ARC News   •   November 15, 2017

In the corporate world, no matter how harmless or risky a transaction can be, we would always opt for layers of protections in order to secure our interest.

As technology progresses and competition mounts, individuals and corporations are becoming more creative in protecting their interests in every transaction.

From providing assets as collateral, to the giving of personal/corporate guarantee, to the issuance of preferential shares, the form of a “security” is evolving.

The lodgement of private caveat on a land has long being recognised as a type of security. Some had stretched the usage of private caveats to get an upper hand in a transaction. In some circumstances, ignorant contract drafters had even made the lodgement of private caveat as an option in the event of default. This is a misconception to the nature of a private caveat. A private caveat is not a security for all.

In general, a caveat is an interim procedure designed to freeze the status quo until an opportunity has been given to a person claiming a right under an unregistered instrument (i.e. a purchaser or chargor) to regularise the position by registering the instrument. It is a formal legal notice to the world that you have an interest in a particular property or land.

To lodge a private caveat, the caveator must prove that there is a caveatable interest in the land. Caveatable interest is defined in section 323 (1) of the National Code as follows:

“The persons and bodies at whose instance a private caveat may be entered are-

(a)       any person or body claiming title to, or any registrable interest in, any alienated land or undivided share in any alienated land or any right to such title or interest;

(b)       any person or body claiming to be beneficially entitled under any trust affecting any such land or interest; and

(c)        the guardian or next friend of any minor claiming to be entitled as mentioned in paragraph (b).”

Through a wide and liberal interpretation of the said section above, a private caveat benefits the category of persons who are entitled to obtain a title or interest in land.

The Malaysian courts had further examined the expression of “interest” in the National Land Code as an interest in land of a kind which is recognised by the Code as being either registrable or otherwise entitled to protection.[1]

Now, here’s where the misconception mentioned earlier lies. Parties to a contract/transaction had been inferring that a monetary claim for debt due and owing given rise to a cavetable interest. It does not.

An unsecured civil debt is a mere personal claim (i.e. for debt due and owing/monetary) and did not come within the meaning of “interest” required.[2] The justification lies in the rationale that a personal claim’s interest lies not in the land.

A claim in personam against your counterparty does not entitle you to lodge a caveat in his land as a remedy and means to protect such a claim. [3] Such a claim is not capable of being registered under our Torrens System of registration. It is simply a claim for an unsecured debt.[4]

For example, in a joint venture arrangement, an interest in the profits that a party hoped to gain from the joint venture agreement, is monetary in nature, with no caveatable interest.[5]

That being said, unless you have a registrable or beneficial interest in the land, do not simply engross in a private caveat lodgement as a security for your transaction. Forthrightly, it carries no value and your caveat may be declared void.

Mohammad Afif Daud is a Partner at Messrs. Afif Rahman & Chong.

Disclaimer: Every attempt to ensure the accuracy and reliability of the information provided in this publication has been made. This publication does not constitute legal advice and is not intended to be used as a substitute for specific legal advice or opinions. Please contact the authors for a specific technical or legal advice on the information provided and related topics.

[1]              Registrar of Titles, Johore v Temenggong Securities Ltd. [1976] 2 MLJ 44, PC; Grandvision Enterprise Sdn Bhd v Ng Siok Hooi [2008] 8 CLJ 554, HC.

[2]              Ibid.

[3]              Wong Kuan Tan v Gambut Development Sdn Bhd [1984] 2 CLJ 26, FC; EM Buxton & Anor v Packaging Specialists Sdn Bhd [1987] 1 MLJ 342, HC.

[4]              Ibid.

[5]              Trans-Summit Sdn Bhd v Chun Nyook Lin [1995] 2 MLJ 247, CA; Mexaland Development Sdn Bhd v Score Option Sdn Bhd [2010] MLJU 1396, HC; Score Options Sdn Bhd v Mexaland Development Sdn Bhd [2012] 7 CLJ 802, FC.