The court ruled that a developer acting as a bare trustee cannot create a valid charge over property sold to a purchaser, thus protecting the purchaser's rights under the Housing Development Act.

[1] No one and certainly not the plaintiff in the High Court below, would have thought that after paying the full purchase price for a house in a development undertaken by Syarikat Perumahan Negara Bhd ("SPNB"), he would be shockingly awakened to the reality that the title to his house for which he had taken possession, is now the subject of a charge created over the property in favour of a moneylender by the developer.

[2] After all one would expect a developer who had entered into a joint-venture with SPNB to develop the master titles into a housing estate to have the decency to abide by its contractual obligation under the statutorily prescribed Sale and Purchase Agreement ("SPA") in the form of Schedule G of the Housing Development (Control and Licensing) Regulations 1989 ("the Housing Regulations") . That obligation included not to encumber the property upon an SPA being signed with the purchaser, and more importantly to undertake as required under the statutory contract, to deliver an unencumbered title to the house after completion and the payment of the full purchase price.

[3] Upon discovery of this horror, the house buyer sued SPNB as the 1st defendant ("D1"), UDI Property Sdn Bhd, the developer as the 2nd defendant ("D2") and the moneylender Champion Score Sdn Bhd, as the 3rd defendant ("D3") in the High Court below. The plaintiff essentially prayed for the relief that the charge be cancelled and the title be transferred back to him as the rightful beneficial owner and further that D1 and D2 are to effect the said transfer failing which the registrar of the Court shall execute the necessary Transfer instrument.

[4] The SPA entered into with the plaintiff as purchaser is a tri-partite SPA as prescribed under Schedule G of the Regulation with SPNB being named as proprietor of the land and the developer being a party to the SPA as well, being the vendor. It transpired that SPNB had given an irrevocable Power of Attorney ("PA") to the developer for the purpose of the joint-venture to sign the relevant documents and statutory forms to ensure that the houses sold and paid by the purchasers are duly registered in the purchasers' name.

At the High Court [5] The plaintiff submitted that the developer, having received the full purchase price, stood in the position of a bare trustee and so could not create a valid charge in favour of the moneylender. The charge instrument under the National Land Code (" NLC ") was a void instrument and the charge created was null and void and so ought to be set aside.

[6] Moreover, the charge could not have been validly created without the consent of the plaintiff as purchaser and the plaintiff had not consented to the charge being created. No purchaser would anyway, unless it is for a loan taken by the purchaser and the charge created as a security for the loan taken.

[7] The moneylender argued that under the Torrens system of land registration, it had made a search on the subdivided titles provided as security for the loan granted to the developer and the subdivided titles showed that they were all free from encumbrances. There was no need to inquire further as in "going behind the title" as under the mirror principle in the Torrens system of land registration, the title is everything and what is not reflected in the title by way of registration or endorsement cannot bind a prospective transferee who is not a party to the fraud.

[8] The charge created in favour of the moneylender was thus argued to be indefeasible, the other common exceptions of forgery and insufficient or void instrument being not applicable.

[9] The High Court agreed with the plaintiff and based on the authorities of the Federal Court in Samuel Naik Siang Ting v. Public Bank Berhad [2015] 5 MLRA 665 ; [2015] 6 MLJ 1; [2015] 8 CLJ 944; [2018] 3 AMR 259 ("Samuel Naik") and He-Con Sdn Bhd v. Bulyah bt Ishak & Anor (as admi