Land law in Malaysia follows the Torrens System, where the land register is everything. Indefeasibility is the key principle of this system; where a party is conferred an indefeasible title upon the registration as the proprietor of the land. This means that once a person is registered as a proprietor, that person acquires a title that cannot be defeated subject to a few exceptions under the National Land Code, such as fraud.
A subsequent purchaser of the land also acquires an indefeasible title if he or she purchased the land in good faith and for valuable consideration even if the land was initially obtained the land through fraud, deceit or dishonesty. This is known as deferred indefeasibility.
The Federal Court in Malayan Banking Bhd v Mohd Affandi Ahmad & Anor [2024] 10 CLJ 501 explores the question of how a subsequent purchaser obtains an indefeasible title, and whether there is a legal duty to investigate beyond the land register.
Background Facts
- The administrators/executors of the estate of one Ahmad bin Buang (“Deceased”) (“Executors”) claimed that they were the beneficial owners to some lands; that the deceased had bought them from a developer (“Developer 1”) but despite full payment made, the Deceased’s name was never registered and the name on the register remains that of Developer 1.
- Two lots (“Lands”) were later sold and transferred by Developer 1 to another developer (“Developer 2”). Developer 2 was registered as the owner of the Lands. Developer 2 then charged them to Malayan Banking Bhd (“Bank”) as security for banking facilities granted by the Bank to Developer 2.
- The Executors claims that the Lands were held by Developer 1 on trust for them and that the transfer of the Lands to Developer 2 and the subsequent charge registered in favour of the Bank is null and void.
At the High Court
The High Court found in favour of the Executors.
- Developer 1 did not participate in the suit to defend against the Executor’s claim. As such, the validity of the agreements between the Developer 1 and the Deceased cannot be denied. The Executors were thus the owners of the Land and that Developer 1 was a bare trustee in favour of one of the Executors.
- Since the transaction between Developer 1 and Developer 2 was dubious and suspicious, Developer 2 was not a bona fide purchaser and its title was thus invalidated. Consequently, the charge registered in favour of the Bank was also defeated.
At the Court of Appeal
On appeal, the Court of Appeal upheld the High Court’s decision.
- As Developer 2 does not have any property rights over the Lands, the Bank naturally does not have any rights over the Lands.
- The Bank should have examined the sales and purchase agreement diligently before allowing Developer 2 to charge the Lands.
At the Federal Court
The Federal Court overturned the decisions of the High Court and the Court of Appeal and found in favour of the Bank.
- It is not in dispute that Developer 2 is the registered proprietor of the Lands in the land register. The Executor also did not allege fraud in respect of the sale and purchase of the Lands between Developer 1 and Developer 2.
- The Torrens System in Malaysia operates on the principle that the land register is everything, granting the registered proprietor an indefeasible title that overrides all prior and subsequent unregistered claims. It emphasizes the conclusiveness of the register title, eliminating the need to investigate or verify its validity when dealing with the land.
- The High Court and Court of Appeal made an error in finding that the Bank should have visited the Lands which would have revealed that it was occupied by the Deceased and the Deceased’s beneficiaries. Developer 2 remains as the registered proprietor of the Lands on the register document of title even if the Bank had inspected the Lands.
- Only fraud, deceit or dishonesty in the purchase of the land would render the title defeasible. Negligence or carelessness or mere knowledge of an unregistered interest does not negate good faith and is insufficient to constitute fraud to disqualify a party from being a purchaser in good faith and for valuable consideration.
- The Torrens system’s objective is to ensure certainty and security in titles and interests upon acquisition and registration. There is no legal duty for the Bank to go behind the register document of title to investigate or ascertain the validity of the title.
- Therefore, Developer 2 being the registered proprietor is the owner of the Lands, and the Bank, being a subsequent purchaser, acquires an indefeasible title.
Key Takeaway
This decision reaffirms that Malaysian land law, which follows the Torrens System, places great emphasis on the land register as the definitive record of land ownership. It also underscores the principle of deferred indefeasibility, where a subsequent purchaser, who acts in good faith and for valuable consideration, acquires an indefeasible title even if the land was initially obtained through fraud.
A subsequent purchaser is not required to go beyond standard due diligence, such as conducting public searches, unless there is evidence of fraud. Site visits or physical inspections are not mandatory or significant in validating land titles. Therefore, it is crucial to ensure that any interest in land is properly registered to secure legal recognition and protection.
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This article was written by Sean Ferdinand Ng (Senior Associate) from Donovan & Ho’s dispute resolution practice.
Donovan & Ho is a law firm in Malaysia. Our dispute resolution provides advice and legal representation in the civil and industrial courts. We also represent clients in both domestic and international arbitration, as well as other forms of alternative dispute resolution. Our experienced lawyers are also able to assist in commercial and civil disputes (such as debt recovery, shareholders’ or directors’ disputes, breach of contract and claims for injunctive relief), constructive disputes (arbitration and/or adjudication proceedings, disputes relating to delays, liquidated damages, defects and rectification work) and employment disputes (unfair dismissal claims, judicial review proceedings, and employment-related civil claims). Have a question? Please contact us.
