Iris Tang explains the landmark decision on section 214A of the National Land Code 1965
 
On 10 October 2018, the Federal Court delivered its grounds of judgment in Gula Perak Berhad v Datuk Lim Sue Beng & Other Appeals [2018] 1 LNS 1617 (collectively “Appeals”). The Appeals relate to six appeals which were heard together and emanated from an application by the liquidators of Gula Perak Berhad (“Gula Perak”) for the sanction of the Shah Alam High Court in Companies Winding-up No.: MT-FLJC-28-81-2011 (“Winding-up Court”) to enter into a compromise arrangement with Faithmont Estate Sdn Bhd (“Faithmont”) and AmBank (M) Berhad (“AmBank”) to complete the sale and purchase transaction of a piece of estate land.
 
The Federal Court, by a 3:2 decision, held that a conditional agreement involving the sale and purchase of an estate land which contains a condition precedent that the said agreement is subject to the approval of the Estate Land Board does not contravene section 214A(1) of the National Land Code (“NLC”) and is therefore not null and void.
 
Central to the Appeals is the interpretation to be given to section 214A(1) of the NLC which provides, inter alia, that no estate land is capable of being transferred, conveyed or disposed of in any manner whatsoever, unless approval of such transfer, conveyance or disposal has first been obtained from the Estate Land Board.
 
BRIEF BACKGROUND FACTS
 
Gula Perak was the registered proprietor of an oil palm plantation in Perak Darul Ridzuan (“Property”). The Property was charged and subsequently assigned to AmBank as security for bonds issued by Gula Perak in favour of AmBank.
 
On 28 October 2005, Gula Perak and Faithmont entered into an agreement (“SPA”) whereby Gula Perak agreed to sell and Faithmont agreed to purchase the Property for RM19 million. As the Property comprised estate land, the SPA was expressly made subject to, inter alia, the fulfilment of a condition precedent that Gula Perak was to obtain the Estate Land Board approval pursuant to section 214A of the NLC before transferring the Property to Faithmont. However, Gula Perak failed to apply for the Estate Land Board approval.
 
On 25 March 2010, Faithmont sought specific performance of the SPA against Gula Perak (“the 636 Suit”) and commenced another action against AmBank wherein Faithmont claimed, inter alia, that AmBank was not a registered chargee of the Property and sought various declaratory reliefs and damages (“the 438 Suit”).
 
Gula Perak was wound up on 1 March 2013 and liquidators were appointed.
 
The 636 Suit and the 438 Suit were subsequently consolidated (“the Suit”). In the midst of the trial, the dispute was successfully mediated and the parties agreed to settle the Suit on terms of a proposed consent order (“Compromise”) subject to the sanction of the Winding-up Court, as Gula Perak was already in liquidation. One of the salient terms of the Compromise was for Gula Perak to submit an application to the Estate Land Board for approval to transfer the Property to Faithmont.
 
DECISION OF THE WINDING-UP COURT
 
On 19 June 2015, Gula Perak filed an application in the Winding-up Court to obtain sanction for the Compromise (“Application”). The Application was opposed by Yakin Tenggara Sdn Bhd (“Yakin Tenggara”), a contributory of Gula Perak, and Lim Sue Beng (“LSB”), an unsecured creditor of Gula Perak. In resisting the Application, both Yakin Tenggara and LSB contended, among others, that the Compromise was made without the prior approval of the Estate Land Board and was therefore illegal pursuant to sections 214A(1) and 214A(10A) of the NLC.
 
The Application was allowed by the Winding-up Court which held that the Compromise, which was essentially a conditional contract, was not prohibited under sections 214A(1) and 214A(10A) of the NLC. As the Winding-up Court had sanctioned the Compromise, the parties went back to the trial judge and recorded a Consent Order on 11 November 2015 (“Consent Order”) to resolve the Suit.
 
Thereafter, the liquidators of Gula Perak forwarded to Faithmont executed application forms for the State Authority approval and the Estate Land Board approval, as well as the transfer form on 16 November 2015.  Faithmont submitted the applications for the relevant approvals and obtained the approvals of the State Authority and the Estate Land Board on 20 November 2015 and 29 February 2016 respectively, and the sale of the Property was completed on 23 March 2016.
 
DECISION OF THE COURT OF APPEAL
 
Dissatisfied with the Winding-up Court’s decision, Yakin Tenggara and LSB appealed to the Court of Appeal on 3 December 2015. On 3 January 2017, the Court of Appeal allowed both appeals on the ground that the SPA, which was executed by Gula Perak and Faithmont prior to obtaining the Estate Land Board approval, contravened section 214A(1) of the NLC. Therefore, the Court of Appeal set aside the Winding-up Court’s decision and ordered the parties to be reinstated to their original positions before the Consent Order.
 
According to the Court of Appeal, the legislative intent behind section 214A(1) of the NLC is to prohibit the transfer, conveyance and disposal of estate land “in any manner whatsoever” without first obtaining the approval of the Estate Land Board. The Court of Appeal took the view that although no actual “transfer” took place at the time of the Compromise, the common intention between parties was to circumvent the strict requirement of section 214A(1) by dealing with estate land without the prior approval of the Estate Land Board.
 
The Court of Appeal agreed with an earlier decision of the Court of Appeal in Tai Thong Flower Nursery Sdn Bhd v Master Pyrodor Sdn Bhd [2014] 9 CLJ 74 (“Tai Thong”) where it was held that the approval of the Estate Land Board is to be obtained before the execution of the agreement by which the land would be conveyed and transferred.
 
DECISION OF THE FEDERAL COURT
 
Leave to Appeal
 
Thereafter, Gula Perak, Faithmont and AmBank successfully obtained leave from the Federal Court to appeal against the Court of Appeal decision.
 
Six questions of law were posed to the Federal Court, all of which were distilled by the Federal Court to the following question:
 
“Whether a conditional agreement to sell an estate land (SPA) to a purchaser with a condition precedent that the sale was subject to obtaining the approval of the Estate Land Board is in breach of section 214A(1) of the NLC when no prior approval is obtained from the Board before entering into the said SPA?”
 
Findings of the Federal Court
 
The Federal Court answered the aforesaid question in the negative, holding that section 214A(1) of the NLC does not prohibit the making of a conditional or contingent agreement to sell estate land which expressly states that the intended sale is subject to prior approval of the Estate Land Board. Instead, the prohibition imposed by section 214A(1) is against any act of transfer, conveyance or disposal of estate land without the Estate Land Board approval.
 
The Federal Court was of the view that the SPA by itself did not have the effect of transferring or disposing the Property from Gula Perak to Faithmont and did not even take effect unless and until the Estate Land Board’s approval had been obtained and all the conditions precedent stipulated in the SPA had been fulfilled. As such, the SPA could not be declared null and void.
 
Joint application for Estate Land Board approval
 
In interpreting section 214A(1), the Federal Court devoted particular attention to the wording of section 214A(4) of the NLC, which lays down a mandatory requirement for both the intended vendor and purchaser to jointly sign and submit an application to the Estate Land Board in Form 14D for its approval.
 
The Federal Court opined that the requirement in Form 14D to include the name and signature of the intended purchaser shows that the existence of an intended purchaser is a pre-requisite for the application to the Estate Land Board. Thus, section 214A itself contemplates that a conditional agreement between the proprietor of the estate land and the intended purchaser is to be in place at the time when Form 14D is to be jointly submitted to the Estate Land Board. The Federal Court added that it would only make practical sense if the proprietor and the intended purchaser had first entered into a conditional agreement before it was possible to submit any application to the Estate Land Board.
 
The Federal Court also observed that the court ought to have taken a common sense approach and considered the practical aspect of commercial transactions involving the sale and purchase of estate lands.
 
In arriving at the above conclusions, the apex Court generally agreed with the approach adopted by the High Court in Rengamah a/p Rengasamy v Tai Yoke Lai & Anor [1998] 1 CLJ 987 which dealt with the same issue.
 
Distinguishing Tai Thong
 
The Federal Court took the view that Tai Thong, which was heavily relied upon by the Court of Appeal, was not applicable to the facts of the Appeals as the core issue in Tai Thong related to the legality of the actual act of transferring the land in question prior to obtaining approval from the Estate Land Board; whereas the Appeals concerned the legality of a SPA which was subject to a condition precedent that the transfer could only be effective after the Estate Land Board approval had been obtained.
 
In distinguishing Tai Thong, the Federal Court agreed with the majority decision of the Court of Appeal in Vellasamy Pennusamy & Ors v Gurbachan Singh Bagawan Singh & Ors [2015] 5 MLJ 437 which held, inter alia, that section 214A(1) of the NLC did not prohibit the execution of a conditional agreement for sale of estate land.
 
CONCLUSION
 
The Federal Court concluded that section 214A(1) of the NLC did not prohibit a conditional agreement being entered into in relation to estate land so long as the general consensus between the parties was that no transfer is to be effected until the Estate Land Board’s approval is obtained. The Federal Court opined that section 214A(1) was not intended to bar parties from entering into a conditional sale and purchase agreement involving estate land and that there was no requirement to obtain the approval of the Estate Land Board first before entering into any form of conditional agreement with the intended purchaser involving such land.
 
In so far as the Appeals are concerned, the Federal Court held that the SPA was merely a manifestation of Gula Perak’s desire to sell the Property to Faithmont, to be followed by a joint submission with Faithmont for the Estate Land Board’s approval in Form 14D. As such, the SPA as well as the Consent Order were within the intent and scope of sections 214A(1) and 214A(4) of the NLC.
 
The Federal Court’s decision in the Appeals has provided much welcomed clarity as to the application of section 214A(1) of the NLC to conditional agreements entered into between parties involving estate land. This decision also clarifies the perceived conflict in the Court of Appeal decisions of Vellasamy and Tai Thong. The Federal Court adopted the approach in Vellasamy to the Appeals as it concerned a similar issue of law and distinguished Tai Thong on the basis that it relates to the legality of the actual act of transferring estate land before the approval of the Estate Land Board is obtained.
 
The Federal Court is to be commended for adopting a common sense approach in interpreting section 214A of the NLC and recognising the practical aspect of commercial transactions involving the sale and purchase of estate lands, while giving effect to legislative intent of the said section at the same time.
 
Although the Federal Court’s well-reasoned decision was arrived at only by a 3:2 majority, it is hoped that the last word has indeed been spoken as regards the scope and operation of section 214A(1) of the NLC.