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Question A

Generally security transactions are dealings effected by the registered proprietor


of an alienated land to confer an interest on such land to the lender in order to obtain a
loan. Such interest functions as a guarantee of repayment of the loan and in the event of
default by the borrower, the lender will be entitled to commence foreclosure proceedings
for an order for sale of the said land to recover the loaned sum. 1 In other words, security is
created when the creditor obtains rights exercisable against some property in which the
debtor has an interest in order to enforce the discharge of the debtors obligation to the
creditor.2 Lender is usually disinclined to offer loan by merely basing it on the borrowers
personal credit and hence, security is a form of certainty or repayment in enforcing a
claim in debt.3 There are three kinds of security namely lien, mortgage and also pledge (an
intermediate between lien and mortgage)4. However in West Malaysia, charges and
statutory liens are the security transactions recognized under our National Land Code 1965
and remedies are also provided.

Lien is undefined under NLC but Malaysian courts 5 approved the definition as laid
down in Halsburys Laws of England 6 which means a right at common law in one man to
retain rightfully and continuously in his possession belonging to another until the present
and accrued claims of the person in possession is satisfied. S281(1) of the NLC lays
down the principles governing a valid creation of Torrens statutory lien. The method
of creating a lien in the NLC is by depositing the issue document of title by the
proprietor or lessee as a security for a loan and that lien-holder may thereupon apply for
the entry of a lien-holders caveat.7 The proprietor may also deposit his title with a lender
for the benefit of a third party. Once a lien-holder's caveat is entered, the lien-holder

1 Principles of Malaysian Land Law, pg 233.

2 Bristol Airport Plc v Powdrill [1990] Ch. 744

3 Cousins, The Law of Mortgages, pg 1.

4 Halliday v Holgate (1868) L.R. 3 Exch. 299

5 Palaniappa Chetty v Dupire Brothers & Anor (1922) 1 FMSLR 370 (CA) at pg 377; ORMORM Manickavasagam Chetty v
Thomas James McGregor [1933] 2 MLJ 295 (HC) at pg 296; Perwira Affin Bank Bhd v Selangor Properties Sdn Bhd & Ors [2010] 3
MLJ 43 (CA) at pg 49.

6 Vol 68 (5 th
Ed) at pg 257.

7 The Lien.
becomes a secured creditor.8 Hence the holder of any lien will be entitled an order for the
sale of the land or lease after he has obtained judgement for the amount due to him under
the lien in the event of default payment by the debtor.

Mortgage is both a contract and a transaction which creates an interest in land by


way of security.9 It is a conveyance of land or an assignment of chattels as a security for
the payment of a debt, or the discharge of some other obligation for which it is given.
Mortgage securities confer contractual right (including the right to sue for debt) which is
supported by proprietary rights over the property that is the subject-matter of the security
to the lender, but which are not dependent on the lender obtaining possession of that
property.10A mortgage deed generally stipulates that the mortgagor shall repay on a fixed
date from the execution of the deed, failure in which the property will be vested in the
mortgagee. The common law mortgage is redeemable on the payment or discharge of such
debt or obligation and it is complementary to the lenders power to return the property (or
money equivalent represented by the surplus on the sale of the property) on repayment.
Conversely, if the lender is unable to return the property or money equivalent, as happens
on foreclosure, the personal covenant, even if unsatisfied, is extinguished. 11 NLC does not
recognize common law mortgage.12

A mortgage is a conveyance of property subject to a right of redemption, whereas a charge


conveys nothing and merely gives the chargee certain rights over the property as security
for the loan.13 Charge is provided in NLC by virtue of s5 and s241 and it is inequivalent to
English mortgage at common law although both are meant to secure repayment of loan. 14
A statutory charge is created over any alienated land or lease or undivided share to secure
the repayment of a loan and it takes effect only upon registration. Charge passes no title or

8 Perwira Affin Bank Bhd v Selangor Properties Sdn Bhd & Ors [2010] 3 MLJ 43.

9 Halsbury Law of England.

10 Santley v Wilde [1899] 2 Ch 474

11 Noakes & Co Ltd v Rice [1902] AC 24, HL; Sutton v Sutton (1882) 22 ChD 511.

12 Noakes & Co Ltd v Rice [1902] AC 24, HL: But our land law certainly recognises a mortgage in the sense of Torrens system,
referred as Torrens Mortgage in which the mortgagor retains the legal ownership whilst the mortgagee acquires a statutory right
to enforce his security. For the purpose of avoiding confusion, our National Land Code drops the word "mortgage" and uses the
word "charge" in place of Torrens mortgage.

13 The Law of Real Property (5 th


Ed), Sir Robert Megarry & HWR Wade at pg 914.

14 Bank Bumiputra Malaysia Bhd v Doric Development Sdn Bhd & 2 Ors [1988] 1 MLJ 462.
ownership from the registered proprietor of the land to the chargee or lender. It is clearly
stated under s243 of NLC that the charge merely renders the land in question liable as a
security. Registered charge only amounts to an interest in land but is not to be considered
as a contract.15 As such, no power of sale or foreclosure is conferred on the chargee himself
upon default of the chargor but legal proceedings must be taken by the chargee to obtain a
judicial order of sale of the charged property. 16

Agreement to secure repayment of a loan created by contracts outside any enactments of


the Torrens system's registration of titles such as the NLC may still give rise to an
equitable charge.17 Equitable charge does not contravene NLC and is a form of security
quite outside of NLC to which effect may be given as a contract inter partes 18 by virtue of
s206(3). Equitable charge gives rise to an equitable right in favour of the creditor even
though such charge was not executed according to NLC.

The distinction between equitable mortgage and equitable charge depends very much on
the intention of the parties and the remedies available on default. 19 Equitable mortgage
is a conveyance of property subject to a right of redemption whereas an equitable charge
conveys nothing but merely gives the charge the certain rights over the property as
security for the loan.20 Both of these happen in the context of modified security
transactions being recognized contractually and equitably. Equitable mortgage has a lower
legal standing than registered mortgage (if there is more than one mortgage on the same
property, registered mortgage takes precedence) and it is created when the borrower
delivers to the lender the title intending the said title to be a security, usually confirmation
was done verbally instead of/pending registration. 21

15 Co-operative Central Bank Ltd v Y & W Development Sdn Bhd [1997] 3 MLJ 373 (CA) at pg 376.

16 Enforcement of Charges Handbook, pg 10-30

17 Chuah Eng Khong v Malayan Banking Bhd [1998] 3 MLJ 97 (FC) at page 112.

18 ARRM Arunasalam Chetty s/o Sithambaram Chetty v Teah Ang Poh & Anor [1937] 1 MLJ 17 (SC) at pg 20.

19 Phileoallied Bank (M) Bhd v Bupinder Singh a/l Avatar Singh & Anor [2002] 2 MLJ 513 (FC)

20 Cheshire and Burn's Modern Law of Real Property (15th Ed) by EH Burn

21 Russel v Russel (1783) 1 Bro CC 269 in 1783.


An equitable lien arises under our NLC when there is a failure to enter lien-holders caveat
or, pending such entry, the lender will acquire a right to a lien in equity. 22 A lien in equity
over a land can be claimed by a registered chargee who has custody of the title pending
registration of the charge and subsequently the right to enter into a caveat. 23 In the event
of conflicting equities, a lender with whom the title is deposited earlier in time will not lose
his priority just because of his failure to caveat the property. 24

Question B

Security Transactions under the National Land Code in Peninsular

Under the National Land Code, there are two types of security transactions in land
which are statutorily provided, namely, charge 25 and lien26. Essentially, these transactions
are to ensure that in the event of a default by a borrower to repay loan, there are some
forms of compensation available to the lender through security of loans.

Charge

A charge can be granted over the whole of an alienated land or any undivided share in an
alienated land and also any lease of alienated land but not parts of an alienated land 27. For
a charge to be effective, it has to be registered accordingly with the Land Office or the Land
Registry28. It is also possible for a registered proprietor to charge his property few times in
succession29.Generally, a charge to two or more persons or bodies is not permitted but it
can be created in favour of them as trustees or representatives jointly 30.

22 Mercantile Bank Ltd v Official Assignee of the Property of How Han Teh [1969] 2 MLJ 196 (HC)

23 Standard Chartered Bank v Yap Sing Yoke & Ors [1989] 2 MLJ 49 (HC)

24 Paramoo v Zeno Ltd [1968] 2 MLJ 230 (FC)

25 National Land Code 1965, section 243

26 Ibid, section 281(1)

27 Ibid, section 241(1)

28 Ibid, section 243.

29 Ibid, section 241(2)

30 National Land Code 1965, section 241(4)


In order to create a legal charge, the prescribed statutory form 31 should be used to avoid
rejection upon presentation for registration. However, a mistake between the usage of
Form 16A and 16B was held not detrimental for the usage of the statutory forms is deemed
to be flexible32. When a charge is registered, the effect would be that the land would be
encumbered and thus further dealings by way of sale or transfer is prevented and consent
from the first chargee would be required for further charges to be effected 33. Furthermore,
upon registration of the charge, the chargee will have an indefeasible interest in the land 34
which also confers the charge priority over other dealings that would be created after the
registration of the charge.35 When there is a charge created, there would be provisions
which are implied on the part of the chargor in all charges 36 and when there is an absence
of a contrary intention expressed in the charge 37.

By virtue of section 244(1), the first chargee is entitled to the custody of the issue
document of title to the land charged or in certain circumstances, the duplicate lease
subject to any agreement to the contrary. It is also provided that, the chargee may when
required by and on the written request of the proprietor or lessee produce the issue
document of title or duplicate lease at the land registry or office for a purpose specified
under the National Land Code(NLC) 38.Due to charges being able to be subsequently

31 Ibid, section 242(1) and 242(2). The type of form used should depend on whether it is for the repayment of a debt or for a
periodic sum.

32 See V Letchumanan v Central Malaysian Finance Bhd [1980] 2 MLJ 96 and Tan Yen Yee & Anor v Equity Finance Corp Bhd
[1991] 1 MLJ 237

33 Yow, Lainah Oi Lin (2003) Conveyancing Practice and Procedure in West Malaysia, Kuala Lumpur, Malayan Law Journal at
pp. 239

34 Tai Lee Finance Co Sdn Bhd v Official Assignee & Ors [1983] 1 MLJ 81

35 Ainul Jaria Maidin, et. al. 2008. Principles of Malaysian Land Law. Petaling Jaya: Lexis Nexis at pp. 245

36 National Land Code 1965, section 249

37 Ibid, sections 250-252

38 National Land Code, section 244(2)


granted, there is the possibility that the issues of priority of charges may arise. Such
priorities could be altered by tacking,39consolidation40 and postponement41.

The rights and remedies of the charger and charge are exhaustively and exclusively
dealt with under the NLC42. Under the NLC, two remedies are available to a charge in the
event of a default of the loan by the charger. They are to obtain a sale of the land charged 43
or to take possession of the property charged44. However, the right to take possession of
charged land is restricted to certain types of land 45 and only exercisable by first chargees
only46. An exercise of the right of possession is no bar to subsequently obtaining an order of
sale of the land47.

Lastly, a rare practice48 among bankers which is expressly allowed in the NLC is the
transfer of charges49 . The effect of the transfer would be that subject to agreement to the
contrary, the transferee is subject to the obligation and has a duty to perform and observe
the provisions of the charge50.

39 Ibid, section 246

40 Ibid, section 245

41 Ibid, section 247

42 Kimlin Housing Development Sdn Bhd v Bank Bumiputra (M) Bhd & Ors [1997] 2 MLJ 805

43 National Land Code, section 253

44 Ibid, section 271

45 Ibid, section 270(1)

46 Ibid, section 270(2)

47 Ibid, section 253(2)

48 Wong, Kim Fatt,(1999) Enforcement of Charges Handbook, Kuala Lumpur, Malayan Law Journal at pp. 35

49 National Land Code, section 214(1)(d)

50 Ibid, section 216(2) and section 219(2)


An unregistered chargee is not entitled to a statutory remedy under the NLC, 51 but
he can seek equitable recognition of the charge and obtain a contractual relief. 52 If he has
custody of the issue document of title, he can claim for a lien over the land. 53 In fact,
according to S206(3) of the NLC, an agreement to secure a debt in favour of the creditor in
respect of the debtors land may create an equitable charge 54 giving rise to an equitable
right in favour of the creditor, although no charge has been created under the NLC. 55

Lien

Under the NLC, a lien is created when the registered proprietor deposits his issue document
of title for a loan.56 The person or body can later apply to enter into lien-holder caveat 57 and
shall upon the entry of the caveat, become entitled to a lien over the lease or land. For the
creation of lien, nothing needs to be recorded or entered in the register. It is a dealing off
the register and thus, is not a registered interest.

The statutory lien is not capable of being created by deposit of title documents
alone. Its creation also requires the formality of an entry of caveat in the register. 58 A lien is
a non-registered interest but it becomes protected as against registered interests as soon
as it is created. The entry of caveat itself does not warrant the validity of a lien. The validity
of a lien is dependent on the fulfillment of the prerequisite with regards to the deposit of
title documents as security for loan. The entry of a lien-holders caveat is a statutory form
of dealing for effecting a valid lien and it is distinguishable from the lodgment of an
ordinary caveat in other cases for the purpose of protecting claims to land.

51 Oriental Bank v Chup Seng Restaurant (Butterworth) Sdn Bhd [1990] 3 MLJ 493.

52 Daito Kogyo (Sarawak) Sdn Bhd v Port Dickson Land Development Sdn Bhd [2001] 2 MLJ 531. An unregistered charge
functions as a debt but it is not a proprietary interest in the land or lease or undivided share.

53 Standard Chartered Bank v Yap Sing Yoke & Ors [1989] 2 MLJ 49.

54 Malayan Banking Berhad v Zahari bin Ahmad [1988] 2 MLJ 135. An equitable charge can be created where there is no
instrument capable of registration.

55 Mahadevan s/o Mahalingam v Manilal & Sons (M) Sdn Bhd [1984] 1 MLJ 266 at 270-271; Ngan Khong v Bamah bte Pakeh
Jamin Rashid [1935] MLJ 167; Arunasalam Chetty v Teah Ah Poh Trading [1937] MLJ 17; Vallipuram Sivaguru v Palaniappa
Chetty [1937] MLJ 59; and Mercantile Bank v Official Assignee of the Property of How Han Teh [1969] 2 MLJ 196.

56 Ibid, section 281(1)

57Ibid,section 330

58 Teh Teck Huay v Thor Hor Chooi (1954) 20 MLJ 227; Zeno Ltd v Prefabricated Construction Co. (Malaya) Ltd. [1967] 2 MLJ
104.
S281(2) of the National Land Code provides that a lien-holder is entitled to apply to
the Court for an order for the sale of the land or lease, upon the obtaining of judgement for
the amount due to him thereunder. The only remedy for a lien-holder upon default of
payment is to have the debt discharged out of the land by way of sale of land under the
direction of the Court. A lien holder might only apply for and obtain an order of sale when
he had obtained a judgement of the Court of the actual sum due, and his right to enforce
the lien by judicial sale was conditional upon proof of the personal obligation of his
borrower to repay the debt.59 A lien-holder may proceed as a mere judgement creditor
against the land by way of an attachment.60

A statutory lien is not transferable as there is no statutory provision for its transfer.
Its duration depends on the continuing presence of the caveat on the register. A lien-
holders caveat does not lapse by passage of time as does a private caveat which will lapse
over the period of six years. Where the caveat is withdrawn or cancelled, the lien will be
determined.

Distinguishes between Charge and Lien

The case of Paramoo v Zeno 61 made it clear that a charge is quite different from that of a
lien and that they can exist independently of each other.

A stark difference apparent from the NLC is the type of interest that is conferred upon the
lender from a charge and a lien. Under a charge, by virtue of section 340(1), the interest
conferred upon the lender is indefeasible, whereas for a lien the interest is a statutory but
non-registrable interest. Thus, from the lenders point of view, an indefeasible interest
weighs more than an interest which is not registered.

However, because of the various requirements and procedure that is required to


register a charge, some borrowers would opt for a lien for greater expediency to get a loan.
In the past when the usual period to get a Memorandum of Transfer adjudicated was 2
months, some developers would opt for a lien from the lender as interim security for faster
loans62. A lien-holders caveat can be entered at any time and the failure to caveat
timeously will not cause the prior uncaveated lien to lose priority against later caveated

59 Cheong Kam v Loke Chow Tye (1924) 4 F.M.S.L.R. 294; Alagappa Chetti v Perianayagam (1908) Innes 117.

60 Dyal Singh v Pandak Dahalim (1939) 8 MLJ 246.

61 [1968] 2 MLJ 230

62 Supra n9 at pp.249
interests. The reason why lien-holders are able to overrule the usual priority principles is
because the lien-holder retains the issue document title. Entering a lien-holder caveat is
usually done pending the registration of a charge. Nonetheless, if there is a restriction in
interest on the title, such an option for lien may not be as expedient because of the need to
obtain prior consent and advent of the e-adjudication system in our current times. 63

Another distinguishable difference is the possibility of subsequent similar


transactions that can be made. For a charge, section 241(2) permits the creation of second
and subsequent charges but for a lien, while it is not expressly stated that there cannot be
subsequent liens, the basis for such a prohibition is that there can only be one copy of
issue document of title to the land and as such there cannot be subsequent liens 64. The
result of this is that it is harder to get further advances for loans when we have a lien as
compared to. As such, there is also no issue of alteration of priority for statutory lien.

Furthermore, section 241 (1) allows a charge to be used to secure the repayment of
debt or the payment of any sum other than a debt, but a lien can only be used to secure a
loan under section 281. Hence, the scope of usage of charge is wider than lien. Also, unlike
charge, a judgment for debt owed must first be obtained before he is entitled to apply for
an order for sale of land65. Such an arrangement is less beneficial to lenders for in the
event of default, obtaining compensation is less expedient and discouraging.

Cases

The Court of Appeals decision in Hong Leong Finance Bhd v Staghorn Sdn Bhd 66
highlights the advantage of lien. Lien under s 281 of the NLC allows a registered proprietor
to raise money on loan speedily by depositing the document of title registered in the
lenders name, as compared to the complex process of registering a legal charge over the
land.67 In fact, according to Halsburys 68, there is no requirement of a formal contract or

63 Ibid.

64 See The Nature and Application of the Torrens Liens and Lien-Holders Caveats in West Malaysia [1983] 1 MLJ xl

65 National Land Code, section 281(2)

66 Hong Leong Finance Bhd v Staghorn Sdn Bhd [2005] 5 MLJ 101.

67 Ibid 11 [34]. The Judge stated S 281 of NLC is intended for a registered proprietor to raise money on loan speedily by depositing the
document of title registered in the lenders name, as compared to the complex process of registering a legal charge over the land.

68 YB Tan Sri Abdul Gani Patail, Securities Over Land (2009) 10(1) Halsburys Laws of Malaysia 372 [250.356].
evidence in writing for a lien to be created. Thus, a statutory lien can be created more
conveniently and easily as compared to a legal charge.

The Federal Court in Hong Leong Finance 69, overturning the Court of Appeals
decision, held that a third-party lien holder caveat, just like a third-party charge 70, is
allowed.71 However, the Federal Court held that the actual depositor needs not be the
registered proprietor himself so long as the registered proprietor consents to the
depositing.72 73
. When a depositor is not a registered proprietor, a lien will only be valid
under s 281(1) of the NLC if the registered proprietor consents to the depositing of
document of title and if the depositing does justice to the registered proprietor.

In lien cases 74, a depositor of issue document of title often happens not to be a
registered proprietor. These have given rise to issues on whether the registered proprietor
in question consents to the depositing and whether the depositing does justice to the
registered proprietor. But for a charge, issues like these do not arise. Charge is a registrable
interest and thus, must be presented for registration under the NLC. A charge instrument is
registered on the register document of title. 75 Similar to lien, a chargor must be a registered
proprietor.76 If the chargor is not a registered proprietor, the charge in question cannot be
registered. Hence, once a charge has been registered, the bank is safe. Since the creation
of a lien does not require registration, it is dangerous for the bank as it has to find out
whether the depositor of the document of title is a registered proprietor. If the answer is
negative, the bank also has to ensure that the registered proprietor in question consents to

69 Hong Leong Finance Bhd v Staghorn Sdn Bhd [2008] 2 MLJ 622.

70 YB Tan Sri Abdul Gani Patail, Securities Over Land (2009) 10(1) Halsburys Laws of Malaysia 372 [250.357].

71 United Overseas Bank (Malaysia) Sdn Bhd v UJA Sdn Bhd [2009] 6 MLJ 957. The Court of Appeal upheld the Federal Courts
decision in Hong Leong Finance. A lien can be created as a security in favor of third party borrowers.

72 Hong Leong Finance Bhd v Staghorn Sdn Bhd [2008] 2 MLJ 622.

73 Perwira Affin Bank Bhd v Selangor Properties Sdn Bhd & Ors [2010] 3 MLJ 43. The Court of Appeal upheld the Federal
Courts decision in Hong Leong Finance. A depositor needs not be a registered proprietor.

74 Hong Leong Finance Bhd v Staghorn Sdn Bhd [2008] 2 MLJ 622; Perwira Affin Bank Bhd v Selangor Properties Sdn Bhd &
Ors [2010] 3 MLJ 43.

75 Section 304 (2)(a) of the NLC. When registering a charge instrument, the Registrar will make a memorial and seal in the
terms and description of the charge on the register document of title.

76 Form 16A of NLC, Section 242 of the NLC.


the depositing and the depositing does justice to the proprietor, in order for a lien to be
valid.

Lawyers Opinions

According to Mr. Chew77, a practicing lawyer, banks nowadays prefer charge,


because holding a lien is unsafe as evidenced in cases above. A chargee has the right to
sell the land using an IDT but a lien-holder does not have an automatic right to sell even
with an IDT. A judgement needs to be obtained from the court for the amount due under a
lien prior to applying to court for an order for sale, 78 and this may take up to one year.
Further, if a judgement debt order is statute-barred, a lien-holder cannot apply for an order
for sale.79 The lengthy and tedious process involved in getting an order for sale 80 coupled
with court cases81 above, have caused the banks to be reluctant in taking up a lien
nowadays.

According to Mr. Goh 82, another property lawyer, financial institutions now favor a
legal charge under the NLC because they feel more secured having their interest registered
on the register document of title, and the NLC provides comprehensive provisions to deal
with the property on default. Lien is outdated and appears as an option to non-financial
institutions. Generally, legal charge provides a better notice to third parties as far as
financial institutions interest is concerned. 83 By having a registered charge on the title, the
whole world will be aware of it when a search is conducted on the title. In a lien, if there is
only a deposit of issued document of title, and a lien-holder caveat is not yet endorsed on

77 Mr. Chew Phye Keat, a practising lawyer at Raja, Darryl & Loh Law Firm, at 0162282497.

78 S 281(2) of the NLC.

79 Alagappa Chettu v Periyanayagam (1908) Innes 117. A lien-holder is not entitled to a remedy under lien if the judgement
debt order is statute-barred. A lien-holder might only apply for and obtain an order of sale when he had obtained a court
judgement of the actual sum due. His right to enforce the lien by judicial sale was conditional upon the recoverability of the
debt from the borrower.

80 S 256 (3) of the NLC states that for a charge, a judgement debt order is not required prior to an application to court for an
order for sale. This has made the process of getting an order for sale under a charge much more easier and quick, as compared
to a lien.

81 Hong Leong Finance Bhd v Staghorn Sdn Bhd [2008] 2 MLJ 622; Perwira Affin Bank Bhd v Selangor Properties Sdn Bhd &
Ors [2010] 3 MLJ 43.

82 Goh Sea Tai, a practising lawyer at St. Goh and Johari law firm.

83 Form 16A of the NLC shows the identity of a chargee, something that a financial institution is concerned about. By
registering a charge, the identity of a chargee is known to the public, when a search is conducted on the land title. Form 19D of
the NLC does not disclose the identity of a lien-holder. It only shows the entry of a lien-holders caveat. When a search is
conducted on the land title in question, the public will only know about the existence of a caveat but they will not know the
identity of the lien-holder.
the register document of title84, the interest of the bank as a lien-holder is not reflected on
the title.

Security transactions in Sabah and Sarawak

Lien can only be found in the NLC but it is not provided by the Sarawak Land Code
and the Sabah Land Ordinance. In Sabah, the Sabah Land Ordinance (SLO) like the NLC,
requires a charge over a land or an interest 85 to be registered for it to be valid. 86 However,
unlike the NLC87, the SLO does not provide for indefeasibility of a registered charge. A
registered charge merely becomes valid and creates a proprietary interest over a land or a
registered sub-lease in favour of the chargee. 88 The procedure of sale of land by the
Collector in Sabah is similar to that in the NLC for the sale of land with land office title 89,
where a hearing is to be held in the presence of interested parties, and after the hearing, if
there is a satisfaction of a default, the sale by public auction must be ordered. 90 The only
difference is SLO allows for the sale of part of the land which is not allowed in the NLC.

A charge in the NLC can be effected over the whole of an alienated land; the whole
of an undivided share; and any lease of an alienated land. However, a charge under the
Sabah LO can only be effected over a land (not limited to alienated land); an undivided
share in the land91; or a sub-lease.92 Section 216(1)(b) of the NLC is also different from
section 107 of the SLO.93Further, in the NLC, a discharge is effected upon the registration of

84 S 330 (3) of the NLC.

85 Section 104 of the Sabah Land Ordinance.

86 Section 88 of the Sabah Land Ordinance.

87 Section 340 of the NLC provides for the indefeasibility of a registered charge.

88 Section 88 of the SLO.

89 Section 261 and section 262 of the NLC. Section 262(2) and 262(3) of the NLC is similar to Rule 14(4) and Rule 14(6) of the
Sabah Land Rules 1930.

90 Sabah Land Rules 1930 r 14(3).

91 Section 106 of the Sabah Land Ordinance. It is not possible to charge part of the land until the land has been subdivided
and a new document of title has been issued.

92 Sabah Land Ordinance, n 32. Section 4 refers to the charge over land; Section 104 refers to a charge over land or interest
therein; Section 109A refers to a charge over land or sub-lease. The combined effect is that a charge can be effected over a
land or a sub-lease. A land here is a land contained in the Government lease, and the sub-lease refers to a lease created by the
Government lessee.
Form 16A.94 But in the SLO, discharge of a charge may be effected by registering a
memorandum and endorsing the word release on individual titles. 95 Also, in the NLC, only
full payment of debt can warrant a discharge. 96 But in the SLO, a charge can be discharged
even if the debt has not been paid in full. 97 In addition, in the NLC, the court (for a registry
title) or the land administrator (for a land office title) is empowered to order the sale of a
land or lease by public auction. 98 But in Sabah, the Collector is the one who can order the
sale by public auction of the whole or any part of the charged land upon a default. 99 100

In Sarawak, sections 143 to 157 and section 104 of the Sarawak Land Code (SLC)
(Cap 81)101 provide for the creation of charge. The SLC does not expressly prohibit the
creation of an equitable charge.102 Like the NLC103, an unregistered charge confers on the
lender caveatable interest in Sarawak. 104 Similar to the NLC105, a charge in the SLC is

93 Section 216(1)(b) of the NLC states that any charge with a land transferred shall be implied on the part of the transferee to
be bound by it unless the instrument of transfer otherwise provides. But section 107 of the SLO provides that the chargor who is
the transferor is required to obtain the agreement of the transferee to take over the payment of debt due to the chargee.
Failure to do so will give the chargee a right to pursue the original chargor on the transferees default.

94 Section 278 of the NLC.

95 Section 107A and section 109 of the Sabah Land Ordinance.

96 Section 278(2) of the NLC.

97 Section 109A of the SLO.

98 Section 256 and section 260 of the NLC.

99 Section 111 of the SLO, and Sabah Land Rules 1930 r 14(10).

100 Standard Chartered Bank v Mukah Singh [1996] 3 MLJ 240. The court held that the sale of land under the Sabah Land
Ordinance is used to satisfy the statutory charge over the land.

101 Sarawak Land Code (Cap 81).

102 Ting Sieh Chung v Hock Peng Realty Sdn Bhd, Bintulu OS No 24-47-2000. It was held that this case should not be taken
as an authority for rejecting equitable charges. The ratio decidendi is that a mere monetary undertaking does not provide a
basis for a caveat.

103 Kumpulan Sua Betong v Dataran Segar Sdn Bhd [1992] 1 MLJ 263. It was held that according to the NLC, an unregistered
charge can be caveated pending registration.

104 Standard Chartered Bank v Yap Sing Yoke & Ors [1989] 2 MLJ 49; Stockalingam Mudaliar v Ramasamy Chettiar & Anor
[1938] MLJ 237; Pica First Credit Sdn Bhd v Lai Kim Teng & Anor [2007] 2 AMR 673; Mahadevan & Anor v Patel [1975] 2 MLJ
207; Leie Siew Nyuk (f) v Tong Kwong Feedmills Co Sdn Bhd OM No KG 1 of 1984.

105 Section 242 and section 243 of the NLC provide that a charge is effected by registration of Form 16A.
effected by the execution of a memorandum of charge in Form H(1) or H(2) 106, and it must
be registered.107

However, certain provisions of SLC are unique and cannot be found in the NLC. For
example, the SLC allows a negative pledge covenant for the exclusion of dealings to be
included in a charge, and upon registration of a charge, the covenant operates as a caveat
during the period of charge.108 Also, the SLC allows an amendment to be made to a charge
to increase or reduce the principal sum or rate of interest, or the terms of the charge. 109
Further, s. 147 of the SLC provides for the creation of a subcharge by the registered
chargee, something that is not found in the NLC.

The scope of security provided by a charge in SLC is also wider and more clearly
defined than the NLC.110 Further, the remedies available to a chargee in Sarawak are more
comprehensive than those provided in the NLC. 111 The remedies provided in s. 148 (2) of
the SLC, including the right to be registered as a proprietor of the land, the right to take
possession by any chargee (not necessarily the first chargee) and the right to receive rents
and profits of the charged land are not provided in the NLC. In the NLC, the remedy of an
order for sale is more restrictive as the sale must only be made by public auction. 112 In
Sarawak, an amendment113 to s. 148(3) of the SLC allows a sale to be made by tender or
such other mode of sale as may be directed by the court to realize a registered charge. 114

106 Section 143 of the SLC.

107 Section 119(1) of the SLC provides that no instrument shall be effectual to pass an interest until it has been registered.
Section 119(4) provides that the deposit of any document relating to land as a security for the payment of money may operate
as an agreement to create a charge, but shall not be enforced as a charge unless the charge has been registered on the
Register.

108 Section 143(2) and 143(3) of the SLC.

109 Section 145 of the SLC.

110 Section 2 of the SLC provides that a charge can be used to secure repayment of loan; repayment of future advances or
unascertained debt; payment to holders of any bonds, debentures, promissory notes or other securities made before or after
the creation of a charge; or payment of periodic sum or of any annuity, rent, charge or sum of money other than a debt.

111 The NLC provides 2 remedies in the event of a chargors default: (1) Order for sale by way of public auction in s. 253 of
the NLC; (2) Taking possession of the charged property by the first chargee in s.270 of the NLC. In Sarawak, s. 148(2) of the SLC
states that the chargee is entitled to (1) the right to take possession of the land and to be registered as a proprietor of the land;
(2) the right to receive the rents and profits of the charged land; or (3) the right to sell the land, after the Court has heard
evidence of the chargors default and issued the appropriate order.

112 Section 257 and section 263 of the NLC.

113 Land Code (Amendment) Ordinance 1994 (Cap A 17) which is operative from June 23, 1994.
The remedies available for a charge in the NLC are exclusive and exhaustive 115, but in
Sarawak, the remedies provided under s. 148(2) of the SLC are not mutually exclusive. 116
The Sarawak High Court can grant an order of possession even when the chargee applies
for an order for sale. Also, unlike the NLC where the issue document of title is placed in the
custody of the first chargee117, in Sarawak, the document of title may or may not be
deposited with the lender. 118

Although s. 148 (3) of the SLC is of similar effect to s. 254(1) of the NLC, s. 148(1) and
(2) of the former are differently constructed from s. 256 of the latter. 119 The word shall in
s. 256 (3) of the NLC indicates that the court is under a duty to make an order for sale
when no cause to the contrary is shown. 120 There is only one order that the court is
permitted to make, namely, an order for sale. But under s. 148(2) of the SLC 121, the court is
given a choice to make one of the 3 orders 122 and the only consideration is justice and
equity in the circumstances of the case. Hence, when a chargee applies for an order for
sale, the court may, if the circumstances do not seem just 123, refuse that order124, and
instead make an order directing the chargee to receive rents and profits from the charged

114 Kimlin Housing Development Sdn Bhd v Bank Bumiputera (M) Bhd [1997] 3 AMR 2361. Prior to the amendment, the
NLCs position in this case was applicable in Sarawak, where a judicial sale must be made by public auction for the protection of
the chargor. See also an article, Loh, S.C. and Aggie PL Chew in [1990] 1 MLJ xxxvi entitled A Legal Impossibility: Arming
charges with private power of sale of charged land outside the provisions of the National Land Code.

115 Kimlin Housing Development Sdn Bhd v Bank Bumiputra (M) Sdn Bhd [1997] 2 MLJ 805 at p 817.

116 Standard Chartered Bank Malaysia Bhd v Ting Kah Kuong [2008] 7 MLJ 508.

117 Section 244(1) of the NLC.

118 Chew, Andrew P.H., Caveat System in Sarawak (Sweet & Maxwell Asia, 2012)

119 Century Land Resources Sdn Bhd v Alliance Bank Malaysia Bhd [2004] 4 CLJ 793; Re Rindaya Wood Processing Sdn Bhd;
ex parte Kenneth Teh Ah Kiam & Anor [2002] 6 MLJ 312.

120 Low Lee Lian v Ban Hin Lee Bank [1997] 2 CLJ 36.

121 Section 148(2) of the SLC. The court may grant an order entitling the chargee to enter into possession and to be
registered as a proprietor of the charged land; an order to receive rents and profits of the charged land; or an order for sale of
the charged land.

122 Kuching Plaza Sdn Bhd v Bank Bumiputra Malaysia Bhd and another appeal [1991] 3 MLJ 163. The power of a court to
grant a remedy under s. 148 (2) of the SLC is discretionary.

123 Malayan Banking Bhd v Yakup bin Oje & Anor [2007] 6 MLJ 389. The court may not grant an order under s. 148(2)(c) of
the SLC if the order is going to be perverse to the defendants.

124 Section 148 (2)(c) of the SLC.


land.125 In s. 256 of the NLC, a statutory demand in Form 16D is necessary for the exercise
of the courts power, but in s. 148 of the SLC, it is the chargors default and not the notice
of demand that is a condition precedent to the making of an order for sale. 126

(2500 words excluding footnotes)

125 Such an order can be made where the value of the charged property far exceeds the sum due and the charged property
is producing sufficient income to repay the loan within a reasonable time.

126 Citibank NA v Jong Tze Khiok [1993] 4 CLJ 325.

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