Pursuant to section 340(1) of the National Land Code (“NLC”), registration is everything under a Torrens System and the state guarantees an indefeasible title to anyone who was registered on the register of title. Section 340(2) provides that title or interest can still be defeasible if it is acquired, inter alia, by fraud, misrepresentation, forgery or through an insufficient or void instrument. Section 340(3) further states that if the immediate purchaser (B) subsequently transfers the title or interest to a subsequent purchaser (C), the said title or interest are still liable to be set aside in the hand of C, unless C is a purchaser in good faith and for valuable consideration. Hence, only the subsequent bona fide purchaser and not the immediate bona fide purchaser will get an indefeasible title created out of a defeasible title. This has indicated the adoption of deferred indefeasibility in Malaysia Land Law.

However the case of Adorna Properties Sdn Bhd v Boonsom Boonyanit [2001 ] 1 MLJ 241 had caused legal uncertainty in Malaysian land law for nearly nine years. In this case, an impostor of the genuine landowner made a false statutory declaration that she had lost the original title to two pieces of lands in Penang, and successfully managed to obtain a certified copy of the title from the land office. The impostor registered the transfer of the lands to Adorna Properties for a sum of RM12 million. A three-member bench led by Chief Justice Tun Eusoffe Chin held that Adorna had obtained good title due to the proviso in section 340(3) would also apply to section 340(2), even though the properties were transferred to Adorna by way of a forged instrument of transfer, as Adorna was an immediate bona fide purchaser. Thus, Boonyanit lost everything as the forger had also disappeared with the money.

Adorna Properties has wreaked havoc in land transactions. Many landowners had also lost their properties due to forgery when their lands were immediately transferred to bona fide purchasers by forgers using forged instruments. The latest Federal Court decision in Tan Ying Hong v Tan Sian San [2010] 2 MLJ 1, a five-member bench of the Federal Court unanimously ruled that the previous Federal Court had misconstrued the provisions of section 340(3) in its decision of Adorna Properties because the principle of deferred and not immediate indefeasibility applies to the NLC. The Chief Justice, Tun Zaki Azmi also criticised the error committed by the Federal Court in Adorna as being ‘obvious and blatant’.

In the case of Tan Ying Hong, without the knowledge of the appellant, the State Government had alienated and issued the document of title of a piece of land in Kuantan in favour of him. A dispute arose when a crook, used a forged power of attorney of the appellant, the original registered owner, to mortgage the Appellant’s property to the bank to obtain overdraft and loan facilities in favour of Cini Timber. When Cini Timber defaulted in payment, the bank commenced foreclosure proceedings against appellant. In an unusual move, the counsels for both parties in this case called on the Federal Court to re-examine and overrule the Adorna’s case, because Eusoff Chin had erred as it was very clear in section 340(3) that the proviso only applied to “this sub-section (3)”.

On the facts of Tan Ying Hong case, the Federal Court held that as the bank is an immediate chargee as well as an immediate purchaser within the meaning of section 340(2), the proviso in section 340(3) that protects a subsequent bona fide purchaser for value will not assist the respondent bank. The Court added that it is immaterial that the land was alienated to the appellant without his knowledge as the validity of the alienation was not even challenged by the respondent bank. The Court then awarded a sum of RM75,000 as costs to the appellant, and the ownership of the land which now should be worth a few millions of ringgit reverts to the appellant.

Criticism after Tan Ying Hong case

Although the latest Federal Court’s decision was welcomed, but it failed to solve completely the problems caused by forgery. As the registration of title system in Malaysia failed to address the major problem with regards to the conflicting interests of the original owner and the subsequent bona fide purchaser. Under this system, when the subsequent bona fide purchaser for value obtained indefeasible title, the original owner might still lose his land although without negligence or fault of his own when someone forged his signature and transfer his land to another. Under such circumstances, the original proprietor who has been swindled out of his property has no recourse at all under the NLC. On the other hand, if the system allows for rectification as against the immediate bona fide purchaser, the ‘returns’ of the land to the original owner will cause injustice to the innocent immediate purchaser as he was not negligent and had merely relied on the register of title to complete his land transaction. The matter will become worse when there is no compensation or indemnity fund provided to protect the interests of the parties. In this respect, countries such as Australia have an assurance fund to compensate victims of land scams. However, as land is a State matter here, implementation of such a fund may not be straightforward.

 In every land scam, there are two victims involved – the genuine landowner and the bona fide purchaser. It is indeed a balancing act when deciding whose interest requires more protection and to what extent the landowner should be protected in the entire chain of dealings. In doing so, it must be borne in mind that if protection is given solely and wholly to the landowner, then Malaysia may not be so conducive for property investments.

Apart from that, the position of the holder of interest subsequently granted by an immediate registered proprietor with a defeasible title remains uncertain under NLC. In Tan Ying Hong case, Chief Judge of Malaya Tan Sri Arifin also held that, in obiter dictum, the decision of Datuk NH Chan in the case of OCBC Bank (M) Bhd v Pendaftar Hakmilik, Negeri Johor Darul Takzim [1999] 2 MLJ 511 as holding the OCBC Bank’s charge as invalid is wrong.

In OCBC Bank, the appellant bank was the chargee of a plot of land in Batu Pahat. The charge in favour of the appellant had been granted by one Ng See Chow (“NSC”) who was the registered proprietor of the said land. When the said NSC failed to pay for the overdraft facility, the appellant applied for, and the court granted, an order for sale of the land. However, one Ng Kim Hwa lodged a police report claiming that the land belonged to him and he claimed that he had not executed any transfer form in favour of NSC in respect of the land. The Court of Appeal dismissed the appellant bank’s appeal and held that the charge was invalid as any interest granted by an immediate proprietor or holder was also liable to be set aside.

This judgment was in compliance with the wording in section 340(3), as a subsequent chargee’s interest is indefeasible only if such interest is arising from a registered title, which is in the hand of subsequent bona fide purchaser, but not from the title of an immediate purchaser. However, the court held that the learned judge has misapplied the principle of deferred indefeasibility in that case because the appellant being the holder of subsequent interest in the land is protected by proviso in section 340(3).

Besides, Roger Tan has opined that the decision in OCBC Bank was wrong as the learned judge had misapplied the principle of deferred indefeasibility by overstretching it. He added that if the principle been properly applied, the charge in favour of the appellant bank would have been valid as the land had already been transferred to the forger before the charge was created and the bank was therefore a “subsequent purchaser” entitled to protection under the proviso of section 340(3).

Tan then referred to the paper entitled “Basics of Indefeasibility under the National Land Code” presented by Professor Teo Keang Sood stated that, ‘It is also crucial to note that section 340(2) does not provide that any interest subsequently granted by an immediate registered proprietor with a defeasible title is also liable to be set aside as being an interest subsequently created out of a title rendered defeasible under section 340(2), it comes within section 340(3)(b) which is enacted to deal with the position of a subsequent registered proprietor or holder of such an interest. If NH Chan JCA’s interpretation of section 340(2) is correct, it would mean that no subsequent interest created out of a defeasible title can ever come within section 340(3) and the proviso therein notwithstanding that the acquirer has acted in good faith and given valuable consideration. This is stretching the concept of deferred indefeasibility a little too far. It is unwarranted to restrict the scope of section 340(3) and the proviso thereto in such a manner. All that section 340 intended is that the immediate registered proprietor should not have the benefit of the quality of indefeasibility conferred on him where the vitiating factors apply.’

Besides, in the case of Owe Then Kooi v Au Thiam Sheng [1990] 1 MLJ, it was held that the title of the immediate purchaser was defeasible and the title of the property reverted to the original innocent proprietor. However, the interest in the charge, remained vested in the bank (holder of interest subsequently granted by an immediate registered proprietor with a defeasible title). However, if such charge is valid, it would mean that the original proprietor would get back his title which is subject to a charge. The original proprietor could still lose his land, unless he pays off the bank loan to discharge the charge. Since this is unfair to the original proprietor who is innocent, so there is still a need to be vigilant. On the other hand, if the land is reverted to the original proprietor, it will cause injustice to the innocent immediate chargee as there is no compensation or assurance fund provided. 

·      OCBC Bank (M) Bhd v Pendaftar Hakmilik, Negeri Johor Darul Takzim [1999] 2 MLJ 511
·      Adorna Properties Sdn Bhd v Boonsom Boonyanit [2001 ] 1 MLJ 241
·      Tan Ying Hong v Tan Sian San [2010] 2 MLJ 1]
·      Owe Then Kooi v Au Thiam Sheng [1990] 1 MLJ 234
·      Vassos v State Bank of South Australia, [1993] 1 VR 318
·      Breskvar v Wall [1971] 126 CLR 376
·      Bank SA v Ferguson [1998] 151 ALR 729
·      Poh Yang Hong v Ng Lai Yin & Ors [2010] 8 CLJ 323
·      Ahmad Moosdeen LLB (Hons) (Singapore) Advocate & Solicitor, Article: ‘On the Proviso in Section 340(3) of the National Land Code 1956 [2002] 2 MLJA 66
·      Richard Wu (Associate Professor, Faculty of Law of the University of Hong Kong) and Mohd Yazid bin Zul Kepli (Researcher), Article: ‘Implementation of Land Title Registration System in Malaysia: Lessons for Hong Kong [2011] 1 MLJ lxvi
·      Shanmuga K, Landowners still not fully secure
·      Article: Federal Court to deliver major decision on property sales by forgers this Thursday
·      Article: Adorna Properties decision obviously and blatantly erroneous, declares the Federal Cour
·      Article: ‘Federal Court to deliver major decision on property sales by forgers this Thursday
·      Prof Teo Keang Sood, Demise of Deferred Indefeasibility under the Malaysian Torrens System
·      Report of the Property Law and Equity Reform Committee on the decision in Frazer v Walker 
·      MLC 2010: Recent Federal Court’s Decision on s340 of the National Land Code 1965: Tan Ying Hong v. Tan Sian San & Ors – Are Landowners and Banks Secured?’
·      Pamela O’Connor, Deferred and Immediate Indefeasibility, Bijural Ambiguity in Registered Land Title Systems, 2009 Edinburgh Law Review 
·      Paul Matthews, Registered Land, Fraud, and Human Rights, 2008 Law Quarterly Review
·      Lynden Griggs, Identity Fraud and Land Registration Systems: An Australian