Witter Yee and Cedric Chan Yew provide a commentary on a decision by the Court of Appeal in
[2023] 2 MLJ 1. Counsel from Skrine, including Witter Yee and Cedric Chan Yew, represented the 3
Respondent (buyer). Our commentary on the High Court’s decision can be read
The facts of the High Court proceedings are accessible in our previous article. In short, this appeal concerns the fraudulent transfer of the Properties to the 2
nd Respondent (buyer) who was represented by the 3
rd and 4
th Respondents (buyer’s solicitors). Charges under the NLC were also created and registered against the Properties by the 2
nd Respondent in favour of Maybank.
The Appellants claimed that they had never met or dealt with the 2
nd Respondent, or sold or transferred the Properties to him. The Appellants then commenced legal action against the 1
st Respondent (a solicitor who purported to represent the Appellants), the 2
nd Respondent, the 3
rd and 4
th Respondents, the 5
th Respondent and the 6
th Respondent. The Appellants sought to set aside the transfers of the Properties, the charges created in favour of Maybank and for the loss and damage that they had suffered. The High Court ruled in favour of the Appellants and set aside the transfers of the Properties and also the charges in favour of Maybank. However, the Appellants’ claim against the 3
rd and 4
th Respondents and the 5
th Respondent were dismissed.
Dissatisfied with the High Court’s decision, the Appellants, the 2
nd Respondent and Maybank appealed to the Court of Appeal on the grounds stated earlier in this article.
The Court of Appeal’s Decision
The Court of Appeal (presided by YA Dato’ Has Zanah binti Mehat, YA Dato’ Hadhariah binti Syed Ismail and YA Dato’ Indera Mohd. Sofian bin Tan Sri Abd. Razak) unanimously dismissed all three appeals and affirmed the High Court’s decision. YA Dato' Hadhariah binti Syed Ismail held that the Court of Appeal “
find no merit in the appeal” and there was no need for appellate intervention in the High Court’s decision.
Appeal by the Appellants (Appeal No. 144)
In respect of the Appellants’ contention that the High Court had failed to consider the fraud committed by the 2
nd to 5
th Respondents and the 3
rd and 4
th Respondents’ breach of duty of care owed to the Appellants, the Court of Appeal in dismissing the appeal, agreed with the High Court that the Appellants did not know and had no dealings with the 2
nd to 5
th Respondents. Thus, it was impossible for the Appellants to prove fraud against the 2
nd to 5
th Respondents.
As for the allegations of breach of duty of care against the 3
rd and 4
th Respondents, the Court of Appeal found no reason to disturb the finding by the High Court that no duty of care was owed by the 3
rd and 4
th Respondents to the Appellants as there was no solicitor-client relationship between the 3
rd and 4
th Respondents and the Appellants, notwithstanding that the 3
rd Respondent had acted recklessly in attesting the signature of the 1
st Appellant on the memorandum of transfer (Form 14A, NLC) when the 3
rd Respondent did not actually witness the purported signing of the form by the 1
st Appellant.
Appeal by the 2nd Respondent (Appeal No. 104)
The Court of Appeal in holding that that
“there is no appealable error to warrant appellate intervention” and dismissing the 2
nd Respondent’s appeal, concurred with the High Court that section 340(2)(b) of the NLC expressly provides that forgery by itself is sufficient to make a registered title defeasible even though the proprietor or the transferee is not a party to the forgery. It affects the immediate purchaser even if he is an innocent purchaser for value.
Further, the Court of Appeal also agreed with the High Court that the Appellants as the true owners of the properties would have had the original titles to the Properties in their possession. As the Appellants did not sell the Properties, it was only logical to say the Appellants remained the true owners of the Properties. The Court of Appeal went further to state that even if it is true that the 2
nd Respondent had genuine titles, it does not change the fact that the transfer of the Properties never took place. Therefore, the 2
nd Respondent is an immediate purchaser of a title tainted with forgery and as such, the 2
nd Respondent acquired a title that is not indefeasible under section 340(2)(b) of the NLC. The bona fide of the immediate purchaser is not a shield of indefeasibility.
Appeal by the 6th Respondent (Appeal No. 145)
The Court of Appeal in dismissing Maybank’s appeal, held that a reasonable and prudent purchaser in Maybank’s position would have investigated as to what, why and how the Appellants had alleged there was a fraud. If Maybank had conducted an investigation, it would have discovered that the documentary evidence relied upon to effect the transfer of the Properties to the 2
nd Respondent were tainted with forgery.
However, Maybank proceeded to grant a loan to the 2
nd Respondent and create the NLC charges despite having actual knowledge of the dispute of ownership and the allegation of fraud of the Properties. Thus, the Court of Appeal held that Maybank's conduct excludes ‘
good faith’, which in the context of the
proviso to section 340(3) of the NLC does not simply mean absence of fraud, deceit or dishonesty, but includes a consideration of the following factors: (a) the requirement to act honestly, reasonably and fairly (
T Sivam a/l Tharamalingam (as representative/ administrator for the estate of Nagamuthu a/l Periasamy, deceased) v Public Bank Bhd [2018] 5 MLJ 711); (b) the knowledge of a dispute as to the ownership of property and knowledge of allegation of fraud that vitiates good faith (
T Sivam’s case (
supra)); and (c) elements of carelessness and negligence that negates good faith (
Au Meng Nam & Anor v Ung Yak Chew & Ors [2007] 5 MLJ 136.
Hence the Court of Appeal concluded that the High Court did not err in finding that Maybank was not a ‘
purchaser in good faith’ within the meaning of the
proviso to section 340(3) of the NLC in this case.
Comments
This Court of Appeal decision reiterates the principle laid down in the landmark case of
Pushpaleela a/p R Selvarajah & Anor v Rajamani d/o Meyappa Chettiar (and 2 Other Appeals) [2019] 2 AMR 442 where the Federal Court held that
a solicitor owes a duty of care to his client only and
the duty of care does not extend to non-client where the solicitor unknowingly represented the fraudster in a fraudulent transfer of land.
This Court of Appeal decision also highlights the risk that a buyer and a financier bank are exposed to in the event there is a fraudulent transfer of property and serves as a reminder to the buyer and also the financier bank to conduct comprehensive due diligence in property dealings to safeguard their interests over the property.
Case Note by Witter Yee (Senior Associate) and Cedric Chan Yew (Associate) of the Dispute Resolution (Banking and Finance) Practice of Skrine.