CIMB Bank Berhad v Kamaruddin bin Said & 3 Lagi (K-02(NCVC)(W)-1772-08/2017 & K-02(NCVC)(W)-1771-08/2017)

IN THE COURT OF APPEAL AT PUTRAJAYA (APPELLATE JURISDICTION) CIVIL APPEAL NO. K-02(NCVC)(W)-1772-08/2017 & CIVIL APPEAL NO. K-02(NCVC)(W)-1771-08/2017 (HEARD TOGETHER) BETWEEN CIMB BANK BERHAD (Company No. 13491-P) (Previously known as CEMPAKA FINANCE BERHAD) ... APPELLANT AND

1. KAMARUDDIN BIN SAID (NRIC NO. 600717-02-5803) (As the administrator of the estate of Said B. Ali, deceased)

2. CHE ZAN BT SAID (NRIC No.A2595175) (As Trustee 1 of 32/72 portion of the land)

3. MAHMUD BIN HASSAN (NRIC No. 660904-02-5109) CHE ZAN BT SAID (NRIC No. A2595175) (As administrators of the estate of Hassan Bin Talib, deceased)

4. RABIAH BT. MAT ISA (NRIC No. 4622199) ... RESPONDENTS (In the High Court of Malaya at Alor Setar In the State of Kedah Darul Aman Civil No.22NCVCC-78-10/2014) BETWEEN CIMB BANK BERHAD (Company No. 13491-P) (Previously known as CEMPAKA FINANCE BERHAD) ... Plaintiff AND

1. Ammar @ Amran Bin Othman (NRIC No. 630724-02-5243) (As the administrator of the estate of Othman Bin Musib, deceased)

2. Hasnah Binti Saad (NRIC No. 521230-02-5566) (As the administrator of the estate of Azimat Bin Md Zain, deceased)

3. Ismail Bin Ishak (NRIC No. 3949243)

4. Kamaruddin Bin Said (NRIC No. 600717-02-5803) (As the administrator of the estate of Said B. Ali, deceased)

5. Che Zan Bt Said (NRIC No.A2595175) (As Trustee 1 holding 32/72 shares)

6. Mahmud Bin Hassan (NRIC No. 660904-02-5109) Che Zan Bt Said (NRIC No. A2595175) (As administrators of the estate of Hassan Bin Talib, deceased)

7. Rabiah Bt. Mat Isa (NRIC No. 4622199) ... Defendants CORAM: VERNON ONG LAM KIAT, JCA HARMINDAR SINGH DHALIWAL, JCA HANIPAH BINTI FARIKULLAH, JCA JUDGMENT OF THE COURT

1. There are two appeals before us as follows:

(ii) Civil Appeal No. K-02(NCVC)(W)-1771-08/2017

2. These appeals arise from the decision of the learned Judicial Commissioner (JC) in the High Court of Alor Setar, dismissing the plaintiff's claim after a full trial against the $ 4^{th} $ $ 5^{th} $ $ 6^{th} $ and $ 7^{th} $ defendants and for partly allowing the $ 5^{th} $ defendant's counterclaim against the appellant. ("The 1772 Appeal").

3. There is another related appeal before us. The $ 6^{th} $ and $ 7^{th} $ defendants have also filed an appeal against the JC's decision in dismissing their counterclaim ("the 1771 Appeal").

4. For convenience, we will refer to the parties in this judgment as they were referred to in the High Court. The learned JC wrote one ground of judgment for both suits. The said ground of judgment is applicable in both appeals. Both cases are of the same facts and issues. After these introductory remarks, we must now turn to the facts. BACKGROUND FACTS

5. The background facts have been well set out in the judgment of the learned JC. We will only repeat in the following paragraphs the relevant facts as narrated by the learned JC in so far as they are relevant to the issues which arise for decision in these appeals.

6. In gist, the plaintiff sued the defendants in their capacity as landowners and/or the administrator of the landowners of several pieces of land titles in the state of Kedah wherein on each of these lands, there exists a lien-holder caveat in favour of the plaintiff. The lien-holder caveats were entered by the plaintiff pursuant to two (2) loans granted to the borrower Ikaz Development Sdn Bhd ("the Borrower"). These loans were granted for the sole purpose of financing the purchase of the defendants' lands by the Borrower.

7. Pursuant to such sale of the defendants' lands to the Borrower, the original land titles were given by the landowners to their solicitors, Messrs C P Hussin & Co for the Borrower to obtain the loans from the plaintiff and as security for the said loan. The original land titles were thereafter deposited with the plaintiff and the plaintiff, having possession of the original land titles, duly registered a lien-holder caveat on each land with the Land Office as security for the loans to the Borrower.

8. The Borrower failed to regularize the account with the plaintiff and was subsequently wound up. Therefore, the plaintiff claims from the $ 4^{th} $ $ 5^{th}, 6^{th} $ and $ 7^{th} $ defendants to settle the said amount outstanding to the plaintiff.

9. The trial only proceeded against the $ 4^{th}, 5^{th}, 6^{th}, $ and $ 7^{th} $ defendants as the plaintiff has obtained Judgment in Default against the other defendants on 25.11.2015. Subsequently, the plaintiff enforced its security pursuant to the lien-holder caveat vide an order for sale. By virtue thereof, the $ 1^{st} $ defendant's land, $ 2^{nd} $ defendant's land, and $ 3^{rd} $ defendant's land were sold on 20.12.2016 respectively and as at 28.2.2017, a balance of RM34,207,894.86 was still due and owing to the plaintiff. APPEAL 1772 The Plaintiff's Claim

10. By a notice of Appeal filed on 27.7.2017, the plaintiff appealed to the Court of Appeal, contending that the learned JC had erred in dismissing the plaintiff's claims.

11. Relying on this court's decision in Dato' Joseph Chong Chek Ah & Anor v Amcard Services (Supra) and Hong Leong Bank Bhd v Staghorn Sdn Bhd & Other appeals [2008] 2 CLJ 121, the learned JC held that in fact and in law the bank is required to secure a judgment against the Borrower, the third party borrower and not the defendants/landowners to enable it to enforce its right under section 281 (2) of the National Land Code 1965 (NLC).

12. In Dato' Joseph Chong Chek Ah's case (supra), one of the issues that arose was whether a lien holder caveatee may realise its assets without first obtaining a judgment for the amount due to it under the lien. Delivering the judgment of the Court, David Wong Dak Wah, JCA (now Chief Judge of Sabah and Sarawak) held:

(ii) Section 281 of the NLC, in other words, is not limited to the creation of security by way of lien on title only for the benefit of a registered proprietor. It extends to third-party borrowers as well (per Gopal Sri Ram FCJ in United Overseas Bank (Malaysia) Sdn Bhd v. UJA Sdn Bhd & Another Appeal [2010] 6 CLJ 204; [2009] 6 MLJ 857).

(iii) As the second appellant is not a borrower of the respondent, there is no basis in law for the respondent to sue and obtain a judgment against her for the amount due. The respondent would have no cause of action against the second appellant.

13. It was contended for the plaintiff that although the Loan Agreements were entered between the Borrower and the plaintiff, the defendants as landowners provided their respective lands as security vide the Lien Holder Caveat. To enforce the Lien Holder Caveat and to obtain an Order for Sale of the defendants' Lands, judgment must firstly be obtained against the registered proprietor of the lands.

14. Learned counsel for the plaintiff submitted that since the landowners are third parties in providing their land titles as security for the Borrower's loan, it is natural for the loan agreement to only be entered between the Borrower and the plaintiff. However, as the Lien Holder Caveat was registered, the plaintiff will have a right to enforce the Lien Holder Caveat.

15. With respect to the above contention of the plaintiff, we find no merit in the argument. We reject this ground of appeal.

16. Our starting point is section 330 of the NLC which, inter alia, provides that: any person or body with whom the issue document of title to any land, or any duplicate lease, has been deposited as security may, as provided in section 281, apply to the Registrar under this section for the entry of a lienholder's caveat in respect of the land or lease in question.

17. In this present case, it is not disputed that the plaintiff made an application under section 330 of the NLC as a body with whom the issue document of title to the land had been deposited as security for a loan by the Borrower.

18. The creation and effect of liens are provided for by section 281 of the NLC which provides as follows:

(1) Any proprietor or lessee for the time being may deposit with any other person or body, as security, his issue document of title or, as the case may be, duplicate lease; and that person or body-

(2) Where the holder or any lien has obtained judgment for the amount due to him thereunder, he shall be entitled to apply to the Court for, and obtain forthwith, order for the sale of the land or lease.

(3) Any such application shall be made in accordance with any law for the time being in force relating to civil procedure; and the provisions of sections 257 to 259 and section 266 to 269 shall apply, mutatis mutandis, where any such application has been made as they apply where a charge applies for an order under section 256.

(4) A lien-holder shall, on the written request of the proprietor or lessee, and within such reasonable period as is specified in the request, produce the issue document of title or duplicate lease at any Registry or Land Office so specified for any purpose for which it is required under any provision of this Act.

(5) The costs properly incurred by any lien-holder in complying with any such request shall be payable by the proprietor or lessee on demand.

(6) The provisions of sub-sections (2) to (5) shall apply to all liens, whether created before or after the commencement of this Act.

19. The central issue for determination of this court based on the factual circumstances of the present case is whether the "judgment" that is required to be obtained under sections 281(2) of the NLC is a "judgment" to be obtained against the borrower of the loan or against the registered proprietor of the said land.

20. This issue was considered by the Federal Court in Hong Leong Bank Bhd v Staghorn Sdn Bhd (supra). Delivering the judgment of the Federal Court, Abdul Aziz Mohamad, FCJ (as he then was) inter alia held as follows: [145] Subsection (1) of s. 281 speaks of the registered proprietor depositing his issue document of title "as security for a loan" but does not specify the borrower and neither does it restrict the loan to a loan to the registered proprietor. I could see no reason for construing the loan to mean only a loan to the registered proprietor. In my judgment, the loan may be a loan to a third party. That would have been my answer to Question No. 2. Where the loan is to a third party, it must follow that under subsection (2) the judgment obtained is a judgment against the third-party borrower. That would have been my answer to Question No.3.

21. It is clear that the defendants are not borrowers of the plaintiff. However, that does not prevent them from providing security by way of lien for the benefit of the third party debtor that is the Borrower in this case.

22. We note that section 281 of the NLC, is not limited to the creation of security by way of a lien on title only for the benefit of a registered proprietor. It extends to third-party borrowers as well (per Gopal Sri Ram FCJ in United Overseas Bank (Malaysia) Sdn Bhd v. UJA Sdn Bhd & Another Appeal (Supra).

23. The plaintiff would have no cause of action against the defendants as the defendants are not borrowers of the plaintiff. In our view, the plaintiff claim must fail as there is no privity of contract between the plaintiff and the defendants. It is not disputed that the loans were between the Borrower and the plaintiff. There is no doubt that the defendants were not parties to the loan agreements. Therefore, we confirmed the learned JC's decision that the plaintiff is required to secure a judgment against the Borrower, Ikaz and not the defendant/landowners to enable it to enforce its right under section 281 (2) of the NLC.

24. We would, therefore, dismissed the plaintiff's appeal on this point. 5th Defendant's Counterclaim To Expunge The Lien Holder Caveat

25. It is now necessary to deal with the plaintiff's appeal on the 5th defendant's counterclaim to expunge the lien holder caveat.

26. The learned JC had allowed the $ 5^{\mathrm{th}} $ defendant's counterclaim to expunge the lien holder caveat on 32/72 shares held by the $ 5^{\mathrm{th}} $ defendant, Che Zan Binti Said as Trustees on behalf of her minor sisters.

27. In allowing the $ 5^{\mathrm{th}} $ defendant's counterclaim in part, the learned JC held as follows:-

(iii) The effect of a Registrar's caveat is clearly provided in section 319 of the NLC and the existence of a Registrar's caveat clearly prohibits the registration of the plaintiff's lien holder's caveat.

(iii) It follows that the bank's lien holder's caveat was unlawfully registered.

28. Learned Counsel for the $ 5^{\mathrm{th}} $ Defendant submitted that the entry of the lien holder caveat against the whole land is invalid and should be cancelled and expunged by virtue of section 319 of the NLC which prohibits subsequent entry of the lien holder caveat when a Registrar caveat is in existence and in force.

29. The effect of a Registrar's caveat is provided in section 319 of the NLC which reads as follows: 319 Nature and effect of Registrar's caveats 1) A caveat under this section shall be known as a "Registrar's caveat", and-

(ii) any claim to the benefit of a tenancy exempt from registration; and

(iii) any lien-holder's caveat.

(2) The prohibition imposed by a Registrar's caveat shall apply to any such instrument notwithstanding that it was presented for registration before the caveat was entered, and to any such claim or lien-holder's caveat notwithstanding that the application for its endorsement or entry was received before that time.

(3) The Registrar may waive the said prohibition in any case where he is satisfied that to do so would not be inconsistent with the purpose for which the caveat was entered, but, in any case, shall reject the instrument or, as the case may be, the application for endorsement or entry.

(4) On rejecting any instrument or application for endorsement pursuant to this section, the Registrar shall take the like steps as if he had rejected it pursuant to section 298 or, as the case may be, 317. [Emphasis added]

30. It is our considered view that the learned JC erred in law and fact in finding that by virtue of the existence of the Registrar's caveat on the $ 5^{th} $ $ 6^{th} $ and $ 7^{th} $ defendants' Lands, the plaintiff's lienholder's caveat was unlawfully registered pursuant to section 319 of the NLC. It is important to note that section 319(3) of the NLC empowers the Registrar to waive the prohibition set out in section 319(1)(b) of the NLC.

31. In this regard, the learned JC erred in law and fact in failing to appreciate that there was no evidence whatsoever by the $ 5^{\mathrm{th}} $ defendant to demonstrate that the Registrar had not waived the prohibition in section 319(3) of the NLC and thus wrongfully registered the plaintiff's lien holder's caveat onto the $ 2^{\mathrm{nd}} $ $ 3^{\mathrm{rd}} $ , and the $ 4^{\mathrm{th}} $ defendants land.

32. We therefore agreed with the plaintiff's submission that the evidence before the court is clear that the lien holder's caveat was duly registered and by virtue of showing that a lien holder's caveat exists, the plaintiff had sufficiently satisfied its burden to prove that the lien holder's caveat was validly registered. The interest of the plaintiff is therefore an indefeasible interest. (See: Teh Bee v K.Maruthamuthu [1977] 2 MLJ 7 (FC); Majlis Amanah Rakyat (MARA) v Tam Seek Hong & 54 Ors [1994] 2 CLJ 64)

33. After having heard the parties at length, we were of the considered opinion that this was a case in which appellate intervention was warranted.

34. For the reason aforesaid, the learned JC's order is set aside and the plaintiff's appeal is hereby allowed. THE 1771 APPEAL

35. We now address the $ 6^{th} $ and $ 7^{th} $ defendants' appeal.

36. The $ 6^{\mathrm{th}} $ and $ 7^{\mathrm{th}} $ defendants' appeal against the decision of the learned JC who had dismissed their counterclaim for an order to cancel the lien holder caveat entered against their respective portions by the plaintiff.

37. Relying on the case of Perwira Habib Bank (M) Bhd. v. Tin Siang Sdn. Bhd. & Ors. [1992] 3 CLJ (Rep) 265, learned counsel for the $ 6^{th} $ and the $ 7^{th} $ defendants submitted that the plaintiff had failed to prove that the title was deposited with them with the clear and true intent of the proprietors that the said titles are to be used as collateral for a loan taken by the Borrower from the plaintiff.

38. We find that the learned JC has made findings of fact that Messrs Hussin Che Pa, the solicitors acting on behalf of the $ 4^{th} $ (not a party in this appeal), $ 6^{th} $ and $ 7^{th} $ defendants in the Sale & Purchase Agreement between the defendants and the Borrower had the ostensible authority to surrender the original title deeds to the plaintiff to enable the lands belonging to the defendants to be used as collateral by the Borrower whereby lien holder caveats was duly registered by the plaintiff on both the lands.

39. The learned JC in her judgment had referred to two letters to show the knowledge of the defendants' solicitors Hussin Che Pa. The 1 $ ^{st} $ Letter dated 22 October 1996 was prepared by Messrs Abu Zahar, Syed Mohd Fuad & Partners addressed to Cempaka Finance Berhad pertaining to the loan of RM7.5 million confirming that a lien holder caveat has been registered which was copied to various parties including Messrs C.P Hussin & Co. The $ ^{2^{nd}} $ letter referred to by the learned JC is a letter dated 17th January 1998, prepared by Messrs Abu Zahar, Syed Mohd. Fuad & Partners addressed to Cempaka Finance Berhad informing the Bank that Messr CP Hussin & Co had confirmed that the said 14 titles had been couriered to them. The said letter again is carbon copied to the Messrs CP Hussin & Co.

40. We are satisfied that the learned JC was not plainly wrong when she made a finding that the plaintiff was entitled to rely on Husin Che Pa's authority to act on the defendants' behalf when he surrendered the titles to the plaintiff for the creation of the lien holder's caveat.

41. Accordingly, we would not interfere with the learned JC's finding. The Court of Appeal of England, in Waugh & Others v H B Clifford & Others (1982) 1 All ER 1095 held that a solicitor is cloaked with the ostensible authority to release and forward the said titles to the bank for the creation of the lienholder caveat despite not having the consents from the clients nor the intentions of the clients to create the lien. In this case, in view of the ostensible authority, the learned JC held that the lienholder caveat registered is valid and therefore should remain on the register.

42. Hence, the decision of the learned JC is affirmed and the $ 6^{\mathrm{th}} $ and $ 7^{\mathrm{th}} $ defendants' appeal to cancel the lien holder caveat is dismissed. CONCLUSION

43. In conclusion, we made the following orders:

(ii) The plaintiff's appeal against the $ 5^{\mathrm{th}} $ defendant's counterclaim to expunge the lien holder caveat on 32/72 shares held by the $ 5^{\mathrm{th}} $ defendant Che Zan Binti Said as trustees on behalf of her minor sisters is allowed.

(iii) The $ 6^{\mathrm{th}} $ and $ 7^{\mathrm{th}} $ defendants' appeal to cancel the lien holder caveat is dismissed.

44. Accordingly, we made the above the order with no order as to costs for both appeals. Dated: 13 June 2019 Signed HANIPAH BINTI FARIKULLAH Judge Court of Appeal Malaysia For the Appellant: Tetuan Shahrizat Rashid & Lee Aras 12, Menara Milenium 8, Jalan Damanlela Damansara Heights 50490 Kuala Lumpur [Ref: 20822669/ARA/DHAM/1354/08/OS/tj] For the 1$^{st}$ Respondent: Tetuan M. Fairuz & Partners No. 3-A, Tingkat Atas, Batu 2 Jalan Batu 2 Jalan Langgar Kompleks Perniagaan Jelatek 05460 Alor Setar, Kedah [Ref: MFP/AS/L/KAMARUDDIN/14/057] For the $ 2^{\mathrm{nd}} $ $ 3^{\mathrm{rd}} $ and $ 4^{\mathrm{th}} $ Respondents: Tetuan Jannu Babjan 97-2-8 The Palazzia Jalan Bukit Gambir 11700, Gelugor Pulau Pinang [Ref: COJB-ClV-127-16]