Scenario 1I want to enter a charge but I don’t want to register it since it will take a lot of time waiting for registration of the transaction. My friend said, mortgage is faster but

my uncle advised me to create lien. What do you think?.

Exercises

Rights of chargor and chargee

• Implied by statute – s 249 duties of chargor.doc• Express by the agreement

Rights of chargee-right to keep the IDT

• S 244 (1) a first chargee entitled for the custody of IDT• Malayan United Finance Bhd v Tan Lay Soon [1991] 1

MLJ 504 SC• First has no right to withhold title unreasonably• See also Yee Sin Cheong v UMBC [1992] CLJ 1298 –

custody of IDT only for chargee wh has any liability under a charge. In this case, there is no loan, therefore chargee has no right to hold IDT

• Lee Ah Chin v Wong Yoon Chai [1981] 2 MLJ 32, the chargor applied to the court for the return of IDT as the foreclosure proceeding was dismissed on the ground that it was a money lending transaction that is not covered by the Code. The court ordered the chargee to return the title.

Remedies of chargee- tacking for further advances

• S 246 – read

Remedies of chargee – power of sale

• S 253 – look at the interpretation section• Kim Lin’s case [1997] – “the rights and powers of the

chargee are not derived from the estate since none is vested in him so his rights and powers must flow from the relevant provisions of the NLC ..

• S 256 – application to court for OFS – applies to land under Registry title, QT of RT and subsidiary title

Where the chargor has breached any of the term in the agmt, F16D to be used

• Notice to remedy the breach• Form 16D / Form 16E• What’s the difference?• VAM Hussain v BP Malaysia [1970] 2 MLJ 69 –monies

payable on demand , form 16E was properly used• Principal sum – F16E, requires payment within one

month of the breach or OFS will be invoked• See Perwira Affin Bank Berhad v Saad b Abdullah &

Anor [1999] 4 AMR 4143

Compare : Mary Micheal v UMBC Bhd [1971] 1 MLJ 172 – Azmi LP

• A statutory notice in Form 16D – “applies to any charge, so that it can validly be used even in the case of a charge where the principal sum is payable on demand, eventho’ Form 16E is designed for this purpose……In other words, in the case of a charge where the principal sum is payable on demand and there is also stipulation as regards payment of interest thereon, the chargee can apply for sale of the charged land…

In either case,, a notice in Form 16D would be a valid notice.

Commentary

• Uncertain and raised difficulty• Teo “inconsistent with s 254 wh clearly provides

for the use of Form 16D only in cases where a breach in respect of a charge has been committed”

• Resolved by later decision of the court

Jacob v OCBC [1974] 2 MLJ 161Suffian LP

• Ct hd: Where there had been a breach of any obligation, Form 16D could be used regardless of the nature of obligation (including the obligation to pay the principal sum on demand)

• “ I do not think it correct (sic) to say that if you demand principal and interest you must use Form 16D, but if you demand principal only only, you must use Form 16E. In my view, as neither s 254 nor s 255 uses the word ‘interest’, interest may be claimed by either form.

Other issues

• Number of days mentioned for breach in F16D was incorrect. 6 days instead of 7 days as mentioned.

• Judge, objectives of notice was to give sufficient notice before the OFS, argument was rejected – BBMB v Hj Mohd Din (Hajjah Salwa Md Jamin, intervener) [1989] 1 MLJ 381

Malaysian International Merchant Bankers v Chi Liung Holdings Sdn Bhd [1992] 1 MLJ 735

• No earlier demand before form 16D• Ct : there was a letter of demand.

OFS For LOT and RT

• RT– S 256– Apply to Court– If proven, shall order OFS

unless– Cause to contrary

• LOT– Land Administrator– S 260– If proven, shall order OFS

unless– Cause to contrary– Case:

• Tan Teng Pan – LOT, ct has no jsdn

What amounts to cause to contrary?

Federal Court in Low Lee Lian v Ban Hin Lee Bank Bhd [1997] 1 MLJ 77 hd that 'cause to the contrary' within the

meaning of s 256(3) of the NLC might be established only in three categories of cases namely:

 (i)   when a chargor was able to bring his case within any of the exceptions to the indefeasibility doctrine in s 340 of the

NLC; (ii)   when a chargor could demonstrate that the chargee had failed to meet the conditions precedent for the making of an

application for an order for sale; and  (iii)   when a chargor could demonstrate that the grant of an

order for sale would be contrary to some rule of law or equity.

• Phileo Allied Bank (M) Bhd v Narendran Thambimuthu [1998] 8 CLJ 394, the ct hd that on an application for sale of land charged, the court has not only to apply the law but also to invoke the aid of equity in order to be satisfied whether 'cause to the contrary' has been shown. The chargee must not only come to court with proof that the chargor has defaulted but also with proof that the chargee himself is free of fault and that he was not guilty of any unreasonable conduct, and that there was no right of innocent third parties to be affected by the order.Keng Soon Finance, Salleh Abas

• The court is required, by the expression 'cause to the contrary', to decide whether there are circumstances sufficient to refuse the chargee's application although the charge is lawfully and validly created and the chargor's default is proved ( Keng Soon Finance Bhd v MK Retnam Holdings Sdn Bhd & Ors [1983] 2 MLJ 384).

Other examples where the court has decided that ‘cause to contrary’ existed’

• Charge is not registered – Oriental Bank v Chup Seng Restaurant Sdn Bhd [1990] 3 MLJ 493 (HC)

• Defective or improper statutory of notice of demand; see Cooperative Central Bank Ltd v Meng Kuang Properties [1991] 2 MLJ 283

• Contents of statutory notice has either misled or confused the chargor,

• Fraud, see Tai Lee Finance Co Sdn Bhd v Official Assignee [1983] 1 MLJ 81 (FC)– An application for OFS for land in question will not be

granted by the courts in cases where the chargee has been fraudulent or where the chargee and the chargor have acted in collusion to defraud third parties

• Rights of chargees

Default

OFS

Taking Possession

RT LOT

Sale by Private Treaty

OFS by Court – s 256 applies to RTForm 16H

• A) provide for OFS by public auction• B) specify the total amount due• C) Give the appropriate notice• D) Right to remedy the breach• E) give the date on which the order is made• F) Ask the Registrar to fix the reserve price• Read also s 257 -details

What is foreclosure proceeding

• Foreclosure proceedings generally refers to the procedure by which a charged property is sold by the chargee on default of the chargor in satisfaction of charged debt.

• Types: a legal charge or equitable charge. If it is a legal charge, the requirements set out in the NLC and the relevant provisions in the RHC must be strictly complied.

• If the charge is only an equitable charge, NLC may not apply but the provision of the RHC may need to be observed for the sale of the property.

• Case: UMBC v Chong Bun Sun & Anor. Application (1994) 2 MLJ 221, hd: in a foreclosure proceedings of a charged property, the chargee must comply with procedural rules set out in Order 83 and not Order 31 of the RHC. O 83 merely stipulates the procedural rules, which the parties to a foreclosure action of a charged property need to comply with. – the rest are under NLC

Maimunah Megat Montak v Mayban Finance [1996] 3 CLJ 9

• S 257 is mandatory- failure to comply will render such an order invalidated.

• The amount of debt should be as on the date of the sale

• V Letchumanan v Central Malaysian Finance

• S 258- procedure prior to sale

Bank Bumiputra v Pentadbir Tanah Gombak

• The law requires that the sale of land subject to charge must be done not by the chargor or the chargee, but by a neutral person, ie Land Administrator or the court with or without the assistance of the licensed auctioneer. Any money paid by the successful bidder at the auction sale must go towards the settlement of the chargor’s debt to the chargee but subject to the provision under s 268

S 259

• Procedure for sale• MJ Frozen – SCT hd: any variation made to OFS

without service of the required notice to the chargor is ultra vires the authority to sell under the NLC. The sale is concluded at the fall of the auctioneer’s hammer

• Eu Finance v Sim Seng Orgn [1990] the fixing of the reserve price is a matter for the court’s discretion

Effect of OFS

• Final and once ordered, the judge is functous officio, ie. has no power to set aside the sale

• S 256(3)• In MJ Frozen Food & Anor v Siland Sdn Bhd

[1994] 1 MLJ 294 Sup Ct until registration of the purchaser and notwithstanding the conclusion of the sale, the chargor is not divested of his proprietary rights

OFS to LA – LOT s 260 - 266

• Tan Teng Pan v Wong Fook Shang [1973] 1 MLJ 31 – ct has no jurisdiction

• S 261 – LA can hold enquiry of the sale read v s 23-26 and 28-29 as regard to power of LA, why the sale should not be granted

• Form 16H – s 263 , details of procedure• S 265- procedure at sale- administrative in

nature but all process but be strictly adhered to.

Malayan United Finance Bhd v Tay Lay Soon –

• Under s 266(1) of the Code any chargor may at any time before the conclusion of a judicial sale of a charged land tender the amounts due to the registrar of the ct or the collector (LA) and the amount sufficient to cover the expenses in connection of the sale.

• S 267 – certificate of sale gvn to purchaser is registrable

Cause to contrary

• The chargor can challenge the right of the chargee to sell the land if there is “cause to contrary”

• Phileo Allied Bank (M) Bhd v Narendra s/o Thambimuthu (1999) 3 AMR 3721 – the chargee must not only come to court with proof that the chargor has defaulted but also with proof that the chargee himself is free of fault and that he was not guilty of any unreasonable conduct.

Refer also:

• Low Lee Lian v Ban Hin Lee Bank Sdn Bhd [1997] 1 AMR 1036,

Sale by Private Treaty• If no bidders – it is a right given to the chargee to sell the land

outside the court provided that the approval of the chargor is obtained.

• The Code contains no provision which prevent a chargor with the consent of chargee to sell the charged property by private treaty.

• Case: Chartered Bank v Packiri Maideen [1963] MLJ 276(HC) - can apply for PT on default but only after he took proceeding under the legislation

• [Gill FJ -sale by PT to avoid publicity and disgrace to his family – as long as the chargee’s right remain protected, ct is willing to allow sale by PT

• Recent cases : where there were no bidders after several public auctions, the chargee may then be allowed to sell the land by PT

• Cases:• -Malaysian Credit Finance v Yap Hock Choon [1989] 1

MLJ 232• Chung Khiaw Bank v Lau Ah Yen [1989] 2 MLJ 247 –

PT cannot be allowed only after the first auction failed• MUB v Cheah Ah Yu [ 1991] 1 CLJ 280

UMBC Bhd v Chong Bun Sun [1991] 1 MLJ 98

• So long as chargees’ interest is not adversely affected, a chargor, may before an order an order for sale has been made or even aft an order has been made ordered, until the sale of the charged property to a third party at a public auction is concluded and with the consent of the chargee, sell the charged property by private treaty

• See also Ker Chee Chuan v Katlyn Enterprise (M) Sdn Bhd [1991] 1 MLJ 98- ct willingness to grant PT in certain circumstances

Compare –Kim Lin’s case [1997] 2 MLJ 805 (FC)

• Chargor and chargee cld not by agreement to agree to enlarge the powers of a chargee under the Code to obtain a judicial sale

Taking Possession – s 270 -read

• S 270- restriction on the power• -not applicable for land under LOT• Not applicable to any charged of undivided

share• Not applicable to land occupied by the chargor

Procedures

• F16J –notice for tenant or lessee if the taking possession by collecting rent

• Physical possession – notice by F16K• Cancellation of notice by F16L or F16M