The legal status of the title of land acquired by a bona fide purchaser for valuable consideration has long been plagued by uncertainty amidst contrasting decisions by the Courts.
When the case of Adorna Properties Sdn Bhd v Boonsom Boonyanit [2001] 2 CLJ 133 was decided by the Federal Court, it sent shockwaves to the legal fraternity. The doctrine of deferred indefeasibility that was generally understood to be the applicable law was in one swoop replaced with the concept of immediate indefeasibility. This saga was thought to have been finally concluded 9 years later when the apex Court in Tan Ying Hong v Tan Sian San & Ors [2010] 2 CLJ 269 held that the earlier decision was erroneously made.
Alas, the divergence in judicial opinions continued, albeit on the application of the doctrine of deferred indefeasibility. This case illustrates the difference in approach adopted at three different levels of the court system.
The Plaintiff was the original proprietor of the subject land. A fraudster impersonating as the Plaintiff sold the land to the 2nd Defendant, who subsequently on-sold it to the 1st Defendant. The High Court found that the 1st Defendant was a purchaser in good faith and for valuable consideration without any knowledge of the fraud committed by the fraudster and the 2nd Defendant on the Plaintiff.
There were four titles to the land: (i) the original manual issue document of title ("IDT1") that was at all times in the Plaintiff’s possession; (ii) the computerized issue document of title in the Plaintiff’s name ("IDT2") generated by the land authorities without issuing it to anyone; (iii) the titled issued in the 2nd Defendant’s name pursuant to the first transfer (“IDT3”); and (iv) the title issued in the 1 st Defendant’s name pursuant to the second transfer(“IDT4”).
The High Court held that the 2nd Defendant was a subsequent purchaser who acted in good faith and for valuable consideration, resulting in its title in IDT4 being indefeasible. This was reversed by the Court of Appeal, which held that the Plaintiff’s title in IDT1 is indefeasible and therefore, the 1st Defendant’s title in IDT4 was void.
On the 1st Defendant’s appeal to the Federal Court, the question of law was whether the computerized title in IDT2 can validly pass title when the original manual title in IDT1 was at all material times in the possession of the Plaintiff.
In overturning the Court of Appeal’s decision, the Federal Court held that even though the Plaintiff being the original landowner had in her possession the original manual title in IDT1, the computerized title generated by the land registry in IDT2 was valid and capable of validly passing title to the land. Hence, as a subsequent purchaser in good faith and for valuable consideration, the 1st Defendant’s title in IDT4 was indefeasible.
It was also remarked that in deciding a dispute for title between an innocent landowner and an innocent subsequent purchaser in good faith and for valuable consideration, the court ought to be guided by the principle of deferred indefeasibility, instead of the judge's individual preference as to which side the scales of justice tilts.
The Federal Court’s decision is significant in that it clarifies the fundamental tenet of the doctrine of deferred indefeasibility i.e., the title of a subsequent purchaser acquired in good faith and for valuable consideration is indefeasible notwithstanding that the 2nd Defendant’s (fraudster) title was defeasible.
