This case had remedied the interest of all registered proprietors by overruling the decision of Adorna Properties Sdn Bhd v Boonsom Boonyanit @ Sun Yoke Eng [2001] 1 MLJ 241.
Facts of the Case
The appellant (Tan Ying Hong) was the registered owner of a piece of land in Kuantan. The first respondent purporting to act under a power of attorney (PA) had executed two charges in favour of the third respondent (United Malayan Banking Corp) to secure two loans amounting to RM300,000.00 for the second respondent (Cini Timber Industries Sdn Bhd).
Appellant claimed that the PA was forged as he did not sign the PA. He became aware of the forgery when he received a notice of demand dated 9 March 1985 from the third respondent. He then filled a claim in the High Court seeking a declaration that the land charges were void, an order to remove the memorial of charges against the land from the register and the issue document of title and an order directing the third respondent to deliver up to him the issue document of title of his land. The High Court judge found that the appellant had never charged the land to the third respondent nor granted the power of attorney to the first respondent and therefore first respondent had no authority to charge the land to the third respondent. Thus, the registration of the appellant in the issue document of title was found to be obtained by fraud or forgery.
However, the High Court was bound by the decision in Adorna Properties Sdn Bhd v Boonsom Boonyanit @ Sun Yoke Eng [2001] 1 MLJ 241 (‘Adorna Properties’) which held that any purchaser in good faith for valuable consideration enjoyed immediate indefeasible title to the lands. This meant that the third respondent obtained an indefeasible title to the land despite the fact that it was obtained by fraud or forgery. Appellant’s appeal was dismissed by the Court of Appeal. Thus, the appellant appeal to the Federal Court.
Issue of the Case
whether section 340 of the National Land Code (‘NLC’) confers upon the registered proprietor or any person having registered interest in the land an immediate or deferred indefeasibility?
Judgment of the Case
It was held in Adorna Properties that by virtue of the proviso to sub-s (3) of s 340 of the NLC, any purchaser in good faith for valuable consideration is excluded from the application of the said provision. It follows, therefore, that this category of proprietors enjoys immediate indefeasible title to the lands.
Section 340 of the NLC introduced into our land law the concept of indefeasibility of title. It states:
“340 Registration to confer indefeasible title or interest, except in certain circumstances
(1) The title or interest of any person or body for the time being registered as proprietor of any land, or in whose name any lease, charge or easement is for the time being registered, shall, subject to the following provisions of this section, be indefeasible.
(2) The title or interest of any such person or body shall not be indefeasible —
(a) in any case of fraud or misrepresentation to which the person or body, or any agent of the person or body, was a party or privy; or
(b) where registration was obtained by forgery, or by means of an insufficient or void instrument; or
(c) where the title or interest was unlawfully acquired by the person or body in the purported exercise of any power or authority conferred by any written law.
(3) Where the title or interest of any person or body is defeasible by reason of any of the circumstances specified in sub-section (2) —
(a) it shall be liable to be set aside in the hands of any person or body to whom it may subsequently be transferred; and
(b) any interest subsequently granted thereout shall be liable to be set aside in the hands of any person or body in whom it is for the time being vested.
Provided that nothing in this subsection shall affect any title or interest acquired by any purchaser in good faith and for valuable consideration, or by any person
or body claiming through or under such a purchaser.”
Indefeasibility is defined by the Privy Council in Frazer v Walker & Ors [1967] 1 AC 569 as below:
“The expression not used in the Act itself, is a convenient description of the immunity from attack by adverse claim to the land or interest in respect of which he is registered, which a registered proprietor enjoys. This conception is central in the system of registration. It does not involve that the registered proprietor is protected against any claim whatsoever; as will be seen later, there are provisions by which the entry on which he relies may be cancelled or corrected, or he may be exposed to claims in personam. These are matters not to be overlooked when a total description of his rights is required. But as registered proprietor, and while he remains such, no adverse claim (except as specifically admitted) may be brought against him.”
The Court held that immediate indefeasibility means that the immediate registered title or interest of the proprietor or transferee immediately to the vitiating circumstances (i.e. void instrument) will be conferred statutory protection despite the existence of any vitiating circumstances. In the case of deferred indefeasibility, the indefeasibility only comes to be attached to the title or interest upon a subsequent transfer. Thus, the difference between immediate and deferred indefeasibility hinges on the effect of registration of the title or interest.
Before the Federal Court’s decision of Adorna Properties, the prevailing view was that section 340 of the NLC confers deferred indefeasibility. This was confirmed by the Federal Court in Mohammad bin Buyong v Pemungut Hasil Tanah Gombak & Ors [1982] 2 MLJ 53 and is further reinforced by the Supreme Court’s decision in M & J Frozen Food Sdn Bhd & Anor v Siland Sdn Bhd & Anor [1994] 1 MLJ 294. It was then held by the Supreme Court that held that indefeasibility can be rebutted not only by fraud but also in cases where registration is obtained by the use of an insufficient or void instrument or where the title or interest is unlawfully acquired.
Adorna Properties was followed even though reluctantly by a number of subsequent cases. Academic writers also criticise Adorna Properties to be wrongly decided on the issue of indefeasibility and had created uncertainty of title for landowners.
The Federal Court held that it is trite law that this court may depart from its earlier decision if the former decision sought to be overruled is wrong, uncertain, unjust or outmoded or obsolete in the modern conditions. (Dalip Bhagwan Singh v Public Prosecutor [1998] 1 MLJ 1)
The Court then considers the reasons for the decision in Adorna Properties. In this case, the Court held that the appellant, a bona fide purchaser for valuable consideration without notice, acquired an indefeasible title to the land by virtue of section 340(3) of the NLC. The reason behind this decision is the effect given to the proviso immediately after subsection (3). It was held that the proviso is applicable to other provisions of section 340, in particular to subsection (2)(b).
The Court in this current case are of the view that the proviso is directed towards the provision of subsection (3) alone and not earlier subsection. This view is supported by the use of the words ‘in this subsection’ in the proviso. Furthermore, even though subsection (3) refers to the circumstances in subsection (2), it is restricted to subsequent transfer or to interest in the land subsequently granted. it could not apply to the immediate transferee of any title or interest in any land. Hence, the proviso ought not to be extended as was done in Adorna Properties to apply to subsection (2)(b).
From the above reason, the Court held that Adorna Properties had misinterpreted section 340(1), (2) and (3) of the NLC and gave recognition to the concept of immediate indefeasibility.
Based on the facts, the two charges registered in favour of the third respondent were based on void instruments as it was not executed by the appellant or under his authority. Thus, the charges are liable to be set aside under section 340(2)(b). the third respondent being an immediate holder of these charges could not take advantage of the proviso to subsection (3) of section 340. The Federal Court allowed this appeal.
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