A bi-annual legal magazine published by Messrs Jayadeep Hari & Jamil (Malaysia)

1. BANK CONFIDENTIALITY • Where the interests of the bank require dis‐
A BRIEF INSIGHT INTO THE LAWS OF BANK
closure; and
DISCLOSURE & SECRECY IN MALAYSIA
by Ong Chin Wei • Where the disclosure is made by the express
or implied consent of the customer.
INTRODUCTION
Therefore, it appears that under the law today, the
Today’s society needs banking services. The banker cannot and must not disclose the informa‐
relationship between banker and client is prem‐ tion of the customer unless any one or more of the
ised on trust and it therefore becomes important four exceptions stated above applies.
to clearly determine the rights, duties and re‐
sponsibilities of respective parties in this rela‐ (a) Where disclosure is under compulsion by law
tionship.
A court of law has the power and jurisdiction
Among the many duties and responsibilities to compel the bank to disclose the state of its cus‐
of the banker, one clearly manifests itself; ie. that tomer account. For example, provisions exist un‐
IN THIS ISSUE the banker does not disclose the information der Bankers’ Books (Evidence) Act 1949, Anti­
and records of the client’s account for such infor‐ Corruption Act (year) and Kidnapping Act that
• Bank Confidentiality 1 mation is private and confidential. This duty of allow the state of customers account in a bank to
maintaining confidentiality is what “Duty of the be divulged in the interests of justice.
• The Power of One 2
Secrecy of Banks” refers to.
• Private Caveat 6 In Goh Hooi Yin v Lim Teong Ghee, the judge
• Sovereign Power 8
DUTY OF SECRECY opined that the main object of the Section 7(1) of
• Preventive Detention Laws 12 the Bankers' Books (Evidence) Act, 1949 is to
• Post FIC Liberalization 13 The Duty of Secrecy of Banks is a statutory enable evidence to be procured and given and to
duty under Section 97(1) Banking and Finan­ relieve bankers from the necessity of attending and
cial Institutions Act 1989 which provides that producing their books.
no director or officer of any licensed institution,
whether during his tenure of office, or during his Further, in Maurice Robertson v Canadian
employment, or thereafter, shall give, produce, Imperial Bank of Commerce, disclosure of secrecy
divulge, reveal, publish or otherwise disclose to was allowed as the bank was compelled to produce
any person any information or document what‐ a bank statement of its customer to the court un‐
soever relating to the affairs or account of any der a subpoena (compulsion by law). With this,
customer. duty of secrecy can be diluted by compulsion of
law and hence the courts must exercise their dis‐
The duty relates to the customer’s account, cretion carefully in requiring a bank to make such
which the banker must maintain with utmost disclosure.
confidentiality. It arises out of the confidential
nature of the banker‐customer relationship, as (b) Where there is a duty to the public to disclose
enunciated in Tournier v. National Provincial
an Union Bank of England, where the English This situation occurs where the danger to the
No. KDN: PP15706/02/2009 Court of Appeal decided that a banker owed a state or public duty supersede the duty of secrecy
(020636) qualified duty to keep the affairs of a customer of a banker to his client. For example, if there is a
confidential. The court stated that this duty was possibility of a terrorist link, a bank may in law be
contractual in nature and was to be implied from compelled to disclose to the authorities (e.g. po‐
the banker and customer relationship. However, lice) all information to facilitate in investigations
the court clearly stated that the duty of secrecy on the grounds of public interests. In Pharaon v
was subject to four (4) exceptions as follows:‐ Bank of Credit and Commerce International S.A.,
the court decided that public interest in making
• Where disclosure is under compulsion by documents relating to an alleged ‘fraud’ available
law; to a litigant could outweigh the duty of confidenti‐
• Where there is a duty to the public to dis‐ ality a banker owed to a customer.
close;
However, it must be borne in mind that the
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2. 2 LEGAL CAULDRON
disclosure should only be limited to what was reasonably necessary sent to bank revealing to third party the debt owed by the customer.
as for the purpose of public interests and should not be misused as a
tool to encroach the duty of the secrecy of the bank.
c) Where the interests of the bank require disclosure ONG CHIN WEI
Associate
Where the bank’s interest is in issue as where it is suing or be‐ Conflict Resolution Department
ing sued, it would be within the bank’s rights to make such disclo‐ ongchinwei@jhj.com.my
sure. Thus, disclosure is permissible whenever there is litigation
between the bank and its customers.
In Sunderland v Barclays Bank Ltd, the court held that the
interest of the bank warranted the disclosure of information as it
was unwise for the bank to continue supplying overdraft facilities to
the plaintiff for her involvement in gambling; moreover the bank
was justified in disclosure to her husband because there was a per‐
sonal attack (i.e. dishonour of cheques) on the bank’s reputation.
THE POWER OF ONE
Malaysia, this principle of implied consent was adopted in Tan Lay AN OVERVIEW OF THE GOLDEN SHARE & ITS APPLICATION
Soon v Kam Mah Theatre Sdn Bhd. by Adrian Low
Imagine yourself as a person with a revolutionary idea or
(d) Where the disclosure is made by the express or implied consent
design that can change the lives of many and consistently gener‐
of the customer
ate a steady flow of revenue; Envision that this idea or design
The last exception to the duty of secrecy would be where the could very well set you on your way to an early retirement and
customer (expressly or impliedly) authorizes the release of informa‐ allow you and your family the chance to enjoy all the comforts,
tion by his bank. In Sunderland v Barclays Bank Ltd the court held privileges and pleasures of life that you once thought impossible
to achieve; Visualize that this project has the potential of placing
that the consent of a customer to permit the disclosure of informa‐
you among the elite.
tion might be ‘implied’ from the conduct of the customer (i.e. in that
case, the manager was justified in thinking that plaintiff did not ob‐
ject to his explanation to her husband). In Malaysia, this principle of But reality soon sets in when you begin to realize that you
implied consent was adopted in Tan Lay Soon v Kam Mah Theatre don’t have the requisite funds to bring your idea or design into
fruition and need the financial assistance of others to do so but
Sdn Bhd.
you remain unfazed and determined as you are convinced of the
project’s potential. As such, you muster all the preliminary and
CONCLUSION
interim financial support that you can and commence with the
first step to the realization of your dream.
It is a general principle that the
banker has a duty of secrecy towards
You will most likely start your project with the incorpora‐
the customer and the banker must not
tion of a special purpose vehicle company (as opposed to an un‐
reveal any information regarding its
incorporated business setup like a partnership or sole proprie‐
customer’s account to any third parties
torship where among other things, liability is personal and does
under whatever circumstances. How‐
not come with the separate legal entity status) which you will
ever, unavoidably the secrecy of the
use to spearhead your project. You will thereafter gather a team
customer is subject to the four excep‐
of professional and industry related supporting personnel as
tions as stated above. It must be pointed out also that although the
your project promoters to assist you in your endeavor wherein a
information of the customer would be revealed based on the above
comprehensive marketing and business plan for your project will
exceptions, such discretionary power (exceptions) must be exer‐
be prepared and subsequently presented to potential investors/
cised prudently and carefully by the court, bank or the parties in‐
financiers for the procurement of the required investment/
volved so that it would be only for the purposes of public interests
financing to bring this project into fruition. Assuming that you
and would not violate any rights of the secrecy of the customers.
are able to convince these investors/financiers to financially
Footnotes support and participate in your project, then in all likelihood, this
is where your nightmares may begin and the need for proper and
1[1924] 1 KB 461 prudent corporate and commercial structuring will become ap‐
2[1977] 2 MLJ 26
parent and essential.
3[1995] 1 ALL ER 824; [1994] 1 WLR 1493
4[1998] 4 ALL ER 454
5[1938] 5 Legal Decisions Affecting Bankers 163; The Times, 24th and 25th
Perhaps the greatest flaw in man is their undying thirst for
November greed and power and this can often be seen in the management
6[1992] 2 MLJ 435. Joseph Jr. J decided that customer who enters into an of today’s business ventures which can be described as
agreement to sell to a third party certain assets held by bank as security so “ruthlessly competitive”. Trust, loyalty and support are bonuses
that the proceeds of sales could be used to discharge the customer’s indebt‐ which businesses today strive for and awards are rarely given for
edness to the bank might be said to have implied consent, if not express con‐ ethics and fair play.
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3. 3 LEGAL CAULDRON
In a society where commercial capitalism thrives, unless capi‐ tion to exercise under certain circumstances and may be set out in
tal investment or project financing options are procured from loved the resolution creating that class of shares, the memorandum and
ones, more often than not, it will be derived from independent articles of association of the particular company or a shareholders’
sources and often comes attached with a series of disproportionate agreement.
terms and conditions that include inter alia exclusivity, access, con‐
trol and major equity participation in your company. While admit‐ Designed to give specific shareholder(s) voting control, golden
tedly, there are no fixed rules in this regard but generally, the de‐ shares are primarily created to satisfy those who do not wish to
mands for such terms and conditions are common as your company lose control of a company but do want the public equity market to
is a start‐up with no proven track record. provide financing. In most cases, these shares are not publicly
traded and company founders and
While all the demands and requirements of the financier or their families are most commonly the controlling groups in such
investor may appear justifiable at the beginning but without sound companies. It is often used to prevent stake or share building above
and appropriate commercial structuring at this juncture, your a certain percentage ownership level or to give the holder veto
greatest fears may just be realized when your company becomes powers over any major corporate action, such as the sale of a major
administratively, technically and financially sound. Your earlier asset or subsidiary or of the particular company.
decision to enlist independent financial assistance may have just
exposed your potentially lucrative project to a “pack of wolves” just In essence, it is a grant of “power” to the holder by his or her
waiting for the right opportunity to “sell you out”. fellow shareholders. It does not however, give the holder absolute
management over the administration of the company. But it does
This would be especially apparent when you realize that give the holder the power to prevent certain events from being
your business partners decides to part with the technology or realized and according to the findings in case of Scottish Insurance
know‐how you created to a competitor without you being able to Corporation v Wilson & Clyde Cop. Ltd. (1949) AC 462, the law in this
do much about it. This is where you soon realize that you were regard presumes that where specific preferential rights is con‐
never really in control and from the moment the company is stabi‐ ferred, that right is exhaustive. There are generally two types of
lized, your position is transformed from a pioneer and founding golden share, one with a specified time limit and the other with no
member to a surplus requirement and a commercial liability. As time limit.
profit maximization is the key and an unfortunate part of capital‐
ism, you may find your position and influence in the company even‐ HISTORY
tually and completely eradicated.
The use and effect of the golden share is best illustrated in the
Herein lies the question, what can you do to protect your case of Bushell v Faith (1970) AC 1099 where a “director‐
rights in the company from being diminished and subsequently shareholder” was faced with the proposal of a resolution in a gen‐
eradicated and yet still have the ability to realize, maintain and live eral meeting to remove him from office as a director. On the show
your dreams? The answer may well lie in the adoption and use of a of hand, the resolution was carried. The said director‐shareholder
special species of shares known to many as the “Golden Share” or to then demanded a poll so that he could take advantage of the follow‐
some in the UK as “Weighted Share” or as “Dual Class Share” to the ing provision in the articles “... In the event of a resolution being
Americans, which when properly structured and drafted can and proposed at any general meeting of the company for the removal
will serve to protect your interests and prevent the loss of your from office of any director, any shares held by that director shall on
dream. poll in respect of such resolution carry the right to three votes per
share ..”, and on this basis the resolution was defeated on the poll.
WHAT IS A GOLDEN SHARE? Both the Court of Appeal and the House of Lords in this case upheld
the right of the company to issue shares with “weighted” voting
According to the Reuters Financial Glossary as cited in the arti‐ rights.
cle “Golden Share in the case of the European Court of Justice; Are
golden shares still shinning? By Dr. Michele Giannino at the Seminar The golden share gained major recognition in the 1980s in
on EU Internal Market Strategies & Administrative Law, “… it is a Britain during Thatcher administration where rapid privatization
share that confers sufficient voting rights in a company to maintain of nationalized industries was occurring. The golden share was
control and protect it from takeover. The golden share prevents po­ held by the government and has attached to it rights which are
tential predators from buying shares and using to outvote the com­ among others, enhanced in certain circumstances to prevent con‐
pany’s existing owners ...” While there is no definitive description, it trol of a particular company and its assets from passing to a third
is widely accepted as a special class of share in a company, usually party of whom the government disapproves. It gave the then UK
of nominal value and attached therewith special rights which allow Government the necessary power and authority to intervene and
the holder to enjoy certain voting powers over a company’s charter. outvote all other shareholders in certain major corporate decisions.
This species of share gives the holder the right of a decisive vote The rationale apparently was to allow newly privatized company to
over certain matters of the company, thus to veto all other share‐ become accustomed to operating in a public environment and to
holders regardless of holder’s nominal shareholding. protect national interests and national security. It was then re‐
garded by its proponents as a solution that addresses legal or eco‐
CHARACTERISTICS
nomic concerns. But others are of the opinion that it is merely an
The golden share is usually in the form of preference shares instrument of politicians to appease opponents of privatization.
attached with certain special voting rights. The holder has discre‐
“We Care”

4. 4 LEGAL CAULDRON
Section 65 and 66 of the Companies Act 1965 also deals with the
VALIDITY OF THE GOLDEN SHARE IN MALAYSIA
issuance of preference shares (an element of the golden share).
Opposing Viewpoint
From the reading of Sections 30(1), 65 and 66 of the Companies
Act 1965 and Bisgood Case, inference can be drawn that the legisla‐
In Malaysia and on the surface, the concept and effect of the
ture had never intended to interfere with the administration of a
golden share appears to be in contravention with the KLSE Listing
company or to prevent shareholders in a company from issuing
Requirements and Section 55(1) of the Companies Act 1965 which
shares with such rights as it thinks fit provided of course that such
upholds the “one vote one share” rule for all ordinary shares and
rights may be conferred by law. As such, if shareholders elect to
equity share issued at a poll at a general meeting respectively and
incorporate the golden share as part of their company’s articles of
when applied literally, it appears to nullify the effects of the golden
association or through a shareholders’ agreement then they should
share.
be free to do so.
Proponents of the golden share may suggest for it to be incor‐
APPLICATION
porated as a provision in a shareholders agreement to counter or
avoid the effects of Section 55(1) of the Companies Act 1965 or the
International Application
KLSE Listing Requirements. But there is likelihood that such a provi‐
sion may be regarded by the courts as void and unenforceable by
virtue of the provisions of Section 24 read with Section 25 and Sec­ The listing of the internet company called
tion 2(g) of the Contracts Act 1950 which provides for contracts Google Inc.¹ in the US offers a present day
with unlawful objects or considerations to be regarded as void at illustration of the use of the golden share
law. Consequently, the creation of such shareholders’ agreement where Google Inc. was listed with Class‐A
(or the portion involving the golden share) may be interpreted by shares which carried one vote per share
and Class‐B shares which carried 10 votes per share. The use of the
the courts as a sham and an attempt to contract out the statute
which is unlawful and therefore cannot be enforceable. The effects golden share or “Dual Class Share” as it is sometimes called in the
US can also be seen in Ford Motor Company
of sham contracts can be seen in the case of Seascope Sdn. Bhd. v
where its dual class stock structure allows
Syed Izhar Syed Salleh (2006) 2 MLJ 756 which, although not di‐
the Ford family to retain 40% control of
rectly related to the use of the golden share, held that sham con‐
shareholder voting power with only 4% of
tracts are illegal and unenforceable. The Seascope case, inter alia
the total equity in the company
involves the creation of a call option agreement. This was subse‐
quently held to be a sham and a mere device with the object of se‐
curing payment in a money lending transaction without license In Europe, where the European Commission3 favors the principle of
under the Moneylenders Act of 1951. proportionate ownership and the “one vote one share“ rule, the
golden share is regarded as undesirable as it creates a wedge be‐
At this juncture, the obvious question is whether a golden tween voting and cash‐flow rights. 4The European Court of Justice
share provision in a shareholders agreement or the articles of asso‐ (“ECJ”) has held that national laws conferring on state, special
ciation is valid and enforceable in Malaysia? rights in the form of golden shares do contravene
the fundamental principle of freedom of move‐
Supporting Viewpoint ment of capital between member states and be‐
tween member states and third countries. But the
Articles and the memorandum of association represent the primary use of the golden share among member states re‐
means by which a company governs its internal management and mains widespread and this can be seen in the fol‐
administrative affairs and it imposes binding obligations on mem‐ lowing 4ECJ cases:‐
bers in their dealings with the company as members or sharehold‐
ers (but not as individuals). The case of Bisgood v Henderson’s Tran­ (i) 4athe Republic of Portugal, which involved a prohibition on the
vaal Estates Ltd. (1908) 1 Ch 743, inter alia states that “... the pur‐ acquisition by foreign nationals/entities of more than a speci‐
pose of the memorandum and articles is to define the position of fied number or value of shares in undertakings operating in
theshareholder as a shareholder, not to bind him in his capacity as the banking, insurance, energy and transport sectors and the
an individual ..”. The Bisgood case provides the support that man‐ requirement of prior authorization and right to oppose share
agement of a company can be independently arrangements (eg. transfers or voting rights held was exceeded and right to op‐
shareholders agreement) between shareholders. pose share transfers;
(ii) 4bthe Republic of France, which is similar to the Portuguese
Section 30(1) of the Companies Act 1965 allows for the option Republic, involved inter alia a requirement that prior notifica‐
to shareholders to adopt (in part or in whole) the model articles of tion and authorization were to be given where a limit on the
association as provided in Table A of the Fourth Schedule of the number of shares or voting rights held was exceeded; and
Companies Act 1965 as the agreed mode and manner by which a (iii) 4cthe Kingdom of Belgium, which involved inter alia a right to
company may be governed. Article 4 of Table A of the Forth Schedule oppose, retrospectively, decisions concerning the transfer of
further provides for the issuance of special rights shares (an essen‐ shares or the granting of security over certain assets;
tial element of the golden share). This is provided it is consented to
by at least three‐fourths of the issued shares of that class or with The ECJ held that both the Portuguese and the French situation
were clearly unlawful without valid justification but where the Bel‐
the sanction of a special resolution passed at a separate general
meeting of the shareholders of the shares of the class. gian legislation in concerned, although prima facie unlawful, its use
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5. 5 LEGAL CAULDRON
was justifiable.
Footnotes
Local Application
¹“The Two Sides of Dual Class Shares” by Ben McClure in
www.investopedia.com, a Forbes Digital Company);
In Malaysia, according ²“Golden Share” by Samant Kumar 5th Year BBA LLB, Symbiosis Law
to an article², the ap‐ School, Pune (see: www.articlesbase.com);
plication and usage of ³One Share, One Vote: The Empirical Evidence, ECGI Working Paper Series
the golden share can in Finance; Finance Working Paper N°. 177/2007 May 2007 Renée Adams &
be seen in the privatization of among others, Daniel Ferreira;
4“United Kingdom: The Legality of Golden Shares in the European Union”,
Malaysia’s national airlines namely, the Malaysia Airlines Systems
(MAS) and Malaysia’s national telecommunication provider 30 August 2002 by Jeff Soal; (http://www.mondaq.com/article.asp?
articleid=17738);
namely, Telekoms Malaysia (TM). 4aC‐367/98 Commission vs. Portugal; Judgment of 4th June 2002;
4bC‐483/99 Commission vs. France; Judgment of 4th June 2002;
POSITIVE EFFECTS 4cC‐503/99 Commission vs. Belgium; Judgment of 4th June 2002;
5 In the US, a Wharton School and Harvard Business School study shows that
At commercial level and in so far as private business ventures while large ownership stakes in managers' hands tend to improve corporate
are concerned, the practice of creating and incorporating such performance, heavy voting control by insiders weakens it. Shareholders
shares offers founding members and their families who often have with super‐voting rights are reluctant to raise cash by selling additional
shares‐that could dilute these shareholders' influence. The study also shows
longer term vision the ability to insulate against the usual short‐ that dual‐class companies tend to be burdened with more debt than single‐
term and quick‐gain mindset of investors who are usually more class companies. Even worse, dual‐class stocks tend to under‐perform the
focused on quarterly figures. stock market.
On a larger scale and particularly in respect of the privatiza‐
tion of state owned utilities, it enables governments to ensure com‐
pliance by newly privatized companies with social and/or economi‐
cal policy objectives without the need for proportionate share own‐
ership and/or excessive financial exposure.
ADRIAN LOW
Associate
NEGATIVE EFFECTS
Corporate & Commercial Affairs
At macroeconomic level, the introduction of golden share in a adrianlow@jhj.com.my
company structure will likely create a negative effect on the market
for corporate control as the golden shares can act as a shield for
market managers from market discipline. It creates an inferior
class of shareholders in a company and places significant power to
a select few. These people are then allowed under certain circum‐
stances, to pass the financial risk onto others. Situations like these
often tend to promote the interests of some regardless of their PRIVATE CAVEAT
abilities and performance. Hence it is believed that the golden COMMERCIAL APPLICATION OF THE PRIVATE CAVEAT
share inadvertently creates an avenue for management to make by Stanley Gabriel
bad or undesirable decisions with few consequences.
INTRODUCTION
At microeconomic level, there is an 5academic research that
offers strong evidence that companies with golden share structures
There are four types of caveats provided under the National
hinder corporate performance and other researches offer findings
Land Code 1965 (“NLC”). These caveats are the registrar’s caveat,
that show negative performance of privatized companies as a result
private caveat, lien‐holders’ caveat and trust caveat. The provisions
of government interference in management. In addition and proba‐
relating to private caveats are found in Sections 322 to 329 of the
bly for the reasons as mentioned above, there is another school of
NLC. The most common is the private caveat. Private caveats are
thought that companies incorporated with golden share structures
most commonly used in transactions involving sales and purchases
may find it more difficult to attract investors as opposed to compa‐
of land which include vacant or industrial land, houses, condomini‐
nies with proportionate shareholding ownership schemes.
ums, apartments and loan transactions to finance the purchase of
the property. A person or a body who enters a caveat on the land is
CONCLUSION called a caveator whereas the person or body whose land or inter‐
est is bound by the caveat is often referred to as a “caveatee”.
The golden share is a creature ingeniously created by capital‐
ism and depending on where one stands it can when used properly
The effect of a private caveat is to prohibit any dealing on
serve its purpose to protect the holder to a very effective extent.
alienated land or interest therein bound by the caveat as provided
But quite often in practice, the golden share serves less noble ends
under Section 322 (2) & (3) of the NLC. A private caveat merely
and unless properly controlled through proper drafting, it can and
protects whatever caveatable interest the caveator has in the land
most likely will be subject to abuse and exploitation.
in question pending the final determination of the dispute by the
“We Care”

6. 6 LEGAL CAULDRON
courts.
(a) entitled in law to enter a private caveat against a debtor’s land
The NLC does not define what a caveatable interest is. It has to secure or realize a debt as it is not an interest relating to
been defined by case laws a caveatable interest may be said to be land;
an interest in alienated land with a document of title over which a (b) a purchaser who has paid the full purchase price so the private
caveator may enter a private caveat. caveat has to be removed;
(c) a purchaser who sought only the refund of the deposit and
A private caveat takes effect when a caveator presents it with other expenses, the caveat entered by the purchaser was re‐
the prescribed fees for registration at the relevant land office. As moved because the purchaser was not interested in the land;
long as all the formalities are complied with, the Registrar or Col‐ (d) the claimant for a mere chose in action arising out of or inci‐
lector has no power to reject a caveat. The Registrar or Collector dental to a contract for the sale of land is not entitled to enter a
cannot require a caveator to establish his claim. If the claim of the private caveat;
caveator to an interest in land is prima facie good, the caveat (e) a tenant with an option for having it renewed has no caveat‐
should be registered. able interest;
(f) a purchaser of shares in a company has no caveatable interest
The purpose of a private caveat is not to enlarge or add to in the land of the company; and
the existing proprietary rights of the caveator upon which the (g) a shareholder or officer of a company does not have a caveat‐
caveat is founded, but to protect those rights, if he has any. The able interest in the land sold by the company.
effect of a private caveat is to preserve the status quo pending the
taking of timely steps by the caveator to enforce his claim to an LIFESPAN & VALIDITY OF CAVEAT
interest in the land by proceedings in the court. Before a person
enters a private caveat over any land, he must make sure that he The statutory lifespan of a private caveat under Section 328
has a caveatable interest in the land. (1) is six years unless extended by order of the High Court or ear‐
lier withdrawn or removed. Once a caveat has lapsed, a caveator is
Gopal Sri Ram JCA (as he then was) in the Court of Appeal allowed to enter a further caveat to protect the same interest based
case of Luggage Distributors (M) Sdn Bhd v Tan Hor Teng on the same ground, provided the caveator claim or interest is still
[1995] had paraphrased Section 323(1) (a) to conclude that a subsisting and not barred by limitation. In determining whether a
private caveat may be entered by any person or body who claims caveat should remain in force, the courts will have to address itself
either:‐ whether the caveator is claiming title to or registrable interest in an
alienated land or any right to such title or interest. If he does not,
(a) the title to the land; or the caveat cannot be allowed to remain. In Kho Ah Soon v Duniaga
(b) any registrable interest in the land. Sdn Bhd [1996], the Federal Court ordered that the caveat be re‐
stored as “there are indeed serious questions for trial”. Lord Diplock
The parameters of caveatability are therefore circumscribed in the Privy Council in Eng Mee Yong v Letchumanan [1997] said
by these words “title” and “registrable interest”. It is only one who that a serious question for trial could mean a question not being
makes a claim to either of these in land may enter a private caveat. vexatious or frivolous.
Over the years the courts in various cases have held the following
persons have a caveatable interest in land. WITHDRAWAL & REMOVAL OF PRIVATE CAVEATS
(a) a purchaser having a valid agreement; A caveator may withdraw his caveat at any time by presenting
(b) an option holder; to the Registry or Land Office a notice in Form 19G accompanied by
(c) a chargee; the prescribed fees. However if a caveatee, i.e the person or body
(d) a lessee; whose land or interest is bound by the private caveat wants to re‐
(e) a sublessee; move the caveat he has two ways to proceed under the NLC. One
(f) a beneficiary who has obtained letters of administration; and way is by an application under Section 326 in Form 19H to the
(g) a beneficiary of a wakaf land. Registrar or Land Administrator as the case maybe and paying the
prescribed fee. The other way is by application to the High Court as
A common misconception is that a debt or claim for money an aggrieved person under Section 327(1) of the NLC. In order to
gives rise to a caveatable interest in the debtor’s land. However convince the courts to sustain a caveat, a caveator must establish
the Privy Council in Registrar of Titles Johor v Temenggong Se­ that:‐
curities Limited [1976] concluded that the interest which the
registrar is empowered to protect under Section 320(1)(b) are (a) he has disclosed a caveatable interest in his application;
confined to interests in the land that are recognized by the NLC as (b) the evidence produced in support of his claim discloses a seri‐
being either registrable or otherwise entitled to protection. An ous question to be tried; and
unsecured creditor of the proprietor of land has no such interest (c) the balance of convenience or justice lies in favour of the ca‐
in the land. veat remaining on the register pending the disposal of the suit.
Over the years the courts have held in various cases that the NO FURTHER CAVEAT ON REMOVAL
following persons have no “caveatable” interest.‐
A caveator is prohibitied from entering further caveats on the same
(a) a creditor or judgment creditor of a proprietor of land is not like claims after removal by the court or Registrar as provided un‐
der Section 319(2) of the NLC. Where the court has ordered the
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7. 7 LEGAL CAULDRON
removal of any private caveat under Section 327, or has refused an forgery a registered proprietor’s land can be transferred without
application under Section 326 (2) for an extension of time with his knowledge to a bonafide purchaser for valuable consideration.
respect to any caveat, or where the Registrar has removed any ca‐
veat pursuant to Section 326 (3), the Registrar shall not entertain Therefore it is necessary to restrain the registration of the
any application for the entry of a further caveat in respect of the transfer by entering a private caveat. Failure to do so could result
land or interest in question it is based on the like claim as that on in the bonafide purchaser in good faith and for valuable considera‐
which the former one was based. tion obtaining an indefeasible title upon registration under Section
340(1) of the NLC.
CAVEATING ONE’S OWN LAND
The right of a registered proprietor to enter a private caveat STANLEY GABRIEL
against his own land under the NLC was considered in two recent Associate
decisions of the High Court, namely Eu Finance Berhad v Siland Conveyancing Department
Land Sdn Bhd [M&Z Frozen Food Sdn Bhd, Intervener] (1989) stanley@jhj.com.my
and Hiap Yiak Trading Sdn Bhd & Ors v Hong Soon Seng San Sdn
Bhd (1990). The court in each case took a differing view of the
matter. LC Vohrah J in Eu Finance Berhad v Siland Land Sdn Bhd
[M&Z Frozen Food Sdn Bhd, Intervener] held that the defendant
(Siland) merely as registered proprietor, was not entitled to enter
the caveat against its own land. His Lordship found it difficult to
accept the view that the defendant could be said to be “claiming”
title to the land when the title was already registered in its name.
SOVEREIGN POWER
UNDERSTANDING THE JURISDICTION & SOVEREIGNTY OF A
However in Hiap Yiak Trading Sdn Bhd & Ors v Hong Soon
STATE UNDER PUBLIC INTERNATIONAL LAW
Seng San Sdn Bhd, the court held that the registered proprietor of
by T. Manoharan
land is competent to enter a private caveat against his own land.
Richard Talalla JC (as he then was) held that the registered proprie‐
One might wonder after reading the title of this article, “why is this
tor could caveat his own land, and the caveat in question should
topic so important for me to read? Why should I get to know about
remain as the nature of the agreements and the compensation issue
state jurisdiction? What is the importance of state jurisdiction?” My
should be tried. He added the defendant had succeeded in showing
responses to these questions are very simple: Do you know the
that their claim to the land raised a serious question to be tried. In
power of the state that you are living in? Do you know why Malay‐
the light of the above two High Court decisions which conflict, with
sian courts have the jurisdiction to try and sentence foreign crimi‐
one another, the basic question to be resolved is whether a regis‐
nals without much protest from the criminal’s home state?
tered proprietor can enter a private caveat against his or its own
land being a person or body claiming title to or registrable interest
Do you know why the Malaysian courts have jurisdiction to decide
in the land within the meaning of Section 323 (1)(a) of the NLC.
and sentence the foreign criminals even though the crime did not
involve a Malaysian citizen? Do you want to know the answers for
The provisions in Section 323 (1) or any other section in the
these questions? Let’s explore the following piece of writing.
NLC are silent on the question as to whether a registered proprie‐
tor can or cannot caveat his own land.
It is a well established principle under international law that:
DAMAGES FOR WRONGFUL CAVEAT
One state should not exercise jurisdiction in the territory of another
state unless there is any prior permission, understanding or agree­
It is a serious matter to caveat a person’s property unless you
ment between the states; and
have a caveatable interest in the land. A wrongful caveator is liable
to pay compensation. The courts normally order damages to be
A state is entirely free to project its jurisdiction over any matter tak­
paid by the wrongful caveators. The burden of proving loss or
ing place outside its territory so long as it is not prohibited by any
damage rests on the caveatee, i.e the person or body whose land or
rule of international law.
interest is bound by the private caveat. In practice the task of prov‐
ing loss or damage suffered is not easy. In Plentitude Holdings Sdn
[Please see Lotus Case (France v. Turkey) (1927) PCIJ] Ser A No.
Bhd v Tan Sri Khoo Teck Puat [1994], the court awarded a total of
10]
RM16.7 million in damages on appeal the Federal Court reduced
the huge damages awarded by the High Court to a mere RM10.00.
Having said that, a state is not precluded from having power in its
own territory in respect of any crime which took place abroad. This
CONCLUSION
is true whereby under international law, there is no prohibition
against a state extending its legislative jurisdiction over its citizens
The effect of a private caveat is to preserve the status quo and pro‐
committing any crime outside its territory. International law recog‐
tects whatever caveatable interest the proprietor or caveator has in
nizes two types of state jurisdiction: (a) the ‘prescriptive jurisdic­
the land in question. A registered proprietor can claim his title is
tion’ and (b) ‘jurisdiction to enforce’. Generally jurisdiction means
indefeasible (indisputable) under Section 340(1) of the NLC and as
the limits within which any particular power may be exercised, or
such he need not enter a private caveat over his own land. How‐
within which a government or a local court has authority to hear.
ever, there may yet arise situations where by reasons of fraud or
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8. 8 LEGAL CAULDRON
Prescriptive jurisdiction is the power of a state to bring any On the other hand, under the nationality jurisdiction, a state will
matter within the scope of its local law. The state has full authority have the power to exercise jurisdiction over its nationals for crimes
to claim jurisdiction or to assert the applicability of its local laws to committed anywhere in the world. However, the jurisdiction can
any matters arising within and outside its territory, irrespective of only be exercised if the national physically comes within the terri‐
the nationality. However, although a state may have a general tory of his home state. Under the principle of nationality, a national
power under international law to prescribe jurisdiction, the en‐ is entitled to the diplomatic protection of his or her state at all
forcement of that jurisdiction can only take place within its terri‐ times.
tory unless there is an agreement or permission granted to exercise
enforcement in an area under the sovereignty of another state. Apart from that, a state also has universal jurisdiction over certain
crimes which are regarded very dangerous to the international
Therefore, a state cannot enforce its prescriptive jurisdiction order and the interests of the international community as a whole
in the territory of another state. Each state has complete and abso‐ (‘delicta jure gentium’ – crimes against all mankind). Universal juris‐
lute jurisdiction within the parameters of its boundary, and there‐ diction can be exercised irrespective of where the act constituting
fore no state may perform any governmental act in the territory of the crime takes place and the nationality of the person committing
another state without special permission being granted to that ef‐ it. It is generally accepted that all states are entitled to arrest and
fect. As an example, ‘if a man commits murder in Malaysia and es­ punish the perpetrators of crimes, regardless of nationality, coun‐
capes to India, the Malaysian courts have jurisdiction to try him, but try of residence, or any other relation with the prosecuting country.
the Malaysian police cannot enter the territorial boundaries of India For example, universal jurisdiction exists in respect of crime of
and arrest the offender’. A typical example of this approach is the piracy, genocide, torture, slavery, war crimes, and crimes against
firing of a gun across a state border causing the death of a person humanity, extrajudicial executions, drug‐trafficking, hostage‐taking
on the other territory. and hijacking. For instance, Lord Wilberforce in DPP v. Doot
[1973] AC 807, was clearly of the opinion that drugs related of‐
Another example can be seen in the Lotus Case, where in this fences were crimes of universal jurisdiction and in the case of US v.
case there was a collision on the high seas between a French steam Yunis (1988) 681 F. Supp 896, the US court indicated that both air
ocean liner, the Lotus, and a Turkish steam ocean liner. The Turkish piracy and hostage‐taking were open to the jurisdiction of any
ship sank killing eight sailors on board. When the Lotus arrived at a state.
Turkish sea port, its French officer on board was arrested and
charged with the crime of manslaughter. The French objected to Similarly, a state also has protective jurisdiction, whereby a state
the Turk’s assertion of jurisdiction over a French national. The Per‐ can punish acts dangerous to its security, integrity, or national in‐
manent Court of International Justice (‘PCIJ’) [Currently known as terest, irrespective of where those acts take place or by whom the
International Court Of Justice (‘ICJ’)] held that the Turkish vessel is acts are committed. Based on this principle, the national or local
part and parcel of the Turkish territory, and as such, Turkey was laws are said to operate extra‐territorially as they cover jurisdic‐
entitled to assert its jurisdiction over the French national for man‐ tion in respect of acts which take place wholly outside the state
slaughter as the purported crime occurred on Turkish territory. It territory. Protective Jurisdiction is different from universal jurisdic‐
is pertinent to take note that Turkey was given the right to exercise tion in the sense that the universal jurisdiction is applicable in re‐
jurisdiction because the crime was committed in the Turk’s terri‐ spect of offences of an international character. However protective
tory and the French officer on board was arrested in Turkish sea jurisdiction on the other hand, is applicable only to any matter
port, which was within the territorial limit of Turkey. harmful to the particular state.
Having discussed the case, you might want to ask me a question as Further, a state also has passive personality jurisdiction where a
to which state has jurisdiction over the example of ‘firing of a gun state would have jurisdiction over all crimes if a victim of a crime is
across the border’ given earlier. My answer to that is very simple, its national, irrespective of the place where the crime was commit‐
both states will have jurisdiction but as to which court should hear ted or the nationality of the criminal. This jurisdiction can be said
the matter depends on the ‘physical presence’ of the offender and on as an opposite version to nationality jurisdiction. Passive personal‐
the understanding and diplomatic relationship between the states. ity jurisdiction is based on the main idea of every national is enti‐
Are you eager to know why it is so? Let’s explore the write‐up be‐ tled to the diplomatic protection of his own state. This principle is
low. indeed an unnecessary extension of state jurisdiction and it may
cause considerable practical problems such as when the act which
There are five general scopes of jurisdiction on which criminal ju‐ is an offence under the law of the state of nationality of the victim
risdiction are claimed by states as follows:‐ could be not an offence under the law of the state where it was
committed or the law of the criminal’s home state. However, the
(a) Territorial Jurisdiction; occasions on which a state would wish to exercise passive person‐
(b) Nationality Jurisdiction; ality jurisdiction will be limited depending on the circumstances of
(c) Protective Jurisdiction; each particular case and strictly based on the territorial limit of a
(d) Universal Jurisdiction; and state.
(e) Passive Personality Jurisdiction.
Based on the observation to the principle of jurisdiction discussed
The territorial jurisdiction is very simple whereby a state will have above, it is pretty clear that there will be circumstances where two
full power to exercise jurisdiction over persons, property, acts or or more states may be entitled to exercise jurisdiction over the
events occurring, within its territorial limits. same person in respect of the same event.
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9. 9 LEGAL CAULDRON
For an example, both the protective and the effects doctrines are At the request of DEA, Alvarez Machain was abducted from his
liable to cause overlap with territorial principle, leading to a dis‐ office in Mexico by a former Mexican policeman and three others
pute between the state that has custody of the person and the state on a private plane to Texas, where Alvarez was immediately ar‐
that wants custody. This is known as concurrent jurisdiction be‐ rested by US Federal agents. Alvarez Machain argued that the US
tween states. Concurrent jurisdictional issue will give rise to pro‐ courts have no jurisdiction to try him because of the manner he
longed jurisdictional disputes between two states. was brought into US was in violation of International law. The US
Supreme court rejected Alvarez’s arguments and held that although
However, when more than one state has jurisdiction over a particu‐ the abduction may have been a violation of International Law, the
lar matter under international law, practically the priority depends US court could still exercise jurisdiction against him.
solely on the custody of the offender. Normally, the state which
actually has custody of the accused person will have the authority Similarly, in Eichmann case, Eichmann was kidnapped in Argentina
to deal with the matter compared to the state that wants custody. by persons who were probably agents of Israeli government to
Sometimes, this issue will not be that simple as the offender could Israel without the knowledge of the Argentinean government.
have fled to some other third state which will not have jurisdiction Eichmann was prosecuted in Israel for war crimes, genocide and
or is interested to determine the committed offence. In this sce‐ crimes against humanity and he was convicted and sentenced to
nario, the states have to depend on the co‐operation of the other death in Israel. Israel apologized,
states in order to obtain the surrender of suspected criminals who but its courts did not decline to exercise jurisdiction even though
have fled abroad. the act is in violation of international law. The decision in Alvarez
and Eichmann’s case disappointed many states because the deci‐
To have the co‐operation of foreign states, the state claiming for the sion of the courts was an unprecedented extension of extra‐
surrender of the criminal should have extradition agreement with territorial exercise of police powers without any regard to the im‐
the foreign states, without which the foreign states will not have munity of the other states and well‐established territorial princi‐
any obligation to make the demanded surrender. Extradition is ples of International law.
therefore the surrender by one state to another of an individual
accused of or convicted of an offence. Hence, it is very important On the contrary, UK courts have taken a different approach in the
for the neighboring states to have extradition treaties because a exercise of jurisdiction over persons brought into the UK by unlaw‐
state does not have any obligation under international law to sur‐ ful means. This can be seen in the case of R v. Horseferry Road Mag­
render the alleged criminal to a foreign state as one principle of istrates’ Court, ex parte Bennett [1993] 3 ALL ER 130, whereby in
sovereignty is that every state has legal authority over the people this case Bennett, a New Zealand citizen was wanted in the UK in
within its border. respect of allegations of fraud. Bennett was located in South Africa
and the UK police asked the South African police to send him forci‐
There is no certain principle of jurisdiction that can be relied on bly to the UK. This was done by the South African Police. The
conclusively when the offender flees to another foreign state after House of Lords held that since Bennett’s presence before the court
committing a criminal offence. The question to which state the had been procured by abuse of process and in violation of interna‐
criminal will be surrendered to by the foreign state will depend on tional law, the UK courts should not exercise jurisdiction. This deci‐
factors such as whether there is an extradition agreement between sion of the House of Lords, upheld the integrity of international
the states, the nature of diplomatic relationships between the legal standard and principles of jurisdiction.
states and the state practice. Having discussed that, let us see
whether a state will have jurisdiction over a criminal who has been However, it is unfortunate that in the case of R v. Staines Magis­
detained and forcibly taken into custody by a state claiming juris‐ trates’ Court, Ex parte Westfallen [1998] 4 ALL ER 2101, the UK
diction. This is important because there have been several cases court has drifted from this position whereby the UK court decided
where criminals have been kidnapped from the territory of one that the Bennett principle applied only if the UK authorities had
state to be tried in another state. participated in or procured the accused in an unlawful manner or
in violation of international law and not otherwise. Nevertheless, to
In this sense, some courts especially in United Kingdom, South Af‐ show respect to the principles of jurisdiction under International
rica and New Zealand have refused to exercise jurisdiction over law, it is not prudent for any state to exercise jurisdiction in all
criminals brought before them by way of kidnap. On the other cases where international law has been violated, irrespective of the
hand, some states especially US, French, and Israel have insisted degree of involvement of the local authorities in the violation.
that how a person is brought before them is not a matter for them Briefly, that is the basic knowledge and instances that we need to
to think about, but they are only concerned with the fact of the have about the sovereignty of state territory and the local courts
criminal’s presence in the territory. This approach is called ‘male jurisdiction under the public international law.
captus, bene detentus’ which can be loosely translated as improp‐
erly captured, properly detained. Therefore, there is no uniform Nonetheless, there are also other areas in the world where the ju‐
and consistent practice of states on this issue. risdictional rights may be shared by all states in the world. These
areas are communal areas which are beyond the national jurisdic‐
For example, the US Supreme Court in United States v. Alvarez­ tion, not open to acquisition by any state and no state in the world
Machain 504 U.S. 655 (1992) has held that it has jurisdiction over can exclusively enjoy the jurisdiction over the areas. These areas
the criminal who has been brought into US by way of kidnap. In this include Outer space, Antarctic, Arctic and High Seas. All these
case, a US Drug Enforcement Administration (DEA) agent was places are regarded as ‘common heritage of all mankind’ and there‐
killed in Mexico in 1985. Five years later, Dr. Alvarez Machain, a fore open for use by all states in the world.
Mexican citizen, was indicted by US Federal grand jury for having
participated in the murder.
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