Generally, of order for sale in the event there

Generally,
cause to contrary is a situation whereby court refuses to grant an order for
sale. Under Section 256 (3) of the National Land Code (“NLC”), it stated that:

“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.”

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It
is the duty of the chargor or third party who has interest in the land to prove
to the court that there is existence of any “course to contrary” in the
application for order for sale. Then it is at the discretion of the court to
reject or accept an application of order for sale in the event there is the
existence of cause to contrary. If the court grants an order for sale it would
be 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 land
and agreed the loan to be disbursed progressively. The chargee called off the
deal when developer failed to pay the interest on his first progress payment.
The chargor further requested the chargee to release the further amount but was
denied by the chargee. The chargee applied for an order for sale toward to
charged property in order to recover the first progess payment. Privy Council
held that there was no existence of any cause to contrary, order for sale
should be granted as it is mandatory under Section 256(3) of NLC. The word used
is “shall” which mean it is mandatory to grant order for sale unless there is
existence of ’cause to contrary’. These words have been construed as justified
the witholding of an order in the event it would be contrary to some rule of
law 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 for
sale. The court held that ’cause to contrary’ in Section 256(3) NLC might be
established only in these three categories of cases:-

(i)                
When the chargor was able to bring his
case within any of the exceptions to the doctrine of indefeasibility under
Section 340 of NLC;

(ii)              
When the chargor could demonstrate that
the chargee had failed to meet the condition precedent for the making of an
application for an order for sale; and

(iii)            
When the chargor could demonstrate that
the grant of an order for sale would be contrary to some rule of law or equity.

These
are the circumstances where court where cause to contrary have been held
existed by the court.

Most
application was challenged on the ground that the charge was acquired by the
chargee is defeasible as it obtained under Section 340(2) of the NLC. The court
may reject the application for order for sale where the charge is defeasible,
when the title obtained through fraud, forgery or any other void or
insufficient instruments. This can be seen in the case of Tai Lee Finance Co Sdn Bhd v Official
Assignee3,
the registered proprietor of the land executed two separate charges over his
land in favour of the appellate (chargee). Both charges were registered. The
chargee applied for an order for sale when chargor defaulted in repayment. The
chargor as a land developer further entered into an agreement with the
respondent to build house on the land. The respondent opposed the appellant’s
order for sale. The Federal Court held that Section 340 is clear that the title
or interest of the registered proprietor shall be indefeasible upon
registration. In this case although the appellant had constructive notice of
the respondent’s prior interest, there was no evidence on the existence of
fraud. The respondent does not prove beyond reasonable doubt that the appellant
had actually acted dishonestly and consciously disregarding or violating the
right of the respondent.

Next,
it is contravention of statute. The charge is considered as bad in law for
non-compliance with Money Lending Ordinance 1951. This is established in the
case of Phuman Singh v Khoo Kwang Choon4, a
charge document is a document of debt. It should be registered in court as a
requirement under Section 3 & 4 of the Money Lending Ordinance when the
charge is registered in favour of the money lender. In this case, the charge
was not registered. When the chargee applied for an order for sale, the
validity of the order was challenged. The court held that the fact where the
order was not registered is a cause to contrary within the meaning of Section
256(3) of NLC.

Furthermore,
charge was registered but contrary to restriction in interest also considered
as ground for cause to contrary. In the case of United Malayan Banking
Corporation Bhd v Syarikat Perumahan Luas Sdn Bhd5,
the chargor applies to set aside the order for sale in certain land charged to
UMBC on the ground it was void. The charge was actually registered in the
breach 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 explicit
statutory prohibition. The title is defeasible as it obtained by means of an
insufficient or void instrument and also because of the Registrar of Title, in
registering the charge had acted ultra vires the power conferred upon him.

Next
ground for cause to contrary is failure to meet conditions precedent for
application. 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 pieces
of land belonging to the defendant but charged to the plaintiff. The defendant
objected the application pursuant to Section 256(3) of NLC. The court held that
as the additional interest should “from the date of this letter”, it was wrong
as plaintiff has calculated it from an earlier date. Therefore, having based
its statutory demand by way of Form 16D on a notice of demand that included
interest which the plaintiff was not entitled to, the plaintiff’s demand was bad
in law.

Moreover,
contrary to some rule of law or equity, this can be seen in the case of OCBC
v Lee Tan Hwa7.
In this case, the owner of the land charges his land to the chargee in order to
secure an overdraft facility. In the event the chargor failed to make
repayment, the chargee applied for an order for sale. The intervener had
challenged the application on the ground the chargee had knowledge that the
chargor had entered into an agreements with the intervener for the sale of part
portion of land to them. The knowledge was imputed to the chargee since the
same solicitor was acted for both parties. The court held that plaintiff’s
application for an order for sale was refused. If the court granted the order
it would be contrary to the rule of equity.

The
position of bona fide purchaser is also a circumstance where order for sale
should 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 chargor
further sold the apartment which he builded on his land to appellant who had
paid 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 that
the interest of the bona fide purchaser for value cannot prevail over the
interest of the chargee. The indefeasibility of the chargee’s interest was not
affected by the chargor’s conduct unless there was collusion between the
chargor and the chargee defeat the interest of the 3rd party.

In
the nutshell, an application for order for sale will be made in the event the
chargor defaulted in repayment. It is the right of the chargor or third party to
challenge the order for sale made by the chargee to show there was actually in
existence of “cause to contrary”. The court has the discretion to reject the
application for order for sale if it can be proved the existence of cause to
contrary.

 

1
1989 1 MLJ 457

2
1997 1 MLJ 77

3
1983 1 MLJ 81

4
(1965) 2 MLJ 189

5
(No 2) 1988 3 MLJ 352

6
1999 3 CLJ 649

7
1989 1 MLJ 261

8
1992 2 MLJ 481

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