Exam 15 January 2018, questions and answers PDF

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LAW554 LAND LAW II PAST YEAR QUESTION 1 & 2 JAN 2018 1 PART A QUESTION 1 Wak Domok (WD) is the registered proprietor of a piece of agricultural land in Kuala Selangor (the said land. Some of his crops failed and he required some cash immediately. He approached Mr. Manillingam (MM), t...

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LAW554 LAND LAW II PAST YEAR QUESTION 1 & 2 JAN 2018

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PART A QUESTION 1 Wak Domok (WD) is the registered proprietor of a piece of agricultural land in Kuala Selangor (the said land. Some of his crops failed and he required some cash immediately. He approached Mr. Manillingam (MM), the local moneylender. MM suggested that WD execute a transfer promising that upon payment of the RM50,000 loan, the said land will be retransferred to WD. Payment was agreed to be made within 24 months. The transfer was registered on 7 January 2011 and simultaneously RM50, 000 was disbursed in favour of WD. MM subsequently deposited the issue document of title (IDT) of the said land with Hj. Bakhil (HB) as security for a loan of RM70,000. HB who was busy preparing for umrah with his new wife, Nona did not enter a Lien Holder’s Caveat. MM persuaded HB to allow him to make the “necessary arrangements with a lawyer friend in town” for the lodgement of a Lien Holder’s Caveat. Armed with the IDT, MM enters into a sale and purchase agreement with Tora on 24 October 2011. Tora paid the sum of RM10, 000 being 10% deposit of the purchase price to MM. Tora then made a search on the Register Document of Title and lodged a Private Caveat. MM returns the IDT to HB and disappeared, possibly to India. What is the legal position of WD, HB and Tora?

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The first issue arises is whether there is a valid creation of Jual Janji transaction between Wak Domok (WD) and Mr.Manilingam (MM). Generally, jual janji is a type of security transaction and classified as a type of personal law transaction practiced commonly amongst the Malay Muslim community. Literal transaction of the phrase means a sale of a promise or conditional sale. In the simple words, jual janji is a sale of promise in the form of conditional sale where the land is used as security to secure the loan which is small in size and value. Jual janji arises where a proprietor uses his land as a security for a loan granted by the lender to the borrower. The lender might be a person or non-person such as a bank or company. The loan could be for the proprietor of the land or to others not being a proprietor but obtain consent from the same. It should be noted that in the event of default towards payment of the loan by the borrower, the land which has been pledged as security towards the loan will be used to recover the amount due. There are four elements of jual janji transaction, namely, the lender, the borrower, loan and land. Jual Janji transction was devised by the Muslim community principally for the purposes of avoiding the payment of usury or riba or interest that is strictly prohibited by Islam. The Jual Janji transaction was presumed to have come into existence after the coming of Islam to Tanah Melayu to ensure all transactions comply with the teachings of Islam. The concept of Jual Janji transaction in early days is it is a form of oral understanding between the creditor and the borrower on the transfer of land from the borrower to the lender, as security for the loan, where the lender will return land to the borrower upon full settlement of the loan and there is no actual documentation or registration of any documents takes place. In the case of Tengku Zahara v Che Yusuf, it was held by Briggs J that the whole purpose of jual janji transaction is to provide a procedure for securing a loan without infringing the prohibition of usury which is binding on the conscience of all good Muslims.

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However, it should be highlighted that the practice of Jual Janji transaction was affected when the National Land Code 1965 as introduced the owner must comply with the mandatory requirement for registration of land titles. Dealings were regulated and Jual Janji transaction has to conform to the procedures of transfer of land. Thus, the land will be transferred into the name of the lender and a collateral agreement will be executed whereby the lender is obliged to transfer the property to the borrower upon full repayment of the loan. Besides, there are two types of interpretation by the judicial opinion on the Jual Janji transaction. Firstly, the application of Jual Janji through judicial opinion is by strict interpretation. In strict interpretation, the general rule is that the time is of essence in the contract. However, there are exceptions to the general rule which are extension of time and evading payment of loan. In the case of Hj Abdul Rahman v Hassan, an agreement in writing was made in 1895 provided that as security for a debt, the owner’s land should be transferred to the creditor and it should be condition of the agreement that if the debtor repaid the debt within 6 months, the land should be reconveyed to him. In 1913, the debtor who had not repaid the debt, sued to redeem the land. However, in this case, the court held it was not a security transaction or mortgage as the only form of mortgage in Malaysia is charge or lien. Since it was a contract, the suit was barred by Limitation Enactment and if the action had been brought within the limitation period, the debtor would have been able to recover the land even if the period of 6 months mentioned in the agreement had expired. Thus, it can be said that if the borrower failed to comply with the terms of the contract, the court will not assist him to invoke the terms of the agreement such as to obtain retransfer of the land and the court only will assist the borrower by Specific Performance if the borrower settles the loan within the time frame but the lender refuses to retransfer the land.

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Secondly, under the liberal interpretation, the court is of opinion that the collateral agreement for a retransfer in Jual Janji transaction is in the nature of an equitable security transaction whereby the right to redeem remains irrespective whether the period for repayment had lapsed. In the case of Halijah v Morad, the agreement was that the respondent agreed to hand over the possession of their land to the appellant in consideration of a sum of money they had received from the appellant. The appellant agreed to hand the land back to respondent if they had paid the same amount of money and expenses incurred in the development of the land. In this case, the payment was not made within 3 years. It was held that Jual Janji transaction is valid and a sale by the lender in breach of the agreement would constitute fraud. Applying to the current case, it can be said that the elements of Jual Janji transaction have been fulfilled as in this case, MM is the lender while WD is the borrower which transferred his land as security for the loan granted by MM, the amount of the loan is RM50,000, and lastly, WD’s land in Kuala Selangor has been used as security for the loan. Besides, in determining the application of Jual Janji transaction between WD and MM by judicial opinion, strict interpretation may be applied as in this case, time is of essence of the contract between WD and MM where payment was agreed to be made within 24 months starting from 7 January 2011. So, MM only will be the registered proprietor when the time is lapsed and no payment made by WD. As a conclusion, there is a valid Jual Janji transaction between WD and MM as all of elements of Jual Janji transaction have been fulfilled and the time is made as of essence of the contract.

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The second issue is whether there is a valid creation of lien between Mr.Manilingam (MM) and Haji Bakhil (HB) under Section 281 of the National Land Code. In general, Halsbury Laws of England defined lien as the right of one man to retain the property belonging to another man until certain demand of the man in possession of the goods are satisfied. Whereas, Section 281(1) of the National Land Code defined lien as any proprietor or lessee for the time being may deposit with any other person or body, as security for a loan, his Issue Document of Title or, as the case may be, duplicate lease, and that person or body may thereupon apply for the entry of Lien Holder’s Caveat and shall, upon the entry of such a caveat, become entitled to a lien over the land or lease, There are two types of lien namely statutory lien and equitable lien. For the statutory lien, the Code prescribed 4 essential conditions precedent that must be fulfilled before the depositee or lender could obtain be considered to have created a valid lien. The perquisite elements under Section 281(1) are the deposit of Issue Document of Title (IDT) or duplicate the lease, keeping the IDT, intention to create lien and entry or lodgement of Lien Holder’s Caveat (LHC) The first element that must be fulfilled in order to create a valid creation of lien is deposit of Issue Document of Title (IDT) or duplicate lease. The element of deposit of the IDT by the registered proprietor, co-proprietor or lessee is an important condition to be fulfilled in order to create a lien. According to Section 281(1) of the Code, a lien can be created by the proprietor of alienated land, co-proprietor of undivided share or a registered lease holder. In the other words, this means that the right to create lien belongs only to the proprietor of the appropriate interest. The third party cannot create a lien on behalf of the proprietor. This requirement has been stressed by Watson JC in Peter P’Chient v Ramasamy

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Chetty, where he held that the right to deposit the title as security for a loan is restricted to the proprietor only. This however, was allowed in the case of Hong Leong Finance Bhd v Staghorn Sdn Bhd, where the court allowed lien to be created over the third party loan provided that there is an authorisation by the registered proprietor for the borrower to use the proprietor’s land as security for a loan granted in favour of the borrower by the lender. The second element to create a valid lien is keeping of IDT or duplicate lease. It should be highlighted that the lender must keep the IDT at all material time. In the case of Sitambaram Chetty v Ramanathan Chetty, Loh Chin Thye, the registered proprietor of the land created a lien by depositing IDT in favour of the defendant. The defendant protected his interest by lodging a caveat. The defendant then gave up IDT at the request of the registered proprietor and at the same time executed a charge over the land in favour of Plaintiff. The registrar refused to register charge because of the caveat. In this case, the Plaintiff applied to remove the caveat. It was held that the defendant lost his right as a lien holder at the moment he parted with IDT and his caveat was removed from RDT. The defendant also is no longer a secured creditor. Furthermore, the lender may part with the IDT provided that the lien is a statutory lien. Section 281(4) briefly allowed the lien holder to part with IDT upon written request made by the proprietor or lessee but only restricted to produce the IDT or lease at any Registry or Land Office. Besides, parting with the possession of IDT for purpose for which it is required under NLC or any other laws, will not cause the lien to be lost. In the case of Ormorm Manikavasagam Chetty v TJ McGregor, it was held that parting with the possession of the IDT to the land for a purpose other than that of giving up the lien would not cause the lien to be lost.

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Next, the act of deposit the IDT or duplicate lease also must be coupled or made with the intention to create lien. This can be inferred from the type of transaction entered into by the parties, the conduct of the parties as a whole and the nature of the agreement. Thus, the transaction must be a security transaction to obtain loan, the conduct of the parties which is deposit and keeping the IDT must be for the purpose of the loan and the agreement executed by the parties is a loan agreement. However, the element of intention is not satisfied if the possession of IDT was obtained through fraud or misrepresentation and the deposit of IDT as security was never authorised by the registered proprietor. Lastly, it should be noted that it is only after entry of Lien Holder’s Caveat that the lien will then take effect in law as provided in Section 281(a)(b) and Section 330 of the Code. In the simple words, lien is created only upon the entry of LHC and not before. The effect of lodgement of LHC are the lien is governed by the NLC, it will restraint all dealings with the land and in the event of default by the borrower, the lender is entitled to invoke remedy available under Section 281(2) of the Code. Lien Holder is entitled to apply for an Order for Sale. This can only be invoked after the lender had obtained judgment form the court for the amount due to him from the borrower. The remedy available under Section 281(2) of the Code is the right to recover debt is still within limitation allowed under Limitation Act and any delay will render the action statute barred. However, if there is no lodgement of LHC, the lien will become an equitable lien. Failure to caveat timeously will not, for that reason alone, causes the prior uncaveated lien to loose priority against later caveated interest. Equitable lien on the other hand is when the lender or creditor fails to enter LHC but still keep the title as security. The act of keeping the IDT, retains the right of the lender as lien holder. This type of lien creates an equitable interest in the land or lease. Creditor or lender possesses a right to a lien in equity which is enforceable by way of specific performance. 8

In the case of Mercantile Bank Bhd v The Official Assignee of the Property of How Han The, it was held that although failure to lodge a caveat does not entitle the depositee with whom the IDT is deposited, to a lien under the Code, he still possesses a right to it in equity, he can exercise that right by registering the caveat at any time. This is similar to the case of Standard Chartered Bank Bhd v Yap Sing Yoke, where Lamin J stated, “as the IDT was all time in the custody of the plaintiff, it had acquired a lien in equity over the land. The equitable interest is not affected by the absence of a caveat. The plaintiff had by right to lodge a caveat and may do so at any time under the provision of the National Land Code 1965. Applying these principles to the case above, the first element has been fulfilled as in this case, MM had deposited IDT to HB for the loan granted by HB. Next, the second element has been fulfilled as in this case even though the IDT was given back to MM as MM persuaded HB, who was busy preparing for umrah with his new wife, Nona to allow him to make the “necessary arrangements with a lawyer friend in town” for the lodgement of a Lien Holder’s Caveat. By referring to the case of Ormorm Manikavasagam Chetty v TJ McGregor, it can be said that HB may parting with the possession of the IDT to the land for a purpose other than that of giving up the lien as this would not cause the lien to be lost. Next, the third element has been fulfilled as there is intention to create lien when MM deposited the IDT of the said land to HB for the loan amounting RM70,000. The last element has not been fulfilled when HB failed to make entry to LHC. As a conclusion, in this case, as MM is not the registered proprietor of the said land as the time in jual janji transaction between WD and MM has not been lapsed and expired yet, so this means that the creation of lien is invalid. In addition to this, even if the said time is lapsed, the creation of lien is also invalid as HB failed to make entry of LHC which makes it will become equitable lien.

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The third issue is whether Tora has the right to enter into Private Caveat under Section 323 of the National Land Code. Caveat in general is restraint on dealing or preventing any dealings from being registered in the land office in respect of any land or particularly a land in dispute. There are two types of restraint on dealing under the National Land Code 1965, namely Caveats and Prohibitory Orders. According to Section 5 of the National Land Code 1965, caveat is defined as a registered caveat. It is to control, freeze or to stop any dealing of that particular land. In the other words, caveat is an interim procedure designed to freeze the position until an opportunity has been given to a person claiming a right under an unregistered instrument to regularise the position by registering the instrument. This is done by the entry of a document on RDT by making an endorsement onto the RDT. The entry of a document on the RDT will restrain all dealings with respect to the land. In the case of Eng Mee Yong & Anor v Letchumanan, Lord Diplock noted that the caveat system in Malaysia has served as the local substitute for the equitable doctrine of notice under English law. Private Caveat on the other hand is a personal caveat entered into by person who has interest under Section 323(1) or person claiming to have interest on the land which has not been decided by the court yet. Section 323 of the Code provides the relevant procedures to be complied with in order to enter a Private Caveat. In Section 323(2) and (3), a Private Caveat is entered by completing the prescribed statutory Form 19B stating expressly whether the caveat is to bind the land itself or only a particular interest in the land. The application must be supported by a Statitory Declaration made by caveator and accompanied by prescribed fees payable to Land Office.

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It should be noted that the Registrar is obliged to check if the application for the Private Caveat and upon examining the application form, the Registrar is required to ensure that the caveatable interest is clearly shown on the application form and the registrar must make an endorsement as provided under Section 324(2) by specifying the time and date of making the entry. The Registrar has no discretion to refuse to enter a private caveat if it fulfilled all the prescribed requirements. In Nanyang Development Sdn Bhd v How Swee Poh, the court held that the Registrar has no discretion in respect of an application which complies with the requirements of the Code, for it is up to the court to determine whether or not the caveat can remain. Section 324(3) provides that the Registrar shall serve Form 19A upon proprietor and or upon person who have interest vested in the land. Besides, a Private Caveat may be entered by those who has caveatable interest over the land pursuant to Section 43 which is the capacity of person allowed to deal with alienated land, Section 205(2) which is person capable dealing with land and Section 433A which dealing by and with non-citizens. Section 323(1)(a) states that anyone claiming title to or any registrable interest in any alienated land or any right to such title or interest is said to have a caveatable interest. In Million Group Credit Sdn Bhd v Lee Shoo Khoon, this case indicated that it is absolutely essential for the caveator to establish his interest is related to the land that he caveated. Caveatable interest also arises in the instances such as option to purchase in an unconditional binding contract and unregistered interest Besides, it should be noted that valid sale and purchase agreement confers caveatable interest. In Macon Engineers Sdn Bhd v Goh Hooi Yin, the respondent had agreed to purchase property from the vendor and paid 10% of the purchase price as deposit. He lodged a Private caveat. Subsequently, the vendor entered into another agreement to sell the land to the appellant who paid full purchase price. Mot was executed but could not be registered because of the respondent’s caveat. Appellant applied for removal of the caveat. In this case, 11

the Gills J held that “it would seem clear that the respondent cannot claim the title to or any registerable interest in the property in question merely on the strength of the sale agreement which is non-statutory and non-registerable instrument. But it cannot be denied that he has a right under the agreement to such title or interest by bringing an action for specific performance of the agreement. Whereas in the case of Ayer Hitam Dredging Malaysia Berhad v YC Chin Enterprise Sdn Bhd, Edgar Joseph SCJ stated that until and unless a purchaser has an enforceable contract for sale ...