Federal Court to deliver major decision on property sales by forgers this Thursday

KUALA LUMPUR, Mon: All eyes will be on the Federal Court this Thursday as it delivers a major decision whether to end nine years of gross injustice caused by the 2000 decision of the Federal Court in Adorna Properties Sdn Bhd v Boonsom Boonyanit ("Adorna Properties") or to follow and further entrench Adorna Properties in the laws relating to property sales by forgers in this country. It is one case which will be closely watched by property owners and conveyancers both within and without this country.

On October 29 last year, a strong five-member Federal Court, presided by Chief Justice Tun Zaki Azmi, was asked to determine the 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 other judges 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.

In the 2000 decision of Adorna Properties, delivered by the then Chief Justice Tun Eusoff Chin in a four-page judgment, the Federal Court ruled that such an acquirer could acquire an immediate indefeasible title and interest from a forger under section 340 of the National Land Code, 1965.

S 340 reads as follows:

"(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."

The main thrust of Eusoff Chin's decision was that the proviso in s 340(3) would also apply to sub-section 340(2). Hence, Adorna Properties Sdn. Bhd. ("Adorna") which was a body falling within the meaning of sub-section 340(2) had obtained a good title by virtue of the proviso of sub-section (3) even though the properties were transferred to Adorna by way of a forged instrument of transfer.

Briefly, in Adorna Properties, a Thai, Boonsom Boonyanit, who resided in Thailand was the registered proprietor of two lots land in Tanjung Bungah, Pulau Pinang ("the said lands"). An impostor, one Mrs Boonsoom Boonyanit, claiming to be "Sun Yok Eng @ Boonsom Boonyanit" had affirmed a statutory declaration on June 18, 1988 that she had lost the original title to the said lands. The impostor then managed to obtain a certified copy of the title from the land office.

On April 6, 1989, the impostor affirmed a second statutory declaration declaring that the names Mrs Boonsoom Boonyanit and Sun Yok Eng @ Boonsom Boonyanit in the title to the said lands were one and the same person, that is Mrs Boonsoom Boonyanit (impostor) with a different Thai passport number. With this declaration, the impostor managed to register the transfer in favour of Adorna for a sum of RM12Million.

Boonyanit then sued for the return of the said lands. The High Court Judge of Penang, Justice Vincent Ng Kim Khoay, ruled in favour of Adorna (judgment dated April 25, 1995). On appeal, the Court of Appeal, comprising Gopal Sri Ram, Siti Norma Yaakob and Ahmad Fairuz, allowed the appeal in its judgment dated March 17, 1997. Adorna then appealed, and the Federal Court comprising Eusoff Chin, Wan Adnan Ismail and Abu Mansor Ali allowed Adorna’s appeal in its judgment dated Dec 13, 2000 and pronounced in open court on Dec 22, 2000 ("main judgment"), but by then Boonyanit had passed away in May that year.

In fact, Eusoff Chin's decision in Adorna Properties did not follow the 1994 Supreme Court decision in M & J Frozen Food Sdn Bhd & Anor v Siland Sdn Bhd & Anor which held that the issue of indefeasibility involving forgery under s 340 was based on the principle of deferred indefeasibility and not immediate indefeasibility.

In simple terms, the principle of deferred indefeasibility operates in this way: For example, A is the registered owner of the land. B forges A's signature and transfers the land to himself. B later sells and transfers the land to C. C has no knowledge of the forgery, and C obtains an indefeasible title. Or if B forges A's signature and transfers the land from A to C and C later transfers the land to D. Then, D and not C, who has no knowledge of the forgery, will obtain an indefeasible title. C and D in the first and second examples are known as subsequent purchasers under s 340(3). However, after Adorna Properties which embraces the principle of immediate indefeasibility, C will still get an indefeasible title if B forges A's signature and transfers the land immediately to C without first having transferred to B himself.

Hence, had the Federal Court in Adorna Properties applied the principle of deferred indefeasibility, Adorna would not have had obtained an indefeasible title because the land had not first been transferred to the impostor before it was transferred to Adorna and as such Adorna was not a "subsequent purchaser" within the meaning of sub-section 340(3).

Two unsuccessful attempts had also been subsequently made by Boonyanit’s family asking the Federal Court to review the main judgment. In the first attempt, the main ground advanced was that when the main judgment was delivered, Eusoff Chin had retired on Dec 19, 2000. Steve Shim, Haidar Mohd Noor and Mokhtar Abdullah dismissed the application in a judgment dated Feb 26, 2001. In the second attempt, the Federal Court comprising P.S. Gill, Rahmah Hussein and Richard Malanjun ruled in its judgment dated Aug 27, 2004 that they were not convinced that the interpretation given in the main judgment was patently wrong and had resulted in grave injustice.

There is, no doubt, that Adorna Properties has wreaked havoc in land transactions for the past nine years. Many landowners had also lost their properties due to forgery when their lands were immediately transferred to bona fide purchasers by forgers using forged instruments. As Adorna Properties is the decision of the apex court, it remains good law until it is legislatively reversed by an Act of Parliament or by another decision of the Federal Court. Unfortunately, when the opportunity arose in 2007, the Federal Court decided not to grant leave to appeal in the case Au Meng Nam & Anor v Ung Yak Chew & Ors 2007.

On Thursday, the Federal Court will have an opportunity to revisit Adorna Properties to decide whether to overrule it or follow this much criticised decision.

The case before the Federal Court on Thursday could be traced back to 1976 when without the knowledge of the appellant (plaintiff), Tan Yin Hong, the Pahang State Government had alienated and issued the document of title of a piece of land in Kuantan in favour of him. The appellant only came to know about the existence of the said Land in 1985 when he received a letter from the Third Respondent, United Malayan Banking Corporation Bhd (now RHB Bank Bhd) demanding repayment of the sums of RM111,825.95 and RM197,244.01 being the respective sums owing under an overdraft facility and term loan facility granted by the Third Respondent to the Second Respondent, Cini Timber Industries Sdn. Bhd. Upon enquiry, the appellant discovered that the First Respondent, Tan Yin Hong, who is now missing and not related to the appellant, had forged the appellant's signature by creating a power of attorney in favour of the First Respondent on February 7, 1977. With the forged power of attorney, the First Respondent had charged the said Land to the Third Respondent in 1984 as security for the loan facilities granted to the Second Respondent.

The appellant then sued the respondents in 1987 asking for various declaratory reliefs including an order that the charge and power of attorney be declared void ab initio. At the High Court at Kuantan, Justice Datuk Abu Samah Bin Nordin dismissed the appellant's claim on July 4, 2003. Upon appeal to the Court of Appeal, Justices Suriyadi Halim Omar, Zainun Ali and Ahmad Haji Maarop dismissed the appellant's appeal on February 19, 2009, holding that the Third Respondent had obtained immediate indefeasibility of its interest by applying the principle in Adorna Properties.

On October 29 last year, counsel T. Mura Raju who acted for the appellant and counsel Datuk Bastian Pius Vendargon and Ong Siew Wan who acted for the Third Respondent submitted that the question posed to the Federal Court should be answered in the negative, in that, the Adorna Properties had been wrongly decided and ought to be overruled. Both counsel emphasised that Eusoff Chin had erred as it was very clear in s 340(3) that the proviso only applied to "this sub-section (3)". Vendargon, however, submitted that the declaratory reliefs sought by the appellant ought to be dismissed on procedural grounds.

Head of the Civil Division in the A-G’s Chambers, See Mee Chun and its Deputy Head of Civil Division I, Puan Azizah binti Nawawi who appeared for the Attorney General as amicus curiae agreed with the submissions by the counsel for the appellant and the Third Respondent in that Adorna Properties should be overruled. See also revealed that the Attorney General's Chambers were looking at the possibility of amending s 340(3).

When invited to submit by Tun Zaki, counsel Roger Tan who held a watching brief for the Bar Council together with Tony Woon, informed the court that the Bar agreed with the submissions by all the counsel in that the principle of deferred indefeasibility should apply to s 340 and Adorna Properties was wrongly decided.

However, Tan said he disagreed with the submissions by the counsel for the appellant and Third Respondent with regard to using the decision of the Court of Appeal in OCBC Bank (M) Bhd v Pendaftar Hakmilik, Negeri Johor Darul Takzim 1999 (OCBC Bank) as an authority on the application of deferred indefeasibility. Tan submitted that the decision in OCBC Bank was wrong as the learned Court of Appeal judge, Datuk NH Chan had misapplied the principle of deferred indefeasibility by overstretching it. Tan, who is the former Chairman of Conveyancing Practice Committee of the Bar Council, added that had the principle been properly applied, the charge in favour of the appellant bank would have been valid as the land had already been transferred to the forger before the charge was created and the bank was therefore a "subsequent purchaser" entitled to protection under the proviso of s 340(3).

In OCBC Bank, the appellant bank was the chargee of a plot of land in Batu Pahat, Johor ('the said land'). The charge in favour of the appellant had been granted by one Ng See Chow who was the registered proprietor of the said land. When the said Ng See Chow failed to pay for the overdraft facility, the appellant applied for, and the court granted, an order for sale of the land. However, one Ng Kim Hwa lodged a police report claiming that the land belonged to him and he claimed that he had not executed any transfer form in favour of Ng See Chow in respect of the land. The Court of Appeal, comprising Justices NH Chan, Abdul Malek and Mokhtar Sidin dismissed the appellant bank's appeal. Justice NH Chan ruled that the charge was invalid as any interest granted by an immediate proprietor or holder was also liable to be set aside.

Tan then referred to the paper entitled "Basics of Indefeasibility under the National Land Code" presented by Professor Teo Keang Sood at the 14th Malaysian Law Conference in October 2007 where the learned professor of law from the National University of Singapore said:

"...It is also crucial to note that section 340(2) does not provide that any interest subsequently granted by an immediate registered proprietor with a defeasible title (such as the defeasible title held by Ng See Chow) is also liable to be set aside thereunder, contrary to what was stated by NH Chan JCA in that part of his judgment reproduced above which is italicised. Being an interest subsequently created out of a title rendered defeasible under section 340(2), it comes within section 340(3)(b) which is enacted to deal with the position of a subsequent registered proprietor or holder of such an interest.

"If NH Chan JCA’s interpretation of section 340(2) is correct, it would mean that no subsequent interest created out of a defeasible title can ever come within section 340(3) and the proviso therein notwithstanding that the acquirer has acted in good faith and given valuable consideration. This is stretching the concept of deferred indefeasibility a little too far. All that section 340 intended is that the immediate registered proprietor should not have the benefit of the quality of indefeasibility conferred on him where the vitiating factors apply. No where in section 340 is it suggested that a subsequent registered proprietor or holder of an interest should suffer the same fate, especially where he has acted in good faith and given valuable consideration. It is unwarranted to restrict the scope of section 340(3) and the proviso thereto in such a manner. In fact, section 340(3) and the proviso thereto embrace and give effect to the well-known Torrens concept of a defeasible title operating as the root of a good title or interest in favour of a subsequent purchaser so long as the latter acts in good faith and gives valuable consideration."

The Federal Court will now deliver its decision on Thursday, January 21 at 9.30am.

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