InsiderTAPS (28 September 2015)
Assignee’s Power of Sale: Imperfection is perfectly fine
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Until recently, it has always been difficult for legal practitioners to advise their assignee clients, whom hold immovable property as security, the ‘correct’ method of enforcing their right of sale where the document of title has been issued. To appreciate this legal dilemma, one may have to take a step back to look at the development of the law in this area over the years.
The Federal Court in PhileoAllied Bank (M) Bhd v Bupinder Singh Avatar Singh & Anor  2 CLJ 621 has long established that security in the form of an absolute assignment creates an equitable mortgage. Hence, in the case of immovable property, the application to the Court for judicial sale is not required to realize the security. However, Bupinder’s case stopped short of addressing whether an assignee, upon issuance of the individual title, is obliged to ensure the execution of a legal charge before it could proceed with recovery action against the assignor. More importantly, it does not address the question whether the assignee could still resort to non-judicial sale under such circumstances. The High Court, as opposed to making a succinct determination on the issue, has inadvertently contributed to the uncertainty.
In the pre-2005 decisions of Ooi Chin Nee v Citibank Bhd  1 CLJ 548 and Jashin Scaffolding (M) Sdn Bhd v Chew Ai Eng Sdn Bhd; OCBC Bank (Malaysia) Bhd (Applicant)  6 CLJ 509, the High Court found that the terms of the contract, i.e. the assignment itself, required the assignor to take the transfer of the immovable property by executing a statutory charge upon issuance of the registered document of title. Therefore, upon issuance of the document of title, a statutory charge must be created. Once this is done, Order 83 of the Rules of the High Court 1980 becomes operative and any sale of the immovable property by the assignee can only take place by way foreclose proceedings pursuant to the National Land Code 1965 – to wit, a judicial sale.
After 2005, the High Court took a different view from Ooi Chin Nee and Jashin. In Hong Leong Bank Berhad v Goh Sin Khai  3 CLJ 25, the High Court interpreted the terms of the assignment as merely imposing a contractual obligation on the assignor to take transfer of the immovable property upon issuance of the document of title. In the absence of any statutory provision, rule of common law or express agreement, the Court could not extend such obligation on the assignee to ensure that the title is indeed transferred and a legal charge is registered. The failure by the assignor to transfer the title and register a legal charge simply enables the assignee to sue the assignor in equity for a decree of specific performance or breach of contract like any other terms in the assignment. It does not extinguishes the absolute assignment or the assignee’s right to transfer the chose in action under it.
Due to these conflicting High Court decisions, coupled with the lethargic development of the law in the area over the past 10 years, the assignee of an immovable property would have had to elect on informed basis whether to risk realizing the security by way of private sale; or in the abundance of caution, first see to the proper transfer of the property and registration of the legal charge before applying for judicial sale under the National Land Code 1965.
Hence, the decision in Damai Freight (M) Sdn Bhd v Affin Bank Bhd  4 CJL 1 that finally put an end to this decade-long predicament is most welcoming and important especially to the banking and financial sectors. The Federal Court has the opportunity to examine the law propounded in the previous three High Court cases and ultimately, fully agreed with the judgment in Goh Sin Khai and disagreed with the decisions of Ooi Chin Nee and Jashin. In essence, the Federal Court inter alia affirmed and held that:
(6) The bank was not obliged to ensure the execution of the charge and thereafter to obtain an order for judicial sale before it could proceed to exercise its rights under the LACA upon the appellant’s default under the loan;
(7) The creation of a charge was not a pre-requisite for the bank before it could proceed with the recovery action against the appellant under the LACA despite its issuance of the document of title.”
From the commercial point of view, the Damai Freight case makes it much easier and quicker for assignees to realize the security without resorting to Court proceedings. However, it does not necessarily means that assignees should view the creation of the legal charge with no urgency. Under the Torrens system, a legal charge offers greater security interest to the lender compared to assignment. In competing interest and priorities, the statutory protection offered to the chargee’s registered interest under National Land Code 1965 are far superior to an assignee’s equitable contracted rights.
Wong Weng Yew
+603 2050 1944