Você está na página 1de 34

8.

On 5 March 2015, Multimex Sdn Bhd executed a charge in Form 16A


to charge its land Lot 512, to Bank Hong Ling as security for a loan
granted by the bank to Eddie, who owns a major share in and is
director of Multimex Sdn Bhd. The bank disbursed the full loan to Eddie
on 20 March 2015. The presentation of the Form 16A for registration by
the bank on 10 April has been rejected by the Registrar on the ground
that the same land has been subjected to a prohibitory order since 8
January 2015 by a creditor of Multimex Sdn Bhd.
Bank Hong Ling intends to apply to the court for an order to remove
the said prohibitory order. They require you to assess the strength of
the intended application. Further, what would your advice be if Eddie
and not Multimex Sdn Bhd had deposited the issue document of title of
Lot 512 with Bank Hong Ling as security for the said loan and that
Bank Hong Ling now wishes to enter a lien-holders caveat in respect
of Lot 512.
Discuss the rights and remedies of the parties based on their
respective position in the event of a breach of the charge or lien
regarding the validity and enforceability of their claims.

Parties to the case


Eddie: Director and majority share-holder in
Multimex, recipient of loan from Bank Hong
Ling.
Multimex: A company charging its land as
security to the loan granted in favour of Eddie.
Bank Hong Ling: A financial institution that
granted a loan to Eddie.

ISSUE 1: Whether the


application of charge
can be approved when
there is a prohibitory
order?

Definition of Prohibitory Order


Section 323(1) of the NLC:
Prohibitory order is a type of restraint on
dealings that is available to a judgement
creditor who does not come within the category
of persons having caveatable interest.

Section 334 of the NLC:


Refers to the obtainment of a write of seizure
and sale by the judgment creditor to enable the
court to sell the land to pay off the judgment
debt (execution proceedings).

Effects of a Prohibitory Order


Prohibits a judgment debtor, in the capacity
of a registered proprietor, from disposing of
his land or creating any encumbrance over
his land such as the creation of a security
over the land.
After obtaining the prohibitory order, the
judgment creditor can proceed to obtain the
Order For Sale (OFS) to auction the piece of
land to recover the debt.

Rights and priorities of holder of a


prohibitory order
General rule: the first in time will be given
priority.
For instance, if there is an existing private
caveat the judgment creditors right is subject
to the private caveat, and vice versa.
Karuppiah Chettiar v Subramaniam (1971)
(FC) held: an earlier private caveat has
priority over a later prohibitory order.

Application
Pertinent to note the dates of entry for
both the prohibitory order and the charge
made on Lot 512.
Prohibitory order: 8 January 2015
Charge: 5 March 2015
Therefore, it is clear that the prohibitory
order was the first in time and shall
therefore be given priority.
Application of charge cannot be
approved.

ISSUE 2: Whether there


are grounds to remove a
prohibitory order and the
strength of such
application for removal.

Section 335(1) of the NLC


It provides for a circumstance in which a
prohibitory order is made ineffective.
A prohibitory order only comes into full force
and effect when it is entered on the register
document of title by the Registrar.
Order 47 rule 6(3) of the Rules of High
Court, where it expressly provides that the
prohibitory order will only take effect upon it
being registered in accordance with the
instrument required in the NLC (in this case, it
concerns the register document of title) 1980.

Strength
Carries a strong ground for a judgmentdebtor to challenge a prohibitory order as
it is a preliminary statutory requirement
No prohibitory order shall take effect until it
has been entered by the Registrar

Application
At present, there is no mention as to whether
there is a procedural flaw with the prohibitory
order made by a creditor of Multimex Sdn Bhd.
Therefore, it is to be assumed that the prohibitory
order is effective as it has been properly
registered in the register document of title, and
thus section 335(1) may not be used to remove
the prohibitory order on Lot 512.

Rights and priorities of holder of a


prohibitory order
General rule: the first in time will be given priority.
For instance, if there is an existing private caveat the
judgment creditors right is subject to the private
caveat, and vice versa.
Karuppiah Chettiar v Subramaniam (1971) (FC) held:
an earlier private caveat has priority over a later
prohibitory order.

Strength
Although there is no specific provision that provide for
this, the strength of this ground for a removal of a
prohibitory order is assessed based on decided cases.
Karuppiah Chettiar v Subramaniam (1971) (FC): R
successfully set aside the prohibitory order on this
ground in HC, and this decision was upheld by the
Federal Court on appeal.
Paramoo v Zeno Ltd (1968) (FC): A lien-holder who
has obtained a lien over the land in dispute and a
judgment creditor who has entered a prohibitory
order in respect of the same land, will have priority
over the prohibitory order holder.

Application
Pertinent to note the dates of entry for both the
prohibitory order and the charge made on Lot
512.
Prohibitory order: 8 January 2015
Charge: 5 March 2015
Therefore, it is clear that the prohibitory order
was the first in time and shall therefore be given
priority.
Prohibitory order cannot be removed.

ISSUE 3: WHAT ARE THE


ENFORCEABLE CLAIMS AND
REMEDIES IN THE EVENT
OF A BREACH OF CHARGE?
15

16

Statutory Remedies
NLC provides two remedies to a chargee in the
event the chargor fails to repay the loan.
A. Order for sale by way of public auction (s
253)
B. Taking possession of the charged property
(s 270)

17

When does a Charge take effect?


Southern Bank Bhd v Chuah Beng Hock (1999)
(HC)

held under s.243 NLC, every charge created under


this Code shall take effect upon registration as to
render the land liable in security
** Here, the charge was not registered as form 16A was
rejected by the Registar due to the PO
Hence: statutory remedies inapplicable

18

Is an unregistered charge
recognized under Malaysian law?
Yes, by case law, the courts have accepted the
concept of an equitable charge.
Chuah Eng Khong v Malayan Banking (1998)
(FC)
held an equitable charge could exist as the NLC
does not have provisions which would render it null and
void

SZA

4/27/16

Mahadevan v Manilal (1984) (FC)


19

Held : an agreement to secure a debt in favour of


the creditor over the debtors land may create an
equitable charge although it is not executed as by
the NLC.
There are 3 ways of effecting a charge
a) Legal Charge (s 234)
b) Equitable Charge (s206(3))
c) Lien (s281)
The creation of an equitable charge depends
upon the intentions and conducts of the parties at
the time the agreement was made.
** Here the intentions of both Multimex and Bank
Hong Liang was clearly to enter into a contractual
agreement of chargee-chargor

20

Difference between a legal charge


and an equitable charge
Equitable Charge

Legal Charge

1) Unregistered.

2) Chargee entitled to

2) Chargee not entitled to


statutory remedies but only
claim in
personam.

3) Chargee has
indefeasible interest
over the charge.

3) Chargee has no indefeasible


interest. Interest can be
attacked.

1) Registered.

Standard Chartered Bank v Yap Sing Yoke (1989) (HC)


21

Where charge instrument has been executed but not presented


for registration, it gives rise to an equitable claim
** Here, Bank Hong Liang already executed their end of the
deal by granting the full loan to Eddie.
Conclusion
Bank Hong Liang does not have ad rem rights as the interest is
not registered hence it cannot claim for statutory remedies as
provided under the NLC.
However, it does have in personam rights against Multimex and it
can claim remedy for the charge executed. The exact remedy
would be determined by the court and it could be in the form of
specific performance (Mahadevan).

ISSUE 4: WHETHER A
LIEN HAS BEEN
CREATED.

What is lien?
The Halsbury Law of England defines lien as being, a
right in one man to retain that, which is in his
possession belonging to another man until certain
demands of the person in possession is satisfied.
There are two types of liens namely, statutory lien and
equitable liens; their differences fall in the elements
required to create them.

How are liens created?


Pewira Habib Bank Malaysia Bhd v Loo & Sons
Realty Sdn Bhd (1996) (CoA)
STAGE 1
The deposit of
the issue
document of title
(IDT).

STAGE 2
The intention to
create a lien.

STAGE 3
The lodgement of
a lien-holders
caveat (LHC).

By the end of Stage 2, an equitable lien would have already


been established.
Standard Chartered Bank v Yap Sing Yoke (1989) (HC): As the IDT
was at all times in the custody of the plaintiff, it had acquired a lien in
equity over the land. The equitable interest is not affected by the absence
of a caveat. The plaintiff had a right to lodge a caveat and may do so at
any time under the provisions of the NLC.

However, if one proceeds with Stage 3 by lodging a caveat, a


statutory lien in compliance with Section 281 of the National
Land Code will be established.

Stage 1: The deposit of the IDT


This element is enumerated under Section 281(1) of
the National Land Code (NLC) where it is stipulated
that, any proprietor or lessee for the time being
may deposit with any other person or body, as
security for a loan, his IDT.
Previously, the courts applied a strict approach to
interpreting this Section
Pewira Habib Bank Malaysia Bhd v Loo & Sons Realty
Sdn Bhd (1996) (CoA): Section 281(1) in very clear
language necessitates the proprietor to deposit the IDT.
Persons outside the ambit of proprietor enumerated under
Section 5 is considered a third party, barred from doing as
such.

More recent judgments have applied a far more liberal approach.


Hong Leong Bank v Staghorn (2008) (FC): It boiled down to the will of the
proprietor and if he intended for the third party to deposit.

Assessing the will of the proprietor would vary from case to case.
When a company asset is to be made a security for a loan in favour of the
director, it is important to assess provisions within the Companys Act (CA)
Section 133(1) of the CA provides for what Harta Empat Sdn Bhd v Koperasi
Rakyat (1997) (CoA) dubs as being, a blanket prohibition towards security on
company assets for a director.
However, such prohibition may be lifted when a prior approval is obtained in
the security in a general meeting as per Section 131(2). This means that after
such approval is obtained, a security on company assets for a loan issued in
favour of the director may be issued.

In application, Multimex is known to be the registered proprietor


of Lot 512. Though Eddie is the director and majority
shareholder in the company, his individual action of depositing
the IDT to Lot 512 does not reflect the will of Multimex as a
company because he is not the proprietor.
The deposit of the IDT by Eddie cannot be regarded as having
been willed by Multimex as there was no approval in a general
meeting for the creation of a lien for a loan in his favour.
Thus, the principle of will to deposit as per required by
Staghorn has not been fulfilled; thereby violating the
requirement under Section 281(1) of the NLC.

Stage 2: The intention to create a lien


Intention may assessed on different grounds
Nallammal v Karupannan (1993) (FC): The plaintiff who
is a rubber tapper saved and bought a small plot of land.
Her husband, the first defendant on the false pretext that a
security must be shown before he could secure some contract
works, took the IDT with a promise to return it within a month
or two. The IDT was never returned as it was deposited to
Bank Buruh as security for a loan in favour of the husband.
The court found that a lien had not been created on the
ground that she was unaware of that the land was to be
used as security, especially considering the fact that her
signature had been affixed on the agreement to such
arrangement under undue influence.

In application, the element of intention may be


negated on two grounds.
First, the IDT for Lot 512 was deposited by Eddie
instead of the registered proprietor Multimex which
reflects a possibility that he might have done so to his
frolic especially considering the loan had been made
in his favour.
Second, similar to the case above, Multimex could not
have been aware of the creation of a lien as the
procedure that necessitates a general meeting for a
company to approve a security to a director had not
been complied with.
As these two elements cannot be established, an
equitable lien cannot be said to exist.

Stage 3: The lodgement of a LHC


Section 330(1) stipulates that, any person of body with
whom the IDT has been deposited as security as
provided under Section 281, may apply to the Registrar
for the entry of an LHC.
As may be recalled, the requirement under Section 281 is
that either the proprietor deposits the IDT, or that a third
party deposits it with the will of the proprietor.
As had been established earlier, since the deposit of the
IDT was done by Eddie without the required approval from
a Multimex in a general meeting, Section 281 has been
violated.
Thus, applying Section 330(1), a LHC may not be entered.
In conclusion, both a statutory and an equitable lien have
not been established.

ISSUE 5: ASSUMING A LIEN HAD


BEEN ESTABLISHED, WHAT ARE
THE RIGHTS AND REMEDIES
THAT MAY BE OBTAINED BY
BANK HONG LING IN THE EVENT
THAT THE LIEN IS BREACHED?

What are the rights and remedies for


statutory lien?
Pursuant to Section 281(2) of the NLC, upon the
breach of a lien the lien-holder may request for an
Order for Sale (OFS) of the land after he obtains
the judgment for the amount owed to him on the
part of the borrower.
In application, in the event that Eddie defaults in
the repayment of his loan, Bank Hong Ling may
apply for judgment for the amount owed to him
and an OFS for Lot 512 to be auctioned off.

What are the rights and remedies for


equitable lien?

As per Section 206(2), an equitable lien does not fall


within the definition of dealings within Section 5 of
the NLC and hence, is not regarded as registrable
transaction.

Nevertheless, Section 206(3) provides that the fact


that an instrument is not registered would not affect
any contractual operation of any transaction relating
to the land.
In application, though an equitable charge cannot be
registered, if there exists an contract concerning the
lien between Bank Hong Ling and Multimex, a
compensation for the breach of this contract may be
enforced in the form specific performance.

Você também pode gostar