Introduction
This case posed the question of whether there can be a breach of contract when the actual size of the land purchased at a public auction, which was conducted in accordance with the provisions of the National Land Code (“
NLC”), does not correspond with the particulars as specified in the Proclamation of Sale (“
POS”). The short answer is, yes.
Background Facts
The Purchaser bought a piece of land in the public auction and executed the POS. Subsequent to the purchase, the Purchaser appointed a surveyor to inspect and determine the actual size of the land and discovered that the true size of the said land is less than what is stated in the POS.
Following this, the Purchaser commenced an action against the Bank, premised on the basis that the Bank’s failure to deliver the auctioned land as stated in the particulars of the POS amounts to a breach of contract. The Purchaser’s claim was dismissed at the High Court but subsequently allowed on appeal.
Initial Thoughts
Before delving into the judgment and the decision of the Courts, it is pertinent to note that the entire issue, rests upon this one question, i.e. whether there was a contractual relationship between the Purchaser and the Bank?
For the Purchaser to succeed in this claim, the Purchaser would need to establish that the Bank, in acting as a chargee, is also the vendor in this transaction, thereby establishing a vendor-purchaser contractual relationship. Flowing from this, a breach of contract by the Bank can be established when the Bank failed to deliver the piece of land to the Purchaser according to the specifications of the contract.
Dismissal of the claim by the High Court
The High Court dismissed the Purchaser’s claim as it held that no contract existed between the Purchaser and the Bank. The Court opined that the Chargee Bank, in exercising its statutory rights in a judicial sale by auction, cannot be regarded as a Vendor. Instead, the Vendor would be the High Court as it is the High Court who is carrying out the sale through the Registrar. Accordingly, there is no contractual relationship between the Purchaser and the Bank.
Notably, the High Court found that the description of the size of the land in the POS was not a representation, but merely sets out the particulars of the title for the land. Further, the High Court applied the doctrine of caveat emptor and held that since the Purchaser took the risk by purchasing the land on an ‘as is where is’ basis, the Purchaser should be estopped from claiming otherwise and that “
the purchaser is bound to view and inspect the land and make all searches at his own peril”.
Observations
The High Court decision vastly amplified the principle of ‘buyer beware’ in public auctions. Whilst the upside of the decision is that it absolves financial institutions from errors arising from a proclamation of sale, this leaves the purchasers with no real recourse in the event that the actual property purchased differs from its description in the proclamation of sale. This effectively leaves the purchasers with an extremely burdensome duty of having to inspect the land (beyond the standard valuation reports and land searches) before bidding.
Court of Appeal: The Turnaround
On appeal, the Court of Appeal held that there was a concluded contract between the Purchaser and the Bank. The Bank relied heavily on the case of
Ranjit Singh Jarnail Singh v. Malayan Banking Bhd [2015] 1 CLJ 908; [2016] 1 MLJ 165 (“
Ranjit Singh”) whereby the Federal Court held that a chargee bank could not be considered a vendor, as a public auction is merely a judicial sale conducted by the Court.
The Court of Appeal distinguished the case of
Ranjit Singh on the point that, the property was incapable of being transferred and registered to the purchaser due to the presence of a private caveat. Consequently, the order for sale was set aside and the judicial contract became null and void, thereby leading to the conclusion that there was no contract between the bank and purchaser. If the order for sale in
Ranjit Singh was not set aside, then the judicial contract would be valid, and there would have been a contract struck between the bank and the purchaser.
Therefore, the Court of Appeal held that, even in the situation of a forced sale pursuant to
Section 256 of NLC, the Bank, as the chargee, can be considered the vendor. In fact, the Court held that, “
…the Registrar/licensed auctioneer is selling the property as an agent of the chargee who is the real vendor.”
1 This means that, the Bank, being the chargee, was to be regarded as, the vendor. Hence, there was a concluded contract between the Purchaser and Bank as the order for sale and the conditions of sale constituted the sale and purchase agreement between the Bank and the Purchaser.
The Court of Appeal held that the POS showed the size of the said land as 94.76 hectares, and this formed an express term of the contract. Since the Purchaser only received a land measuring 81.9945 hectares and not the 94.76 hectares as stated in the POS, the ‘as is where is basis’ will not apply. The Court of Appeal also briefly dealt with the issue of caveat emptor and concluded that it was inapplicable in this instance as the purchaser had done the necessary searches and/or inspection of the land before bidding. Following their findings, the Court of Appeal accordingly ordered for the Bank to make compensation payments to the Purchaser (in the sum of RM16,165,681.80) for the reduced size of land received by the Purchaser. The computation of loss was made by way of pro-rating, i.e. by dividing the purchase price with the size of the land.
Comment
This case has a significant impact on the disposal of charged properties under the NLC. Whilst the auction sale of the property is carried out by the Court or the Land Administrator, the chargee is the vendor in the auction sale, and the proclamation of sale is a contract between the chargee and the purchaser. As such, there is a burden to ensure that the details and information of the property as stated in a proclamation of sale are complete and accurate, failing which the chargee may be sued for breach of contract and held liable for damages.
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