GROUP 3 TUTORIAL 1 : CREATION AND TRANSFER

OF INTEREST IN MALAYSIA

Questions

1 Abu and Ali are twin brothers who live next to each other in a local village in the
middle of the city centre. They had inherited the land from their father.

Abu recently remarried. As a wedding present , Abu transferred his land to both
him and his new wife, Aishah. Six months ago, Ali received a penalty notice
from the Inland Revenue Board for an infringement of section 214(1)(4) (a)NLC
when Ali transferred part of his land to his wife.

Ali sold his land to a buyer name Arios.. They had appointed Ali’s solicitor ,
Hashim from Messrs Beef, Rendang & Associates as a stakeholder. Unhappy
with Hashim. Ali appointed a new solicitor, Malik from Messrs, Ayam, Masak,
Merah & Associates. Malik has advise him that Hashim has used part of monies
for the sale and purchase to set off his fees. This included the interest on the
monies held in the client’s account.

Advise Abu and Ali.

Adele - Abu and Aishah

Issue: whether Abu is allowed to transfer his land to both him and his new wife,
in other words, whether there is an infringement of s214 when Abu transferred
part of his land to his wife.

- S214(1)(a) NLC of the NLC prohibits the transfer of a part of any

alienated land or part of an undivided share therein.
- However, one way to get away with this is through transfer of the land or
undivided share to the intended transferee and himself as co-proprietor in
the land or undivided shares, which is what Abu did as he transferred the
land to both him and Aishah.
- Similar situation could be seen in Peter Lai Khee Chin & Anor v
 Collector of Stamp Duties, in which the decision was further accepted
by the FC in Tan Chiw Thoo v Tee Kim Kuay. (Paul Murugasu a/l
Ponnusamy (as representative of Nalamah d/o Sanga Pillaay
(deceased) v Cheok Toh Gong & Ors) - transfer of undivided share is
not illegal since there was judicial acceptance of such practice.
- *Elaborate facts of the case
- Therefore, there is no infringement of s214(1)(4)(a) of the NLC.
- Spouses - Stamp Duty (Exemption)(No.10) Order 2007

Anith - What is a stakeholder

- According to Tan Suan Sim v. Chang Fook Chen [1980], a stakeholder

is the vendor's attorney who agrees to keep the money that the buyer
pays upon execution of the relevant transfer until the transfer is
registered. The stakeholder would be responsible for returning the funds
to the competing purchaser to ensure loan payback if the registration is
not altered or moved forward.
- Burt v Cloude (english case)
- In order to protect the buyer, enable a smooth transfer of the land
between the vendor and the buyer, and prevent the vendor from fleeing
with the money needed to finish the transaction in the middle of it, a
stakeholder is necessary.

Audrey - Fee deduction

- Stakeholder cannot use the money to settle debt due to him from the
client but only if the monies were refunded to the purchaser and the
vendors ceased to be the solicitors, could the money be used to settle the
debt pursuant to rule 7 of the Solicitor’s Account Rules 1990
 (Selvaratnam a/l Vellupillai).

Kit Yee - Interest

- Burt v claude- interest can be kept

- TTH- can keep interest , but only after SPA done or forfeiture.

Fedryna - Recovery of monies ?

- The monies in the solicitor’s account can only be utilised based on the
terms specified in the SPA on how to dispose the monies.
- Based on Selvaratnam, Hashim has no rights to use the money even to
pay for his fees until the SPA is terminated.
- Yen chong Realty: must check whether the money was deposited to
stakeholder.
- In regards to the failure of stakeholder in fulfilling his duties, OCBC
Bank (M) Bhd v Lee Lee Fah & Ors and another appeal [2000] case has

held that the burden falls on the vendor since the form 14A is registered.
- Not registered, burdened will be on the purchaser since there is no
transfer of land.

2 Ishak owns a large piece of land in Kuah, Pahang. Ishak was getting on in age
and wanted to sell his land. The National Palm Oil Company bought the land
from Ishak. The sale and purchase agreement was signed and 50% of the
purchase price was paid by The National Palm Oil Company to Ishak’s solicitor,
Messrs A,B & C as the appointed stakeholder. Two weeks ago, the Government
of Malaysia obtained a judgment against Ishak for unpaid income tax and
registered a prohibitory order against Ishak’s title.

The National Palm Oil Company wants to remove the prohibitory order and
proceed with the sale of the Ishak’s land. Further, The National Palm Oil
Company has recently found out that their solicitor, Messrs X, Y and Z had not
conducted a search or enquiry with the Land Office to verify Ishak’s title over
this land.

Advise The National Palm Oil Company on their respective issues.

Iylia - Duties of solicitor

- A solicitor that has been appointed by a client prior to creating SPA,

needs to check the the identity of the vendor land for any encumbrances
such as charges or tenancy agreements attached to the land to ensure
the client is aware of the complete state of the land
- Applying to the national palm oil company’s solicitor
- Before the preparation of the SPA, The National Palm Oil Company’s
solicitor “Messrs XYZ” needs to go to the land office to search for any
encumbrances that are applied to the land and remove it before
approving the land for their client to purchase. This is in line with the case
of Neogh Soo Oh & Ors G Rethinasamy - where the solicitor did not
check all encumbrances of the land and it was found out that the land had
been gazetted by the government. Under Section 340(3) NLC, a failure of
a solicitor to investigate would affect the bona fide of the purchaser and
ability to claim protection under the courts and the solicitor was found to
be liable.
- Also seen in the case of Au Meng Nam & Anor v Ung Yak Chew -bought
the property for cheap without investigating the vendor’s identity and the
title of the land.
- Need to check the ln
- List out all the duties required by the solicitor (answer above answer the
the whole question)

Job - Solicitor - Negligent -

● In the case where a solicitor had failed to conduct the necessary

searches on the land, the protection awarded via S.340(3) of the NLC will
no longer be applicable.
● S.340(3) provides that a title is defeasible unless the purchaser bought in
good faith and valuable consideration. In the case of a solicitor failing to
 conduct the necessary searches, the bona fide of the purchaser will be
affected as it is up to the solicitor to ensure the veracity of the title , the
identity of the vendor and that the instruments of dealings were properly
executed and by the right parties.
● This was clearly shown in the case of Au Meng Nam & Anor v Ung Yak
Chew & Ors where the 1st Defendant had bought the property in haste
without any proper investigation into the title or the persons claiming to be
the proprietors from two rogues who were pretending to be the registered
proprietor of the land. The registered proprietors ( Plaintiffs) brought an
action against the 1st Defendant and the Defendant contended that he
was the bona fide purchaser of the said property. However the court
found that the plaintiffs had failed to take ordinary precautions which
ought to be taken in such a matter as such he is not entitled to protection
of the court.
● This was also supported by the case of Am Finance Bhd v Lebik bt Haji
Ali & Ors where the High Court held that the Plaintiff should have verified
the thumbprints on the charge documents were genuine or were affixed
out of the free will and own volition of the persons who affixed their
thumbprints. Such gross dereliction of duty, carelessness and negligence
does not deserve the protection of the law of court at all
● The previously mentioned case of Ngeoh Soo Oh has shown that the
solicitor would be found liable to compensate for the losses caused to the
purchaser is such negligence was shown
● In application of all the above cases, the National Palm Oil Company
should consider taking legal action against their solicitor, as the solicitor
would most likely be found liable to compensate the national palm oil
company.

- Kevin - Outcome of transfer as a result of solicitor’s negligence

Laws:
- Neogh Soo Oh v G Rethinasamy: failed to conduct land search at land office,
liable for negligence.
- Effects:
- S.340(3) provides that a title is defeasible unless the purchaser bought in good
faith and valuable consideration. In the case of a solicitor failing to conduct the
necessary searches, the bona fide of the purchaser will be affected as it is up to
the solicitor to ensure the veracity of the title , the identity of the vendor and
that the instruments of dealings were properly executed and by the right
 parties.
- Au Meng Nam / Am Finance: Failure to take ordinary steps without proper
investigation, affect bona fide purchasers and the ability to claim under s340(3).
Also Liputan Simfoni case, must take ordinary precaution or cannot claim under
s340(3).
- Accepted: Bonysoom / Tan Sian Sian
Applications:
- Here, Messrs X,Y,Z had not conducted a search or inquiry with the Land Office
to verify Ishak’s title over the land. This is similar to Neogh Soo Oh where the
solicitor failed to conduct a land search at the land office and was held liable for
negligence.
- Similarly, several cases above have provided that in order to claim for the
provisio under s340(3), solicitors must take ordinary precaution or else there
would be no protection of laws.
- As the facts are almost identical to Neogh Soo Oh, a simple search and inquiry
with the Land Office is an ordinary precaution and failure to do so is a breach of
duty from the solicitor. Because of this, it affects the ability to claim under
s340(3), leaving NPOC having no protection of laws and cannot claim under
s340(3) as it is not boda fide. Transfer not successful. The only recourse is to
sue for negligence against Messrs X,Y,Z.
-

Landy - What is a stakeholder

As stated in the case of Tan Suan Sim v. Chang Fook Chen, a stakeholder is someone who,
typically the vendor's solicitor, UNDERTAKE to hold the funds that the buyer would pay over
upon the execution of the relevant transfer until the transfer's registration, at which point he
would pay the vendor the funds. The appointment of a stakeholder would be required, and his
undertaking would be to retain the money until the transfer and the charge had been registered
before passing the money to the vendor, since the transfer and the charge would typically be
registered at the same time, one immediately after the other. If the registration is not affected or
proceeded with, then his undertaking would be to return the money to the competing purchaser
to secure the repayment of the loan.

Additionally, as discussed in the case of Toh Theam Hock v. Kemajuan Perwira Management
Corporation Sdn Bhd, it is held that the term "stake" is commonly used to refer to any money
that is to be disposed of in accordance with what may happen in the future; whoever is in
possession of the money is frequently referred to as a stakeholder. The conditions under which
the money is held determine how it should be used.

Given that a stakeholder's obligation under an SPA is to "facilitate a smooth completion of the
transaction between the parties right up to the stage of registration," as stated in the Tan Suan
Sim v. Chang Fook Chen case, it is their responsibility to hold the amount in question as a stake
pending the outcome of the event. Additionally, in accordance with Rule 3 of the Solicitors'
Account Rules 1990, the stakeholder will keep the remaining funds from the purchase or the loan
from the lender until the transfer or execution of the other instrument of dealings has been
registered. He will hold the funds until the conclusion of an event and then use them in
accordance with the conditions under which they are being held. Hence, The monies are held in
the solicitor's Client’s Account.

Leshana - Recovery of monies ?

The question that arises is who was to deal with the loss. This depends on when
the money was lost. If the documents are yet to be registered then the
Purchaser as in National Palm Oil Company has to bear the loss. However if the
documents have been registered, Vendor as in Ishak has to bear the loss.

Kuldip Singh v Lembaga Letrik Negara- if the stakeholder runs away, then the
loss should be on the person who, under the terms of the contract, had a claim
to the money at that time.

Tat Suan Sim v Chang Fook Shen- If the registration is not affected or
proceeded with, then stakeholder’s undertaking would be to return the money to
the contending purchaser to secure the repayment of the loan.
 Compensation Funds- S.80 LPA applies to all advocates and solicitors. It clearly
allows client to make a claim from the compensation fund for any loss suffered by
him from any dishonest act

What is the purpose of the Compensation Fund?

To mitigate the losses suffered by the member of the public ie the client of an
advocate and solicitor.

In this case the transfer did not occur yet.

3. i. Dahlia has a number of properties. Unfortunately, her business has

failed, and she owes her creditors over RM1 million. One of her creditors, Market
Business One has filed a petition to declare her a bankrupt for failure to pay her
debts to Market Business One. The Bankruptcy Order was obtained two weeks
ago. The Official Assignee intends to sell her properties to pay of her debts to her
creditors. Advise the Official Assignee.

Isobel

- The official assignee is transferred the property and estate of someone’s

assets when they become bankrupt.
- She is considered bankrupt as she is RM1m in debt. S5 of the Bankruptcy
Act 1967 claims that anything over RM100,000 is considered being
bankrupt. This is also found under s349 NLC.
- The official assignee then receives a Receiving Order and Adjudicating
order (AORO)- the final order. Then, the Official Assignee would have to
apply to the Registrar to register their clients name under Bankruptcy.
This is so they can pay off the debts of the bankrupt person using this
property.
- This must be the registrar of the high court.
- The registrar will endorse a memorial of the transmission on the register
document of the title of the land. The memorial must then be signed and
sealed by the registrar in order to secure the document title as stated
under s349 NLC.
- This prevents the bankrupt person from being sued as the creditor has to
be applied to to try and get this money back to the person owed money.

ii. Ratner bought her house with a loan from Overmoon Bank
in 2004. She obtained loan for 90% of the value of her property of
 RM500,000.00. She lost her job last year and has been unable to
make payment of her loan. Overmoon Bank wants to sell her house
to pay off her debts to the Bank. Advise Overmoon Bank.

Zara

- The issue here concerns whether Overmoon bank can sell Ratner’s
House in order to pay off her debt. In this scenario, as Ratner has lost her job
and is unable to pay back her loan, the remedy available to Overmoon bank
would be to apply for an order for sale from the High Court. This is where the
chargee takes possession of the chargors property and sells it off to settle any
existing debt that the chargor is unable to pay back to the chargee.

- If the order for sale is granted, Ratner’s property will be put through an auction
process, where the successful bidder/purchaser will obtain the title to the property
and the property itself provided that:

The successful bidder must be above the reserve price;

A deposit has been paid (if required); and

The balance purchase price has been settled within 120 days from the date
of the successful bid i.e. date of the sale.

- Form 16F under the NLC is used to transfer the property to the successful
bidder. Form 14a together with the certificate of sale will be used by the
highest bidder to register the transfer of property. After the sale is
completed, the revenue generated from sale will be used to set off Ratner’s
debt owing to the bank. If there is any balance the money will go to
Ratner.
 iii. Carnation is a 90-year-old millionaire with 10 houses. She
lives with her oldest son, Oak. All her houses are occupied either by
her children or grandchildren. She passed away in June of 2014
without leaving any will. Advise her children and grandchildren with
regards to her property.

Lucius

One type of transfer of land by operation of law is via the death of the registered
proprietor.

● Probate and Administration Act 1959: If the registered proprietor dies

intestate (without a will), a family member will apply for a “letter of
administration” from the High Court & administer the deceased’s estate
according to the law of intestacy under the Civil Law Act 1956.
● Under the Distribution Act 1958, the surviving spouse is the first person in
the list of priority to apply for the letter of administration.
● Application: However, the question suggests that the surviving family
members of Carnation are her children & grandchildren only. So it is likely
that Oak, her eldest son will be the one applying for a letter of
administration & thus becoming the administrator of Carnation’s
properties.

● Distribution of the intestate estates happens only after all the debts &
liabilities of the deceased have been paid off by the administrator.
● S.346 NLC: The administrator must submit the letter of administration (for
intestate cases) together with Form 14A in order for the Land Office to
transfer the land into the name of the entitled beneficiaries.
● The transmission application is then given effect through a memorial
signed & sealed by the Registrar, then a new land title will be issued with
 the name of the beneficiary.
● Application: After settling all the debts & liabilities of Carnation, if any, with
the property, the administrator, which is Oak, will have to submit the letter
of administration together with Form 14A in order for the Land Office to
transfer the land into the name of the entitled beneficiaries, which are the
children & grandchildren of Carnation.

● S.6 Distribution Act 1958 sets out the shares of distribution of intestate
estates, whereby if there are only surviving issues, meaning children &
grandchildren of the deceased, the distribution of the deceased’s estate
will be shared among the issues equally.
● Application: Since the only surviving family members of Carnation are her
children & grandchildren, the 10 houses will be shared among them
equally.

4 Since the dissenting judgment by Lord Denning in Burt v Claude Cousins &
Co Ltd and another [1971] 2 QB 426 , the concept and responsibilities of a
stakeholder has developed over the years.

Discuss the pertinent development of this concept.

Mariyam & Mazvita

Mazvita

- What is stakeholding
- How it works and how its recognised under Malaysian law through
common law
In Burt v Claude Cousins & Co Ltd [1971] 2 QB 426.. Lord Denning says that a
solicitors being a duly authorised on behalf, receives a deposit “as stakeholder”
is under a duty;

- To hold it in medio pending the outcome of a future event;

- Does not hold the deposit as agent for the vendor nor as agent of the
purchase . He holds it as trustee for both to await the event;
- Until the event is known, it is duty to keep it in his own hands ; or to put it
on deposit at the bank , in which case he is entitled to keep for himself
any interest that accrues to it.

Further

- Selvaratnam a/l Vellupillai v Dr. Jayabalan Karrupiah [2009] 1 MLJ 794

(FC) - stakeholder cannot touch money without the consent of the parties
even for themselves
- The bar has a compensation fund to partly reimburse those whose
solicitors run off with client’s money
- Lai Kee Peng ( Messrs Lai Kee Peng & Assoc) v tay Hup Lian [2016] 2
MLJ 21 (FC) - cannot release the money even if its a court order
- Toh Theam Hock v Kemajuan Perwira Management Corp Sdn Bhd [1988]
1 MLJ 116 (SC) - can take the interest from the money
- OCBC Bank case

Mariyam

Lord Denning's dissenting opinion in Burt v. Claude Cousins & Co. Ltd. [1971]
explained the stakeholder status of an estate agent or solicitor upon receiving a
deposit, and the House of Lords upheld this position in Sorrel v. Finch [1977].

According to Lord Denning, a solicitor who receives a deposit "as stakeholder"

and is lawfully empowered to act on their behalf has a responsibility :
 a. To hold it in medio pending the outcome of a future event

b. Does not hold the deposit as agent for the vendor nor as agent of the
purchase. He holds it as trustee for both to await the event.

c. Until the event is know, it is duty to keep it in his own hands,or to put it on
deposit at the bank , in which case he is entitled to keep for himself any interest
that accrues to it.

Stakeholders are not permitted to release funds to either party until the sale and
purchase agreement (or "SPA") has been fully registered, terminated, or the
vendor has forfeited the deposit in accordance with the SPA's provisions.

In the 2009 case of Selvaratnam a/l Vellupillai v. Dr. Jayabalan Karrupiah : A

lawyer who was found guilty of improperly exploiting a client's funds is the
appellant. He was accused of using funds kept in the client's account to offset
the fees and expenses the respondent owed him, and it was decided that the
solicitor had a duty to hold the redemption amount as long as the SPA was still
in effect.

The FC also clarifies that the money in the client's account that is kept in trust is
not money that belongs to the client but is instead being held by the attorney for
the benefit of other parties. It makes no difference if the solicitor has enough
money on hand to use for the purpose for which it was held in trust. The money
is still held in trust.

5 The recognition of the equitable principle of doctrine of bare trust is at odds with
the landscape of the Torrens system practised in Malaysia. Discuss.

Nicole and Shirley - What is bare trust ?

Malaysian position of “bare trust”:
 - In Malaysia, the term bare trust is to refer to the position when the purchaser has paid
the full purchase price but the memorandum of transfer has not been presented for
registration.

- The vendor becomes a bare trustee for the purchaser with the beneficial ownership in
the land once he or she has done everything that is necessary for him to transfer the title
and it was transferred to the purchaser such as where the purchase money has been
paid under Sale and Purchase Agreement and the vendor has given the purchaser a
duly executed, valid and registrable instrument of transfer. Vendor is the bare trustee
who holds the land on trust while the Purchaser is the equitable owner which he will own
the equitable title.

○ There are 4 criterias to fulfill for the concept of “bare trust” to occur in Malaysia:
■ Criteria 1 - There must be the existence of a valid contract / valid sale and
purchase agreement. (Existence of a valid contract)

■ Criteria 2 - The vendor must be the registered proprietor of the land /

have the title of the land.

■ Criteria 3 - The full purchase price of the property has been paid by the
purchaser. (full payment is paid)

-Ong Chat Pang v Valliappa Chettiar [1971]: Purchaser did not have
equitable title because only half the purchase price was paid. The court
held that the vendor had to do all the necessary steps to make sure the
purchaser’s title is perfect in order for the purchaser to get a title in equity.

■ Criteria 4 - Vendor has no duty to perform other than those of executing

the transfer

- In the case of Borneo Housing Mortgage Finance Bhd v Time

Engineering Bhd [1996] and the case of Tan Ong Ban v Teoh Kim
Heng [2016] / He-Con Sdn Bhd v Bulyah bt Ishak & Anor (as
administrators for the estate of Nor Zainir bin Rahmat, the deceased)
and another appeal [2020], It was held that there was a contract, full
purchase price was paid on time, but the transfer was not executed which
the 4th criteria was not done here, so the purchaser could not rely on the
concept of bare trust.

Besides that, in the case of Temenggong Securities Ltd & Anor v Registrar of Titles, federal
court held that the vendor becomes a bare trustee for the purchaser with the beneficial
ownership in the land passing to the latter where, under all the circumstances of the case,
specific performance of the contract will only be granted by the court. Thus, the prohibitory order
by the government cannot take effect when the vendor is a bare trustee and it can take effect
only when the vendor is still the legal owner of the property which was followed by the case of
Samuel Naik Siang Ting v Public Bank Bhd [2015].

Tan Ying Sheng & Tian Kai Ni - Why is bare trust an issue ?

In general, equitable principles are not applicable in Malaysia Torrens system in light of s.6 of the Civil
Law Act 1956 which prohibits application of equitable principles for matter in relation to immovable
property. The case of UMBC v Pemungut Hasil Tanah explained that the NLC is a complete and
comprehensive code of law. Thus, there is no room for the importation of any rules of English law in that
field except in so far as the Code itself may expressly provide for this. In another case of Haji Abdul
Rahman v Mohamed Hassan, the court highlighted that Malaysians court must not be too swayed by the
doctrines of English equity. Attention has to be paid to the fact that they were dealing with a totally
different land law which gave importance to title by registration and not registration of title. The
reluctance to apply the the equitable principle of bare trust can be seen In the case of Chin Choy & Ors v
Collector of Stamp Duties, Lord Roskill said that on obiter:

'However, the principle that once a valid contract for sale is concluded the vendor becomes in equity a
trustee for the purchaser of the estate sold is a peculiarity of English land law. But s 6 of the Civil Law
Ordinance 1956 of the Federation of Malaya expressly provides that nothing in that part of that statute
should be taken to introduce into the Federation ‘any part of the law of England relating to the tenure or
conveyance or assurance of or succession to any immovable property or any estate, right or interest
therein’. It is not, however, necessary for their Lordships further to pronounce upon this question in the
present appeal.'

This obiter dicta, however had been rejected by the Federal Court in Borneo Housing Mortgage
Finance v Time Engineering and affirmed that the doctrine of bare trustee applicable in a
modified form in Malaysia.

In addition, there are various cases which indicates that the concept of Bare trust does have a place in the
Malaysia Torrens system. In the case of Karuppiah Chettiar v Subramaniam , the federal court applied the
equitable principle of bare trust and held that the moment the purchaser had paid the purchase price in
full, the registered proprietor-vendor was merely holding the property concerned as a bare trustee for his
purchaser. This case was cited with approval by United Malayan Banking Corp Bhd v Goh Tuan Laye &
Ors. on the adoption of the bare trust concept. In the case of Temenggong Securities Ltd v Registrar of
Titles, Johore, the Federal Court in delivering the ratio decidendi adopted the well-established English
equitable doctrine of bare trust where bare trustees could not even lodge caveats on the properties they
held under trust. This is because a bare trustee does not have any interest in the properties which can be
the subject matter of a caveat. Having no interest on the properties, naturally, bare trustees have no right
to further deal with the properties. This was enunciated by Sir George Jessel MR in Lysaght v Edwards.
S.215(2) of NLC - The FC in Borneo Housing Mortgage Bhd v Time Engineering Bhd 1996 held
that the contractual events which result in the vendor becoming a bare trustee of the land for the
purchaser, is on completion of the sale and purchase agreement, that is to say, upon receipt
by the vendor of the full purchase price, timeously paid and when the vendor has given the
purchaser a duly executed, valid and registrable transfer of the land in due form in favour of the
purchaser, for it is then that the vendor divests himself of his interest in the
land.https://docs.google.com/document/d/1N1kl9XYyd0oN7ySWG3I2Aa-
lbfiM5CSQ82m9EmHAsy8/edit