Deferred Indefeasibility As It was before the Federal Court in Adorna Properties

News of the Federal Court's decision in Tan Yin Hong v Tan Sian San & 2 Ors (Federal Court in Putrajaya, Civil Appeal No.: 02(f)-19-2009(c)) reversing its predecessor's decision in Adorna Properties Sdn Bhd v Boonsom Boonyanit (2001) 1 MLJ 241 was a cause for relieve and reason to celebrate. It has restored the correct position for purchasers and registered proprietors vis-a-vis the National Land Code, 1965.

340. Registration to confer indefeasible title or interest, except in certain circumstances.

(1) The title or interest of any person or body for the time being registered as proprietor of any land, or in whose name any lease, charge or easement is for the time being registered, shall, subject to the following provisions of this section, be indefeasible.

(2) The title or interest of any such person or body shall not be indefeasible-

(a) in any case of fraud or misrepresentation to which the person or body, or any agent of the person or body, was a party or privy; or

(b) where registration was obtained by forgery, or by means of an insufficient or void instrument; or

(c) where the title or interest was unlawfully acquired by the person or body in the purported exercise of any power or authority conferred by any written law.

(3) Where the title or interest of any person or body is defeasible by reason of any of the circumstances specified in sub-section (2)-

(a) it shall be liable to be set aside in the hands of any person or body to whom it may subsequently be transferred; and

(b) any interest subsequently granted thereout shall be liable to be set aside in the hands of any person or body in whom it is for the time being vested:

Provided that nothing in this sub-section shall affect any title or interest acquired by any purchaser in good faith and for valuable consideration, or by any person or body claiming through or under such a purchaser.

(4) Nothing in this section shall prejudice or prevent-

(a) the exercise in respect of any land or interest of any power of forfeiture or sale conferred by this Act or any other written law for the time being in force, or any power of avoidance conferred by any such law; or

(b) the determination of any title or interest by operation of law.

To quote an article in BERNAMA REPORT

PUTRAJAYA, Jan 21 (Bernama) -- Landowners can heave a sigh relief as the Federal Court here on Thursday pronounced a landmark decision protecting original landowners from losing their lands to forgers.

A Federal Court five-member bench led by Chief Justice Tun Zaki Azmi ruled that the controversial 2001 ruling in the case of Adorna Properties vs Boonsoom Boonyanit @ Sun Yok Eng, permitting fraudulent land transfer, was erroneous.

"I am legally obligated to restate the law since the error committed in Adorna Properties is so obvious and blatant.

"It is quite a well-known fact that some unscrupulous people have been taking advantage of this error by falsely transferring titles to themselves. I hope that with this decision, the land authorities will be extra cautious when registering transfers," Zaki said.

The other judges who presided with Zaki were Court of Appeal President Tan Sri Alauddin Mohd Sheriff, Chief Judge of Malaya Tan Sri Arifin Zakaria and Federal Court judges Datuk Zulkefli Ahmad Makinudin and Datuk James Foong Cheng Yuen.

Today's decision was welcomed by the Attorney-General's Chambers and the Bar Council.

The 2001 ruling had been strongly critised by landowners, the legal fraternity and academicians because it opened an avenue for fraudsters to fraudently acquire lands by forging documents, causing the principal registered landowners to lose their land through scam.

The interpretation applied to the proviso in the National Land Code by the previous Federal Court panel led by former chief justice Tun Eusoff Chin in the 2001 ruling protected subsequent innocent buyers of properties, where the titles were forged, leaving the original owners with little recourse.

The effect of the Adorna Properties principle conferred immediate indefeasibility of land title to a registered proprietor even if the instrument of transfer was forged.

In a unanimous decision departing from the Adorna Properties principle, Arifin said the previous Federal Court panel, in deciding on the Adorna Properties case nine years ago, had misconstrued Section 340 (1), (2) and (3) of the National Land Code, thereby making an erroneous conclusion.

He said the interpretation applied by the previous Federal Court panel had gone against the clear intention of Parliament and that error needed to be remedied in the interest of all registered proprietors.

The court was requested to revisit the Adorna Properties principle by counsel representing parties in a land matter dispute involving a businessman, Tan Ying Hong, and Cini Timber Industries Sdn Bhd and United Malayan Banking Corporation Bhd.

In that case, Tan was the registered proprietor of a nine-acre plot of land in Kuantan, Pahang.

However, a fraudster, who cannot be located now, forged a power of attorney from Tan and got the land charged to United Malayan Banking (now RHB Bank Bhd) to obtain loan facilities amounting to RM300,000 in favour of Cini Timber Industries.

Cini Timber defaulted payment and the bank commenced foreclosure proceedings on Tan, the registered land owner.

Tan then commenced legal proceedings to seek a declaration that the charges with the bank were of no effect as they were created by a forged power of attorney but his claim was dismissed by the High Court in 2003.

He brought the matter to the Federal Court after the Court of Appeal affirmed the High Court's decision. Today, the Federal Court set aside the High Court decision and allowed Tan's appeal.

It also ordered that Tan be paid RM75,000 in litigation costs for court proceedings in the lower court and federal courts.

Meanwhile, outside the court, Head of the Civil Division in the Attorney-General Chambers (AGC) See Mee Chun said today's decision had addressed the contentious issue.

She said the AG's Chambers was also looking at other aspects including amendments to the National Land Code to further protect registered owners.

Counsel Roger Tan, who held a watching brief for the Bar Council, said that after nine years of waiting, many landowners could finally see some light that their properties would be safer.

He hoped the lower courts would apply this new principle when adjudicating similar court cases on land disputes.

Adorna Properties was severely criticized as having ridden protection of purchasers under the NLC. In subsequent decisions, the Courts have strived to distinguish and give reasons not to follow Adorna Properties, such as Au Meng Nam & Anor v. Ung Yak Chew & Anor (2007) 4 CLJ 526 Court of Appeal, where is his lordship, Dato' Gopal Sri Ram JCA (as he then was) decided that the ratio in Adorna Properties was made per incuriam and should not be treated as binding because:-

• s.340(3) applies to subsequent acquirers of land, taking from a registered proprietor whose title is defeasible as stipulated in s.340(2), a class which Adorna Properties did not belong to because it took its title from a forger.

• the Federal Court overlooked some authorities which hold that the NCL provides for deferred indefeasibility such as Mohammad Bin Buyong v. Pemungut Hasil Tanah Gombak & Ors (1982) 1 LNS 114 and M.J. Frozen Food Sdn Bhd v. Siland Sdn Bhd & Anor (1994) 2 CLJ 14.

• the then CJ (Tan Sri Eusoff Chin) equated purchasers and registered proprietors overlooking the provisions of s.5 NLC which defines then separately and differently.
  

Well, the correct position is restored and the loophole is now plugged, eventhough 9 years later.