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Charges - Part 1 Presentation Transcript

  • 1. CHARGESSharifah ZubaidahLAW 3111- Section 1Sem. 1-2012/201306/15/13 1SZA
  • 2. Coverage:• 1) What is a CHARGE?• 2) Registered Charge• 3) Difference between a Charge and aMortgage• 4) Powers of Charging• 5) Effect of Registered Charge• 6) Unregistered Charge06/15/13 SZA 2
  • 3. What is a Charge?• It is a security transaction relating to landcreated under Part 16 of the NLC between theproprietor of land (chargor) and the lender(chargee).06/15/13 SZA 3chargor chargeeborrowsGivesloanLand owner Financier
  • 4. The Requirement of Registration• A charge is registered in Form 16A/16B.• (See s.5 NLC’s definition of a ‘charge’)• If not registered, the charge may be held to bean ‘equitable charge’.• Equitable chargee not entitled to statutoryremedies under the NLC.06/15/13 SZA 4
  • 5. Effect of a Registered Charge?• The land becomesLIABLE AS SECURITYfor the loan.06/15/13 SZA 5
  • 6. Chargee’s Remedies:• How to enforce thecharge?• The chargee has 2statutory remedies toenforce the chargeupon default of thechargor.• i) Apply for anorder for sale ofthe land; or• Ii) Apply for anorder of possession.06/15/13 SZA 6
  • 7. DIFFERENCE BETWEENA CHARGE AND A MORTGAGE06/15/13 SZA 7
  • 8. Is a Charge similar to a Mortgage?• Both are security transactions relating to land.• A mortgage is a pledge of the land by the landowner to a lender that conveys to the lender thetitle to the land in consideration for the loan.• Both, mortgagor and mortgagee agree bycontract that upon repayment of the loan, themortgagee is to re-transfer the land back to themortgagor.• Right of the mortgagor to redeem the land iscalled ‘equity of redemption’.06/15/13 SZA 8
  • 9. The Torrens Charge Is NOT a Mortgage• A charge under the Torrens system is not thesame as a mortgage under English law.• The Torrens charge is a charge on land – thereis no passing of the legal ownership of theland from the land owner/borrower to thelender.• Effect is just as a security and not a transfer ofthe land so charged.06/15/13 SZA 9
  • 10. Gan Khor v Soan b. Pelita (1935)• “It must be remembered that a chargeis a very different transaction to a mortgage.There is no such thing as a mortgage of landknown to the law of the FMS.Charges alone are recognised…”• (per Samuel Thomas, CJ)06/15/13 SZA 10
  • 11. Paramoo v Zeno [1968]• “The Land Code makes it quite clear that herea charge (we have no mortgage in the MalayStates) is quite distinct from a lien.”• (per Suffian, FJ)06/15/13 SZA 11
  • 12. BBMB v Doric Dvpmt S/B [1988]• “In the first place, the premise that a chargeunder the NLC is the same as an Englishmortgage at common-law is patentlyerroneous…..”• “…In an English mortgage at common-law, themortgaged property was transferred to thename of the mortgagee on the creation of themortgage with a proviso for redemption.”• (per Peh Swee Chin, J.)06/15/13 SZA 12
  • 13. How is a Charge different from a‘Mortgage’?MORTGAGE:• Created throughcontract.• Legal title to land istransferred to themortgagee.• Mortgagor only has anequitable title and theequity of redemptionupon full repayment ofthe loan.CHARGE:• Created throughstatute.• Legal title to landremains with thechargor.• Chargee has aregistered interest inthe land.06/15/13 SZA 13
  • 14. Cont.:Mortgage• Upon default of themortgagor, mortgageehas a right to foreclosethe land.Charge• Upon default of thechargor, the chargeehas statutory remediesof sale or takingpossession of the land.06/15/13 SZA 14
  • 15. Powers of Charging• Who can create a charge? - A registeredproprietor (See s. 43 and 241(4) NLC)• What can be charged? Whole land and alease. (s.241(1))• J Raju v Kwong Yik Bank Bhd [1994] – a chargemay be created on a part only of land if itwere an ‘equitable charge’.• Reason? Such charge cannot be registered.06/15/13 SZA 15
  • 16. Can the chargor create a 2ndchargeon the land?• Yes. (241(2))• Although not stated in the NLC, usually mustget the consent of the 1stchargee.• In R&I Securities S/B v Golden Castle FinanceCorp. (M) Bhd. [1979], it was held that wherethe consent for the creation of a secondcharge is not obtained, there cannot arise aninstrument of charge in a registrable form.06/15/13 SZA 16
  • 17. Create charge for what purpose?• To secure repayment of money. (see s.241(aa)and (bb))• ‘any sum other than a debt’? e.g. bonds,overdrafts, cheques, payment on demand.06/15/13 SZA 17
  • 18. FORM to Create a Charge• S.242:• i) Form 16A – to secure a debt• Ii) Form 16B – to secure payment of annuity orother periodic sum.• As to ‘other periodic sum’, the case of Tan YenYee & Anor. v. Equity Finance Corp. Bhd.[1991], held that monthly payments under alease of equipment agreement is a ‘periodicsum’. Charge is in Form 16B.06/15/13 SZA 18
  • 19. Tan Yen Yee & Anor. v. Equity FinanceCorp. Bhd. [1991]• Important observation by Richard Tallala JC:• Use of the wrong form will not invalidate thecharge as long as it has no substantial effector be calculated to mislead.06/15/13 SZA 19
  • 20. NATURE OF INTEREST ACQUIRED BYTHE CHARGEE06/15/13 SZA 20
  • 21. Is a charge considered an ‘interestin land’?• Yes.• Ho Giok Chay v NikAishah [1961] 1 MLJ 49• See decision ofHepworth, J.• No.• T. Bariam Singh vPegawai PentadbirPesaka Malaysia [1983]1 MLJ 232• See decision ofMohamed Zahir, J.06/15/13 SZA 21
  • 22. Effect of a Registered Charge?• See s.243 NLC• Upon registration of a registered charge:• 1) The land becomes a security.• 2) The chargee gets indefeasibility of title(s.340)• 3) The chargee is entitled to statutoryremedies to enforce the charge under theNLC.06/15/13 SZA 22
  • 23. POSITION OF AN UNREGISTEREDCHARGE06/15/13 SZA 23
  • 24. Is an unregistered charge recognisedunder Malaysian law?• Yes, by case law, the courts have accepted theconcept of an ‘equitable charge’.• See Mahadevan v Manilal & Sons [1984],Salleh Abas, CJ’s decision.06/15/13 SZA 24
  • 25. Mahadevan v Manilal• “Examination of court decisions clearly showsthat the courts have resorted to equitableprinciples and consistently held that anagreement to secure a debt in favour of thecreditor in respect of the debtor’s land createsan equitable charge giving rise to an equitableright in favour of the creditor, although nocharge or lien within the provisions of theNLC…is created.”06/15/13 SZA 25
  • 26. What Is the Legal Basis for JudicialRecognition of an Equitable Charge?• Read pp. 248-254 of your textbook for ideasto answer this question.• More discussion on this during tutorials.06/15/13 SZA 26
  • 27. The term ‘equitable charge’ canalso refer to the following:• i) Where charge instrument has beenexecuted but not presented forregistration. (Standard Chartered Bank vYap Sing Yoke [1989] 2 MLJ 2 MLJ 49)• ii) No title to land issued yet, so securitycreated over land under a loan agreementand deed of assignment. (MalayanBanking v Zahari b. Ahmad [1988] 2 MLJ135.)06/15/13 SZA 27
  • 28. More situations:• iii) Although the IDT is available, parties donot wish to create a charge. Borrower justhands over the IDT to the lender assecurity.• iv) IDT available but parties wish to enter intothe customary security transactioncalled ‘Jual Janji’ and not a charge.06/15/13 SZA 28
  • 29. Difference between a legal chargeand an equitable chargeLegal Charge• 1) Registered.• 2) Chargee entitled tostatutory remediesprovided under theNLC.• 3) Chargee hasindefeasible interestover the charge.Equitable Charge• 1) Unregistered.• 2) Chargee not entitled tostatutory remedies butonly claim ‘inpersonam’.• 3) Chargee has noindefeasible interest.Interest can beattacked.06/15/13 SZA 29
  • 30. Who Holds the IDT in a ChargeTransaction?• See S. 244(1) – ‘first chargee’• Chargor can request for IDT by writtenrequest to the chargee,if needed and chargeewill produce at the Land office. (s.244(2))06/15/13 SZA 30
  • 31. Powers of Chargee over thecharge:• 1) First chargee holds the IDT.• 2) May enforce the charge upon default ofthe borrower.• 3) May transfer the charge to another personor body under section 216 NLC.06/15/13 SZA 31
  • 32. Powers of Chargor after creation ofthe Registered Charge?• 1) May create a second or subsequent charge.(s.241(2)).• 2) Chargor may create a lease or tenancy on theland charged u- s.251 and 226 but with consentof chargee and such consent should not beunreasonably withheld.• (See Leisure Complex S/B v Malaysian Credit FinanceBhd.[1994] – consent should not be unreasonablywithheld where chargor wishes to sub-lease thecharged property.)06/15/13 SZA 32
  • 33. More:• 3) Right to a Discharge the ChargeChargor may pay off the amounts owing under thecharge and the chargee may then apply throughForm 16N (s. 278 NLC) for a discharge of thecharge.06/15/13 SZA 33
  • 34. Priority of Charges• A charge is given priority in order of creation. (SeeLai Soon Cheong v Kien Loong Housing Development& Anor. [1993])• Priority of charges can be changed throughagreement by using the following methods:• 1) consolidation (s.245)• 2) tacking (s.246)• 3) postponement (s.247)06/15/13 SZA 34
  • 35. Consolidation of Charges• Chargor charges06/15/13 SZA 35LandALandBLoanRM100,000LoanRM80,000BANKC
  • 36. Concept of Consolidation ofCharges• The chargee (Bank C) requires both charges tobe consolidated so that when the chargorwants to discharge the charge on Land A, hemust also pay up the loan secured by Land B.• Result of consolidation: To discharge Land A,the chargor must also discharge Land B.• NLC in s.245 restricts consolidation ofcharges. (see)06/15/13 SZA 36
  • 37. Tacking for Further Advances• Jan. 2008 - ‘A’ charges land to ‘B’ forRM100,000 with a right to tack.• March 2008 - ‘A’ charges same land to ‘C’ forRM50,000 (2ndCharge)• August 2008 – ‘A’ borrows another RM50,000from ‘B’• ‘A’ subsequently defaults under the 1stcharge.• ‘B’ obtains an order for sale of the land.06/15/13 SZA 37
  • 38. Tacking, continued:• Total owing to ‘B’?• RM, 150,000• Let’s say the sale of land in a public auction obtainsRM160,000 for the land, minus costs , what is left isRM150,000.• As ‘B’ has a right to tack, ‘B’ gets all the RM150,000and ‘C’ does not get anything.• If ‘B’ had no right to tack, ‘B’ would only getRM100,000 and ‘C’ would get another RM50,000.06/15/13 SZA 38
  • 39. Tacking is recognised u-s.246 NLC• Chargee may tack further advances in 2situations:• 1) where it is expressly authorised by theprior charge; or• 2) where the advance/s are made withconsent of the 2ndChargee.06/15/13 SZA 39
  • 40. Effect of tacking for furtheradvances?• It adversely effects subsequent charges.• Thus, tacking as well as consolidation mayeffect priority of charges.06/15/13 SZA 40
  • 41. Postponement (s.247)• Before a charge can be postponed, it mustfirst be registered.• Postponement will give the subsequentchargee priority over the first charge.• Carried out by Form 16C.• See Ling Tee Huah Credit & Leasing S/B v LiiTat Credit Mortgage S/B [1990] 1 MLJ 46.06/15/13 SZA 41