Cimb Bank Berhad (No. Syarikat: 13491-P) … Perayu v Ambank (M) Berhad (No. Syarikat: 8515-D) (01(f)-20-06-2016(B))

PENGARAH TANAH DAN GALIAN SELANGOR … RESPONDEN-RESPONDEN [Dalam Perkara Rayuan Sivil No.: B-01(NCVC)(W)-327-08-2014 Dalam Mahkamah Rayuan Malaysia _____________________________________________________ Antara AmBank (M) Berhad (No.: Syarikat: 8515-D) … Perayu Dan

CIMB Bank Berhad (No. Syarikat: 13491-P)

Pentadbir Tanah Daerah Klang

Pengarah Tanah dan Galian Selangor … Responden-Responden 2 [Dalam Perkara Mengenai Guaman No.: 22NCvC-552-05-2014 Dalam Mahkamah Tinggi Malaya Di Shah Alam Dalam Negeri Selangor Darul Ehsan _____________________________________________________ Antara CIMB Bank Berhad (No. Syarikat: 13491-P) … Plaintif Dan

AmBank (M) Berhad (No.: Syarikat: 8515-D)

Pentadbir Tanah Daerah Klang … Defendan-Defendan (Melalui Tindakan Asal) Antara AmBank (M) Berhad (No.: Syarikat: 8515-D) … Plaintiff Dan

CIMB Bank Berhad (No. Syarikat: 13491-P)

Pentadbir Tanah Daerah Klang

Pengarah Tanah dan Galian Selangor … Defendan-Defendan CORAM: RAUS SHARIF, PCA ZAINUN ALI, FCJ ABU SAMAH NORDIN, FCJ AZIAH ALI, FCJ JEFFREY TAN KOK WHA, FCJ 3 MAJORITY JUDGMENT [RAUS SHARIF PCA, ZAINUN ALI FCJ, ABU SAMAH NORDIN FCJ AND AZIAH ALI FCJ] Introduction

This is an appeal against the decision of the Court of Appeal given on 30.9.2015 in reversing the decision of the High Court. The High Court had on 8.7.2014 found in favour of the Appellant (CIMB) in respect of competing claims with the 1st Respondent (AmBank) over their respective charges on the same piece of land.

Leave to appeal to this Court was granted to the Appellant on 17.9.2016 on a single question of law which reads: “Whether a chargee comes within the meaning of ‘purchaser’ under the proviso to section 340(3) of the National Land Code 1965.”

For ease of reference, we will refer the parties in this appeal as they were referred to at the High Court. Background Facts

Chin Ting Seng and Chin Chong Lup (the Chins) were at the material time, owners of a piece of land situated at Seksyen 21, Mukim Bandar Klang, District of Klang, State of Negeri Selangor (the Property). On 23.3.2006, the Chins had executed a charge on the Property in favour of Southern Bank Berhad (SBB) as security for a banking facility. On 6.9.2006, the banking business of SBB was vested with CIMB. 4

On 4.11.2008, one Wong Chee Keong (Wong) applied for a loan from AmBank to finance the purchase of the Property which would be used as a security for the loan (the AmBank charge). AmBank appointed Messrs KK Lim & Associates (KKL) as their solicitors to prepare the necessary documentation including the creation of the charge over the Property in favour of AmBank. KKL conducted the relevant property searches, made the appropriate enquiries and also obtained all the necessary undertakings and confirmations from the solicitors acting in the sale and purchase transaction between the Chins and Wong.

The firm of solicitors acting for Wong was Messrs Ku Abdul Rahman & Associates (KAR). On 11.2.2009, by way of a letter, KAR informed KKL of the followings:

(a) the differential sum between the balance purchase price and the loan sum had been settled by Wong;

(b) the Vendors i.e. the Chins had settled the outstanding loan due to CIMB and they were awaiting the original title deed and duly executed discharge of charge to be released by CIMB; and

(c) KAR undertook to forward to KKL the duly adjudicated and stamped memorandum of transfer (the MOT) together with the original title deed and the discharge of charge.

On 10.3.2009, KKL received from KAR:

(a) the original deed of the Property (IDT Version 6); 5

(b) the duly stamped MOT; and

(c) the discharge of charge of the CIMB Charge.

On 17.3.2009, KKL received from KAR the duplicate of the CIMB Charge forwarded on a letter dated 16.3.2009. On 19.3.2009, KKL presented, inter alia, the Discharge of CIMB’s Charge, the MOT, and the AmBank Charge together with the IDT Version 6 (the Security Documents), at the Land Office.

On 7.4.2009, KKL on behalf of AmBank forwarded a Cashier’s Order No.: 724209 for RM1,910,000.00 being the balance purchase price to KAR. On 7.4.2009, KAR credited the balance purchase price into their account maintained with Al-Rajhi Bank.

On 25.11.2009, the Land Office effected the discharge of CIMB’s Charge and registered Wong as the registered proprietor of the Property. Thereupon AmBank was registered as the chargee of the Property.

It was discovered later that the discharge of the CIMB’s charge was forged. There were two titles over the Property. The claims by CIMB and AmBank as chargees over the same property became the core of the dispute in this case. At the Courts below

On 8.7.2014, the High Court decided in favour of CIMB. The trial judge ruled that AmBank was an immediate purchaser and hence their interest was not protected by the principle of deferred 6 indefeasibility. In other words, AmBank being an immediate purchaser was not entitled to the protection under the proviso of section 340(3) of the National land Code 1965 (NLC). The trial judge said it in the following words: “In view of my finding that the said discharge of the charge and the signature on the same was forged, the purported transfer of interest from Plaintiff (CIMB) to the 1st Defendant (AmBank) is one of immediate indefeasibility and the proviso of subsection 3 of section 340 of the NLC do not apply and section 340(2)(b) of the NLC would kick in and the interest of the 1st Defendant (AmBank) would not be indefeasible and would be liable to be set aside. The 1st Defendant (AmBank) was the immediate holder of the charges and that being the case, the 1st Defendant (AmBank) cannot take advantage of the proviso of subsection 3 of section 340 of the NLC.”

On 30.9.2015, the Court of Appeal allowed AmBank’s appeal. The Court of Appeal held that AmBank was a subsequent purchaser whose interest was protected by the proviso of section 340(3) of the NLC in accordance with the deferred indefeasibility principle. Decision of this Court

The only question that calls for our determination was whether a chargee comes within the meaning of ‘purchaser’ under the proviso of section 340(3) of the NLC. Thus, if a chargee does not come under the meaning of purchaser, then AmBank was an immediate purchaser and in such a situation AmBank’s interest as chargee was not protected by the principle of deferred indefeasibility. However, if a chargee comes within the meaning of purchaser, then AmBank was 7 a subsequent purchaser, and thus was protected by section 340(3) of the NLC.

This concept of indefeasibility of title or interest is found in section 340 of the NLC which reads as follows: “Section 340. Registration to confer indefeasible title or interest, except certain circumstances.

(a) 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;

(b) where the registration was obtained by forgery, or by means of an insufficient or void instrument; or

(c) 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.

(a) it shall be liable to be set aside in the hands of any person or body to whom it may subsequently be transferred; and 8

(b) any interest subsequently granted there out 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 effect 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.”

(a) 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

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

Section 340 of the NLC referred to indefeasibility of title or interest. Section 340(1) of NLC itself provides a clear understanding that interest means lease, charge or easement. In fact, the Privy Council in T. Damodaran v Choe Kuan Him [1972] MLJ 267 had occasion to consider the scope and meaning of ‘interest’ under the NLC. Lord Diplock who delivered the judgment of the Court said: “interest in land, short of proprietorship, which are capable of being registered are leases, charges and easements.” (emphasis added)

Similarly, this Court in Tan Ying Hong v Tan Sian San & Ors (supra) had described the legal position of a chargee as a holder of interest in land. Arifin Zakaria CJ (Malaya) (as he then was) held: 9 “However, we are of the opinion that the appellant bank (which is a chargee), being the holder of subsequent interest in the Land is protected by the proviso to section 340(3) of the NLC.”

The above view of Arifin Zakaria CJ (Malaya) (as he then was) is consistent with the definition of ‘purchaser’ in section 5 of the NLC as: “a person or body who in good faith and for valuable consideration acquires title to, or any interest in land.” Clearly, the definition of purchaser in section 5 is not limited to the purchaser who acquires the title to land but includes those who has acquires interest in land.

In fact, this issue whether a chargee comes within the meaning of purchaser in the proviso of section 340(3) of the NLC was not decided upon by the courts below. The sole issue determined by the High Court and the Court of Appeal was whether AmBank was an immediate or a subsequent purchaser. It is also important to note that the courts below did not make any finding that AmBank was not a bona fide purchaser or chargee. On the contrary, the trial judge had in his grounds of judgment found that AmBank and their solicitors (KKL) had acted properly and diligently. The trial judge said: “AmBank appointed Messrs K K Lim & Associates (KKL) as their solicitors for the financing transaction. Their duties, inter alia, entails the preparation of the security documents, namely the creation of a charge over the property in favour of AmBank. KKL conducted the relevant searches, made the appropriate enquiries, and also obtained 10 all the necessary undertakings and confirmation from the solicitors acting in the sale and purchase agreement between the Chings and Wong.”

The Court of Appeal also did not find that there was any lack of bona fide on the part of AmBank. As stated earlier, the Court of Appeal proceeded with the appeal on the sole issue of whether the AmBank was an immediate or a subsequent purchaser. They found that AmBank was a subsequent purchaser and protected by section 340(3) of the NLC.

Before us, the arguments put forward by learned counsel for the Appellant (CIMB) may be summarised as follows. Wong, the chargor only acquired defeasible title to the Property which is liable to be set aside within section 340(2)(b) of the NLC. Once it is established that Wong acquired no title to the Property, he cannot be found to have given any charge on such impugned title. Hence, the charge created by Wong in favour of AmBank, which is dependent on the validity of the title of the chargor, must necessarily be set aside. The legal title to the Property is presently registered in the name of Wong and following the principle enunciated by the Supreme Court in M & J Frozen Food Sdn Bhd & Anor v Siland Sdn Bhd & Anor [1994] 1 MLJ 294, Wong has not abrogated his right to Ambank’s charge. No judicial sale has taken place in respect of the Property and following section 267(1)(a) of the NLC, no title or interest of the Chargor, namely Wong, has passed or vested in a third party. In support, learned counsel cited the Court of Appeal case of OCBC Bank (Malaysia) Bhd v Pendaftar Hakmilik Negeri Johor Darul Takzim [1999] 2 CLJ 949 as the authority. 11

It was further submitted that in the present case, AmBank’s charge was registered with the presentation of the forged Discharge of Charge form and forged Issue Document of Title (Version 6). Thus, to uphold AmBank’s contention that the charge is valid and indefeasible as a subsequent purchaser within the proviso to section 340(3) of the NLC would be a return to the position propounded by this Court in Adorna Properties Sdn Bhd v Boonsom Boonyanit @ Sum Yoh Eng [2001] 1 MLJ 214, where a purchaser obtained good title notwithstanding the title was procured by the presentation of a forged instrument of transfer. And the decision in Adorna Properties having been expressly overruled by this Court in Tan Ying Hong as being per incuriam on the point that the proviso to section 340(3) of the NLC of a bona fide purchaser for value was available as a defence for the immediate holder of registered title effected by means of fraud or forgery.

With respect, we are unable to subscribe to the said arguments. As rightly pointed out by the Court of Appeal, the law on the concept of indefeasibility was settled and well established when the judgment of this Court in Adorna Properties was overruled by Tan Ying Hong. In order to appreciate the decision of this Court in Tan Ying Hong which basically overruled Adorna Properties, it is necessary to reveal as to what actually transpired in Adorna Properties.

In Adorna Properties, Mrs Boonsom Boonyanit a Thai national owned two pieces of land in Tanjong Bungah, Penang. A rogue forged her signature, sold and subsequently transferred her two pieces of land to Adorna Properties. She discovered the fraud only after Adorna Properties was registered as the owner of the two pieces 12 of land. She brought an action against Adorna Properties in order to have her name restored on the register as the owner of the property. During the trial, Adorna Properties argued that as an innocent third party purchaser for value, its title was indefeasible notwithstanding the forged signature on the memorandum of transfer and relied on s 340 of the Code.

The High Court in interpreting the above provisions held that even if the instrument of transfer was forged, Adorna Properties had nevertheless acquired an indefeasible title over the property by virtue of s 340(3) of the Code, which protects any title or interest acquired by any purchaser in good faith and for valuable consideration (see Boonsom Boonyanit v Adorna Properties Sdn Bhd [1995] 2 MLJ 863). Hence, the High Court ruled in favour of Adorna Properties.

The Court of Appeal interpreted the above provisions differently (see Boosom Boonyanit v Adorna Properties Sdn Bhd [1997] 2 MLJ 62). The Court of Appeal held that the words ‘any purchaser’ in s 340(3) of the Code refers to a subsequent and not to an immediate purchaser. Gopal Sri Ram JCA (as he then was) speaking for the Court of Appeal held (at pp 85-86): “… the words ‘any purchaser’ appearing in the proviso to s 340(3) do not include a registered proprietor whose immediate title is rendered defeasible by one or more of the vitiating elements specified in the second sub-s to s 340 of the Code. Any other construction would, in our view, denude sub-s (2) of all effect. The section should be read as making defeasible the title of a proprietor who gets onto the register by means of one or more of the methods specified in the second subsection. However, if such a registered proprietor were to dispose of the land to a third party who, in good faith, pays the purchase price, 13 then, the latter, as well as all those who come onto the register after him, take title free of any taint.

Accordingly, the Court of Appeal decided in favour of Mrs Boonsom Boonyanit. However the Federal Court overruled the decision of the Court of Appeal. Eusoff Chin CJ reasoned as follows (at p 246): “The proviso to sub-s (3) of s 340 of the NLC dealt with only one class or category of registered proprietors for the time being. It excludes from the main provision of sub-s (3) this category of registered proprietors so that these proprietors are not caught by main provision of this subsection. Who are these proprietors? The proviso says that any purchaser in good faith and for valuable consideration or any person or body claiming through or under him are excluded from the application of the substantive provision of sub-s (3). For this category of registered proprietors, they obtained immediately indefeasibility notwithstanding that they acquired their titles under a forged document. We therefore, agree with the High Court judge that, on the facts of this case, even if the instrument of transfer was forged, the respondent nevertheless obtained an indefeasible title to the said lands.’

This Court in Tan Yin Hong, held that the Federal Court in Adorna Properties had misconstrued section 340(1), (2) and (3) of the NLC and came with erroneous conclusion that the proviso appearing in subsection (3) equally applied to subsection (2). Arifin Zakaria CJ (Malaya) put it in the following:

The question is, does the proviso following immediately after sub-s. (3), apply to the other provisions of s. 340, in particular to sub-s. 2(b). This can only be deduced from the 14 proviso itself. NS Bindra's, Interpretation of Statutes, 9th edn, at p. 110 states that: "A proviso is something engrafted on a preceding enactment. The proviso follows the enacting part of a section and is in a way independent of it. Normally, it does not enlarge the section, and in most cases, it cuts down or makes an exception from the ambit of the main provision." A proviso to a subsection would not apply to another subsection (M/s Gajo Ram v. State of Bihar AIR [1956] Pat 113). A proviso carves out an exception to the provision immediately preceding the proviso and to no other (Ram Narain Sons Ltd v. Ass Commr of Sales - tax AIR [1955] SC 765).

With regard to the proviso to subsection 3, Arifin Zakaria CJ (Malaya) went on to hold: “51. We are of the view that the proviso is directed towards the provision of subsection (3) alone and not to the earlier subsection. This in our view is supported by the use of words “in this subsection” in the proviso. Therefore, its application could not be projected into the sphere or ambit of any other provisions of s 340.”

Arifin Zakaria CJ (Malaya) went further to explain:

Furthermore, eventhough sub-s. (3)(a) and (b) refer to the circumstances specified in sub-s. (2) they are restricted to sub-sequent transfer or to interest in the land subsequently granted thereout. So it could not apply to the immediate transferee of any title or interest in any land. Therefore, a person or body in the position of Adorna Properties could not take advantage of the proviso to the sub-s. (3) to avoid its title or interest from being impeached. It is our view that the proviso which expressly stated to be applicable solely to sub-s.(3) ought not to be extended as was done by the Court in Adorna Properties, to apply to sub-s. (2)(b). By so doing the court had clearly 15 gone against the clear intention of Parliament. This error needs to be remedied forthwith in the interest of all registered proprietors. It is, therefore, highly regrettable that it had taken some time, before this contentious issue is put to rest.

For the above reasons, with respect, we hold that the Federal Court in Adorna Properties had misconstrued s. 340(1), (2) and (3) of the NLC and came to the erroneous conclusion that the proviso appearing in sub-s. (3) equally applies to sub-s. (2). By so doing the Federal Court gave recognition to the concept of immediate indefeasibility under the NLC which we think is contrary to the provision of s. 340 of the NLC.

This concept of indefeasibility was further explained by this Court in the case of Kamarulzaman Omar & Ors v Yakub Husin & Ors [2014] 2 MLRA 432, [2014] 2 MLJ 768; [2014] 1 CLJ 987 where Jeffrey Tan FCJ said: “[41] Before we adjourn, we would summarise the foregoing and pass on the following, as a guide to the trial courts. Whenever a registered title or interest is sought to be set aside under s 340, first ascertain whether the title or interest under challenge is registered in the name of an immediate purchaser or a subsequent purchaser. If the title or interest is registered in the name of an immediate purchaser, the bona fide of the immediate purchaser will not offer a shield of indefeasibility. The title or interest of an immediate purchaser is still liable to be set aside if any of the vitiating elements as set out in s 340(2) had been made out. If the title or interest is registered in the name of a subsequent purchaser, then the vitiating elements in s 340(2) would not affect the title or interest of a bona fide subsequent purchaser. The title or interest of a subsequent purchaser is only liable to be set aside if the subsequent purchaser is not a bona fide subsequent purchaser. The title or interest acquired by a 16 subsequent purchaser in good faith for a valuable consideration, or by any person or body claiming through or under such a subsequent purchaser, is indefeasible.”

This was exactly what the courts below did in the present case. But they came to different conclusions. The High Court found AmBank as an immediate purchaser while the Court of Appeal found Ambank as the subsequent purchaser. Basically, the Court of Appeal agreed with learned counsel from AmBank that the trial judge in deciding that AmBank was an immediate purchaser had failed to appreciate the following:

(a) AmBank had derived interest as chargee of the Property from Wong and not CIMB;

(b) CIMB’s charge was discharged before Wong was registered as the proprietor of the Property; and

(c) the financing of the property involved a two stage transaction.

Thereafter, the Court of Appeal went on to hold: “[26] We found merits in the aforesaid contention and our reasons were these. As pointed out by learned counsel, the sequence of presentation of the dealing on 25 November 2009 was as follows:

(a) The lodgment of the Discharge of CIMB’s Charge via Form 16N;

(b) Then the lodgment of the memorandum of transfer from Chings to Wong; and 17

(c) Finally the lodgment and registration of AmBank’s Charge. [27] Though the above dealings were on the same day and were done simultaneously, it cannot be disputed nor can we ignore the fact that the lodgment of the AmBank’s Charge could not have been created until the first two steps had been executed. That being the case, the only way AmBank obtained their interest was from Wong and not CIMB. CIMB’s interest in the property had been extinguished by the forged discharge resulting in Wong becoming the immediate purchaser. AmBank then derived their interest in the property from the charge executed by Wong. Under such circumstances, there cannot be any relationship between CIMB and AmBank, and hence the learned Judge, with respect, erred when he said “it is clear that the relationship between the Plaintiff (CIMB) and the 1st Defendant (AmBank) was that of an immediate purchaser and not a subsequent purchaser …”. When AmBank became the chargee from Wong’s memorandum of charge, AmBank became the subsequent purchaser. [28] Further, we said that the fact that Wong’s interest being an immediate purchaser was defeasible by CIMB did not, in our view, affect the indefeasibility of AmBank’s interest. Our view is supported by the two decisions of the Apex Court, namely Kamarulzaman Omar & Ors v Yakub Husin & Ors [2014] 2 MLRA 432; [2014] 2 MLJ 768; [2014 1 CLJ 987; and Tan Ying Hong v Tan Sian San & Ors [2010] 1 MLRA 1; [2010] 2 MLJ 1; [2010] 2 CLJ 269.”

We are in total agreement with the reasoning of the Court of Appeal. AmBank must be a subsequent purchaser. As discussed earlier, AmBank, being a chargee was a holder of subsequent interest in the 18 Property and thus, was protected by the proviso of section 340(3) of the NLC.

We therefore answer the question posed to this Court in the affirmative. Clearly, a chargee comes within the meaning of purchaser under the proviso to section 340(3) of the NLC. Accordingly, we dismiss the appeal with costs. Dated this 16th day of August 2017 Raus Sharif Chief Justice of Malaysia Counsel for the Appellant: Karen Wilfred Solicitors for the Appellant: Messrs Rashid Zulkifli Counsel for the 1st Respondent: Benjamin John Dawson Koh San Tee Chan Shao Kang Solicitors for the 1st Respondent: Messrs Benjamin Dawson Counsel for the 2nd & 3rd Respondents: Dato’ Hj. Nik Suhaimi Nik Sulaiman Naziah Mokhtar Solicitors for the 2nd & 3rd Respondents: Selangor State Legal Adviser 19