The Case of Rajamani

A Tale of Bona Fide Purchasers and Indefeasibility of Title

Definition

In 2010, the Federal Court in Tan Ying Hong v Tan Sian San & Ors [2010] 2 MLJ 1 held that the proviso in Section 340 of the National Land Code (“NLC”) conferred ‘deferred indefeasibility’ on subsequent bona fide purchasers for value.

Deferred indefeasibility means that subsequent purchasers of land acquired by means of fraud and/or forgery, were they found to be acting in good faith and have purchased the land for valuable consideration, would be afforded an indefeasible title to the land. This is notwithstanding any innocent original owner of the land being deprived of the same. This deferred indefeasibility was to protect the titles of subsequent bona fide purchasers from being defeated due to fraud and/or forgery involved in a prior transaction.

Departure from general principle

However, the Court of Appeal in Rajamani a/p Meyappa Chettiar v Eng Beng Development Sdn Bhd & Ors [2016] 4 CLJ 510 controversially departed from the principle above when it held that a title which is tainted by fraud and/or illegality is INCAPABLE of conferring a valid title to a subsequent bona fide purchaser. Thankfully, the Federal Court in January 2019 has since reversed the Court of Appeal decision in Rajamani and affirmed the position as per Tan Ying Hong v Tan Sian San above.

The Court of Appeal in Rajamani held that for a transfer of land to take effect, the document of title used must first be a valid document of title. In the circumstances, the C0urt of Appeal held that the Plaintiff had obtained indefeasibility by way of the original title of deed for the land (IDT 1), and the same remained valid and indefeasible at all material times. As such, the 1st Defendant could not claim indefeasibility pursuant to the proviso to Section 340(3) of the National Land Code.

The Court of Appeal further held that the mere fact that the 1st Defendant had purchased the land in good faith and for valuable consideration did not confer indefeasibility to its title if such title was otherwise void at inception (IDTs 2 and 3). Interestingly, the Court of Appeal held that in situations of competing interests between an innocent original landowner and a subsequent bona fide purchaser, the scales of justice must tilt in favour of the innocent landowner. This was a significant departure from the established position of deferred indefeasibility in Tan Ying Hong v Tan Sian San. The end result would be to deprive a subsequent bona fide purchaser of the land despite paying valuable consideration for the land.

The Federal Court weighed in

The Federal Court reversed the Court of Appeal decision above and affirmed the original doctrine of deferred indefeasibility. Notably, the Federal Court upheld the High Court’s finding that a land title would be void ab initio, if and only if, the land registry had in blatant breach of its duty under the NLC wrongfully registered any land in the Register Document of Title and issued the replacement issue document of title in the name of a third party.

Applying this principle to the facts of Rajamani, the Court held that the titles issued after IDT1 were validly issued by the land registry, and that IDT2 was in fact issued in the name of the original landowner. Therefore, while the document of title used for the subsequent transaction to the bona fide purchaser (IDT3) was found to be defeasible by reason of fraud, the doctrine of deferred indefeasibility was applicable. This meant that the subsequent purchaser in this instance obtained indefeasible title to the land, by virtue of being a bona fide purchaser for value of the same.

Richard Malanjum CJ (as he then was) recognized that the concept of indefeasibility of the Torrens system favours a subsequent bona fide purchaser for value over the original registered proprietor. The Federal Court also made clear that the law has to be applied as is, despite the perceived injustice to the original proprietor as the ‘unfortunate loser’. To address this injustice, Richard Malanjum CJ instead called for the relevant authorities to consider the need for assurance funds to compensate innocent original proprietors who have been the victim of fraud and/or forgery.

The ambiguity, if any, of Rajamani’s case lies with the application of the concept of deferred indefeasibility where there is a breach of the NLC by the land registry and the title in question is issued in the name of another. Rajamani and the cases of Shayo, Uptown Properties, and Overseas Realty above seem to suggest that in the said instances, the protection afforded to subsequent bona fide purchasers for value may not apply. However, this would be at odds with the doctrine of deferred indefeasibility seen in Section 340(3) of the NLC and Tan Ying Hong v Tan Sian San.

It is our view that the validity of the ‘originating’ title issued by the land registry should be a non-starter. The purpose of the doctrine of deferred indefeasibility is to protect subsequent bona fide purchasers, regardless of the validity of the originating title of land in question. The language of the proviso to Section 340(3) of the NLC does not state any exceptions applicable to the doctrine of deferred indefeasibility. Further, the emphasis of conclusiveness of the Register of Titles in a Torrens system, as encapsulated in Section 89 of the NLC, supports the notion that the ‘validity’ of the preceding title to a subsequent bona fide transaction should not be an issue to be considered by Courts.

The information and views set out in this note are those of the author(s) and do not necessarily reflect the official opinion of Thomas Philip.