Sale and purchase agreement – Conditional agreement to sell estate land – Sale subject to obtaining approval of Estate Land Board – Whether failure to obtain prior approval from Land Board before entering into agreement contravened section 214A(1) of National Land Code

Gula Perak Bhd v Datuk Lim Sue Beng & Other Appeals
[2019] 1 CLJ Federal Court 153

see the grounds of judgment here

Facts Gula Perak, a public limited company, obtained financial assistance from a number of syndicated term loan lenders (‘the lenders’), one of which was Ambank (M) Berhad (“Ambank”). Gula Perak failed to service the syndicated term loan facility, resulting in a civil suit against it and its guarantor, Datuk Lim. Gula Perak was subsequently wound up but remained indebted to AmBank. Gula Perak then issued bonds of a legal charge executed over an oil palm estate land in favour of AmBank for the full and final settlement of the term loan, which was later substituted with a deed of assignment. Following default in repayments, AmBank sought to realise the deed of assignment only to be hindered by a caveat lodged by Faithmont Estate Sdn Bhd (‘Faithmont’) on the said land. Before the commencement of the winding up petition against Gula Perak, Faithmont initiated a civil action against Gula Perak and Ambank claiming for specific performance of a sale and purchase agreement and the removal of the caveat of the said land. The dispute was successfully mediated and a compromise was reached. The liquidators of Gula Perak filed an application at the High Court to enter into the said compromise to sell off a piece of land in view of the debt between Gula Perak, Faithmont and AmBank, which was allowed. Consequently, Yakin Tenggara, a contributory of Gula Perak, and Datuk Lim, a preferred creditor, appealed to the Court of Appeal. The order of the High Court with regard to the compromise was set aside. Hence, this appeal.

Issue Whether a conditional agreement to sell an estate land (‘SPA’) to a purchaser with a condition precedent that the sale was subject to obtaining the approval of the Estate Land Board (‘the Board’) was in breach of section 214A(1) of the National Land Code
[1] (‘NLC’) when no prior approval was obtained from the Land Board before entering into the SPA.

Held In allowing the appeal, the Federal Court held that section 214A(1) of the NLC does not prohibit the making of a conditional or contingent agreement to sell an estate land which has an express term incorporated in that the intended sale is subject to the parties obtaining the approval of the Board. The prohibition under the said section is merely against an act of transfer, conveyance or disposal of estate land without the approval of the Board. The SPA being a conditional or contingent agreement is therefore not illegal for non-compliance with the provisions of the said section.

[1] Control of transfer of estate land
(1) Notwithstanding anything contained in this Act, no estate land is capable of being transferred, conveyed or disposed of in any manner whatsoever unless approval of such transfer, conveyance or disposal has first been obtained from the Estate Land Board (hereinafter referred to as "the Board") established under sub-section (3).