A commentary on the Federal Court judgment in Samuel Naik Siang Ting[1]
Samuel has on the 22.3.2004 entered into a sale and purchase agreement with a developer and the joint venture proprietor for the purchase of the subject property (the lot). The full purchase price was paid; the title was transferred and registered in his name on the 6.12.2004. In 2007, The High Court held that the sale and transfer to Samuel was null and void as the developer are bare trustees having previously sold the lot to an earlier purchaser, they have nothing which they could sell. Samuel had no knowledge of the prior sale. Henceforth, purchasers could never be sure if the property they purchased could be taken from them subsequently, if this judgement is followed.
The purchase price of the earlier sale, financed by the respondent bank, was paid in full; while the loan was secured by an absolute assignment as the title was not issued at that point in time. In the meanwhile, the earlier purchaser defaulted on the loan.
On 26.7.2007 the respondent commenced action and default judgment was obtained against the developer, a consent judgment entered with the joint venture proprietor; between Samuel and the respondent, the matter was dealt with summarily under O 14A.
The concurrent finding of the courts *(as paraphrased by me, from the Federal Court’s judgment):-
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In the present case, as the sale and purchase agreement as well as the deed of assignment with the earlier purchaser are valid and enforceable; the subsequent sale and purchase agreement with Samuel is void ab initio and of no effect. It follows that the related transfer (Form 14A) must also be void and ineffective to create a registrable transfer. The Form 14A was in fact a void instrument, see para 70;
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We are not dealing with two parties with valid equitable interest in the land in question; but with one party (i.e. the respondent) who claimed to have an equitable interest in the said land as against the other party (i.e. the appellant) who has purchased the lot based on a void and invalid sale and purchase agreement and later registered his title thereto based on a void instrument, rendering his title defeasible under s 340(2)(b) of the NLC, see para 79;
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The relevant Form 14A in respect of the transfer of the title to the appellant was a void instrument and therefore Samuel’s title and interest in the lot was indisputably defeasible. The appellant was an immediate purchaser of the lot in question from its original registered proprietor. That being the case Samuel clearly could not enjoy the benefit from the proviso to sub-s (3). Once the court is satisfied that the transfer of the title to the appellant arose from a void instrument, to borrow the words of Arifin Zakaria CJ (Malaya) in Tan Ying Hong, “it automatically follows that they are liable to be set aside”, see para 85; and finally
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The Federal Court concludes: that the title of the registered proprietor (Samuel) who was a bona fide purchaser without notice under the National Land Code (Act 56 of 1965) can be defeated by the non-registered valid equitable interest of the respondent under the earlier sale and purchase agreement in respect of the same piece of land.
I shall not attempt a critique of the entire judgment but restrict myself to a commentary on the issue of competing interest, which our courts have so often falls into error.
My Comments
All agreements are contracts if they are made by the free consent of parties competent to contract, for a lawful consideration and with a lawful object, and are not hereby expressly declared to be void, see S 10 Contract Act, 1950. With due respect, I could find no provision in the Act which support the contention that the contract entered by Samuel with the developer and the joint venture proprietor, is void ab initio. In any case, there is nothing illegal about the consideration or object of the contracts because they are only contracts for the sale and purchase of houses, and neither do they come within any of the paragraphs of section 24 Contract Act, 1950.[2] The contract was in fact performed and where it is not, Samuel could maintain a suit against the developer and the proprietor for breach of contract and perhaps obtained specific performance.
Likewise, the earlier purchaser and his assigns could maintain an action against the developer and the joint venture proprietor where they had failed to perform their part of the contract; in fact under the present circumstances, it is not justified for the court to grant him an order for specific performance, in the face of the maxim that equity shall follow the law and the court could find no reason to defeat Samuel’s legal title, and his recourse would be limited to damages. I could find no law which makes either contract void ab initio.
The common law position for such competing interest can be surmised as follows –
The rule which declares that he who is first in time has the better title, proceeds upon the principle that a grantor shall not be allowed to derogate from his own grant. He cannot interfere with, or defeat, a right created by himself, but can confer only such interest, if any, as he has not already parted with.
But this rule of priority is subordinate to an exception in which equity follows the law and, that is to say, where the equities are equal, the law prevails; once the purchaser obtained the legal interest without notice, the rights are of a different level; hence the maxim of the oldest shall prevail shall have no application. Nevertheless, this exception only protect the purchaser who has obtained the legal title without notice and for valuable consideration – for the taking of the real estate after notice of a prior right for valuable consideration was a fraud, and took away the bona fides of the purchaser, making it mala fides; which is agreeable to the definition of fraud in the civil law.[3]
Where the legal owner’s title is challenged, his reply is that we are purchaser for valuable consideration; we ask no relief but only ask to be left alone, see Pilcher v. Rawlins[4]. The court of equity will not intervene and equity will follow the law.
The court of equity will have no reason to deprive the legal owner of his title unless there is fraud which took away the bona fide of a purchaser for valuable consideration; which is agreeable to the definition of fraud in the civil law, see Le Neve v. Le Neve[5].
The duality of ownership
A unique feature of the English legal system is that there were 2 courts of co-ordinate jurisdiction, a court of law and another court of equity (the Chancery Court). The court of law would only recognise legal rights (rights in law) and the court of equity would recognise both legal and equitable rights. The Court of Judicature Act, 1873 fuses the 2 courts but the concepts, doctrine and principles of law and that of equity remains distinct and separate; in the event of conflict, equity shall prevail. The two streams of jurisdiction, though they run in the same channel, run side by side and do not mingle their waters.
Hence, a landowner could be both legal and equitable owner (an absolute owner); or just a legal owner (trustee) and the beneficial owner (the equitable owner) is someone else. There is a duality of ownership.
It is trite law that the contractual obligations are rights and liability in personam. Neither the earlier nor later contract give the purchasers a right in rem, i.e. a right in property, pending the conveyance of the legal title; in the deed system by a deed of conveyance and under the Torrens system, by registration as provided under the National Land Code. Thus the earlier purchaser’s right remains a personal right against the counter-party and as the court could not justify a decree of specific performance he would not be able to obtain a right in rem, under the circumstance.
The Federal Court purportedly applied the principles of competing equities in coming to its judgment, see paragraphs 61 and 62 of the judgment, hence the Federal Court fell into error in stating that a bare trustee cannot transfer the legal title –
“That the proprietor, after having entered in the sale and purchase agreement with the earlier purchaser and received the full purchase price, had become a bare trustee and as such was not permitted to deal with the lots. We are in agreement with the Court of Appeal that the subsequent sales, transfer or conveyance of the lot to Samuel was void ab initio, as the proprietor did not have any legal or requisite capacity to enter the agreement”.
The joint venture proprietor was the legal and registered proprietor, his capacity to effect a transfer to Samuel is obvious. He may be a bare trustee for the earlier purchaser; nevertheless, their rights inter-parte lies in the law of contract and damages, of which the National Land Code has no part.
The position under the National Land Code
Even though the operation of the contract with the earlier purchaser is not affected by the provisions of the National Land Code, the contract is ineffective as an instrument transfer of the title from the joint venture proprietor to the earlier purchaser, see sections 206(1) (a) and (b) and (3) and per Lord Dunedin [Privy Council] in Haji Abdul Rahman[6]– “The agreement is valueless as a transfer or burdening instrument, but good as a contract”.
The transfer of title under the National Land Code could only be effected by an instrument in Form 14A, see S 215(1). If the instrument of transfer is fit for registration the Registrar of Title have no discretion but to effect the registration, S 297(a). In determining the fitness for registration, the Registrar is prohibited from enquiring if the transfer constitutes a breach of any agreement against assignment or sub-letting, S 303 (a) and in the case of dealing effected by a person … registered as trustee … he shall not be concerned to enquire whether the dealing is consistent with the trust …, S303(d).
The Federal Court’s decision hinged on it finding that the instrument of transfer is void due to the fact that the developer and joint venture proprietor lack capacity to enter into the contract with Samuel cannot be supported under the law of contract nor the aforesaid provisions of the National Land Code.
The joint venture proprietor remains the registered and legal proprietor at the time of the transfer to Samuel and there is no challenge to the fact that the title was regularly transferred to Samuel under the provisions of the National Land Code; prima facie, the Form 14A is fit for registration and not a void instrument.
The Federal Court fails to appreciate the duality of proprietorship and the fact that the joint venture proprietor is a bare trustee or even “a registered trustee” for the earlier purchaser, does not detract from the fact that he is still the legal and registered proprietor and the Form 14A is still fit for registration.
The position under the Torrens system
Sir Robert Torrens, writing in The Registration of Title, 1859 outlined that the main source of mischief in the conveyance of real property is that of dependent titles; i.e. each title is dependent on the previous title and the need to scrutinized, inter-alia, that no equitable interest remain outstanding. His panacea is the Independent title which is protected by “indefeasibility” –
Dependent title the source of mischief.
“The defects objected above have all a common source—”The dependent nature of titles.”
When title has to be traced back through successive proprietors, each instrument examined, each transaction scrutinized, to ascertain that all necessary formalities have been observed, and that no equitable interest er claim remain outstanding, “No man may venture to deal with his own land;” the experienced skill of the conveyancer must be had recourse to.
An enquiry which can only be conducted efficiently by men specially trained to the investigation of such intricacies, and which must be gone over afresh ab initio each time the property is dealt with, is necessarily attended with heavy costs.
A “dependent title” is a chain no stronger than its weakest link. Each transaction adds a fresh link, increasing the perplexity and the risk of loss.
Such retrospect as is indispensable when dealing with a “dependent title” must necessarily be a tardy process.
The cumbrous machinery required to be set in motion, the attendant risks, the time necessarily occupied in effecting mortgage, the costliness of the transaction and of the subsequent release when the title is “dependent,” render land an inconvenient basis of credit.
Hence, as a first principle, the South Australian Real Property Act creates “independent titles;” retrospective investigation is cut off ; each proprietor of the fee holds direct from the Crown subject to such mortgages, charges, leasehold or other lesser estates as may exist or be created affecting the land.”
Indefeasibility of title.
“Indefeasibility of the title created by registration follows of necessity as a corollary to the principle of “independent title,” and out of this again arises the necessity of providing a fund from which rightful heirs and others may be compensated for the value of land which they are debarred from reclaiming against persons who have acquired title by registration as purchasers, mortgagees, or otherwise through the operation of the law.”
Conclusion
The ratio in the Federal Court’s judgment reverted to the dependent title, i.e. see item (a) above “as the sale and purchase agreement as well as the deed of assignment with the earlier purchaser are valid and enforceable; the subsequent sale and purchase agreement with Samuel is void ab initio and of no effect”.
This is inconsistent with the Torrens principle of indefeasibility of title as provided by the National Land Code, S 340 and the basic Torrens concept that title to or interest in land vests and divests only on registration.[7] Basically under the Torrens system the land register is conclusive evidence of the description of the land. A third-party conducting an inquiry of the land need not go beyond the register to ensure that the land he or she is about to purchase is not fraught with encumbrances.[8]
In fact, the Federal Court’s judgment took away the protection of all bona fide purchaser, which was afforded by the common law; thus, such purchasers are more vulnerable under the National Land Code then under the common law – if the court’s ratio is to be followed. This is due to the Federal Court failure to recognise the maxim that equity follows the law, in the competition between an equitable and legal interest.
The finding that the Form 14A is void ab initio, flies in the face of the express provisions of the National Land Code which provides for the test of an instrument fit for registration.
Hence, I humbly submit that the ratio in the judgment is erroneous and cannot be supported.
Henry Kang Fang Hawe
19th March, 2019.
[1] Samuel Naik Siang Ting v Public Bank Bhd [2015] 6 MLJ 27.
[2] See the comments by Salleh Abas Cj (Malaya) Kin Nam Development Sdn Bhd v Khau Daw Yau [1984] 1 MLJ 256 at 260
[3] LE NEVE V. LE NEVE 1 VES. SEN. 64.
[4] (1872) L.R. 7 Ch App. 259 at p 263
[5] 1 VES. SEN. 64
[6] [1917] A.C. 209
[7] Borneo Housing Mortgage Finance Bhd v Time Engineering Bhd [1996] 2 MLJ 12
[8] Pushpaleela a/p R Selvarajah & Anor v Rajamani d/o Meyappa Chettiar and other appeals [2019] MLJU 134, at para 8, per Richard Malanjum CJ (Sabah and Sarawak)