Generally,cause to contrary is a situation whereby court refuses to grant an order forsale.
Under Section 256 (3) of the National Land Code (“NLC”), it stated that:”Onany such application, the Court shall order the sale of the land or lease towhich the charge relates unless it is satisfied of the existence of cause tothe contrary.”Itis the duty of the chargor or third party who has interest in the land to proveto the court that there is existence of any “course to contrary” in theapplication for order for sale. Then it is at the discretion of the court toreject or accept an application of order for sale in the event there is theexistence of cause to contrary. If the court grants an order for sale it wouldbe contrary to some rule of law or rule of equity. First,in the case of Keng Soon Finance Bhd v MK Retnam Holdings Sdn Bhd1,the developer obtained a bridging finance from the chargee to develop its landand agreed the loan to be disbursed progressively. The chargee called off thedeal when developer failed to pay the interest on his first progress payment.The chargor further requested the chargee to release the further amount but wasdenied by the chargee. The chargee applied for an order for sale toward tocharged property in order to recover the first progess payment.
Privy Councilheld that there was no existence of any cause to contrary, order for saleshould be granted as it is mandatory under Section 256(3) of NLC. The word usedis “shall” which mean it is mandatory to grant order for sale unless there isexistence of ’cause to contrary’. These words have been construed as justifiedthe witholding of an order in the event it would be contrary to some rule oflaw or equity. Next,in the landmark case of Low Lee Lian v Ban Hin Lee Banking Bhd2,the appellant created a 3rd party charge to the particular land.
When the borrower failed to repay the loan, the bank applied for an order forsale. The court held that ’cause to contrary’ in Section 256(3) NLC might beestablished only in these three categories of cases:-(i) When the chargor was able to bring hiscase within any of the exceptions to the doctrine of indefeasibility underSection 340 of NLC;(ii) When the chargor could demonstrate thatthe chargee had failed to meet the condition precedent for the making of anapplication for an order for sale; and(iii) When the chargor could demonstrate thatthe grant of an order for sale would be contrary to some rule of law or equity.Theseare the circumstances where court where cause to contrary have been heldexisted by the court.
Mostapplication was challenged on the ground that the charge was acquired by thechargee is defeasible as it obtained under Section 340(2) of the NLC. The courtmay reject the application for order for sale where the charge is defeasible,when the title obtained through fraud, forgery or any other void orinsufficient instruments. This can be seen in the case of Tai Lee Finance Co Sdn Bhd v OfficialAssignee3,the registered proprietor of the land executed two separate charges over hisland in favour of the appellate (chargee). Both charges were registered.
Thechargee applied for an order for sale when chargor defaulted in repayment. Thechargor as a land developer further entered into an agreement with therespondent to build house on the land. The respondent opposed the appellant’sorder for sale. The Federal Court held that Section 340 is clear that the titleor interest of the registered proprietor shall be indefeasible uponregistration. In this case although the appellant had constructive notice ofthe respondent’s prior interest, there was no evidence on the existence offraud. The respondent does not prove beyond reasonable doubt that the appellanthad actually acted dishonestly and consciously disregarding or violating theright of the respondent. Next,it is contravention of statute.
The charge is considered as bad in law fornon-compliance with Money Lending Ordinance 1951. This is established in thecase of Phuman Singh v Khoo Kwang Choon4, acharge document is a document of debt. It should be registered in court as arequirement under Section 3 & 4 of the Money Lending Ordinance when thecharge is registered in favour of the money lender. In this case, the chargewas not registered.
When the chargee applied for an order for sale, thevalidity of the order was challenged. The court held that the fact where theorder was not registered is a cause to contrary within the meaning of Section256(3) of NLC. Furthermore,charge was registered but contrary to restriction in interest also consideredas ground for cause to contrary. In the case of United Malayan BankingCorporation Bhd v Syarikat Perumahan Luas Sdn Bhd5,the chargor applies to set aside the order for sale in certain land charged toUMBC on the ground it was void. The charge was actually registered in thebreach of an express restriction in interest endorsed on the document of title.The court held that the charge have been registered in breach of an explicitstatutory prohibition.
The title is defeasible as it obtained by means of aninsufficient or void instrument and also because of the Registrar of Title, inregistering the charge had acted ultra vires the power conferred upon him. Nextground for cause to contrary is failure to meet conditions precedent forapplication. The condition precedent is the procedural defect in application.In the case of Philleoallied Bank (M) Bhd v Saddhona Indran Sevapragasam6,this was an application for an order for sale by public auction for two piecesof land belonging to the defendant but charged to the plaintiff. The defendantobjected the application pursuant to Section 256(3) of NLC. The court held thatas the additional interest should “from the date of this letter”, it was wrongas plaintiff has calculated it from an earlier date. Therefore, having basedits statutory demand by way of Form 16D on a notice of demand that includedinterest which the plaintiff was not entitled to, the plaintiff’s demand was badin law. Moreover,contrary to some rule of law or equity, this can be seen in the case of OCBCv Lee Tan Hwa7.
In this case, the owner of the land charges his land to the chargee in order tosecure an overdraft facility. In the event the chargor failed to makerepayment, the chargee applied for an order for sale. The intervener hadchallenged the application on the ground the chargee had knowledge that thechargor had entered into an agreements with the intervener for the sale of partportion of land to them. The knowledge was imputed to the chargee since thesame solicitor was acted for both parties. The court held that plaintiff’sapplication for an order for sale was refused. If the court granted the orderit would be contrary to the rule of equity.
Theposition of bona fide purchaser is also a circumstance where order for saleshould not be granted. In the case of Buxton v Supreme Finance (M) Bhd8,the chargor had charged his land to the chargee as security. The chargorfurther sold the apartment which he builded on his land to appellant who hadpaid the full purchase price. In the event chargor failed to repay the loan,the respondent applied for an order for sale of the land.
The court held thatthe interest of the bona fide purchaser for value cannot prevail over theinterest of the chargee. The indefeasibility of the chargee’s interest was notaffected by the chargor’s conduct unless there was collusion between thechargor and the chargee defeat the interest of the 3rd party. Inthe nutshell, an application for order for sale will be made in the event thechargor defaulted in repayment. It is the right of the chargor or third party tochallenge the order for sale made by the chargee to show there was actually inexistence of “cause to contrary”.
The court has the discretion to reject theapplication for order for sale if it can be proved the existence of cause tocontrary. 11989 1 MLJ 45721997 1 MLJ 7731983 1 MLJ 814(1965) 2 MLJ 1895(No 2) 1988 3 MLJ 35261999 3 CLJ 64971989 1 MLJ 26181992 2 MLJ 481