SECURITY DEALING

LIEN

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 Definition of Lien
• Halsbury Laws of England in Vol.19, at
p.2 defined lien as
• “Lien in its primary sense is a right in
one man to retain that, which is in his
possession belonging to another man
until certain demands of the person in
possession are satisfied.”

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• This definition was cited and accepted
by the court in
– Palaniappa Chetty v Dupire Brothers
FMSLR 370.
– the meaning of lien is derived through
French from Latin that is ligo, ligamen is
that of binding or tying or securing
something.

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Characteristics of Lien
• a. Lien is an exception to the general
principles of registration of title because a
lien is a dealing that gives rise to a non-
registrable interest. (s.206(2)(b) NLC)
• b. There is no special instrument (Statutory
Form) to create a lien.
• c. In order for a lien to be recognised under
NLC, the lien-holder must enter a lien-
holder’s caveat to restrain other dealings on
the land.
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Why Lien
• a. For the purpose of enabling businessmen
to raise money on loan speedily.
• b. A lien can be created faster than a
registered charge and cheaper.
• c. The creation of a registered charge
requires several procedures.
• d. To create a lien, a lien-holder just needs
to fill in Form 19D and lodge it at Land
Office.
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 Power to create Lien - S.281 NLC

• “Any proprietor or lessee for the time being may

deposit with any other person or body as
security for a loan, his issue document of title or
duplicate lease.”

Who can create Lien

Registered proprietor
Lessee
Co-proprietor
Subject Matter of Lien
Land
Interest in Lease
Undivided share in land - S.343(6) NLC
s.343(3) and 343(6) – can
• S 343(3) a co-proprietor may apply for a copy of the IDT
• S 343(6) a co-proprietor may use the copy for the purpose of
transfer, charge, or creating a lien under s 281 in respect of6 his
undivided share.
Who can be a Lien Holder
• Persons listed in S.43 NLC
• These are persons to whom the state
authority can alienate land, usually a bank or
a financial institution.
• Previously a non-citizen and foreign
companies are prevented from transacting in
land in Malaysia
• Restriction imposed by S.433B ceased to
apply by virtue of S.3 NLC Amendment
(No.2) Act 1965 which came into force on
12th September 1985
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 Status of Lien -
Unregistrable
• A lien is a dealing which gives rise to non-
registerable interest.
– S.206(2)(b) NLC
• The nature of the interest is treated as being an
'equitable' charge where the lender obtains the
right to retain IDT, copy issue document of title
issued under s 343(3), or duplicate lease to secure
repayment of a loan.
• Lien is a consensual, possessory transaction
– it is not a lien created by common law or equity as a
consequence of the prior actions of borrower.
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Essential characteristics of a lien

• 1) Deposit of issue document of title or

duplicate lease with the lender as
security for loan
• 2) Intention to create a lien
• 3)Lodgement or entry of a Lien-
Holder’s Caveat

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• Deposit of IDT/ duplicate lease with
lender as security for loan
• Element of deposit of idt is important.
• The lien will only be considered not in
existence if the depositee or lien
holder returns the issue document of
title upon full and final settlement of
the loan

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 Temporary Parting of Title
• Manikavasagam Chetty v TJ McGregor (1933) MLJ 295.
• Dispute - depositee had parted possession of the issue
document of title.
• Court - that depositee had parted possession of issue
document of title or duplicate lease for some intention other
than that of giving up the lien would not cause the lien to be
lost.
• lien is not lost when possession of the issue document of title
is given up 'in cases where [there is] some intention other
than that of giving up the lien', such as surrendering it to the
collector of land revenue for sub-division purposes.

•
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• Perwira Habib Bank (M) Berhad v Loo & Sons
Realty Sdn. Bhd.(No.1) [1996] 3 MLJ 409.
• only registered proprietor or lessee can
deposit issue document of title or duplicate
lease with a creditor with the intention of
creating a lien.
• A third party (someone other than registered
proprietor or lessee) with whom a title has
been deposited with for safe keeping cannot
use it to create a lien in his name.
•  
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• If a caveat is entered by a third party
to secure his lien, such a caveat is not
valid and enforceable and as such can
be removed by the registrar pursuant
to provisions of s. 331(4)(a) NLC.
• Perwira Habib Bank (M) Berhad v Loo
& Sons Realty Sdn. Bhd. (No.2) [1996]
3 MLJ 421.

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 Nallamal v Karuppanan
1st Pf. And 2nd Pf. are wife and husband aged 64 and 71 respectively. Ist P was
illiterate whilst the 2nd Pf. could only read and write in Tamil. 1st Pf. Is registered
prop. of the land.
Feb. 1977 – 1st Df. went to the Pf.’s house and asked to borrow the document of
title. He said he required it to secure a contract job. After being persuaded by her
husband, the 1st Pf. handed over the title to 1st Df. to be returned in 1 or 2 months.
2 years later, 1st Df. went to see 1st Pf. And brought with him a letter for 1st Pf. to
affix her thumbprint. Unknown to 1st Pf. this was a letter from herself authorising
Bank Buruh to lodge a LH caveat on her land. Not aware of the effect of the
document, 1st Pf. thumbprinted it. When 1st Pf. asked for the title to be returned, 1st
Df. told Pfs. that he had handed it to Bank Buruh as security for a loan.
Pfs. sued Df. and Bank Buruh and alleged fraud in obtaining the title.
1) 1st Df. did defraud Pf.’s to get the title and hence Bank Buruh cannot enforce the
security agst the 1st Pf.
2) title was wrongfully taken by the 1st Df. to create a lien and the LH caveat was
wrongfully lodged.

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Third party depositing title

• Can a third party do the act of depositing of

IDT?
• Hong Leong Bank v Staghorn Sdn Bhd and
other appeals [2008] 2 MLJ 622 FC -3rd
party can perform the act of depositing the
IDT as long as he does so upon the
instruction/authorization from the landowner
• Will be in line with s.281 – there is a lien

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 Can a lien be created in respect of a
loan to a 3rd party?

• Hong Leong Bank Berhad v Staghorn S/B and Or. Appeal , whether ss.
281(1) and s.330 NLC envisage that a registered prop. of land may deposit
his IDT as security for a loan to a 3rd party?

• Whether the judgment to be obtained under s.281(2) NLC is a judgment to be

obtained against the borrower of the loan or against the registered prop. of the
land?

• 1) S. 281(1) NLC speaks of the registered proprietor depositing his IDT ‘as
security for a loan’ but does not specify the borrower and neither does it
restrict the loan to a loan to the registered prop. The loan may be a loan to a
3rd party. Where the loan is to a 3rd party, the judgment in s.281(2) must be
agst such 3rd party.

• 2)The registered proprietor need not deposit the title himself. He may
authorise or instruct the actual depositing to be done by someone else.
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Intention to create Lien
• Paramoo v Zeno Ltd (1968) 2 MLJ 230.
• Intention to deposit the issue document of title
or duplicate lease with the lender as a security
for the loan and for not other purpose.

• Raja Azlan Shah J (as he then was) in Zeno v

Prefabricated Construction Co (Malaya) Ltd
[1967] 2 MLJ 104 at p 106,
– the intention to create a lien may be inferred from
the relevant circumstances of the case.

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• Palaniappa Chetty v Dupire
Brothers(1922) 1 FMSLR 370 at p 374,
Ernshaw JC
• existence of a loan contract under
which the lender was entitled to
possession of issue documents of title
gave rise to the presumption that the
deposit was made by the borrower with
the intention to create a lien.
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 Intention to create Lien
• Perwira Habib Bank M’sia Bhd. v Tin Siang S/B
• Issue: Whether a financier is entitled to a lien once the title is deposited?
• 2nd Df had stood as guarantor for loan granted to the 1st Df. And as security,
had deposited with the Pf. The document of title of a piece of land. 1st Df.
defaulted in the loan and judgment ws entered agst the 2nd Def. as guarantor.
P applied for an order for sale of the land under s.281(2) NLC.
• 2nd Df. opposed on the ground that there was no agreement btwn the parties
that a LH caveat be entered. As the 2nd Df. had deposited the title as security
for the loan, the Pf. is entitled to a lien under s.281(2) of the NLC.
• i. Implication?
• There is no necessity for express consent of the title depositor for a lien-
holder’s caveat to be entered.
• HOWEVER: If the express consent of the title depositor is not needed to lodge
a valid lien-holder’s caveat, how do we guard against ‘fraud’ in creation of the
security?

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Lodgment or Entry of Lien-Holders Caveat

• S.281 NLC - a lien may be created over the

land or an undivided share or lease.
• Lien takes effect after entry of lien holders
caveat - S.281 (a)(b) & S.330 NLC in order
to render the land, lease or the undivided
share liable as a security for the loan
advanced by the lender
• Entry of Lien Holders caveat protects the interest of the
Lender in respect of the land, undivided share or the lease in
that it will prohibit any further dealings with the said land

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 Failure to Caveat Land
• General Principle
It has long been held that the failure
to caveat, or caveat timeously,
does not destroy the priority the
lien-holder has automatically from
retention of IDT or duplicate
lease.

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• UMBC Bhd v Goh Tuan Laye [1976] 1
MLJ 169 at p.170, where Suffian LP
noted that '_ possession of the title
gives them an equitable interest in the
land, which is not affected by the
absence of a lien-holder's] caveat, as a
[lien-holder's] caveat in itself does not
create an interest but merely gives
notice to the world of the presence of
an interest belonging to someone other
than the registered proprietor'.

• See Vallipuram Sivaguru v Palaniappa

Chetty [1937] MLJ 59.
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• Standard Chartered Bank v Yap Sing
Yoke & Ors [1989] 2 MLJ 49, Lamin J
reviewed the authorities and agreed
that the caveat could be entered at any
time. He added that the lien-holder
would not be negligent in failing to
caveat prior to the application to caveat
by the competing interest holder so
long as the lien-holder did not part with
possession of the title, his interest was
in effect inviolate.

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• Mercantile Bank Ltd v The Official Assignee of
the Property of How Han Teh [1969] 2 MLJ 196
that failure to enter a lien-holder's caveat will
not deprive a lender of an equitable right to a
lien, unless there were express words to the
contrary in the Code. In the view of Raja Azlan
Shah J (as he then was) (at p 197):
     ... registration of the caveat is still an
essential ingredient for a valid statutory lien
and unless there are express words in the Act, 
this court is not precluded from giving effect to
equitable rights existing between the parties.

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Creation of Subsequent Lien

• As the issue document of title must be

deposited with the lender before a lien
can be created, it appears that only
one lien can be created over the
property.

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Remedies on Default-s.281(2)

• Order for Sale by way of public auction

• Person entitled to a lien under the NLC
must first obtain judgment for amount
due to him.
• Then can apply to court for order for
sale

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 Judgement before Enforcing LHC
• Wong Kok Leong and Another v RHB Bank Berhad [2014] 1
LNS 1092 
• Respondent’s application was dismissed by High Court as it had not
obtained a judgment against Appellants before enforcing lien-holder’s
caveats, as required under section 281(2) NLC which provides that
– “Where the holder of any lien has obtained judgment for the amount
due to him thereunder, he shall be entitled to apply to the Court for, and
obtain forthwith, an order for the sale of the land or lease.”
– Court emphasized on the need for Respondent to comply with section
281 NLC to crystallise its cause of action by filing a suit and obtaining a
judgment against Appellants before commencing foreclosure
proceedings as provided in the same section.
– If Respondent failed to do so, and limitation period had set in, section
331 NLC would apply and enable Court to grant various reliefs to an
aggrieved party, including an order that the lien-holder’s caveat be
cancelled.
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• Alagappa Chetty v Periyanayagam (1908)
Innes 117
• Cheong Kam v Loke Chow Tye (1924)
FMSLR 294

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 Foreclosure Proceedings
• Where any land or lease subject to LHC
is sold pursuant to Court Order made by
– s 281(2)
• (a) any certificate of sale presented for
registration by purchaser will be deemed
to have been presented with consent of
LHC
• (b) upon registration of certificate, LHC
will lapse & entry be cancelled
accordingly by Registrar
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•  RHB Bank Bhd v. Wong Kok Leong & Wong Kok Sun
& Anor [2017] 6 CLJ 1 FC:
• In this case, plaintiffs are contending that they are
entitled to have the lien-holder’s caveats removed
because the defendant would be barred by limitation
should it seek to recover the outstanding amount of
the loan by enforcing its rights under the lien-holder’s
caveats.

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Importance of taking action on time

• Limitation Act 1953’s main purpose explained by

Federal Court in  Credit Corp. (M) Bhd. v. Fong Tak
Sin [1991] 1 CLJ Rep 69 as follows:
– a. on a presumption that a right not exercised for a long time is
non-existent; and
– b. that it is necessary that matters of right in general should
not be left too long in a state of uncertainty or doubt or
suspense.
– c. the limitation law is promulgated with the primary object of
discouraging plaintiffs from sleeping on their actions and more
importantly, to have a definite end to litigation.
•

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 Repayment of Loan

• (3) Registrar can cancel any LHC

on proof to his satisfaction that
all sums due under LIEN have been
fully paid.

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cancellation of LHC 331(4)NLC
• (4) Where Court is satisfied that any
LHC cannot have been entered, or ought
to have been withdrawn, can order:
– (a) cancellation by Registrar, and
– (b) if entry or failure to withdraw has
caused damage or loss to any person or body,
payment of compensation by person or body
at who entered LHC or who failed to
withdraw LHC

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 Difference between Charge & Lien

• To create a charge, • To create a lien, no

Form 16A must be registration form.
registered. • Lien- holder must lodge
• Creation of a statutory a lien-holder’s caveat in
charge is time Form 19D.
consuming and • Remedy for a lien-holder
expensive. is to prove the debt in a
• Remedy of a chargee is civil action, then get
order for sale.
to apply for an order for
sale or possession. • Creation of a lien is
speedy
•
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Non-judicial auction
• The second type is not regulated by any legislation and
applies to a property for which no title has been issued. This
is usually the case for flats, apartments or condominiums.
• Since there is no title, no charge can be created under the
NLC.
• As security for a loan, the purchaser/ borrower will absolutely
assign the rights over the property to the bank.

• When he defaults in his repayment, the bank is contractually

entitled to sell the property by way of a public auction, without
having to apply for an order for sale.

• This second type is often referred to as a non-judicial auction.

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 Pitfalls of Non-judicial sale

• pitfalls that may be faced by a successful bidder in a non-judicial

auction (the purchaser), as the minimum statutory provisions
regulating a judicial auction do not apply to a non-judicial auction.

• Bank determines the reserve price and appoints a licensed

auctioneer who will issue a Proclamation of Sale.

• The auction will be held under the auspices of the bank's solicitors
and the auctioneer.

• Everything will be contractual and understanding such contractual

obligations and liabilities of the purchaser is of paramount
importance.

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 Proclamation

First thing an intending bidder at a non-judicial auction

needs to do is to get his hands on a copy of the
Proclamation and Conditions of Sale (the
Proclamation).
There will be a fine print that says something like
“intending bidders are advised to inspect the property,
seek legal advice, conduct a land search and make
enquiries with the developer of the property on the
terms of its consent to the sale.”
Here lies the main problem, as most intending bidders
do not bother to do so, until after they have
successfully bid for the property.
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Time for payment
The purchaser is usually required to pay 10% of the
purchase price immediately after the fall of the
hammer.

Some Proclamations stipulate 90 days for payment

of the balance, others stipulate 120 days.

Some Proclamations also state that no extension of

time will be allowed, others will say that extension
may be granted at the absolute discretion of the
bank, and if so granted will be subject to payment of
interest.

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 Cont…
• In a case of property without title, 90 or 120 days is
usually sufficient time if the purchaser is paying in cash.

• If a loan is required, the 90 or 120 days may not be

sufficient, as the conveyancing procedure is extremely
cumbersome, with lots of exchange of undertakings.

• If the property is a low cost flat, 120 days is definitely

insufficient, as the purchaser will be required to apply for
consent of the appropriate authority, which usually takes
more than 90 days to be obtained.

• Having to pay interest for an extension will be an

additional cost.
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Developer's consent
• If the title has not been issued, the developer's
consent is important so that when the title is finally
issued, the developer will know who should receive
the transfer.

• Nearly all Proclamations stipulate that it is the

purchaser's responsibility to obtain the developer's
consent and to pay any fee charged by the
developer. In some cases, the developer may
appoint a solicitor to handle the consent, and the
purchaser may be liable to pay the said solicitor's
fees.

• Such fees will be an additional cost.

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 Outstanding service charges, quit rent,
assessment and other outgoings
• Developers do not usually grant its consent unless all outstanding
service charges are settled.

• Some Proclamations are quite fair in that any arrears of service

charges, quit rent and assessment up to the date of sale shall be
paid out of the purchase money.

• Many Proclamations stipulate that arrears of service charges and

utilities bills (water, electricity and sewerage) shall be borne by
the purchaser.

• A purchaser successfully bid for a property at RM128,000, and

surprised to receive bill for outstanding service charges about
RM40,000.

• These outgoings will be an additional cost.

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Fees payable to bank's
solicitors

• When the balance purchase price is paid,

the bank will sign a deed of assignment in
favour of the purchaser.

• Most Proclamations will require the

purchaser to pay the fees of the bank's
solicitors for vetting or preparing the
assignment and this will be another
additional cost.
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 Vacant possession
• Most important of all, a bidder really needs to know
whether the property is vacant or occupied.
• Proclamations of Sale very often stipulate that the bank
has no obligation to give vacant possession and that the
Purchaser shall take possession at his own cost.
• In many cases, a bidder would not be able to inspect the
property as the main door would be locked. Once inside
the property, he may find that someone is occupying it as a
tenant. Having to pay for a new lock or a new door or
several other locks and doors, and having to initiate
eviction proceedings to obtain possession from the
occupant, can be a very substantial additional cost.

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