Charge (Malaysian Land Law) - lecture notes PDF

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LAW554 – LAND LAW IITOPIC 3: CHARGE What is a charge? Loan agreement. Refer to Section 205. It is one of the dealings capable of being effected by the registered proprietor. Registered proprietor is the chargor / borrower. Land is conveyed by the chargor to the chargee / lender as security for the ...

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LAW554 – LAND LAW II

TOPIC 3: CHARGE 

What is a charge? Loan agreement. Refer to Section 205. It is one of the dealings capable of being effected by the registered proprietor. Registered proprietor is the chargor / borrower. Land is conveyed by the chargor to the chargee / lender as security for the repayment of the loan advanced by the chargee to the chargor. There is NO transfer of title to the land involved. Loan is attached to the land as encumbrance by obligation to repay by the chargor to the chargee. o

Yee Sin Cheang v UMBC Key principle: Explains the purpose of creating a charge that is to secure the repayment of debt.

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BBMB v Doric Development

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There is no transfer of title from the chargor to the chargee in the charge. Only interest in land is transferred. Ownership remains with chargor.

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Why is a charge created?

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Chargor needs a big amount of money. There is a need to make arrangements for loans from financial institutions, normally from banks. Most cases in charge refer to the bank as chargee bank.

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Chargee requires security for the loan advanced in case chargor / borrower default in loan repayment. Chargor will put his land as security and charge the land to the chargee. A charge is created over the land that has been put as security for the loan as assurance / guarantee for repayment of the loan advanced.

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Upon default of repayment, then the chargee bank can use the charge property to satisfy the full outstanding amount.

How to get the full amount of the loan when there is a default of loan repayment? Chargee has 2 options / remedies under the NLC: 1. Sell the property charged in a public auction 2. Take possession of the land charged. However, chargee can only enjoy these remedies (protection) only if the charge is registered. This is in line with the concept of registration embedded in the Torrens system where interest in land must be registered before it can be recognised and protected under the NLC.

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Section 243: Every charge shall take effect upon registration. Only upon registration the land becomes a security.

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Section 240: The chargee gets indefeasibility of interest once the charge is registered.

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The charge is referred to as statutory charge upon registration. The chargee is entitled to statutory remedies to enforce the charge under S.253 and S.271. o

Kim Lin Housing Development Sdn Bhd v BBMB

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Once the charge is registered, both chargor and charge will enjoy the rights and protection in the NLC. If the charge is not registered, the remedies available are only under contract law as stated under S.206(3). When the charge is not registered, chargee can only apply for breach of contract as a remedy under contract law and is referred to as equitable charge. o

Under equitable charge, the chargee is not entitled to the statutory remedies provided under the NLC and S.340 is not applicable as chargee does not enjoy indefeasibility of interest.

REMEDIES: 1. Order for sale o

Commonly referred to as foreclosure.

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NLC prescribes different procedures for application of order for sale in respect of registry title and land office title. 

S.77(1) & (3)

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If the land charged is under registry title, the procedure for sale will be held under S.256 – 259.

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If the land charged is under land office title, the procedure for sale will be held under S.266 – s269.

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However, before the chargee can proceed with the remedy for sale, the chargee must observe the notice requirement provided under the NLC. Issuing notice before order for sale is one of the preliminary steps to be taken by the charge. The notice must be served in a form either by reference to S.254 or S.255.

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Issuing notice before sale is a mandatory requirement to be complied with by the chargor before applying for an order for sale from the high court in cases involving registry title or applying for an order for sale from the land office in cases involving land office title.

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National Bank of Australia v The United Hand in Hand 

Court discussed the consequences of failure to give notice. 1. Sale cannot be effected. 2. Registrar may refuse to register any transfer. 3. Chargor may obtain an injunction preventing the sale from proceeding.

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2 forms of notice (registry title) to be issued to the defaulting chargor before an order for sale could be applied by the chargee. 1. S.254: Provides for the chargee to issue a notice in Form 16D. Commonly referred to as a notice of demand where chargor breach the agreement to pay the monthly instalment. It is the most common reason for breach of agreement by the chargor.

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S.249(1)(a): If the breach continues for at least 1 month or such other duration specified and agreed by both parties in the charge agreement. The duration agreed cannot be less than 1 month.

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Notice in Form 16D normally contains 3 elements: a. Specifies the breach in question. o

E.g: Chargor defaulted in payment.

b. Specifies time to remedy the breach. o

E.g: Chargor should pay outstanding amount within a month.

c. Contains a warning to the chargor stating that if the chargor does not comply, chargee will take action to get an order for sale for the land charged. 

It can be seen through the requirement for the chargor to settle outstanding amount within the minimum of 1 month, not less shows that chargee agreed to proceed with the loan agreement that if the chargor complies with the notice to make payment of any outstanding amount.

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Co-Operative Central Bank Ltd v Meng Kuang Properties Notice in Form 16D should state the amount due.

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Siong Holdings Sdn Bhd v D&C Bank Whether or not the amount stated in the notice is accurate is not the duty of the court to ascertain so long as the court is satisfied that the chargor is unable to satisfy the loan. That is sufficient.

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Cempaka Finance Bhd v Abbas Yaakob The notice of demand in Form 16D should comply with the terms of the charge annexure before the chargee can enforce its claim. Faulty notice of demand must be dismissed. Chargee must issue the right notice to the right chargor.

2. S.255: Form 16E. Chargee is allowed to demand payment of the whole sum advanced even without default by the chargor. 

Normally, this kind of notice involves situations where the loan made by the chargor is for business purposes such as operating petrol kiosk. 

When the business planning is subject to approval from a certain authority and when the project has been rejected or there is no approval given, the chargee bank has the right to demand payment of the whole sum advanced to the chargor within 1 month from the date of service of the notice in Form 16E.

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Failure to do so will amount for the chargee to provide for the order for sale.

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It can be seen that the chargee has no intention to proceed with the loan agreement. The chargor needs to pay all the sum and discontinue with the loan agreement.

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VAM Hussain v BP Malaysia Sdn Bhd The charge agreement provides that in the event that the building plans by the chargor is disapproved by the relevant authorities, all the monies advanced by the chargee should be refunded. The plan is to turn the land into petrol pumps and was refused. Chargee sent notice in Form 16E under S.255 to demand payment from the chargor. Federal Court held that Form 16E was properly used as the monies sought to be recovered by the chargee were monies payable on demand. Here, the chargee did not allege any breach agreement by the chargor.

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Service of notice o

Methods and forms of service of notices: S.430 – S.433

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Kekatong Sdn Bhd v BBMB 

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Court explained S.431(1): It is designed to protect both the chargor and chargee. Chargor should not be deprived of his land and chargee should recover his money. But in doing so, service of notice should be done in the manner prescribed under the NLC. Hence, if the notice is not served in accordance with the law, the order for sale is void.

Standard Chartered Bank v Tunku Mudzaffar Tunku Mustapha

Registry title and land office title o

Application by the chargee for an order for sale shall be made to High Court under S.256(2) - RT

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Application by the chargee for an order for sale shall be made to the Land Administrator in Form 16G under S.260(2) - LOT

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Tan Teng Pan v Wong Fook Shang Land held under land office title where application is made to the High Court, the application will be refused. The proper procedure is to apply to the Land Administrator. The High Court has no jurisdiction to order for the sale of land upon application by the chargee because the application should be made to the LA at the LO. The order for sale in respect of LOT if made by the court under S.256 can be nullified and is of no effect.

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Application for order for sale made by the chargee must be applied to the right tribunal.

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Before the court / LA makes the order for sale in Form 16H:

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The court under S.256(3) for RT

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The LA under S.263 for LOT

Must satisfy that there is no objection made by the chargor to the order unless the chargor can prove the existence of cause to the contrary. 

Cause to the contrary refers to valid objection to the sale so that the sale will not proceed.

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Multi-Purpose Bank v Diamond Agreement Where the court / LA will not grant an order for sale if granting that order will be against any rule of law / any rule of equity.

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Kheng Soon Finance v MK Retnam Holdings

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Low Lee Lian v Ban Hin Lee Ban Bhd *landmark case

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Kuching Plaza v BBMB

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Based on decided cases, one of the reasons in which the cause to the contrary might be established to the chargor is when chargee fails to comply with issuing statutory notice / invalid service of notice / application made to the wrong tribunal / chargor challenge creation to the charge under S.340(2)(a) when elements of fraud are involved / chargor can challenge the creation of the charge which may violate any provision of the NLC or any other written law such as charge was registered contrary to restriction in interest or charge was created in favour of an unlicensed moneylender.

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Gurpal Singh v Kananayer: Power of the LA under S.261 is limited to only enquire whether the chargor has defaulted in the charge rather than to ascertain the merits of the charge or its validity.

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Power of the LA is purely administrative and limited as compared to the power of the judge / registrar of the High Court under S.256.

Matters to be dealt with o

Once the order for sale is made in Form 16H under by the court under S.256 and S.257(1) or made by the LA under S.261 and 263, the matters to be dealt by order for sale by the court or by the LA with must be looked into. o

S.257(1) & S.263(2) is more or less the same in terms of matters to be dealt for orders for sale by the court of LA. It is a mandatory requirement. 1. Sale must be effected by public auction and not by private treaty. 

Standard Chartered Bank v Packiri Maideen Where the order for sale must provided that the sale is to be effected by public auction. This is a mandatory requirement. The chargee could sell the land by private

treaty on default of payment but once proceedings is taken under the NLC, a public auction must be ordered. 

UMBC v Chong Bun Sun & Anor Issue is whether the chargee has the right to sell a charged land by way of private treaty subsequent to the making of an order for sale by public auction under S.257. In an application for an order for sale under S.256, the court must make an order for sale unless the court is satisfied by the existence of a cause to the contrary. The sale must be made in public auction. Once the court made the order, the court has no power to make a subsequent order or a new order to set aside the earlier order for the property to be sold by way of private treaty. In a foreclosure proceeding, the chargee must comply with the procedural rules set out in the rules of court. The manner of the sale and details are governed by the NLC that is sale by public auction.

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Eng Ah Mooi v OCBC Ltd

2. Sale to be held on a day not less than 1 month from the date of the order. 3. Need to specify the total amount due to the chargee at the date on which the order is made. Further, the registrar and the LA need to fix a reserved price for the purpose of the sale. The law gives the registrar and the LA discretion to fix the price equal to the estimated market value of the charged land.

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NKM Properties v Rakyat First Merchant Bankers

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Public Bank v Chan Tak Kow

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Eu Finance v Sim Seng Organization

What happens after order for sale is granted? 

Registry title: S.258 – Registrar will serve a copy of the order for sale on the chargor and advertise in the newspaper / posters that the order for sale is to be done by public auction.

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Land office title: S.264 - Land administrator will give a public notice of the order for sale.

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Afterwards, the chargee prepares conditions of the sale according to the court order and will then deposit the IDT to the court not less than a week before the auction date.

What happens during the sale? 

Registry title: The sale will be carried by an officer of the court – S.259

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Land office title: The sale will be carried out by the land administrator – S.265

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Court / LA may get assisatance for the sale to be carried out by a licensed auctioneer. The auctioneer receives the bids and will conclude in favour of the highest bidder after the fall of the hammer.

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M&J Frozen Sdn Bhd v Siland Sdn Bhd

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Land office title: LA can postpone / withdraw the auction under S.265(3) when there is no bid received / no bid received above reserved price.  The LA may withdraw / schedule the public auction up to a maximum of twice only, after which he must withdraw the land from the sale and refer the matter to the court.

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Registry title: It can be offered for sale by public auction endlessly without limit.

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Collector of Land Revenue Kg Baru v Yusof bin Yunus

Process of bid 

RT – S.257(1): Any bidder who wishes to take part in the auction must submit at least 10% of the reserved price made in bank draft paid to the court. Successful bidder must then settle the balance of the purchase price within 120 days without extension or else the 10% deposited will be forfeited. 

Upon full payment of the purchase price by the successful bidder to the court officer, the bidder is entitled to receive 2 things from the auctioneer: 1. Form 16F under S.259(3)(a) – certificate of sale by the court which is registrable as an instrument of dealing at the land office. 2. IDT

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Land office title: Upon payment of the full purchase price to the LA, receives: 1. Certificate of sale – S.265(4)(a) in Form 16I 2. IDT

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No land title shall pass to the successful bidder / purchaser unless and until registration of the certificate of sale is effected.

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Cert of sale in Form 16F and 16I shall be treated as an instrument of dealing and when registered passes title from the chargor to the purchaser. Such title will be indefeasible within the terms of S.340.

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Effect of sale: S.267 – Land is then discharged from all liabilities under the charge.

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These cases explain that the registration of the certificate of sale confers indefeasibility of title the purchaser and the purchaser is no longer subject to any liability under the charge. However, the sale does not automatically terminate the rights of the chargee to sue the chargor under the personal covenant to pay if the proceeds of the sale are not enough or shortfalls to settle any amount due. o

Holee Holdings Sdn Bhd v Chai Him & Ors

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Gondola Motor Credit v Almurisi Holdings

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Siland & Anor v M&J Frozen Food Sdn Bhd

The liability of the chargor in the event of default in the payment of the principal sum and interest is 2 fold: 1. There is the liability of the land to be sold by auction at the instance of the chargee, freed and discharged from the charge and all subsequent charge is to realise the security. 2. There is the chargor’s personal liability on the contract to pay the balance, if any, on the sale. If the sale at the auction is not sufficient to cover the charge, chargor will still be liable to pay the deficit. The personal liability of the chargor arising on the covenants of the charge remains unimpacted notwithstanding the fact that he has transferred the charge.

2. Taking possession of the charged land o

Remedy of possession given to the chargee under the NLC is designed to allow the chargee to secure some payments & profits from the land whilst the title of the land still remains with the chargor.

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Objective is to attempt to recover some of the debt due by the chargor especially where the land is unable to be sold because of the state of the market. o

Normally, this remedy is exercised where the land is unable to be sold in the public auction (i.e. no bidders)

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Under the NLC, this remedy is limited to the registry title under the NLC and where the chargor is not in occupation of the land.

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Right to possession depends on the nature of the property charged.

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2 types: 1. Constructive possession o

S.272: When the land is occupied by a tenant / lessee, the chargee collects the rent which is supposed to be paid to the chargor. Chargee will serve Form 16J to the tenant / lessee

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S.273 & S.275: Chargee may lease the land & collect the rent.

2. Actual possession o

S.272: If there is no tenant / lessee on the land, the chargee takes actual possession of the land. Form 16K will be served to the chargor.

Malaysian Credit Finance v Yap Hock Choon Service of notice either in Form 16J or Form 16K is mandatory. In this case, the chargee sought possession but the action was dismissed since the chargee had not served the necessary Form 16K. o

S.254 (remedy for sale - notice of demand) has the same effect with S.272 in terms of procedure of service of notice before chargee can exercise the rights under possession. o

Notice must specify the breach and the period requiring it to be remedied. In the event that the notice is irregular or not in proper form, the chargor has a right to apply to the court to set it aside.

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However, if the chargor accepts the irregular notice, such acceptance will ...