1. ) Lee Chay Boon v Sabah Development Bank Berhad (JA-22NCvC-146-11/2023)

LEE CHAY BOON [Singapore NRIC : S1057438B]

POH KIM TONG [Singapore NRIC : S18463221] …PLAINTIF-PLAINTIF AND SABAH DEVELOPMENT BANK BERHAD [Syarikat No: 34638-W] …DEFENDANT GROUNDS OF JUDGMENT 11/11/2025 23:09:47

This is the Plaintiffs’ claim for a declaration that the charge registered over their property (Presentation No. 75625/2018 endorsed on PN 76047, Lot 170282, Mukim Pulai, Johor Bahru (“the Property”)) by the Defendant, is null and void and ought to be set aside.

The full trial was conducted on 2 October 2025. For the Plaintiff, only the First Plaintiff (SP1) testified on behalf of both Plaintiffs. The Defendant called Edward Yong Thau Soong (SD1), its former Head of Banking Division.

Both parties filed written submissions and orally submitted on 3 October 2025. The decision was fixed for today (21 October 2025).

On 4 January 2016, the Plaintiffs (both Singaporean), entered into a Sale and Purchase Agreement (SPA) with GST Realty Sdn Bhd (“the Developer”) to purchase a three-storey cluster house at D’Carlton Heights @ Taman Bukit Skudai for RM 1,438,000.00. Vacant possession was delivered in or about November 2017. The State Authority consent to transfer was issued on 10 April 2018. The Plaintiffs thereafter paid the full purchase price by 12 April 2018.

Notwithstanding this, the Developer executed a Form 16A charge on 18 September 2018 in favour of the Defendant as project financier, which was registered on 14 October 2018 (Presentation No. 75625/2018).

The Plaintiffs were unaware of the charge until their solicitors attempted to register the transfer and discovered the encumbrance. The Defendant had earlier been notified of the SPA by the Plaintiffs’ solicitors on 19 January 2016 and it issued a redemption statement dated 26 January 2016.

The Developer was subsequently wound up on 12 March 2019.

Parties filed their own issues for trial in Encl. 21 and 25. However, upon perusing the pleadings, the cause papers, evidence and submissions, this Court has incorporated their issues for determination as below—

whether the charge (Presentation No. 75625/2018) in favour of the Defendant is indefeasible or defeasible under section 340 of the National Land Code 1965;

whether the Developer, having received full payment and delivered vacant possession, held the Property as bare trustee for the Plaintiffs and had any authority to create the said charge;

whether the Defendant’s rights as charge are subject to the Plaintiffs’ prior beneficial ownership; and

whether the Plaintiffs’ remedy lies against the Defendant or solely against the Developer.

Section 340 of the National Land Code 1965 [Act 828] (“NLC”) reads– “(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.

The title or interest of any such person or body shall not be indefeasible—

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

where registration was obtained by forgery, or by means of an insufficient or void instrument; or

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.

Where the title or interest of any person or body is defeasible by reason of any of the circumstances specified in subsection (2)—

it shall be liable to be set aside in the hands of any person or body to whom it may subsequently be transferred; and

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.

Nothing in this section shall prejudice or prevent—

the exercise in respect of any land or interest of any power of forfeiture or sale conferred by this Act or any other written law for the time being in force, or any power of avoidance conferred by any such law; or

the determination of any title or interest by operation of law”.

In summary, section 340 NLC confers indefeasibility of registered title or interest, subject to the exceptions in subsection 340(2) NLC. Under subparagraph 340(2)(b) NLC, registration obtained “by means of an insufficient or void instrument” does not confer indefeasibility.

Further, the proviso to subsection 340(3) NLC protects only a subsequent purchaser in good faith and for value. The immediate recipient of a void instrument does not obtain that protection. The effect of these provisions has been the subject of extensive judicial interpretation, which this Court now considers.

The issues for determination, as framed in paragraph 8 above, require this Court to decide whether the Defendant, as the registered chargee of the subject property, acquired an indefeasible interest pursuant to section 340 NLC, or whether such registration is liable to be set aside under subparagraph 340(2)(b) NLC on the ground that the charge was executed by a person having no registrable interest.

The answer turns on the proper construction of section 340 NLC and the distinction between an immediate and a subsequent purchaser.

Section 340 NLC embodies the Torrens principle that registration is the root of title. Subsection 340(1) NLC confers indefeasibility upon registration, but this is qualified by subsection 340(2) NLC, which renders a title defeasible in cases of fraud, forgery, insufficiency, or void instruments. Further, the proviso to subsection 340(3) NLC protects only a bona fide subsequent purchaser for value, thus establishing the doctrine of deferred indefeasibility rather than immediate indefeasibility. This interpretation was first judicially clarified by the Federal Court in Tan Ying Hong v. Tan Sian San & Ors [2010] 2 CLJ 269, which expressly overruled Adorna Properties Sdn Bhd v. Boonsom Boonyanit [2001] 2 CLJ 133.

In Tan Ying Hong, the Federal Court held that the proviso to subsection 340(3) NLC is confined to the subsection itself and cannot be projected into subsection 340(2) NLC. Hence, an immediate purchaser or chargee taking directly from a forger or a bare trustee cannot claim the protection of the proviso. The Court reaffirmed that indefeasibility arises only for a subsequent purchaser who derives title from a registered proprietor whose registration, though defective, is still effective until set aside.

This principle was applied and elaborated upon by the Federal Court in He-Con Sdn Bhd v Bulyah Ishak & Anor [2020] 4 MLJ 662. There, the developer, having received full payment, became a bare trustee and later executed a charge in favour of a bank. The Federal Court held that the developer, no longer having any beneficial interest, could not validly create a charge. The chargee, being an immediate purchaser, fell squarely within subparagraph 340(2)(b) NLC and could not invoke the proviso to subsection 340(3) NLC.

The Court made clear that the “fides” of an immediate purchaser is immaterial. Even the most innocent purchaser is left unprotected if the vendor has no transferable interest.

The decision in He-Con Sdn Bhd cements the principle that once the full purchase price is paid, the vendor retains only a bare legal estate in trust for the purchaser and cannot encumber or dispose of the property. Any charge or transfer thereafter is void ab initio, and the registration of such an interest is defeasible under subsection 340(2)

Subsequent cases have consistently applied this interpretation. In Champion Score Sdn Bhd v. Mohd Sobri Chew Abdullah [2025] 6 CLJ 181, the Court of Appeal reiterated that the protection of the proviso under subsection 340(3) NLC is confined to a subsequent purchaser who acquires from an intermediate registered proprietor, not from the immediate wrongdoer. Similarly, in Bitara Angkasa Sdn Bhd v. Cheok Lam Chuan & Ors [2024] 1 CLJ 202, the Court of Appeal again confirmed that the immediacy of a purchase relates to the vitiating vendor rather than the number of transfers, and any direct dealing with the wrongdoer renders the transaction defeasible.

The same approach was further affirmed by the Court of Appeal in Lee Kok Chian v. Cheok Lam Chuan & Another Appeal [2025] CLJU 1818. There, the Court distinguished between immediate and subsequent purchasers in a chain of dealings originating from a forged transfer. It held that an immediate transferee from the wrongdoer acquires only a defeasible title, whereas a bona fide subsequent purchaser for value may obtain indefeasible title under the proviso to subsection 340(3) NLC. The Court emphasised that indefeasibility under the Torrens system is deferred, not immediate, reviving only upon a subsequent good-faith transaction for value.

The Federal Court in Pushpaleela R Selvarajah & Anor v. Rajamani Meyappa Chettiar & Other Appeals [2019] 3 CLJ 441 also stressed that indefeasibility under section 340 NLC does not extend to an instrument executed by a person lacking authority or interest. Even registration cannot cure a void instrument; equity treats such registration as a nullity. This approach harmonises section 340 NLC with the equitable principle that one cannot convey better title than one possesses.

Most recently, the Federal Court in Malayan Banking Bhd v. Mohd Affandi Ahmad & Anor [2024] 10 CLJ 501 provided further clarification on the standard of good faith and valuable consideration under the proviso to subsection 340(3) NLC. The Court resolved the conflicting authorities of Bayangan Sepadu and Au Meng Nam, holding that negligence does not negate good faith. A subsequent purchaser or chargee is entitled to rely on the register and is not required to go behind it to investigate the underlying transaction unless there are clear indicators of fraud or illegality.

When these authorities are read together, two main elements could be concluded. Firstly, the Court reaffirmed that the Torrens system demands certainty, and the register is conclusive evidence of ownership. Secondly, a clear hierarchy emerges–

an immediate purchaser or chargee from a person with no title cannot invoke the proviso (see: Tan Ying Hong and He-Con

a subsequent purchaser or chargee who acquires from a registered proprietor with a defeasible but extant title may rely on the proviso if bona fide and for value (see: Champion

good faith under subsection 340(3) NLC is assessed objectively by the presence or absence of fraud, not by mere negligence.

Against this backdrop, the Court has carefully considered the evidence adduced at trial and the submissions filed by both parties. The Plaintiffs relied on SP1’s testimony, the SPA, official payment receipts, the purchaser ledger and the Developer’s credit note and the submissions explain how the credit note and receipts reconcile to full payment.

The Defendant’s sole witness, SD2, gave evidence on the Bank’s financing arrangement with the Developer, the charge registration and the Bank’s position on redemption.

The Plaintiffs’ documents show full payment by 12 April 2018 and vacant possession in or about November 2017. On that footing, the Developer had no subsisting beneficial interest thereafter and held the legal estate on bare trust pending transfer.

The documentary trail confirms the Bank’s actual notice of the Plaintiffs’ purchase: the Plaintiffs’ solicitors’ notice (19.1.2016) and the Bank’s redemption statement (26.1.2016). The impugned charge was then executed on 18.9.2018 and registered on 14.10.2018 — over two years later.

SD1 accepted in essence that the Bank did not contact the Plaintiffs or their solicitors to verify redemption. The Bank relied on the Developer’s representation that the Property remained available as security, despite having the earlier redemption correspondence on file.

During cross-examination of SP1, learned counsel for the Defendant put suggestions that the redemption sum was never paid to the Bank and that the Plaintiffs were aware of the encumbrance. However, no documentary proof was produced to substantiate those suggestions. As rightly argued in the Plaintiffs’ Reply Submissions (Enclosure 47 and 48), such uncorroborated suggestions cannot displace the positive evidence of payment and delivery and do not constitute evidence of non-payment within the meaning of He-Con Sdn Bhd.

The Court also notes that the Developer, was not called as a witness by the Defendant. Given that the Developer was the party executing the charge and would have been in possession of its own accounting and redemption records, its absence is material. Pursuant to subsection 114(g) of the Evidence Act 1950 [Act 56], the Court draws an adverse inference that the Developer’s evidence, if produced, would not have assisted the Defendant. This strengthens the inference that the Developer had indeed received full payment and acted without authority when executing the charge. This is also in line with the reasoning extracted in He-Con Sdn Bhd on adverse inference and the best-evidence rule.

On the totality of the evidence, the Court prefers the Plaintiffs’ case, which is internally consistent and supported by documentary exhibits, over that of the Defendant’s witness whose account is based largely on assumption and bank procedure and did not rebut the Plaintiffs’ affirmative documentary case, that–

they had fully paid the purchase price;

vacant possession was delivered before execution of the charge; and

the Developer thereafter held the Property only as bare trustee for them.

In light of the factual findings above and the principles in Tan Ying Hong and He-Con Sdn Bhd, the Court holds that the Form 16A charge was executed by a party with no beneficial or registrable interest. Accordingly, the Defendant, who took its charge directly from a vendor holding the land merely as trustee, occupies the same position as the immediate chargee in He-Con Sdn Bhd and therefore falls outside the protection of the proviso to subsection 340(3) NLC. It is therefore an insufficient/void instrument within the meaning of subparagraph 340(2)(b) NLC. The Defendant’s good faith does not assist: as an immediate chargee, it cannot invoke the proviso to subsection 340(3) NLC. Reliance on the register cannot convert a void instrument into a valid one. The charge is accordingly defeasible, and the Plaintiffs—having proved full payment, delivery of vacant possession and prior beneficial ownership—are entitled to declaratory relief.

Based on the above findings and analysis, the Court’s determination on each issue is as follows:

whether the charge (Presentation No. 75625/2018) in favour of the Defendant is indefeasible or defeasible under section 340 of the National Land Code 1965. The Court finds that the charge is defeasible under subparagraph 340(2)(b) NLC. The Developer, having ceased to hold any beneficial or registrable interest after receiving full payment, lacked authority to create the charge. The Defendant, being an immediate chargee, cannot invoke the protection of the proviso to subsection 340(3) NLC.

whether the Developer, having received full payment and delivered vacant possession, held the Property as bare trustee for the Plaintiffs and had any authority to create the said charge. The Court finds in the affirmative. Upon full payment and delivery of vacant possession, the Developer became a bare trustee of the legal estate for the Plaintiffs. As such, the Developer had no authority to encumber or dispose of the Property, and any such act was beyond its power.

whether the Defendant’s rights as chargee are subject to the Plaintiffs’ prior beneficial ownership. The Court finds in the affirmative. The Plaintiffs’ beneficial ownership arose upon completion and payment of the purchase price. The Defendant’s charge, being created thereafter, is subordinate to and subject to that equitable ownership. Registration cannot override a void or unauthorised instrument.

Whether the Plaintiffs’ remedy lies against the Defendant or solely against the Developer. The Court finds that the Plaintiffs are entitled to relief against the Defendant. The Defendant’s registration as chargee was obtained through an instrument that was void ab initio. Consequently, the charge is liable to be set aside, and the Defendant cannot assert indefeasibility. The Plaintiffs’ remedy is therefore properly directed against the Defendant as the registered proprietor of the impugned interest.

Accordingly, Plaintiffs’ claim in Enc.1 is allowed with the following orders:

a declaration that the charge registered under Presentation No. 75625/2018 in favour of the Defendant over the Property is null, void and of no effect;

an order that the said charge be cancelled in the relevant land register; and

costs of RM 50,000.00 subject to allocator. Dated : 21 October 2025 Dr. Noradura Binti Hamzah Judicial Commissioner High Court Civil 2 Johor Bahru Peguamcara : Plaintif Tetuan S K Song Peguamcara : Defendan Tetuan Jal & Lim