Charges - Part 2

Sharifah ZubaidahSem.2 (2008/2009)

Express conditions to charges can be found in the Charge Annexure (charge agreement).

These are conditions imposed by the parties that are not mentioned in the NLC provisions.

S.249 – Fixed obligation of chargor: 1) That chargor will pay all sums secured.

i.e. repay the loan. 2) Pay rent (land revenue) to the State

Authority. 3) Observe and perform all conditions to

which the land is subject.

(see s.250 for obligations of the chargor that can be altered or amended.)

S.251: A chargee must not without reasonable

cause, withhold consent to the granting by the chargor of any lease/tenancy.

A charge that fails to comply with fixed requirements is VOID.

Examples: 1) Where the charge is to secure an

UNENFORCEABLE LOAN. (e.g. a loan that does not follow the provisions of the Moneylenders Ordinance 1951 – see Phuman Singh’s case and Associated Finance Corp Ltd. V Poomani.

2) Where title of the chargee is defeasible due to fraud in the transfer, the charge is also null and void. (Owe Then Kooi’s case)

3) Where consideration for the charge over the land is PAST CONSIDERATION.(See Lau Ngiik Ping’s case)

Upon default of the charge (i.e. non-payment of loan and interest), the chargee can enforce the charge and has 2 remedies:

1) Sale by public auction of the land. (Pt. 16, Ch. 3 NLC))

2) Possession. (Pt. 16, Ch. 4 NLC)

Both remedies can be applied for simultaneously. (s.253(2))

This remedy is also popularly referred to as ‘foreclosure proceedings’.

NLC prescribes different procedures for the application for an order of sale in respect of Registry Titles and Land Office Titles. ( See difference in these titles in s.77(3))

Registry title (ss256-259) Land Office Title (ss266-269)

1. Where breach of charge agreement hs continued for more than a month, the chargee will serve on the chargor a

Notice in Form 16D.

Contains 3 things: a) specifies the breach in question. b) requires it to be remedied within 1 month. c) warns the chargor that if the notice is not

complied with, the chargee will take proceedings to get an order for sale.

However, if the principal sum secured is payable ON DEMAND (must ascertain this from the Charge Annexure), the chargee will issue Form 16E (see).

2) After the period to remedy the breach or to pay the sum has lapsed, the chargee may make an application to the High Court by way of Originating Summons

supported by an affidavit for an order for sale of the land. (See s.256(2), cross refer to Rules of the High Court 1980, Order 83)

3) Court will grant order for sale. (See s.256(3) NLC): “On any such application, the Court shall order the sale of the land or lease to which the charge relates unless it is satisfied of the existence of cause to the contrary.”

See s.257(1): a) provide for sale to be by public

auction. b) will require the sale to be held on a

date not less than 1 month from the date of the order.

c) specify the total amount due to the chargee at the date of the order.

d) require the Registrar of the court to fix a reserve price for the purpose of sale.

(e) that a bidder during the auction must have 10% of the reserve price;

(f) that the 10% is deposited into the chargor’s account.

(g) specify that the balance purchase price be paid within 120 days from the date of the sale, with no extension.

(h) that is not paid within 120 days, the deposit of 10% will be forfeited.

4) The Court Registrar will serve a copy of the order for sale on the chargor. (s.258(1)(a)) and advertise the order for sale to be done by public auction. (newspapers and posters).

5) Chargee will prepare the conditions of sale according to the court order and shall

deposit the IDT/duplicate lease to the court a week before auction date.

6) Under section 259, sale will be carried out by an officer of the court or a licensed

auctioneer. (see s.259(2) as to duties of the auctioneer).

7) The successful bidder (‘purchaser’) in the public auction, upon paying the full purchase price, will receive from the auctioneer 2 things:

i) Form 16F (CERT. OF SALE BY COURT)– registrable as an instrument of dealing

at the Land Registry office. ii) The IDT/duplicate lease.

4 Issues: 1) Whether serving the wrong notice of

demand effects the charge action? 2) Whether failure to specify the exact

breach rendered notice ineffective? 3) Whether duration of notice of demand

can be changed? 4) Effect of failure to serve the Notice of

Demand according to provisions of the NLC.

V.A.M Hussain v BP Malaysia Sdn. Bhd. [1970]

Held: The proper notice to issue where the

principal sum is payable on demand should be Form 16E.

Fed. Cit. held: “Form 16D can be used whether or not the

principal sum is payable on demand. Form 16E can only be used where the principal

sum is payable on demand.”

Result? CONFUSION.

Federal Court cleared the confusion and held:

(a) Where there has been a breach of any obligation Form 16D may be used,

regardless of the nature of the obligation, including the payment of the principal sum on demand; and

(b) where the principal sum is payable on demand then either notice in Form

16D or Form 16E may be served.

If Form 16E has been served, and there is non-compliance by the chargor, there is no need to follow up with Form 16D.

Can straightaway apply for an order for sale.

(See Bank Bumiputra Malaysia Bhd. v. Mahmud [1989] 1 MLJ 381.)

No. If the details of the breach had been specified in detail in an earlier letter of demand, failure to specify the details of the breach in Form 16D will not effect its validity.

(See RHB Bank Bhd. lwn Syarikat Sungei Nal Timber Industries Sdn. Bhd. [2007] 4 MLJ 567.)

S.254(1)(b) stipulates the period to pay the amount demanded in the notice of demand (Form 16D) to be ‘within 1 month… or such alternative period as may be specified in the charge.’

Q: whether the chargee could stipulate a period lesser than one month?

Court of Appeal (literally interpreting the words in s.254(1)(b)) held that the chargor and chargee may agree to accept a statutory notice of less than one month.

NLC expressly permits this.

See s. 431(1) NLC on method of service. What is the method of service for a company? S.431(1)(b)(ii) – delivering the notice at the

body’s registered office or usual or last known place of business to its servant or agent – or leaving it in a cover addressed to the registered office or last known place of business – or pre-paid registered post at the body’s registered office or last known place of business .

In Kekatong Sdn. Bhd v BBMB [1998] , the App./chargor had changed its registered office address and had duly informed the Registrar of Companies in Form 44.

Chargee enforced the charge and sent Form 16D to the previous registered address.

Order for sale given. App. applied to set it aside on the ground that there was failure to serve the notice of demand.

Such service was not in accordance with the NLC and was therefore VOID.

Ratio: (Gopal Sri Ram, JCA): 1) Ownership of land is a fundamental

right under Art. 13 FC. Any deprivation must be in strict compliance of both, substantial

and procedural law. 2) Effect of order for sale and the

subsequent public auction, etc. are designed to permanently deprive a registered proprietor of his land.

3) The provisions of the NLC that govern the enforcement of registered charges exist not only as a means of a lender recovering his money but also for the protection of the chargor. The court, by treating the service provision in s. 431(1) NLC as mandatory will ensure that the protection given by the NLC is not rendered illusory.

Thus, the order for sale was void as F.16D was not served in the manner prescribed by the NLC.