Land Law 2000 Q5

modified 03.02.2010

Under the provision of section 256(3) of the NLC 1965, a court, when faced with an application for an Order for Sale of Charged Land, shall grant the order unless “satisfied of existence of cause to contrary”.

How have the court interpreted the said phrase of ‘existence of cause to the contrary’?

 (25 marks)

The leading authority in on section 256(3) is the case Low Lee Lian v Ban Hin Lee Bank Bhd. In the above case, the appellant executed a third party land charged in favour of the respondent bank as security for loan, for and on behalf of the borrower. When the borrower defaulted in the payment, the respondent bank applied for an order for sale of the charged land, which was subsequently granted by the court. The appellant appealed to the Supreme Court, and the issues before the said court was whether there was ‘existence of cause to contrary’ pursuant to section 256(3) of the NLC. The Supreme Court held that mere breach of terms of an agreement did not squarely fall within the scope of 256(3). However, the Court went further describe the following situation might be established within 256(3), namely : -

a)      Chargor able to bring his action within section 340(2);

b)      Chargor can demonstrate that the chargee has failed to meet the condition precedent for making the application for order for sale; and

c)      Chargor can defeat the application for order for sale by demonstrating that if it is granted would be contrary to some rule of law or equity.

In the case of UMBC v Syarikat Perumahan Luas, the first limb was considered. The chargee in this case applied for an order for sale and the chargor opposed the said application on issue that the registration of the charge was in breach of the s.120 of the Code which prohibits the charging of a land without the written sanction of the state authority and therefore, the court held that the chargee’s title is defeasible because the registration thereof was obtained by means of an insufficient or void instrument as per s.340(2)(b) and also because the Registrar of Titles, in registering the charge, had acted ultra vires of the power conferred upon him by s.340(2)(c).

There are numerous cases have been decided for non compliance to the condition precedents and in fact the court have recognised other relevant issues pertaining to the general rules and as well as the terms and condition of the agreement in dismissing an application for order for sale based on ‘existence of cause to contrary’ particularly in relation to the second limb of the above case. Be that as it may, the burden of proof is always upon the party who asserts cause to contrary i.e., the chargor (Malaysian Building Society Bhd v Univein).  In CCB v Meng Kuang Properties, the Plaintiff bank applied for an order for sale of a piece of land charged by the defendant. There was inconsistency in the amount claimed. The court held the application for order for sale would only be given, if the court satisfied no existence cause to contrary. Further, the court held that the chargee is not automatically entitled to the order for sale. The existence of cause to contrary in the above case resolves around the validity of the notice of demand and the statutory notice of form 16D which were sent to the chargee, did not disclose the actual sum owed. Thus, the court held the notices were defective.

Other issues that the court has decided to fall within the ambit cause to contrary in accordance with the 2^nd limb are such as failure to comply with the general rule of High Court pertaining to the service of the statutory notices and court proceeding rendered irregularity (OCBC Bank (M) v Astano Electric S/B), non compliance to the Order 83 of the High Court rule (Overseas Union Bank v L & H Properties) and wrong computation of interest and unconscionable enrichment (BCBB v Tengku Ngah Putra). In Perwira Affin Bank v Saad Abdullah it was held by the court that failure to comply to the terms of the charge annexure went to the root affecting the validity of the demand.

Further, the Court not only apply the law but also at times invoke the aid of equity when the justice requires so, in order to be satisfied to the existence of cause to contrary (Phileo Allied v Narendren Thambimuthu). In OCBC v An Kee Sin, the Plaintiff applied for order for sale upon default of the defendant in serving the various loan facilities. The Plaintiff agreed to the defendant’s proposal to reduce the facilities over the period of time and eventually free the third party charge. However, despite the fact a substantial sum have been paid into the account of the Plaintiff bank but the Plaintiff bank did not in any way reduce the debt owing, as agreed but gave further credit to the borrower. The court held that Plaintiff giving further credit to the borrower after agreeing with the borrower’s proposal as indicated satisfied the court that the grand of order for sale would be contrary to equity.

            Therefore, as discussed above are the situations the court have interpreted the existence of the cause to contrary.