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Case Update: The courts ought not to be too quick to assume illegality or invalidity of contracts when dealing with statues regulating commercial transactions

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16 August 2021

INTERPRETATION OF STATUTES
Interpretation – Canons of interpretation – Contracts Law – Validity of contracts – National Land Code ss214A

Maple Almagamated Sdn Bhd & Anor v Bank Pertanian Malaysia Berhad
Civil Appeal No. 02(f)-54-09/2020(A), Federal Court
- see the grounds of judgment here

Facts The first appellant, Maple Almagamated Sdn Bhd (‘Appellant’) was granted a Bai Bithamin Ajil (‘BBA’) facility by respondent bank with the second appellant as the guarantor. The BBA facility was executed through an Asset Purchase Agreement dated 26.4.2008, where the respondent ‘purchased’ the land from the first appellant for RM48,000,000.00. On the same date, the first Appellant then ‘repurchased’ the Land from the respondent through an Asset Sale Agreement to be paid on instalment basis. The respondent bank also concluded a Guarantee & Indemnity Agreement dated 26.4.2008 with the second appellant to guarantee the selling price payable under the Asset Sale Agreement. The first appellant as the registered proprietor of an estate land then charged the land to the respondent to secure the payment. Both of the parties agreed that, no memorandum of transfer was effected pursuant to any provisions of the National Land Code (‘NLC’) or any other law on real property in respect of the Land. Subsequently, the first appellant defaulted on the BBA Agreement and the respondent accordingly terminated it. The parties then engaged in series of suits. The first of these suits was filed by the respondent in the High Court for a money judgement on the BBA agreement. The respondent were successful. The second suit was filed by the respondent seeking an order for sale against the land. The order was granted and appellants were unsuccessful in their appeals. The third suit was filed by the appellants to either set aside or invalidate the charge on the land. The suit, however, was withdrawn on the date it was fixed for decision. This is the fourth suit from which this appeal arises, which involves the question of whether BBA Agreement amounted to ‘transfer, conveyance or disposal’ of the Land which is prohibited by section 214A[1] of the NLC and thus void for illegality. At the High Court, it dismissed the appellant suit and the Court of Appeal affirmed the decision made by the High Court. Hence, the present appeal.

Issue Whether an unconditional agreement pursuant to BBA financing is in breach of section 214A of the NLC when no prior approval is obtained from the Estate Land Board before entering into the said agreement?

Held In dismissing the appeal, it was held that the agreement did not breach section 214A (1) of the NLC. The Federal Court concluded that a conditional agreement is merely a manifestation of the parties’ intention to transfer the land and condition signifies their explicit acceptance of the requirement of the law; and that it is their express acceptance that any sale and purchase or transfer of the land would not take effect until and unless the approval of the Estate Land Board was first obtained. After perusing the Parliamentary Hansard and the case of Gula Perak Bhd v Datuk Lim Sue Beng & Ors [2019] 1 CLJ 153, it was held that section 214A of the NLC was to prevent the fragmentation and transfer of estate land to the extent that proprietorship or ownership in that estate land cannot be effected. The words ‘transfer, convey or dispose of’ employed in section 214A was to tighten the prohibition of transfer of land in all ways thinkable which explains the even more stringent use of the word. The undisputed fact remains in this case, that there has been no actual transfer of ownership of the Land from the first appellant to the respondent.  Even if the BBA agreement purports to vest beneficial ownership in the respondent, it is clear that in fact no such vesting ever took place. The respondent never in law or in equity became the owner of the land as the arrangement was merely a means to finance an Islamic facility. Further, the Federal Court opined that if Parliament had intended for section 214A to apply to the transactions in the nature impugned in this case, it would have said so clearly.  In summary, section 214A ought to be read strictly and that the words ‘transfer, convey and dispose of’ being analogous words, should have their meaning confined to the intention of Parliament to prevent dispossession of land whether in law or equity.

ZUL RAFIQUE & partners
{16 August 2021}
[1] Section 214A is pertaining to control of transfer of estate land.

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