The three earlier essays in this series were about fraud. A forged signature. A stolen identity. A register that recorded a lie.

This one has no villain in it at all. Everybody behaved much as people normally do. And a licensed bank still lost a registered charge over a property, because the man who gave it that charge had nothing left to give.¹He-Con Sdn Bhd v Bulyah Ishak & Anor and Another Appeal [2020] 7 CLJ 271 (FC), judgment of Abang Iskandar FCJ, 25 June 2020.

Twenty-three years

In December 1997 a man agreed to buy a property. He was buying from a company that had itself bought from the developer — an ordinary sub-sale, the commonest transaction in Malaysian conveyancing.

He paid the purchase price in full.

In April 2002 the seller gave him a power of attorney over the property. It was irrevocable. It was registered in the High Court. And it recorded on its face that the purchase price for the property has been fully settled by the Attorney. The seller’s own directors had passed a resolution authorising it.

Two months later the buyer died.

His widow was appointed administrator. By then the title had issued — but the developer would not consent to a direct transfer into her name, and the stamp duty and assessment came to RM110,355.60, which she could not find. So she did what thousands of Malaysian families do. She waited.

Meanwhile she paid the quit rent. She collected the rent from the tenants. Nobody objected, least of all the seller.

Towards the end of 2011 she discovered that the seller — still, on paper, the registered proprietor — had charged the property to a bank as security for a loan. She made two police reports. She lodged a private caveat.

The caveat was removed.

The bank then applied for an order for sale.

What the law says the seller had left

The answer turns on a phrase that sounds technical and is in fact very simple. A bare trustee.

When you buy land and pay for it in full, the title does not move to you that afternoon. There is a gap — sometimes weeks, in Malaysia often years — between paying and being registered. During that gap the seller’s name is still on the title.

What is he during that gap?

The law’s answer is that he has been hollowed out. He remains the registered proprietor, and somebody must be, because the legal title has to sit somewhere. But the whole benefit has passed to the person who paid. The seller holds a shell. He cannot sell it again, cannot charge it, cannot deal with it at all. He is a trustee with no duty left except to transfer when he is asked.

The Federal Court set the test out in Borneo Housing Mortgage Finance v Time Engineering in 1996, and it requires something more than the bare fact of payment. There must be material showing that the seller intended to give up his interest.²Borneo Housing Mortgage Finance Bhd v Time Engineering Bhd [1996] 2 CLJ 561 (FC) — the “something more” requirement.

In this case there was a great deal more. An irrevocable power of attorney, registered, reciting full payment, authorised by the seller’s own board. A widow paying quit rent for nine years and collecting rent without a murmur of objection. When the seller tried to argue at trial that the sale had never been concluded, the court declined to let evidence contradict the written document, and drew an adverse inference from the seller’s failure to put either of its directors in the witness box.³Evidence Act 1950, s 91; and see He-Con (n 1) on the seller’s failure to call its directors.

So the seller had become a bare trustee. And a bare trustee, the Federal Court held, is incapable of any further dealing with the property, including the creation of a charge.⁴He-Con (n 1), at [75]–[77].

Which meant that the charge to the bank was void. Not voidable, not defective, not curable. The transaction was vitiated by section 340(2) of the National Land Code, because it rested on an instrument that was insufficient or void.⁵He-Con (n 1), at [76] and [88]–[89]. It never had any legal life at all.

Why the bank was not saved

Here is where this essay shakes hands with the last one.

Part 3 explained the cruel line in our land law: an innocent buyer who takes from a fraudster can be unwound, but once the land passes on to a further purchaser in good faith, the true owner’s rights are gone beyond recall. That proviso protects the second buyer down the chain. It does not protect the first.⁶National Land Code (Act 828, Revised 2020), s 340(2) and the proviso to s 340(3); and see Low Huat Cheng & Anor v Rozdenil Toni & Another Appeal [2017] 3 CLJ 257 (FC).

The bank argued exactly that. It had taken in good faith, for value, and it had registered.

It failed on a single distinction. The bank had dealt directly with the registered proprietor. It was an immediate purchaser, not a subsequent one. The protective proviso does not reach the person who takes straight from the party whose instrument was void — and because the seller had no interest left to give, the instrument was void.⁷He-Con (n 1), at [88]–[89].

Then came the sentence that ought to be framed on the wall of every credit department in the country.

The fides of the fourth defendant was irrelevant.⁸He-Con (n 1), at [91], [96] and [99].

The bank’s good faith, in other words, counted for nothing.

The bank had done nothing wrong. It had searched the title. The title showed its borrower as registered proprietor, unencumbered. It lent against precisely what the register said. And it lost, because the register was telling a truth that had stopped being the whole truth in 1997.

The Federal Court dismissed the appeals with costs in June 2020.

Why this is not a rare case

It would be comfortable to file this under exotic misfortune. It is not.

Consider how many Malaysians are, at this moment, sitting in the gap. Sub-sale buyers waiting on a developer’s consent. Owners in projects where the strata title has not issued after fifteen years. Families who paid in full and deferred the transfer because the stamp duty arrived in a bad month. Children who bought a house in a parent’s name. Businesses that completed a purchase and never got round to the paperwork, because the seller was a friend.

Every one of them is relying on a seller who is, on the register, still the owner — and who could, tomorrow morning, walk into a bank branch.

The doctrine protects them. That is the good news, and it is genuinely good: the Federal Court will not let a registered charge stand where the chargor had nothing to charge. But the protection arrived in this case in June 2020, over a property bought in December 1997, after a trial and two appeals.

Being right is not the same thing as being safe.

Four things worth doing

Close the gap. Every month between full payment and registration is a month of exposure. If stamp duty is the obstacle, price it in when you buy, rather than discovering it afterwards.

Get the something more in writing. Borneo Housing requires evidence that the seller meant to divest. An irrevocable power of attorney reciting full payment — the very document that won this case — is worth insisting on, and worth registering.

Caveat, and watch it. The widow here lodged one and it came off. So did the buyers in Part 3, who had paid RM1.5 million. A caveat buys warning, not safety. Search the title at intervals, and find out early.

Keep the proof of payment. Receipts, bank records, board resolutions, correspondence. This case was won on documents signed twenty years earlier by people who were dead by the time of trial.

Closing the series

Four essays, one question: who keeps land when the register and the truth part company?

The answers have been these. Malaysia protects the true owner, not the innocent buyer. But only up to the point where the land reaches a further purchaser in good faith, after which it is gone, and the land legislation gives no damages in its place. Where a registry’s carelessness let the fraud through, the courts have begun making the registry pay. And a seller who has been paid in full holds a shell, so that anyone dealing with him — bank, buyer, chargee, however honest — takes nothing at all.

Underneath all four sits one uncomfortable fact. The register tells you who is registered. It does not tell you who owns.

Most of the time the two are the same, and the system works, and conveyancing gets done. When they part, the law must choose whom to disappoint. This series has been an account of how Malaysia chooses.

You can see Part 1, Part 2 , and Part 3 here.

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This article is written for a general readership and does not constitute technical or legal advice. Readers with legal questions are encouraged to seek independent legal advice.

The author thanks KN Geetha, TP Vaani, JN Lheela, and Lydia Jaynthi at GK Legal. Our gratitude to Annie Spratt of Unsplash for the image.

Claude, Anthropic’s AI, smoothed the drafting; Perplexity Pro checked the facts. The argument, the views, and the errors remain the author’s.

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