Malaysia Federal Court rules on interest of subsequent purchaser in land obtained by fraud

29 November 2021

See Leong Chye & Anor v United Overseas Bank (Malaysia) Bhd & Anor appeal [2021] 6 CLJ 560

In See Leong Chye & Anor v United Overseas Bank (Malaysia) Bhd & Anor appeal, See Leong Chye and See Ewe Lin (“See brothers”) were the registered proprietors of a piece of land that was transferred to Heveaplast Marketing Sdn Bhd (“HMSB”) pursuant to an agreement entered into by HMSB and individuals purporting to be the See brothers (“SPA 1”). HMSB obtained a loan from United Overseas Bank Bhd (“UOB”) to part-finance the purchase and charges were created by HMSB in favour of UOB. Pending the completion of SPA 1, HMSB entered into another agreement to sell the land to Kum Hoi Engineering Industries Sdn Bhd (“Kum Hoi”) (“SPA 2”) and Kum Hoi obtained a loan from Public Bank Berhad (“PBB”) to part-finance the purchase. As part of the transaction of SPA 2, HMSB and UOB gave an undertaking to PBB to refund monies if the land could not be transferred to Kum Hoi and in the event that UOB’s charges could not be discharged. Upon discovering that the land had been transferred to HMSB, the See brothers lodged police reports and a registrar’s caveat was entered on the title of the land which resulted in the transfer of the land to Kum Hoi, the discharge of the charge in favour of UOB and the charge in favour of PBB not being registered.

The See brothers sued HMSB, UOB and the solicitors involved for damages and recovery of the land and, in turn, HMSB sued the Registrar of Land and Mines for an indemnity and contribution. The High Court held that HMSB had obtained the land through fraud and forgery instruments and as such these instruments were a nullity and incapable of conferring any right, interest or title in favour of HMSB and UOB respectively and as such both HMSB’s title and UOB’s interest were defeasible under section 340 of the National Land Code (“NLC”).

The Court of Appeal allowed UOB’s appeal against the See brothers, finding that UOB’s interest in the land was indefeasible under section 340 of the NLC as UOB was a subsequent purchaser for good consideration.

The central issues the Federal Court considered were (i) indefeasibility of title and interest and the question of when a party is an immediate or subsequent purchaser under section 340 of the NLC and (ii) the circumstances under which a term may be implicated to a letter of undertaking.

The Federal Court dismissed the appeals and held as follows:

• HMSB became an immediate purchaser when it was registered as the owner of the land pursuant to SPA 1 and, in that capacity, had created the charges in favour of UOB thereby making UOB a subsequent purchaser and the proviso to section 340(3) of the NLC applied. As there was no evidence contrary to the supposition that UOB was a bona fide purchaser for value, UOB’s interest in the land was indefeasible and could not be set aside.
• In relation to the issue of whether the Court of Appeal rightly held that the obligation of PBB to lend was conditional on HMSB’s ability to transfer the land to Kum Hoi, the Federal Court held that they were not persuaded that the Court of Appeal was not justified to rule that there was an implied term in the UOB undertaking that the undertaking did not come into effect until such time as the condition precedent had been satisfied. As the sale transaction had been aborted due to no fault on the part of Kum Hoi and PBB, it followed that the condition precedent could not be satisfied. The underlying basis for granting the loan to Kum Hoi was that the land must have been transferred to Kum Hoi so as to enable Kum Hoi qua registered owner of the land to then create a charge in favour of PBB.