NOR ASIAH MOHAMAD

LIEN AND THE LIEN HOLDER’S CAVEAT

WHAT IS A LIEN?

• A security transaction• Elements of lien:• Depositing of land title or duplicate lease with the lender• Intention to create a lien• Entry of lien holder’s caveat

• Paramoo v. Zeno Ltd. [1968] 2 M.L.J. 230,• Zeno Ltd. v. Prefabricated Construction Co. (Malaya) Ltd.

& Anor. [1967] 2 M.L.J. 104, at page 105, where Raja Azlan Shah J (as His Majesty then was) observed that the intention to create a lien may be inferred from all the relevant circumstances of the case.

HALSBURY’S LAWS OF ENGLAND, VOLUME 28, 4TH EDITION,

REISSUE, P. 352 • defines a “lien” in this way: “In its primary or legal sense ‘lien’ means a right at

common law in one man to retain that which is rightfully and continuously in his possession belonging to another until the present and accrued claims of the person in possession are satisfied.”

NATURE AND EFFECT OF LIEN HOLDER’S CAVEAT

• PERWIRA AFFIN BANK BHD v. SELANGOR PROPERTIES SDN BHD & ORSCOURT OF APPEAL, PUTRAJAYA [2010] 3 CLJ• The IDT need not necessarily be deposited by the

registered proprietor• The word ‘proprietor’ in s. 281(1) of the NLC

should include a beneficial owner. The equitable doctrine of bare trustee is applicable in Malaysia• UNITED OVERSEAS BANK (MALAYSIA) SDN BHD v

UJA

TITLE MUST ALWAYS WITH THE LENDER

• Sithambaran Chetty v Ramanathan Chetty (1922) – a lien is a mere retention of title for security thus if the title is surrendered, the lien is no more

THE LAW• S 281• S 330-333

WHO CAN CREATE LIEN?

• Perwira Habib Bank (M) Bhd lwn Loo & Sons Realty Sdn Bhd & satu lagi (No 1) [1996] 3 MLJ 409, only the registered proprietor…

WHO CAN ENTER LHC?

• Who can enter a lien?• United Overseas Bank v Uja (2010) CA• Issue: w/er a reg’d owner can create lien on

behalf of third party borrower – extend to third party• Distinguished with Hong Leong Finance Bhd v

Staghorn Sdn Bhd [2005] CA – only the re’g proprietor

• Palaniappa Chetty v Dupire [1919] 1 FMSLR 370• A person who lends money to a borrower (who is

also a registered proprietor of the land) may enter a LHC• Perwira Habib Bank (M) Sdn Bhd v Loo & Sons

Realty S.B [1996]

THE CODE - ONLY THE DEPOSITEE CAN ENTER LHC S 330– CAN THE DEPOSITEE

USE THE TITLE TO CREATE A LIEN?

• Peter P Chient v Ramasamy Chetty (1923) 3 FMSLR 220• -no, this right only belongs to the caveator who is

the registered proprietor of the land• Cases:

S 331• Only the original depositee alone has the right to enter LHC• The caveat may be entered at any time because the

retention of title by the depositee creates a right in equity to the lien

• Case: Mercantile Bank Ltd v The Official Assignee of How Han Teh [1969] 2 MLJ 196

• the lien-holder who retains possession of the issue document of title or the duplicate lease or even a copy of the issue document of title may feel free to enter the lien-holder’s caveat at any time during the currency of the loan without losing priority over subsequent purchasers of the land or lease – the subject matter of the lien.

• Case: Mercantile Bank Ltd. v. The Official Assigneee of The Property of How Han Teh [1969] 2 M.L.J. 196.

PRIORITIES IN CLAIMS• However as the interest is ‘equitable’ thus the

principles of first in time prevails, all other things are equal applies – RAS• This case followed the decision in Vallipuram

Sivaguru v Palaniappa Chetty [1937]MLJ 59

IF THERE IS NO CAVEAT, THE RIGHT OF THE CREDITOR LIES IN PERSONAM

• “In my view that case is authority for the proposition that although no lien is created under the land Code until the caveat is registered, the court in the absence of express words in the statute is not prevented from doing justice between the parties by giving effect to equitable rights by way of contract. In other words although failure to lodge a caveat does not entitle the depositee to a lien under the Code, he still possess a right to it in equity..

EFFECT OF LHC

• Chew Sze Sun v Muthiah Chettiar [1983] 1 MLJ 390 Abdul Razak J – a LHC entered earlier in time will prohibit the subsequent entry of a private caveat .• S 330(5) effect of LHC

IT IS THE DUTY OF THE PERSON WHO APPLIES FOR LHC TO PROVE THAT THE TITLE IS HELD THROUGH

A PROPER MANNER

• Case: Nallamal & Anor v Karuppan Anor [1993]• - to guard agst any fraud, misrepn,• - the provision for lien in the NLC must be strictly

construed

EFFECT OF LHC

• S 330(5) “the like effect”of that of private caveat – David S Y Wong suggested that LHC shall have the like effect as that of PC as provided by s 322(2) to (7).. In brief, it has the same single prohibitive effect against subsequent registrations of dealings, endorsement of TER and entry of subsequent LHC..

SY KOK

• ..however, the presence of a LHC does not prohibit an entry of a RC nor does a LHC prohibit the entries of subsequent PC and PO..The entry of a LHC will prohibit the entry of subsequent LHC since the title is already in the possession of the existing holder, no application for LHC will be entertained unless the applcn is supported by the IDT … no second lien is allowed by the NLC, if the act amounted to a surrender of the IDT

EQUITABLE LIEN

• Mercantile Bank• The element of intention and possession of title is

sufficient to create a lien• RAS ..although failure to lodge a caveat does not

entitle him to the right under NLC ..he still possess the right in equity, he can enter the caveat at any time..

STANDARD CHARTERED BANK V YAP SING YOKE – SUPER CAVEAT

• The complacent attitude of the Court in applying the principle of equity• Ct hd: the bank had priority because it had

possession of the IDT, therefore, the bank has an equitable interest in the nature of lien.• Despite the fact that the earlier form

submitted was a charge form but was rejected for registration (no quit rent paid)• Ct hd : LHC can be entere at any time by the

LH

HONG LEONG FINANCE BHD V. STAGHORN SDN BHD [1995] 3 CLJ 368.

CAwhere the ambit of the provisions in the National

Land Code 1965 on statutory liens over land was discussed.

Staghorn wanted to purchase a piece of land but later Teck Lay Realty appeared as purchaser and deposited the IDT for loan.

HL Finance entered a LHC based on a loan for Teck Lay Realty.

Borrower defaulted, HL Finance granted OFS, but Staghorn objected and HCT granted its objection.

JUDGE: TUN ABDUL HAMID MOHAMAD.. AS HE THEN WAS. (2008) FCT

Lien in its primary sense is a right in one man (lender) to retain that which is in his possession belonging to another man (creditor) until certain demands of the person in possession are satisfied. Subsection (1) of s. 281 speaks of the registered proprietor depositing his issue document of title "as security for a loan" but does not specify the borrower and neither does it restrict the loan to a loan to the registered proprietor. I could see no reason for construing the loan to mean only a loan to the registered proprietor. In my judgment the loan may be a loan to a third party.

• That would have been my answer to Question No. 2. 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. That would have been my answer to Question No. 3.

• Subsection (1) of s. 281 is an enabling or empowering provision. It enables or empowers the registered proprietor to deposit his issue document of title with any person or body as security for a loan.

NO CLEAR PROCEDURE HOW THE CAVEAT TO BE DONE…

It does not lay down the procedure for or the manner of depositing. It ought not to be construed as requiring that the registered proprietor himself must do the act of depositing. It is his will that is important. If he wills that the document of title be deposited with a person or body as security for a loan and it is so deposited, then it is he who has exercised his power under sub-s. (1). He wills the depositing if he instructs or authorizes it or consents to it, and the actual act of depositing may be done by someone else. That would have been my answer to Question No. 4. It follows that my answer to Question No. 5 would have been a negative one.Staghorn has no interest in the land, thus he has no right to object…

APPEAL TO CT OF APPEAL

Court of Appeal held that the sale should be set aside on the ground that there was no lien validly created under the Code in favour of Hong Leong Finance, on the court’s construction of Section 281(1) of the Code.

The Court held that since a statutory lien can be created only:

(a) by the deposit of title by the registered proprietor, and

(b) to secure a loan granted to the registered proprietor, but not a loan granted to a third party

CONDITIONS UNDER S 281 WERE NOT FULFILLED

In this case, both these conditions were not met in this case, Hong Leong Finance’s lien-holder’s caveat was invalid.

However, the court also found that Hong Leong Finance did have an interest in the land and allowed it to retain the title.

It would follow that lien-holder’s caveat in such instance would still be able to protect its right to the land, either by perfecting a Charge in its favour or by applying for a court order for a sale of the land and for the proceeds of sale to be paid to the lender in view of its said interest in the land.

Appeal to FC

APPEAL TO FED COURT – CONSIDER PROCEEDING FOR OFS FOR LIEN

 In proceedings for an order for the sale of land [pursuant to a lien-holder's caveat]:

(a) Whether the Court, after the order for sale is made, may permit or allow a party which is found to have no proprietary rights in the said land, to intervene in the said proceedings with a view to setting aside the said order;

(b) Whether an order for sale may be set aside on the application of an intervener who is found to have no proprietary interest in the said land and in the absence of any challenge by the registered proprietor and/or the beneficial owner of the said land.

2. Whether sections 281(1) and 330 of the National Land Code (NLC) envisage that a registered proprietor of land may deposit his issue document of title as security for a loan only to the said proprietor and never to a third party.

JUDGEMENT AGST BORROWER OR OWNER?

SHD ONLY THE REG PROP TO ENTER THE TRANSACTION (LIEN)?3. If a registered proprietor of land deposits his issue

document of title as security for a loan to a third party, whether the judgment that is required to be obtained under section 281(2) of the NLC is a judgment to be obtained against the borrower of the loan or against the registered proprietor of the said land.

4. Does section 281(1) of the NLC require as a condition precedent for validity of a lien holder's caveat that the registered proprietor do personally effect the deposit of his issue document of title or would the requirements of section 281(1) of the NLC be satisfied by evidence that the said issue document of title had been deposited by a third party (ie, a person or party other than the registered proprietor) on the instructions or with the authorization or the consent of the registered proprietor.

5. Is an order for sale made pursuant to a lien-holder's caveat created by the deposit of the issue document of title by a third party with the consent of the registered proprietor considered to be illegal and consequently liable to be set aside.

UNITED OVERSEAS BANK (MALAYSIA) SDN BHD V.UJA SDN BHD & ANOTHER APPEAL [2010] 6 CLJ 204

CA UJA was the registered proprietor of a piece of land. A

company, Union Plastics Sdn Bhd, wanted to borrow money from United Overseas Bank.

UJA deposited the title to its land with the bank as for the loan. The bank entered a lien’s holder caveat against the title to the land in question and lent money to Union Plastics. Union Plastics defaulted in making repayment of the loan.

The bank thus acted under s. 281(2) and moved for an order for sale. The High Court struck out the bank’s summons on the ground that a lien under s. 281 could be created by a registered proprietor of land when and only when he or she was also the borrower.

The issue that arose herein was whether the registered proprietor of land may create a lien over his or her title in favour of a third party borrower

Hd: S 281 is not limited to the creation of a security by way of a lien on title only for the benefit of a registered proprietor. It extends to third party borrowers as well.

DETERMINATION OF LHC

• LHC will continue so long as the person who lodges the caveat is still in possession of the title• LHC will distinguish if the LH withdraw or cancel

the caveat• If the charge is registered in favour of the lien

holder• When the land which is subject to lien is sold

based on s 281(2)

REMOVAL OF LHC

• The Court may order the Registrar to cancel LHC - s 331(4) – on what basis?

LIEN HOLDER TO PROVE WHY HIS LHC SHD STAY

• The onus is on the person who applies for removal to prove that the caveat must not be entered – i.e the registered proprietor or the aggrieved person• The lien holder must show why his caveat should

remain • The court will decide on the balance of

probabilities

WHAT IS THE EFFECT OF LHC?

• The like effect of a private caveat• S 330(5)

Sayang Plantantion v Kokh Siak Poo [2003] CA

• The test for the removal of LHC is more enormous as compared to PC. • The person ask for removal must prove

there is non compliance of sec 281, or the necessary document not accompanied or the LHC should not be entered in the first place.• Upon ordering for removal, the court may

also order for payment of damages to the person aggrieved.