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Federal Court decides on whether a successful bidder at an auction sale under the National Land Code 1965 must recognise the interest of a person not registered against the title to the land

16 December 2021

Key Contacts:
 
Leong-Wai-Hong-web.jpg Karen-Tan.jpg Tommy-Lim.jpg Quek-Jian-Long.jpg
Leong Wai Hong Karen Tan Tommy Lim Quek Jian Long
 
 
“It is trite that land law in Malaysia is based on title and interest by registration which is derived from the Torrens System. There are two fundamental principles of the Torrens System... The mirror principle portrays a concept in which the land title mirrors all relevant and material details that a… purchaser…ought to know. This mean that a person can obtain all such material information of the land, based on what is endorsed on the register document of title... On the other hand, the curtain principle is a concept that dispenses with the need to look beyond the register…”
 -    Per Mohd Zawawi bin Salleh FCJ 
Leong Wai Hong and Karen Tan provide a commentary on a recent Federal Court’s decision in Bayangan Sepadu Sdn Bhd v Jabatan Pengairan dan Saliran Negeri Selangor & 2 Others1. Leong Wai Hong (assisted by Richard Kok, Karen Tan, Tan Ko Xin, Tommy Lim and Quek Jian Long) successfully represented the appellant, Bayangan Sepadu Sdn Bhd.
 
The Federal Court (comprising Mohd Zawawi bin Salleh FCJ, Nallini Pathmanathan FCJ and Zabariah binti Mohd. Yusof FCJ) in a unanimous decision allowed an appeal by the successful bidder of a land and affirmed the decision of the minority of the Court of Appeal below. The Federal Court held that a successful bidder at an auction sale under the NLC 1965 obtains an indefeasible title which defeats the interest of a person not registered.
 
Key Points

  1. A register document of title is conclusive evidence of ownership which confers an indefeasibility title or interest to the registered proprietor that defeats all unregistered claims by virtue of sections 89 and 340 of the NLC 1965. The register is everything under the Torrens System.

  2. A successful bidder at a public auction conducted under the NLC 1965 obtains an indefeasible title.

  3. The Latin legal maxim caveat emptor (“let the buyer beware”) will not assist parties who do not have rights, title, interest and/or benefit registered in the register of document of the property.

  4. A surrender of any private land must be made in accordance with the procedures under sections 196, 200 and 201 of the NLC 1965. In particular, the written consent of the chargee must be obtained under sections 196(1)(c) read with 196(2)(a) of the NLC 1965.

  5. Limitation period has no role to play in the Torrens System under section 341 of the NLC 1965. An adverse possession of land by a person or a state corporation for any length of time does not extinguish the indefeasible title of a registered proprietor and shall not constitute a bar to the bringing of any action by the registered proprietor for the recovery thereof. 
Brief Facts
 
The dispute between the appellant and the Selangor State Authority was pertaining to the ownership of a retention pond and structures built on Lot PT 18903, HS(M) 20109, Mukim Klang, Tempat Bukit Kemuning, Daerah Klang (“Subject Land”). The Subject Land was previously jointly owned by Newacres Sdn Bhd and Bumi-Murni Sdn Bhd (“Previous Owners”).
 
In March 2011, the Subject Land was purchased by the appellant for RM3.66 million through a public auction. The public auction was held by the chargee, CIMB Bank Berhad (“CIMB”) after the Previous Owners defaulted in their loans.
 
Prior to the public auction, the appellant conducted land searches on the Subject Land at the Land Office. The result of the searches revealed that there was no encumbrance endorsed on the register document of title.
 
After the public auction, the appellant engaged a licensed land surveyor to conduct a survey on the Subject Land. It was revealed that there is a retention pond and other permanent structures constructed by the Selangor State Authority. The appellant again conducted several land searches and confirmed that the Selangor State Authority’s interest was not registered in the register document of title.
 
The appellant then sent letters to the Selangor State Authority requesting for information and documents to ascertain if there was any acquisition of the Subject Land, but no response was received.
 
High Court
 
The appellant filed a civil suit against the Selangor State Authority, seeking for an injunction to restrain the Selangor State Authority from trespassing the Subject Land, an order that the Subject Land be restored, an order that the Selangor State Authority pay damages for trespass, interest, and costs.
The Selangor State Authority alleged that the Previous Owners had surrendered the Subject Land to them. The Selangor State Authority filed a counterclaim seeking a declaration that the Subject Land belonged to the State of Selangor and an order that the appellant pay damages and construction cost of the retention pond and structures.
 
The High Court dismissed the appellant’s suit with costs and allowed the Selangor State Authority’s counterclaim, with damages to be assessed.  
 
Court of Appeal2
 
During the hearing, the appellant agreed to confine its claim to damages. The majority of the Court of Appeal affirmed the decision of the High Court which had dismissed the appellant’s suit. With regards to the counterclaim, the majority set aside the High Court’s award of damages but affirmed the High Court’s order declaring that the Subject Land is owned by the Selangor State Government.
 
Justice Lee Swee Seng JCA wrote a dissenting judgment. His Lordship allowed the appellant’s appeal and held that the appellant’s title prevails over the unregistered interest of the Selangor State Authority, and the retention pond and structures on the Subject Land constitute a trespass by the Selangor State Authority. The damages for trespass or alternatively compensation was ordered to be paid by the Selangor State Authority to the appellant.
 
Federal Court
 
The appellant obtained leave to appeal to the Federal Court on the following two questions of law:-

  1. (Assuming Subject Land Lot 18903 was the agreed lot to be surrendered to Majlis Perbandaran Shah Alam which is denied) Whether the right of the Plaintiff as the registered owner under sections 89 (Conclusiveness of register documents of title) and 340 of the NLC (Registration to confer indefeasible title) can be defeated by a promise to surrender the said property made by the Previous Owners (“1st Leave Question”); and

  2. (Assuming Subject Land Lot 18903 was the agreed lot to be surrendered to Majlis Perbandaran Shah Alam which is denied) Whether there was a valid surrender of the Lot under section 196(1)(c) read with section 196(2)(a) of the NLC 1965 when the consent of the chargee had not been obtained” (“2nd Leave Question”).
1st Leave Question
 
The Federal Court answered the 1st Leave Question in the negative. Mohd Zawawi bin Salleh FCJ held:-

  1. “It is pertinent to note that the principle of indefeasibility of title is one the main features and attributes of the Torrens system of conveyance. It involves the proposition that once a person is registered as proprietor of certain land or interest in the land, he or she acquires a title that cannot be vitiated except as provided under section 340 of the NLC 1965…”
  1. “In the premises, we agree with the submission of learned counsel for the appellant that a successful bidder at a public auction conducted under the NLC 1965 obtains an indefeasible title to the subject property and the unregistered interest is not protected under the NLC 1965. Every dealing or transaction of a land by a party whose interest is unregistered in the register of document cannot defeat the title of the registered proprietor” 
2nd Leave Question
 
The Federal Court also answered the 2nd Leave Question in the negative. Mohd Zawawi bin Salleh FCJ held:-  

  1. “We would like to emphasise that the surrender of any private land must be made with consent of both the registered proprietor and the State Authority and must be complied with the relevant statutory provisions of the NLC 1965. We venture to say that these provisions are made for the purpose of safeguarding the interest of the registered proprietor. Where the procedures as stipulated by the provisions of the NLC 1965 are not adhered to, grave doubts are cast on the validity and/or legality of the surrender. In the absence of the consent of CIMB/chargee and by merely relying on the documents and/or letters produced by the respondents…it cannot be assumed that all mandatory requirements under the provisions of NLC 1965 had been adhered to when the State Authority gave its consent for the transfer.”

  2. “In the premises and consistent with the Torrens System that registration is everything, coupled with the fact that neither the Previous Owners nor the MBSA attempted to legalise the surrender pursuant to the procedure and provisions under the NLC 1965, the 2nd leave question must be answered in the negative”.
 Comment
 
This decision of the Federal Court is significant as it conclusively determines that a successful bidder at a public auction obtains an indefeasible title to the land which prevails over all unregistered interests.
 
This decision also finally puts to rest the uncertainty that arose from the decision of the majority of the Court of Appeal below which held that an unregistered interest defeats the title of the successful bidder on the basis of an alleged promise made by the previous proprietors to the state.
 
Key Contacts
 
 
1 See the Grounds of Judgment here.
2 See the majority and minority grounds of the Court of Appeal (which is reported as Bayangan Sepadu Sdn Bhd v Jabatan Pengairan dan Saliran Negeri Selangor & Ors [2021] 1 MLJ 322) here.
 

This alert contains general information only. It does not constitute legal advice nor an expression of legal opinion and should not be relied upon as such. For further information, kindly contact skrine@skrine.com.

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