T Sivam a/l Tharamalingam v Public Bank Bhd [2018] MYFC 11

Facts:

 Deceased was the original registered proprietor of a piece of agricultural land.

 In 2006, the Dcsd’s son, Nagarajan had fraudulently transferred the land to himself using the services of a solicitor (“the Sols”).
The title showed that he was the registered proprietor.
 The Sols acting for Nagarajan sent a notice to the dcsd demanding vacant possession of the land. The dcsd’s solicitor then sent a
letter to the Sols indicating that there was a dispute as to the ownership of the land and alleged that Nagarajan obtained the title by
fraud.
 In 2006, pursuant to a Letter of Offer & FA, the Df granted fixed loan to Nagarajan & Sithra. Memorandum of Charge was
presented and duly registered. In this financing transaction, the Sols who acted for Nagarajan in the transfer was also acted for the
Df. The Df had appointed the Sols in preparing the loan & security documentation.
 Despite knowing of the fraud allegation, the Sols did not disclose it to the Df. No evidence to show that the Df had knowledge of
the dispute between the dcsd and Nagarajan at material time.
 In 2007, he dcsd filed a suit against Nagarajan to recover the land. Muar High Court held that the transfer was invalid as it was
acquired by fraud. The transfer was set aside. Nagarajan appealed to Court of Appeal. COA dismissed his appeal. Nagarajan filed
Notice of Motion to Federal Court for leave to appeal and it was dismissed.
 In 2013, dscd discovered that the land was charged to Df and therefore filed a suit against the Df to set aside the charge.
 The dcsd passed away in 2014 and the Pf proceeded with the suit as the administrator of the estate of the dcsd.
 Df relied upon the proviso to S. 340(3) NLC & argued that its charge was indefeasible because Df had acquired a subsequent
interest in the land as a registered charge in good faith and for valuable consideration.

Decision in High Court:

 Allowed Pf’s claim. Held that the Df was an immediate acquirer of an interest in the land – could not relied on proviso to S. 340(3)
 The charge was defeasible as the land was fraudulently transferred to Nagarajan despite the Df had no knowledge of the fraud.
 Ordered: -
o To declare that the charge registered in invalid and to be cancelled immediately from the title;
o To return the Memorandum of Charge & title to the Pf;
o To remove the transfer from the title;
o To register Pf’s name as the proprietor of the land

Court of Appeal:

 Allowed Df’s appeal. Held that the Df was not an immediate, but a subsequent, purchaser in good faith and for valuable
consideration because when it granted the loan, the land had already been transferred to Nagarajan. Df’s interest in the charge
was indefeasible and protected by the proviso to s 340(3) of the NLC.

Section 340 NLC - Registration to confer indefeasible title or interest, except in certain circumstances.
(1) The title or interest of any person or body for the time being registered as proprietor of any land, or in whose name any lease, charge or
easement is for the time being registered, shall, subject to the following provisions of this section, be indefeasible.
(2) The title or interest of any such person or body shall not be indefeasible- (a) in any case of fraud or misrepresentation to which the person
or body, or any agent of the person or body, was a party or privy; or (b) where registration was obtained by forgery, or by means of an
insufficient or void instrument; or (c) where the title or interest was unlawfully acquired by the person or body in the purported exercise of
any power or authority conferred by any written law.
(3) Where the title or interest of any person or body is defeasible by reason of any of the circumstances specified in sub-section (2)-
(a) it shall be liable to be set aside in the hands of any person or body to whom it may subsequently be transferred; and
(b) any interest subsequently granted thereout shall be liable to be set aside in the hands of any person or body in whom it is for the time
being vested
Provided that nothing in this sub-section shall affect any title or interest acquired by any purchaser in good faith and for valuable consideration,
 or by any person or body claiming through or under such a purchaser.

Federal Court:

 Issue: Whether the Df was a purchaser in good faith falling within the proviso to S. 340(3)
 Federal posed 2 questions of law:-
(1) Whether knowledge on part of solicitor of claims which amount to encumbrances over a piece of land is imputed back to
his client
(2) Whether the principle in Doshi v Yeoh Tiong Lay is correct in law (that an agent’s knowledge of fraud cannot be imputed
to his client)

Findings:

 High Court was plainly wrong in its finding that the Df was an immediate purchaser. Nagarajan transferred the land to itself &
subsequently a charge was duly registered in Df’s favour as a security for loan. Df was a subsequent purchaser. (para28)
 The existence of good faith or otherwise depended on the particular facts of each case; it was a question of fact in each case for
the court to determine on the evidence. Good faith did not simply mean absence of fraud, deceit or dishonesty; it also required
acting honestly, reasonably or fairly. Knowledge of a dispute as to the ownership of property and knowledge of fraud, for example,
could vitiate good faith. The elements of good faith were not closed but depended upon the circumstances in each case (see paras
46 & 50).
 General rule: knowledge of an agent/ solicitor is the knowledge of the client. Exception to the General Rule: where the agent/
solicitor is complicit in the said fraud (rationale: case the agent would obviously conceal knowledge of the fraud). (para 69 & 71).
 The Sol’s knowledge of the fraud allegation acquired by him in a previous transaction when he acted for Nagarajan was imputable
to the Df. The solicitor was duty-bound to report to Df on any encumbrances he was aware of in respect of the loan transaction. He
had a duty to investigate and communicate the results to Df. The bank relied on his opinion and skill to obtain indefeasibility of
interest for the charged land. Although the two transactions were separated from each other by a period of about three months,
they were immediately consequent on one another and were so closely connected that the first must obviously have still been
present in the solicitor's mind. He could not claim to have forgotten the information in question. How he had acquired the
knowledge was irrelevant; it was material to the solicitor's duty to Df. In such circumstances, the solicitor's knowledge of facts he
had acquired in the earlier transaction must be imputed to Df in the course of his acting for the bank in the conveyancing
transaction. (para 85-86)
 In present case, the knowledge of the Sols was regarded and treated by the law as the knowledge of Df. The bank was thus
infected with the knowledge that there was a serious dispute as to the ownership of the land. Df, accordingly, knew of the
allegation that Nagarajan had obtained title to the land by fraud and this type of knowledge would affect the Df’s good faith. Df’s
‘good faith’ is lost by reason of the material knowledge. (para 88 & 91)
 In the light of the fraud allegation, there was a real necessity to have conducted further investigative work. The allegation was
material enough to arouse suspicion and had a real capacity to affect Df's interest. Yet, Df proceeded to disburse the loan to
Nagarajan and created the charge on the land without making further inquiries. On the facts, the elements of 'carelessness and
negligence' also negated good faith on Df’s part. (para 89-90)

Hence:-

 Question 1: - in the affirmative.

 Question 2: Do not agree with Doshi v Yeoh Tiong Lay. The general rule is that the knowledge of a solicitor is regarded by law
as the knowledge of the client. An exception to the rule is only admitted where the solicitor is complicit in fraud.

Held: Federal Court allowed Pf’s claim with costs and reinstate High Court’s order though on different grounds.