1. ) Lee Chay Boon 2. ) Poh Kim Tong v Sabah Development Bank Berhad

Case Significance

Confirms that a developer who has received full payment and given vacant possession becomes a bare trustee with no authority to charge the land, so that a charge registered in favour of its financier is defeasible under section 340(2)(b) of the National Land Code and registration cannot cure a void instrument.

This High Court decision concerns the indefeasibility of a registered charge under the National Land Code and the position of a purchaser who has completed payment before a charge is created. The plaintiffs, purchasers of a cluster house, had entered into a sale and purchase agreement with the developer, taken vacant possession, and paid the full purchase price. Notwithstanding this, the developer later executed a charge over the property in favour of the defendant, its project financier, which was registered; the plaintiffs discovered the encumbrance only when their solicitors attempted to register the transfer, and the developer was subsequently wound up. The plaintiffs sought a declaration that the charge was null and void. The Court examined whether the charge was indefeasible or defeasible under section 340 of the National Land Code. It found that, having fully paid the purchase price and obtained vacant possession before the charge was created, the plaintiffs had become the beneficial owners, and the developer had become a bare trustee with no authority to charge the property. Because the defendant was the immediate chargee under an instrument that was void or unauthorised, it could not rely on the protection afforded to a subsequent purchaser in good faith under section 340(3), and the charge was therefore defeasible under section 340(2)(b). The Court held that registration cannot cure a void or unauthorised instrument, allowed the plaintiffs' claim, declared the charge null and void, ordered its cancellation in the land register, and awarded costs. The judgment is significant for its treatment of the bare-trustee doctrine and the limits of indefeasibility where a chargee takes under a void instrument. The decision is an important statement on the limits of the indefeasibility of title, protecting a purchaser who has completed payment and taken possession against a charge later granted by a developer who, by then, held the land only as a bare trustee.