KUALA LUMPUR, Thurs: A five-member bench of the Federal Court today unanimously ruled that the previous Federal Court had misconstrued the provisions of section 340(3) of the National Land Code, 1965 ("NLC") in its decision of Adorna Properties Sdn Bhd v Boonsom Boonyanit 2000 ("Adorna Properties") because the principle of deferred and not immediate indefeasibility applies to the NLC.
Delivering the main judgment of the apex court, Chief Judge of Malaya, Tan Sri Arifin Zakaria said the Court has to depart from Tun Eusoff Chin's four-page judgement in Adorna Properties as it is erroneous. Tan Sri Arifin also held that the decision of Court of Appeal Judge Datuk NH Chan in OCBC Bank (M) Bhd v Pendaftar Hakmilik, Negeri Johor Darul Takzim 1999 in so far as holding the OCBC Bank's charge as invalid is wrong as the learned judge has misapplied the principle of deferred indefeasibility in the case.
In delivering his supporting judgment, Chief Justice Tun Zaki Azmi described the error committed in Adorna Properties as "obvious and blatant". He added that it is a well known fact that some unscrupulous people have taken advantage of this error by falsely transferring titles to themselves.
In an immediate response, counsel for Bar Council, Roger Tan, who is also a former Chairman of its Conveyancing Practice Committee, described the decision as a victory for all landowners in this country. He said the Bar welcomes the decision despite a gruelling wait of more than nine years.
"The Bar hopes that judges below will from now on follow today's decision made by this powerful panel of Federal Court, and that no judge would deviate from this decision on the ground that there now exists two conflicting decisions of the Federal Court because today's decision is equivalent to having overruled or reversed Adorna Properties", said Tan.
The Federal Court is finally able to revisit Adorna Properties today after more than nine years when the Court granted leave in May last year to the appellant landowner Tan Ying Hong to appeal on this question: "whether an acquirer of a registered charge or other interest or title under the National Land Code, 1965 by means of a forged instrument acquires an immediate indefeasible interest or title."
The case before the Federal Court can be traced back to 1976 when without the knowledge of Ying Hong, the Pahang State Government had "mysteriously" alienated and issued the document of title of a nine-acre plot of land in Kuantan in favour of him. Ying Hong only came to know about the existence of the land in 1985 when he received a letter from the United Malayan Banking Corporation Bhd (now RHB Bank Bhd) demanding repayment of the sum of about RM300,000 being the outstanding loan sum granted by the RHB Bank to Cini Timber Industries Sdn. Bhd.
Upon enquiry, Ying Hong discovered that the conman, Tan Sian San, who is now missing and not related to Ying Hong, had forged Ying Hong's signature by creating a power of attorney in favour Sian San himself in 1977. With the forged power of attorney, Sian San had charged the land to RHB Bank in 1984 as security for the loan facilities granted to Cini Timber Industries Sdn. Bhd.
The High Court dismissed Ying Hong's application in 2003 and this was affirmed by the Court of Appeal last year. The appeal was heard on October 29 last year before Tun Azmi, Court of Appeal President Tan Sri Alauddin Mohd Sheriff, Tan Sri Arifin and Federal Court judges Datuk Zulkefli Ahmad Makinudin and Datuk James Foong Cheng Yuen.
On the facts of the case, the Federal Court held that as RHB Bank is an immediate purchaser/chargee within the meaning of s 340(2), the proviso that protects a subsequent purchaser/chargee who is a bona fide purchaser for value in s340(3) will not assist the respondent bank. The Court added that it is immaterial that there is evidence to show 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.
Appearing before the Court today were T. Mura Raju who acted for Ying Hong, and Datuk Bastian Pius Vendargon and Ong Siew Wan acted for RHB Bank.
Head of the Civil Division in the A-G’s Chambers, See Mee Chun appeared for the Attorney General as amicus curiae whilst Roger Tan and Tony Woon appeared as amici curiae who held a watching brief for the Bar Council.
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.