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 NLC recognised 3 secured transactions: Charge, Lien, ‘Jual-Janji’ (developed by courts)

 A charge is a transaction where a Registered Proprietor of land in return for a loan from
the financier, provides his interest in the land as security for the loan.
o S. 43: RP can be individual or corporation
o Owner of land: Chargor; Financier: chargee
 Charge v Mortgage
CHARGE MORTGAGE
1. Created under the NLC 1. Created by contract
2. RP is Chargor, Financier is Chargee 2. The borrower is the Mortgagor and the
3. The Chargee does not own the land as Lender is the Mortgagee.
ownership remains with the RP 3. The land is used as a security to pledge
4. The Chargee only has the right to against borrowings.
enforce the sale of the land with a 4. Mortgagee has legal title while the
court order or to take possession if mortgagor has equitable title
charger defaulted in repayment.

 S. 5 a charge means a registered charge

 S. 241(1) NLC: Subject to s. 241(3), the followings may be charged
o J Raju v Kwong Yik Bank - the whole land
o the whole of an undivided share in land
o any lease of alienated land
 S. 243 – A charge can only be enforceable if it is registered.
o Mahadevan s/o Mahalingam v Manilal & Sons (M) Sdn Bhd - A chargee without
a registered charge would have to resort to contractual remedies to obtain
repayment of the debt
 Yee Sin Cheong v UMBC - A charge can only be created to secure a debt. There can be
no charge of land where there is no loan
 Co-operative Central Bank Ltd. v Y&W Development Sdn Bhd - Upon default by the
chargor, the remedy of the chargee is not in personam but in rem (possession and sale)
 T Bariam Singh v Pegawai Pentadbir Tanah Pesaka Malaysia - A registered charge
constitutes an indefeasible interest in land as a security which the chargee could enforce
by way of sale
 S.241(3): A charge is subjected to any prohibition or limitation by the NLC or any other
written law in force; any restriction in interest to which the land is subject; provisions of
leases if related to lease
 S.241(4): No charge may be granted to 2 or more persons or bodies otherwise than as
trustees or representatives
 Phuman Singh v Khoo Kwang Chang - Any charge created contrary shall be void ab
initio
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 S. 241(2): If a 2nd charge is created, the 1st chargee will have priority over the land and the
right to retain IDT
o Samat Din & Partners v Bank Pembangunan M’sia Bhd. & Anor

Rights of Chargor
 Right to create subsequent charges on the property (subject to consent of prior chargees
and provided the value of the land permits)
 Right to consolidate
o Consolidation: if a chargee has made separate loans to the same chargor secured
by charges over separate pieces of land, the chargee can prevent the redemption of
one charge unless all other charges are also redeemed.
o S.245: Unless there is an agreement to the contrary, the chargee has no right of
consolidation
 It is common that charge documentation normally excludes the application
of the NLC, giving the chargee the right of consolidation
 Public Finance Bhd. v Hock Seng Housing Development – The right to
consolidation should be exercised before any application for foreclosure.
 The effect of consolidation is to alter the priority of a subsequent chargee
by restricting its priority in respect of the land or lease by giving the
consolidating chargee an advantage.
 Right of tacking
o S. 246(2): The chargee may make further advances to rank in priority to any
subsequent charges (tacking)
o Restricted to two situations:
o Where the making of the advances is expressly authorised by the prior charge, or
to secure a floating charge;
 Where the advances are made with the consent of the subsequent
chargee(s)
o Postponement of Charges
 S.247: Postponement of a registered charge alters the original priority by
placing it on a lower level of priority

Consolidation Tacking

- Several pieces of land are charged by - One piece of land is charged by the same
the same person to the same chargee. person to different chargees

Breach by Chargor and Chargee’s Remedies

 S.249: Chargor shall comply with all the terms of the charge
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 S.250: In the absence of any term to the contrary, Chargor shall keep all buildings on the
land in good repair, insured and on failure of which the Chargee may take such action as
necessary to remedy the breach

Foreclosure
 Upon a continuous default of at least 1 month or as specified in the loan agreement,
o s. 254: Chargee may take possession of the charged property
o s. 253: Chargee may apply for an order of sale
 Notices
o S .254: Forms 16D issued where there is a breach by the chargor and Form 16E if
the principle sum secured is payable on demand
o Specifying the breach and requiring it to be remedied within 1 month failing
which foreclosure proceedings shall be commenced
o Standard Chartered Bank Malaysia Bhd. v Tunku Mudzafar - notices are
mandatory
o RHB Bank v Sykt. Sungei Nal Timber Industries Sdn Bhd - Form 16D
sufficiently clear and specific as to the breach and amount in default
o Jacob v OCBC; OCBC Bank (M) Bhd. v Hotel Rasa Sayang Sdn Bhd – issuing a
wrong notice does not negate its validity
o Citibank Bhd. v Md. Khalid b Farzular Rahaman &Ors - notice could be less than
1 month if provided in the loan agreement
 Application
o Apply to either Land Office or the High Court
Registry Title (PTD) Land Office Title (PTG)
1. Town and city land – HS(D) 1.Rural land – HS(M) Land Administrator
Registrar of Land – application to HC. 2. Agricultural land.
2. O.83 ROC Applications pursuant to 3. Form 16C pursuant to s. 260(2) –
s.256(2)NLC application to Land office

Applications for Sale under ROC O.83

 O. 83 r.1: May be commenced by writ or OS; commenced by chargor or chargee or any
other person with the right to redeem or foreclose. May claim for:
o a) payment of moneys secured by charge;
o b) sale of the charged property;
o c) foreclosure;
o d) delivery of possession
o e) redemption;
o f) reconveyance and / discharge of charge
o g) delivery of possession by the chargee
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 O. 83 r.3: Supporting documents in an action for possession or payment:-

o OS with affidavit where chargee is the plaintiff and claims delivery of possession
and / or payment
o Affidavit should exhibit the original charge
o Where claim is for possession, affidavit must show circumstances under which
right to possession arises
o Maimunah b Megat Montak v Mayban Finance Bhd. - Where the claim is for
money the affidavit must prove all particulars of money due and payable
o Where the Plaintiff’s claim includes a claim for interest up to judgment
calculation of the daily interest must be shown.
 Perwira Habib Bank (M) Bhd. v Lum Choon Realty Sdn Bhd; Citibank NA v Ibrahim
Othman - Non-compliance of the requirements will result in the application being struck
off
 Chargee may at the same time commence an action for the recovery of the debt against
the principle debtor
 American International Assurance Co. Ltd. v Union Builders (M) Sdn Bhd - The court
can only impose interest at the agreed rate from date of order to date of sale by public
auction
 Remedy of Chargor is to object the sale by raising ‘cause to contrary’
o S. 256(3): an application for an order for sale to court / Land Administrator shall
be granted unless there is cause to the contrary
o Low Le Lian v Ban Hin Lee Bank - cause to the contrary may be established in 3
circumstances – fraud, impropriety, breach of statutory or contractual terms
o Cause to Contrary:
 Keng Soon Finance v MK Retnam Holdings Sdn Bhd; UMBC v Sykt.
Perumahan Luas (No.2) - Chargor is able to claim under exceptions to
indefeasibility of title under s.340
 Low Lee Lian v Ban Hin Lee Bank Bhd; Keng Soon Finance v MK
Retnam Holdings Sdn Bhd - Chargor is able to demonstrate that chargee
failed to meet the conditions precedent for the making of an application
for an order of sale (notice of demand, service as per Form 16D, incorrect
amount)
 Buxton v Supreme Finace (M) Bhd.; Murugappa Chettiar v Letchumanan
Chettiar – Chargor is able to show that to grant the application would be
contrary to some rule of law or equity
 Burden on the Chargor/ defendant to show cause to the contrary
 Standard Chartered Bank Malaysia v Hew Hai Woon
o D obtained a loan from P and executed a LACA which was later converted to a
charge. However P did not give D a copy of the charge. D defaulted in loan
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payments and P issued a Form 16D notice. D alleged charge ineffective as not
served on him.
o Held: P’s OS dismissed. Charge fatally defective as a copy of Charge not given
to D and it was not signed by the chargee as required
 Arab Malaysian Merchant Bank Bhd. v Silver Concept Sdn Bhd
o Cause to the contrary may be established by a Statement of Disapproval from the
in-house Syariah Advisory Body as set up by the bank.
 S. 16B Central Bank of Malaysia (Amendment)Act: where in any proceedings relating to
Islamic banking business any question relating to a Syariah matter, the court may refer
such matters to the Syariah Advisory Council
 Kwan Chew Holdings Sdn Bhd v Kwong Yik Bank Berhad
o Objective of Order 83 Rule 3 is to enable the chargor to know at least by the date
the originating summons is filed, the exact sum he is legally liable to pay. If there
is a dispute as to the amount payable, the court must be able to say precisely when
making its order.
o Held: The failure to comply with RHC O. 83 r 3(6) and r 3(3), in particular, the
failure to state: (a) the amount of the repayments; and (b) the amount of
installments in arrear, are serious omissions which warrant a dismissal of the
action
 RHB Bank Bhd v. Zalifah Juan & Anor
o Whether holder of equitable Mortgage must apply to court to exercise its
contractual rights to sell Property?
o Held: court has an inherent power to order sale. In the case of an absolute
assignment the assignee does not require an order of court to sell

Sale Procedure in Land Office

 S. 261: the Land Administrator must hold an inquiry in order to make an order for sale
 S. 263: sale must be conducted by public auction under the direction of the Land
Administrator and the assistance of a licensed public auctioneer.
 The Chargee has to deposit with the Land Administrator: the duplicate charge document
& IDT
 At the inquiry the Land Administrator has to satisfy himself that there was a default
o He has no power to investigate
 Lim Yoke Foo v Eu Finance Bhd - powers of the Land Administrator are limited. He has
no power to cancel sale, order payment of arrears, or rectify errors
 S. 265(2): the chargee is also entitled to bid.
 S. 265(3a): If no bid is received at or above the reserve price, the auction of the land must
be withdrawn and the Land Administrator must refer the matter to court
 Rohaya Binti Ali Haidar v Ambank (M) Bhd
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o Purchasers had obtained Letters of Release and Disclaimer excluding their lots
from any foreclosure but bank overlooked and auctioned the land including
purchasers’ lot
o Held: An order of sale of charged land was a final order unless appealed against
and once it was made, drawn up and perfected, the judge was functus officio and
therefore had no power to set aside the order of sale

Sale by Private Treaty

 ss. 256 -259
 Chartered Bank v Pakiri Maidin - Initially open to parties to negotiate a private sale
before any proceedings are commenced in court.
 Kimlin Housing Development Sdn Bhd v BBMB - sale by private treaty could be held at
any time even after commencement of proceedings in court provided:-
o Agreed by parties
o Chargee cannot on its own sell privately after order for sale by public auction
o Proceeds sufficient to pay off amount due to chargee in full and cover all
incidental expenses.

Discharge of Charge
 S. 278: Form 16N
 Eng Ah Mooi v OCBC – where chargee did not act to discharge property upon settlement
of loan, an order of court would be necessary for a discharge to be possible.
 S. 279(1): Where chargee is unable or unwilling to accept payment due to the fact that the
chargee is dead, cannot be found or evades or refuses to accept payment. Registrar shall
upon receipt of such payment -
o Place it in the custody of such public officer as he may think fit.
o Allow a claim by person or body entitled there to within 6 years of the date of
deposit
o Where unclaimed after 6 years be paid into the State Consolidated Fund.

Chargee’s Remedy of Possession

 ss270 – 277
 Only available to 1st. chargee.
 2 options: take up occupation (Form 16K) or receive rent (Form 16J)
 A chargee in occupation will be liable to the charger

Statutory Lien
 Palaniappa Chetty v Dupire Bros - Lien is a right to retain something belonging to
another until certain demands are satisfied
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 S. 281: A proprietor or lessee may deposit his IDT with any person or body as security
for a loan.
o He may apply for a lienholder’s caveat and thereupon become entitled to a lien
over the land or lease.
o Where such lienholder has obtained judgment on the debt he may apply for and
obtain an order for sale of the land or lease as per ss 256 -259 and 266-269
 Conditions to register a statutory lien:
o Deposit of IDT
o Intention to create a lien
o Enter lien holders caveat
 must prove that the deposit was made as a security for a loan not for any
other reason
 Hong Leong Finance Bhd. v Staghorn Sdn Bhd
o S. 281(1) does not restrict the loan to a loan to the registered proprietor the loan
may be a loan to a third party. Where the loan is to a third party, it must follow
that under subsection (2) the judgment obtained is a judgment against the third-
party borrower
o S. 281(1) enables or empowers the registered proprietor to deposit his issue
document of title with any person or body as security for a loan. It does not
require the registered proprietor himself to do the act of depositing.
 Perwira Habib Bank (M) Bhd. v Loo & Sons Realty Sdn Bhd – Conditions for a lien-
holder’s caveat:
o Express intention by the registered proprietor to create the lien
o Registered owner must consent to the entry of the caveat
o IDT must be delivered to the lender by the registered owner not a third party.
o Lien can only be created for the purpose ofecurity for a loan
o Upon default the lien holder must obtain judgment against the registered
proprietor for the debt owing and then may apply for an order for sale of the land.

Remedies of a Lien Holder

 ss.256 – 269 the lien holder may obtain an order of sale of land or lease
 However unlike a chargee, a lien holder must first obtain a judgment on the amount due

Determination of a Lien Holder’s Caveat by -

 S. 331
o By notice of withdrawal given to the Registrar by the lien holder
o by registration of a certificate of sale issued s 281(2) upon an order of sale
obtained by the lien holder,
o registrar receiving proof that all sums due under the lien had been duly paid
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o where the court is satisfied that the caveat ought not to have been entered or ought
to be withdrawn and makes an order for cancellation

Differences between Liens and Charges

 Paramoo v Zeno Ltd
1. Intention to create a lien.
2. IDT is deposited with the lender as
security.
3. Failure to enter a lien holder’s caveat will
not deprive the lender in equity
4. Mandatory to obtain judgment on the debt
before applying to Court for an order of
sale.
5. Cannot create subsequent liens.
6. Liens are non- transferable.
3. Failure to register a charge defeats the
security. Remedy in contract only.
4. Not mandatory to obtain judgment on the
debt first.
5. May create more than one charge on the
same title
6. Charges can be subject to composition /
tacking