Tan Sri Dato' Lim Cheng Pow v Bellajade Sdn Bhd (02(f)-136--11/2017(W) & 02(f)-135-11/2017(W))

IN THE FEDERAL COURT AT PUTRAJAYA (APPELLATE JURISDICTION) CIVIL APPEAL NO. 02(f)-136-11/2017 (W) CIVIL APPEAL NO. 02(f)-135-11/2017(W) This judgement is the judgement of the majority and is delivered pursuant to subsection 78(1) of the Courts of Judicature Act 1964. The judgement as set out below was prepared by Tan Sri Zulkefli bin Ahmad Makinudin, the then President of the Court of Appeal, prior to his retirement. We concur with and adopt the judgement. ZAHARAH BINTI IBRAHIM more AZAHAR BIN MOHAMED BALIA YUSOF BIN HJ WAHI Putrajaya. 25 September 2018. IN THE FEDERAL COURT AT PUTRAJAYA (APPELLATE JURISDICTION) CIVIL APPEAL NO. 02(f)-136-11/2017 (W) BETWEEN CME GROUP BERHAD ... APPELLANT BELLAJADE SDN. BHD. ... RESPONDENT CIVIL APPEAL NO. 02(f)-135-11/2017(W) BETWEEN TAN SRI DATO' LIM CHENG POW ... APPELLANT BELLAJADE SDN. BHD. RESPONDENT Coram: Zulkefli bin Ahmad Makinudin, PCA Zainun binti Ali, FCJ Azahar bin Mohamed, FCJ Zaharah binti Ibrahim, FCJ Balia Yusof bin Hj. Wahi, FCJ JUDGMENT Introduction [1] These are two appeals by the two respective appellants against the decision of the Court of Appeal which allowed the appeal by the respondent against the decision of the High Court. In the High Court, the first appellant, CME Group Berhad was the first defendant and the second appellant, Tan Sri Dato' Lim Cheng Pow, was the second defendant. The respondent, Bellajade Sdn. Bhd., was the plaintiff before the High Court. The parties will be referred to in this Judgement as they were before the High Court. [2] This Court had granted leave to appeal against the decision of the Court of Appeal on the following questions of law:

(ii) Whether change of condition of land under section 124 of NLC takes effect upon endorsement of the same on the issue document of title to the land in question?

(iii) Whether a tenancy for commercial use of land which is by condition for residential use is illegal and void having regard to the decisions of the Federal Court in Singma Sawmill Co Sdn Bhd v. Asian Holdings (Industrialised Buildings) Sdn Bhd [1980] 1 MLJ 21 and Toh Huat Khay v. Lim A Chang (in his capacity as the executor of the estate of Toh Hoy Khay, deceased) [2010] 4 MLJ 312. Background Facts [3] The relevant background facts of the case are as follows:

(1) The plaintiff is the registered owner of a 23-storey office building together with 4 levels of basement consisting of 453 car parking bays and 46 motorcycle parking bays called Plaza Palas located in Lorong Palas, off Jalan Ampang, Kuala Lumpur (the said premises).

(2) Previously, the plaintiff had purchased the land from one Orion Choice Sdn Bhd ["Orion"- not a party in this proceeding] and the Sale and Purchase Agreement ["SPA"] was completed on 20 February 2013. On 21 February 2013, the plaintiff entered into a Tenancy Agreement with the first defendant for a term of three years ["Tenancy Agreement"]. The owner of the land prior to Orion was Kris Angsana Sdn Bhd. ["Kris Angsana"]

(3) Pursuant to the Tenancy Agreement, the first defendant agreed to rent from the plaintiff the said premises at a rental of RM1,018,750.00 per month for a fixed term of three years commencing from the date of completion of the Sale and Purchase Agreement. Under the terms of the Tenancy Agreement, the first defendant was deemed to have taken possession of the said premises upon completion of the SPA. The performance of the Tenancy Agreement was guaranteed by the second defendant pursuant to a Guarantee of Tenancy Agreement executed on the same day as the Tenancy Agreement.

(4) The premises were tenanted to the first defendant for commercial use as follows; "Lounge, private club, recreational bistro, convenient shop, café, hair saloon, fitness centre, clinic, laundry, beauty salon, florist, banking services and facilities, food court, fast food outlets and office." (section H of the First Schedule of the Tenancy Agreement)

(5) The first defendant entered into possession of the said premises on 21.2.2013 and paid rental for only six months amounting to RM6,110,100.00. The first defendant failed and defaulted in the payment of rental for the period beginning May 2013.

(6) The plaintiff then filed this suit against the first defendant and the second defendant seeking recovery of rentals and interest, totaling RM8,401,756.85. The plaintiff also claimed rentals for the remainder of the 3-year tenancy.

(7) The first defendant's defence was that the plaintiff had by an Assignment dated 01-11-2013 assigned absolutely the Tenancy Agreement to its financier, OCBC Bank (Malaysia) Berhad, and thus has no locus to commence and maintain the action.

(8) It was also pleaded by the first and second defendant that since there was dispute between Orion and the plaintiff on the additional purchase price payable under the SPA, not known to the first defendant, the first defendant was under the mistaken belief that the SPA was completed and the Tenancy Agreement had commenced, when in fact the SPA was not completed and the Tenancy Agreement had not commenced.

(9) The first and second defendant pointed out that land searches over the subject properties were obtained on 28 October 2013 which revealed that the express condition of title for the lands on which the subject properties were located was for residential as follows: “Tanah yang dimaksudkan hendaklah digunakan semata-mata untuk rumah kediaman.”

(10) The first defendant counter-claimed, seeking, inter alia;

(ii) in the alternative, a declaration that the said Tenancy Agreement is void;

(iii) an order that the plaintiff pay to the first defendant the said sums of RM9,411,062.50, being payment of rent which had been received by the plaintiff. Findings of the High Court [4] The High Court dismissed the plaintiff's claim and allowed the first defendant's counter-claim. The findings of the learned Judicial Commissioner ["JC"] of the High Court are summarized as follows:

204D. (1) Any application for approval by a proprietor wishing to surrender his title or titles under this Part shall be made in writing to the Land Administrator in Form 12D and shall be accompanied by-

(2) Where the proprietor is unable to produce the issue document of title for the reason that it is in the possession or control of any person or body, the application shall be accompanied by a sworn statement of the proprietor to that effect, and there shall be exhibited thereto a copy of a notice by the proprietor to that person or body requiring the production of the said document to the Land Administrator within fourteen days of the date of the service thereof on such person or body, and also the proof of service of such notice.

(3) Upon receipt of the application, the Land Administrator shall endorse, or cause to be endorsed, a note thereof on the register document of title to the land." [8] I am of the view that the provisions in section 124 of the NLC is quite different in its application from the provisions in section 204D of the NLC. Section 124 of the NLC relates to an application where the land proprietor applies to the State Authority to alter or change the category of land use. [See section 124 of the NLC]. Where there is an application for surrender, amalgamation and realienation with a change in category of use, there is a need to surrender the titles for the cancellation and re-issuance of a new title by the State Authority. [See sections 204E, 204F, 204G and 204H of the NLC]. [9] It is to be noted that when re-alienating the land subsequent to an approval by the State Authority pursuant to section 204D of the NLC, the registered proprietor accepts the provision contained in section 79(2) of the NLC. [See sections 204G and section 79 of the NLC]. When the land, subsequent to the surrender and amalgamation is to be re-alienated, then the provisions in section 78 of the NLC will apply. Section 78 of the NLC provides as follows: "How alienation is effected

78. (1) The alienation of State land under final title shall be effected in accordance with the provisions of Chapter 3.

(2) The alienation of State land under qualified title shall be effected in accordance with the provisions of Chapter 2 of Part Eleven.

(3) The alienation of State land shall take effect upon the registration of a register document of title thereto pursuant to the provisions referred to in subsection (1) or (2), as the case may be; and notwithstanding that its alienation has been approved by the State Authority, the land shall remain State land until that time." [10] The relevant provisions in the NLC for applications for the surrender and re-alienation of land are as follows:

(ii) Upon receipt of an application under section 204D of the NLC, the Land Administrator is required to endorse, or cause to be endorsed a note thereof in the register document of title to the Land. [See subsection 204D(3) of the NLC].

(iii) On approving the application under section 204D of the NLC, the State Authority shall also determine matters in subsection 79(2) of the NLC which include the imposition of express conditions. [See subsection 204E(4) and paragraph 79(2)(g) of the NLC].

(iv) The provisions of section 79 in relation to the alienation of state land shall also apply to the realienation of land as if the land had already become State land [See subsection 204E(4) of the NLC]. [11] It is my view that the provision in section 124 of the NLC is only in respect of an application for a mere change in use of the land, which attracts different consideration and does not require the surrender of the issue document of title for destruction. Where a change of use is approved under section 124 of the NLC, that change of use must be reflected in the same Issue of Document of Title for it to become effective. [See section 124(7) of the NLC]. [12] It is noted that the learned Judges of the Court of Appeal in the present case whilst acknowledging that the application in the instant case was for surrender, re-alienation, amalgamation and change of use under section 204D of the NLC went on to deal with the provision of section 124 of the NLC and the cases dealing with section 124 of the NLC. In fact the learned Judges of the Court of Appeal went on to erroneously state as follows: [73] We are here concerned with applications for change of use under section 124(4) of the NLC, and when it takes effect under that section. Consequently section 78(3) and the cases of North East Plantation and Yap Chong Lan are no applicable to the present case." [13] I am of the view that where there is a surrender, amalgamation and re-alienation, such as in the instant appeal, then the provisions in subsection 78(3) of the NLC applies. That subsection states- "(3) The alienation of State land shall take effect upon the registration of a register document of title thereto pursuant to the provisions referred to in sub-section (1) or (2), as the case may be; and, notwithstanding that its alienation has been approved by the State Authority, the land shall remain State land until that time." [14] On the application of subsection 78(3) of the NLC in the case of Dr. Ti Teow Siew & Ors. v. Pendaftar Geran-Geran Tanah, Selangor [1982] 1 MLJ 38 at 39, Hashim Yeop Sani J (as his Lordship then was) had this to say: "Looking at the second limb of section 78(3) of the Code it seems clear to me that the restriction in interest could not have commenced before the date of registration because the land remained State land and the restriction could not have meant to operate on the State authority." [See also the case of North East Plantation Sdn. Bhd. v. Pentadbir Tanah Daerah Dungun & Anor. [2011] 2 CLJ 292]. [15] It is my considered view that the change of use to "pembangunan bercampur bagi tujuan pangsapuri dan pejabat sahaja" (as stated in the KLPTG's letter dated 05.9.2013) will be endorsed on the new title and become effective upon the registration and issuance of a new issue document of title pursuant to subsection 78(3) of the NLC. On this point the learned Judges of the Court of Appeal fell into an error of law when they said: [71] The defendant's reliance on section 78(3) of the NLC and the cases of North East Plantations Sdn. Bhd. v. Pentadbir Tanah Daerah Dungun & Anor. [2011] 2 CLJ 392 and State of Negeri Sembilan v. Yap Chong Lan & Ors. & Another Case [1984] 1 CLJ (Rep) 144 is in our view misplaced. [72] Those 2 cases deal with alienation of state land by the State Authority and when it takes effect, whether upon approval by the State Authority or upon registration. As expressly provided for by section 78(3) of the NLC, alienation clearly takes effect only upon registration. [73] We are here concerned with applications for change of use under section 124(4) of the NLC, and when it takes effect under that section. Consequently section 78(3) and the cases of North East Plantation and Yap Chong Lan are not applicable to the present case." [16] In the circumstances of this case the first question ought to be answered in the negative. The approval given under section 204D of the NLC is quite different in its application and distinct from the approval sought and obtained under section 124 of the NLC. The considerations are different. [17] I shall now deal with the second question of law posed in this appeal. I am of the view that the change on the condition of the land is only legally effective when the change of use is indorsed on the title as provided for under subsection 124(7) of the NLC. On this point, in the case of Toh Huat Khay v. Lim A Chang (in his capacity as the executor of the estate of Toh Hoy Khay, deceased) [2010] 4 MLJ 312 at page 322, the Federal Court had this to say: "If at all the state authority had approved the transfer of the said land, the land administrator, pursuant to setin124(7) of the Code shall have to sign a memorandum in Form 7C in accordance with at the direction of the state authority and shall present the same and on the memorial thereof being made, the registrar shall make an entry on the register and issue document of title to the said land shall note the date thereof and the authority thereof, and authenticate the same under this hand and seal. These are mandatory statutory requirements under the Code which have to be adhered to before the said land can be transferred. I am of the view that it cannot be implied that such requirements have been complied with based merely on the said letter from the director of land and mines." [See also the case of Dr. Ti Teow Siew & Ors. v. Pendaftar Geran-Geran Tanah Negeri Selangor [1982] 1 MLJ 38]. [18] It is noted that in the present case the learned Judges of the Court of Appeal declined to follow Toh Huat Khay and Dr. Ti Teow Siew but instead preferred to follow the case of Pengarah Tanah dan Galian, Wilayah Persekutuan v. Sri Lempah Enterprise Sdn Bhd [1979] 1 MLJ 135. [19] It is my judgment that upon a proper interpretation of subsection 124(4) of the NLC read together with subsection 124(7) of the NLC and section 89 of the NLC and with the benefit of the principles laid down in Toh Huat Khay and Dr. Ti Teow Siew, the change of use will only become operative when the full premium is paid and the new condition of use is registered on the title. The Second Question posed in this appeal is therefore answered in the affirmative. In any event, since the change of use in the instant case was not applied for under section 124 of the NLC but under section 204D of the NLC, I take the view that this issue appears to be academic. [20] I shall now deal with the third question of law posed in this appeal. I am of the view that the High Court had correctly applied the decision of the Federal Court in Singma Sawmill Co. Sdn. Bhd. v Asian Holdings (Indstrialised Buildings) Sdn Bhd [1980] 1 MLJ 21 in coming to its decision when the learned JC said: [24] The facts of Singma Sawmill Co. Sdn Bhd v. Asian Holdings (Industrialised Buildings) Sdn Bhd [1980] 1 MLJ 23 are directly on point to the issues at hand. In this case, the plaintiff sought to recover arrears of rent from the defendant tenant, who had been let a portion of the plaintiff's land 'solely for the purpose of operating a factory'. The defendant ceased to pay rental upon being warned by a representative of the Industrial Development Department of the government of the State of Johore that its factory was operating illegally and in breach of an express condition of title. The land in question was agricultural land and was subject to an express condition that it was to be used for the cultivation of pineapple and rubber. The court made a finding of fact that the defendant was not aware of the express condition at the time it entered into the tenancy agreement and only found out about it when it was warned by the authorities. [25] The Federal Court in this case affirmed the decision of the trial judge, who held that the plaintiff was guilty of giving an illegal consideration to the tenancy agreement and as such the contract was void under section 24 of the Contracts Act 1950. [26] Counsel for Bellajade sought to distinguish the facts of the present case on the basis that: