INDEFEASIBILITY OF TITLE AND INTEREST

Areej Torla areej@iium.edu.my

Introduction

Registration confers an indefeasible title or interest i.e. a title/interest which is free from all adverse claims or encumbrances not noted on the register.

All registered title and interests are guaranteed by the State to be good against the whole world in the absence of fraud or other vitiating circumstances statutorily specified or judicially laid down

Meaning of “indefeasibility” The concept of indefeasibility is,

however, not defined in the NLC. An explanation of the concept can be

found in Frazer v Walker [1967] AC 569:

“ the immunity from attack by adverse claim to the land or interest in respect of which he is registered, which a registered

proprietor enjoys. This conception is central in the system of registration”.

Indefeasibility under the NLC Section 340 Indefeasibility is, however, not

absolute. Under certain circumstances, a

registered title or interest may be set aside or defeated.

The exceptions to indefeasibility are laid down in Section 340(2).

Types of indefeasibility

2 types:1. Immediate indefeasibility2. Deferred indefeasibility

Immediate indefeasibility The registered title or interest of the

transferee immediately to the vitiating factors (immediate transferee) will be conferred statutory protection i.e. indefeasibility, the vitiating factors notwithstanding.

Immediate indefeasibility will attach so long as the immediate proprietor or transferee acts in good faith and gives valuable consideration for the title or interest acquired. (Bona fide purchaser for value or “BFPV”)

Immediate indefeasibility

Transferor

Immediate

Transferee

(BFPV)

FORGERY

Indefeasible title

Deferred indefeasibility

Statutory protection is conferred on the subsequent transferee who is a bona fide purchaser for value.

Indefeasibility is postponed in favour of a transferee who subsequently acquires the title or interest.

Deferred indefeasibility

Boyd v Mayor of Wellington:

“Registration does not cure the defects in a statutory instrument but

acts merely as a root of title”.

Deferred indefeasibility

TransferorImmediate transferee

(BFPV)

Subsequent

transferee(BFPV)

FORGERY

TITLE IS DEFEASIBLE

INDEFEASIBLE TITLE

Immediate or deferred?

Does the NLC provide for immediate indefeasibility or deferred

indefeasibility???

Read Section 340 of the NLC (Subsections 1-3)

Section 340(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.”

Explanation: The proprietor in whose favour

registration has been effected will obtain an indefeasible title to or interest in the land.

Section 340(2)

“The title or interest of any such person or body shall not be indefeasible(a) in any case of fraud… 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…”

Explanation: However, the title or interest so acquired is liable to be set

aside under section 340(2) where it has been obtained by, inter alia, fraud or forgery.

In the case of fraud, section 340(2)(a) provides for the title or interest obtained to be defeasible where the proprietor or his agent is a party or privy to the fraud.

In the case of forgery, section 340(2)(b) provides for the title or interest so acquired by the proprietor or transferee immediately to the forgery to be defeasible and liable to be set aside. This is so irrespective of whether the said proprietor or transferee acted in good faith in acquiring the title or interest. This is because there is no similar requirement, as in the case of fraud, that he must also be a party or privy to the forgery.

Section 340(3)

“Where the title or interest of any person or body is defeasible by reason of any of the circumstances specified in subsection (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.”

Explanation: Where the title or interest is

subsequently transferred, section 340(3)(a) provides that the subsequent proprietor or transferee will similarly obtain a defeasible title or interest.

Also under section 340(3)(b), any interest subsequently granted out of a title which is defeasible under section 340(2)(a) and (b) will attract the same consequence.

Proviso to Section 340(3)“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.”

Explanation: However, where the subsequent

proprietor or transferee acts in good faith and gives valuable consideration for the title or interest in question, the proviso to section 340(3) confers protection on such a subsequent proprietor or transferee such that his title or interest will be indefeasible.

Immediate Subsequent

purchaser purchaser

A B C

Cases…

Boonsom Boonyanit v Adorna Properties 1995 High Court: immediate

indefeasibility 1997 COA: deferred indefeasibility 2001 Federal Court: immediate

indefeasibility

Tan Ying Hong v Tan Sian Sang [2010] 2010 Federal Court: deferred

indefeasibility

Boonsom Boonyanit v Adorna Properties Facts: BB was the registered proprietor of the lands in

question. She discovered that the lands had been transferred to and registered in the name of Adorna Prop.

A person bearing her name, Boonsom Boonyanit, had forged her signature on the documents of transfer and sold the lands to Adorna.

Adorna had no knowledge that the transfer documents were forged and had no reason to suspect that they were forged.

Issue

Whether Adorna Properties, a bona fide purchaser for valuable consideration

without notice, acquired an indefeasible title to the land by virtue of Section 340(3) of

the NLC.

1995 High Court High Court: The proviso to sub-s (3) of s 340 of the Code

which reads: “Provided that nothing in this subsection 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” protects an immediate purchaser who obtains registration of his title or interest under a forged instrument because of the phrase 'any purchaser' appearing therein. The words 'any purchaser' must include the first purchaser/transferee who gets onto the register document of title in consequence of a forged instrument.

1995 High Court

Adorna was a bona fide purchaser for value and thus came within the proviso to section 340(3), with the result that they obtained a good title to the lands notwithstanding the forgery. 

High Court applied immediate indefeasibility

1997 Court of Appeal The Court of Appeal held that the words 'any

purchaser' in s 340 of the Code refers to a subsequent and not to an immediate purchaser, hence creating a deferred indefeasibility which benefits subsequent purchasers. The title of an immediate purchaser is defeasible if tainted by one or more of the vitiating elements set out in s 340(2) but creates an exception in favour of a bona fide purchaser who takes his title from such a registered proprietor. This bifurcation makes it clear that Parliament intended to confer deferred and not immediate indefeasibility.

1997 Court of Appeal

The COA reversed the decision of the High Court, and reinstated the deferred indefeasibility concept in section 340.

Adorna’s registered title was defeasible under section 340(2) and that the proviso to section 340(3) had no application.

The COA applied deferred indefeasibility

2001 Federal Court “The proviso to sub-s (3) of s 340 of the NLC deals with

only one class or category of registered proprietors for the time being. It excludes from the main provision of sub-s (3) this category of registered proprietors so that these proprietors are not caught by the main provision of this subsection. Who are these proprietors? The proviso says that any purchaser in good faith and for valuable consideration or any person or body claiming through or under him are excluded from the application of the substantive provision of sub-s (3). For this category of registered proprietors, they obtained immediate indefeasibility notwithstanding that they acquired their titles under a forged document…”

2001 Federal Court

“…We therefore, agree with the High Court Judge that, on the facts of this case, even if the instrument of transfer was forged, the respondent nevertheless obtained an indefeasible title to the said lands.”

2001 Federal Court Thus, it was held by the Federal Court that:

By virtue of the proviso to sub-s (3) of s 340 of the NLC, any purchaser in good faith and for valuable consideration are excluded from the application of the substantive provision of sub-s (3). For this category of registered proprietors, they obtained immediate indefeasible title to the lands. Therefore, on the facts of this case, even if the instrument of transfer was forged, the respondent nevertheless obtained an indefeasible title to the land.

The Federal Court applied immediate indefeasibility.

2001 Federal Court

This decision drew much criticism from academics as being clearly wrong.

It also caused grave concern amongst land owners who became vulnerable to losing their land even through the use of forged instruments of transfer.

Many courts reluctantly followed this case as it was a judgment of the highest court in Malaysia.

Tan Ying Hong v Tan Sian Sang 2010 (Federal Court)

Land was charged to bank under a POA.

Landowner was only aware of the charge when he received a notice of demand. He claimed that he had not signed the POA, that it was forged.

Findings of the High Court

High Court found that registration was obtained by forgery.

However the court was bound by the decision of the Federal Court in Adorna Properties which held, inter alia, that by virtue of the proviso to s 340(3) any purchaser in good faith for valuable consideration enjoyed immediate indefeasible title to the lands.

This meant that despite the court's finding that there was forgery, the third respondent obtained an indefeasible title to the land.

The appellant (landowner) appealed against the decision.

Issue

The issue before the Federal Court:

Whether an acquirer of a registered charge or other interest or title under

the NLC by means of a forged instrument acquires an immediate

interest or title.

Federal Court held:

From the authorities it was clear that a proviso to a subsection would not apply to another subsection and that a proviso carved out an exception to the provision immediately preceding the proviso and to no other. As such the proviso immediately after s 340(3) of the NLC is directed towards s 340(3) alone and not to the earlier subsection. This is supported by the use of the words 'in this subsection' in the proviso. Therefore its application could not be projected into the sphere or ambit of any other provisions of s 340

Further, even though s 340(3)(a) and (b) refer to the circumstances specified in s 340(2) they are restricted to a subsequent transfer of an interest in the land.

Therefore, a person or body in the position of Adorna Properties could not take advantage of the proviso to s 340(3) to avoid its title or interest from being impeached.

It is trite law that this court may depart from its earlier decision if the former decision sought to be overruled was wrong, uncertain, unjust or outmoded or obsolete in the modern conditions. As it was clear that the Federal Court in the Adorna Properties case had misconstrued s 340(1), (2) and (3) of the NLC and thus come to the erroneous conclusion that the proviso to s 340(3) applied equally to s 340(2), this error needed to be remedied forthwith in the interest of all registered proprietors

The Federal Court applied deferred indefeasibility.

Did not follow the FC decision in Adorna Properties.

Other cases….

Cases before 2001 Adorna Prop The prevailing view was that S 340

confers deferred indefeasibility. Mohammad bin Buyong v PHT

Gombak [1982] 2 MLJ 53 OCBC Bank (M) Bhd v Pendaftar

Hakmilik, Johor 1999 M&J Frozen Food v Siland [1994] 2

CLJ 14

 OCBC Bank (M) Bhd v Pendaftar Hakmilik, Johor 1999

forgery charge

COA: Deferred indefeasibility

BA Bank

Cases after Adorna Prop 2001

Cases after Adorna Prop (Federal Court) but before Tan Ying Hong 2010.

2005 Ismail Mohammad (High Court)

Ismail bin Mohammad 2005 High Court The bank, the registered chargee had no

knowledge of the fraud/forgery perpetrated by the other defendants on the plaintiffs who were the registered proprietors and vendors of the lands in question.

The bank was a purchaser in good faith and for valuable consideration, therefore acquired an indefeasible interest i.e. registered charge, pursuant to the proviso to section 340(3), notwithstanding the forgery.

The High Court applied immediate indefeasibility since it was bound by the decision of the Federal Court in Adorna Properties.