff to provide any explanation or particulars as to how these amounts were derived

As for the case of Bank Pertanian Malaysia v Zainal Abidin bin Kassim Anor 1995 2 MLJ 537
the Defendant relies on, I would distinguish it on the simply fact that it was decided under the
previous Rules of the High Court, 1980 then in force At the time, Order 83 rules 3(3) and
3(6) of those Rules required the charge to adduce these details for the hearing of the
originating summons. (Amendment was made to O83 - ROHC 1980 diff from ROHC 2012 -
**ROHC 2012 requires to only show the amount owes to the date of hearing)

Under the current Order 83 rules 3(3) and 3(6) the chargee need only provide the amount
remaining due under the charge.

5. Section 256(3) Cause to the contrary

LOW LEE LIAN V BAN HIN LEE BANK BHD (1997) (FC)

“Cause to the contrary” within section 256(3) of the Code might be established only in three
categories of cases:

(i) When a chargor was able to bring his case within any of the exceptions to the
indefeasibility doctrine in section 340(2) - (4) of the Code; (Chargor proving defeasible title)
 (ii) When a chargor could demonstrate that the chargee had failed to meet the
conditions precedent for the making of an application for an order for sale; and (which
is Form 16D / Form 16E - Failure of proper demand)

(iii) When a chargor could demonstrate that the grant of an order for sale could be
contrary to some rule of law or equity.

If no cause to the contrary could be shown, the Court would be obliged to make an order for
sale.

“A judge hearing an application under section 256 of the Code must bear in mind that the
procedure under the section is meant to be speedy and summary in nature. The judge
must consider:

1) whether the chargee has given the appropriate statutory notices as stipulated in
the Code. (according to the Forms)
2) must ensure that the procedural requirements prescribed by Order 83 of the Rules
of the High Court 1980 have been complied with.
3) whether the material produced before him by the chargor constitutes cause to the
contrary.

(ii) failed to meet requirements -Form invalid

● ASM Metal Sdn Bhd v Malayan Banking Bhd [2011] (CA)

The Form 16D issued by the respondent to the appellant is invalid and ineffective because
the respondent had combined the sums owing under the revolving credit facility and the
overdraft facility.

The sum mentioned in the statutory notice in Form 16D therefore exceeded the actual sum
owed and payable by the borrower under the revolving credit facility. The appellant had
shown cause to the contrary within s 256(3) of the National Land Code to oppose the
respondent's application for an order for sale of the property.

(iii) Contrary to rule of law or equity:

Murugappa Chettiar v Letchumanan Chettiar

-equitable principles should not be invoked too freely for the purpose of construing
our Land Code, but a chargor who shows that there would be no need to sell his land if he
paid up in full what is due from himself in another capacity, has shown good and sufficient
cause why the land should not be sold.

Section 149 of the FMS Land Code obviously contemplates that there may be cases in
which charged land should not be sold, even though there has been a default in payment of
the principal sum or interest thereon secured by the charge and it seems to me that a
chargor may 'shew显示 cause' either in law or equity against an application for an order for
sale, and that the courts should refuse to make an order in every case where it would
be unjust to do so which means contrary to those rules of the common law and equity in
force in the Federated Malay States.
 - decided under S149 FMS Land Code: cause to be shown to the satisfaction of the
court - similar provision
- ‘To satisfaction of the court’ gives court wide discretion
- Keng soon decided that they convey the same meaning as the term ‘cause to the
contrary’ under current section 256 NLC - so the Murrugappa’s case can be applied

KHENG SOON FINANCE BHD v MK RETNAM HOLDINGS SDN BHD & ORS [1983]

On an application for sale of the land charged the court has not only to apply the law but also
to invoke the aid of equity in order to be satisfied whether a cause to the contrary has been
shown or not in accordance with section 256(3) of the National Land Code.

The chargee must not only come to court with proof that the chargor has defaulted but also
with proof that the chargee himself is free of fault and that he was not guilty of any
unreasonable conduct, and that there was no right of innocent third parties to be affected by
the order.

The court held it would be clearer if we look at it from the view of "sufficient cause" or "cause
to the contrary" with which the court has to be satisfied under section 256(3) of the National
Land Code, the equity in the case being the right of the third parties.

(The court refused an application by the chargee for an order for sale, stating that there is a
duty on the part of the chargee to enquire if the chargor has valid housing developers licence.)

Cases that were applied in Kheng Soon:

Public Finance Bhd v Narayanasamy [1971] 2 MLJ 32 33

a. Federal Court applied the commonsense principles of fairness when he posed

the following question in order to dismiss the appellants'/chargees' appeal: -

"… can the appellants in all good conscience apply to the court for an order of
sale to include property over which the respondent, to their knowledge, has no
power of disposal?”

2. Murugappa Chettiar v Letchumanan Chettiar [1939]

a. "… Section 149 of the Land Code (in pari materia with Section 256(3) of the
NLC) obviously contemplates that there may be cases in which charged land
should not be sold, even though there has been a default in payment of the
principal sum or interest thereon secured by the charge; and it seems to me
that a chargor may 'shew cause' either in law or equity against an application
for an order for sale, and that the Courts should refuse to make an order in
every case where it would be unjust to do so. By 'unjust' I mean contrary to
 those rules of the common law and equity which are in force in the Federated
Malay States."

To what extent does the Court follow the provision in the NLC?

Section 256(3) National Land Code: "On any such application, the court shall order the sale
of the land or lease to which the charge relates unless it is satisfied of the existence of cause
to the contrary".

It is clear that notwithstanding the proof of default by a chargor (Respondent), the chargee
(Appellant) is not automatically entitled to an order to sell nor would the court without
scrutiny allow his application.

The court must decide whether there are circumstances in the case before it which would
amount to a "cause to the contrary" within the meaning of subsection (3) which would be
sufficient in its opinion to refuse the chargee's application although the charge is lawfully and
validly created and the chargor's default is proved.

In this case, the Court consider the following facts:

(a) Appellant's own default

- The appellant had defaulted on its obligation, when it did not make the loan release
despite the fact that architect's certificates were presented to it.

- The appellant should have foreseen the inability of the respondent to honour its bargain
at the time when it decided to give the bridging loan. If the appellant wants to be
cautious, it should be cautious at that time, and not now, after the event.
-

(b) Unreasonable conduct of the appellant

- Appellant’s solicitor used an arrogant language and was over-reactive in telling the
respondent that the architecture certificate was misplaced

- All letters written by the respondent went unreplied and unattended, this is so even
before the foreclosure action was taken.

(c) Rights of bona fide purchasers

Sub-conclusion:

- The Court opined that Section 256(3) of the National Land Code was inserted by the
Legislature to enable the court to do justice - No order of sale would be allowed if
the court is satisfied with the existence of "a cause to the contrary".
 - In this case, the Court dismissed the appeal and expressed that the appellant’s default
to release the loan alone would be sufficient to dismiss its appeal, not to mention this
is coupled with the equity of the purchasers and the appellant's own unreasonable
conduct and attitude.

- The Federal Court interprets the term ‘existence of cause to the contrary’ under
Section 256(3) in a liberal and broad manner. The Court went beyond the discretion
stipulated, took into consideration unconscionable conduct and the interest of third
parties, and refused to grant the order of sale. Hence, to a large extent, it could not be
said that Section 256(3) was strictly construed and applied by the Court.

- Extended principle of ‘cause to the contrary’ considering many factors

Importance / impact of the case?

Cases applying the principle in Kheng Soon: -

1. Overseas Union Bank Limited v Lee Guat Cheow & Co Sdn Bhd [1987]

2. Co-Operative Central Bank Ltd v Meng Kuang Properties Bhd [1991]

a. “Although the judgement of the Federal Court (in Kheng Soon) had been
reversed when the matter went on appeal to the Privy Council, nonetheless the
construction which the Federal Court placed on the provisions of Section
256(3) had been acknowledged by the Privy Council.”

3. Malaysian International Merchant Bankers Bhd v Chi Liung Holdings Sdn Bhd [1992]

a. Lim Beng Choon J. explained that: -

“The principle laid down by the Federal Court regarding the scope of Section
256 has been upheld by the Privy Council when that case went on appeal to
the Privy Council…”