Introduction
This case posed the question of whether there can be a breach of contract when the actual size of the land purchased at a public auction, which was conducted in accordance with the provisions of the National Land Code ("NLC"), does not correspond with the particulars as specified in the Proclamation of Sale ("POS"). The short answer is, yes.
Background Facts
The Purchaser bought a piece of land in the public auction and executed the POS. Subsequent to the purchase, the Purchaser appointed a surveyor to inspect and determine the actual size of the land and discovered that the true size of the said land is less than what is stated in the POS.
Following this, the Purchaser commenced an action against the Bank, premised on the basis that the Bank's failure to deliver the auctioned land as stated in the particulars of the POS amounts to a breach of contract. The Purchaser's claim was dismissed at the High Court but subsequently allowed on appeal.
Initial Thoughts
Before delving into the judgment and the decision of the Courts,
it is pertinent to note that the entire issue, rests upon this one
question, i.e. whether there was a contractual relationship between
the Purchaser and the Bank?
For the Purchaser to succeed in this claim, the Purchaser would
need to establish that the Bank, in acting as a chargee, is also
the vendor in this transaction, thereby establishing a
vendor-purchaser contractual relationship. Flowing from this, a
breach of contract by the Bank can be established when the Bank
failed to deliver the piece of land to the Purchaser according to
the specifications of the contract.
Dismissal of the claim by the High Court
The High Court dismissed the Purchaser's claim as it held
that no contract existed between the Purchaser and the Bank. The
Court opined that the Chargee Bank, in exercising its statutory
rights in a judicial sale by auction, cannot be regarded as a
Vendor. Instead, the Vendor would be the High Court as it is the
High Court who is carrying out the sale through the Registrar.
Accordingly, there is no contractual relationship between the
Purchaser and the Bank.
Notably, the High Court found that the description of the size of
the land in the POS was not a representation, but merely sets out
the particulars of the title for the land. Further, the High Court
applied the doctrine of caveat emptor and held that since the
Purchaser took the risk by purchasing the land on an 'as is
where is' basis, the Purchaser should be estopped from claiming
otherwise and that "the purchaser is bound to view and
inspect the land and make all searches at his own
peril".
Observations
The High Court decision vastly amplified the principle of
'buyer beware' in public auctions. Whilst the upside of the
decision is that it absolves financial institutions from errors
arising from a proclamation of sale, this leaves the purchasers
with no real recourse in the event that the actual property
purchased differs from its description in the proclamation of sale.
This effectively leaves the purchasers with an extremely burdensome
duty of having to inspect the land (beyond the standard valuation
reports and land searches) before bidding.
Court of Appeal: The Turnaround
On appeal, the Court of Appeal held that there was a concluded
contract between the Purchaser and the Bank. The Bank relied
heavily on the case of Ranjit Singh Jarnail Singh v.
Malayan Banking Bhd [2015] 1 CLJ 908; [2016] 1 MLJ
165 ("Ranjit Singh") whereby the Federal Court
held that a chargee bank could not be considered a vendor, as a
public auction is merely a judicial sale conducted by the
Court.
The Court of Appeal distinguished the case of Ranjit
Singh on the point that, the property was incapable
of being transferred and registered to the purchaser due to the
presence of a private caveat. Consequently, the order for sale was
set aside and the judicial contract became null and void, thereby
leading to the conclusion that there was no contract between the
bank and purchaser. If the order for sale in Ranjit
Singh was not set aside, then the judicial contract
would be valid, and there would have been a contract struck between
the bank and the purchaser.
Therefore, the Court of Appeal held that, even in the situation of
a forced sale pursuant to Section 256 of
NLC, the Bank, as the chargee, can be considered the
vendor. In fact, the Court held that, "...the
Registrar/licensed auctioneer is selling the property as an agent
of the chargee who is the real vendor." 1 This
means that, the Bank, being the chargee, was to be regarded as, the
vendor. Hence, there was a concluded contract between the Purchaser
and Bank as the order for sale and the conditions of sale
constituted the sale and purchase agreement between the Bank and
the Purchaser.
The Court of Appeal held that the POS showed the size of the said
land as 94.76 hectares, and this formed an express term of the
contract. Since the Purchaser only received a land measuring
81.9945 hectares and not the 94.76 hectares as stated in the POS,
the 'as is where is basis' will not apply. The Court of
Appeal also briefly dealt with the issue of caveat emptor and
concluded that it was inapplicable in this instance as the
purchaser had done the necessary searches and/or inspection of the
land before bidding. Following their findings, the Court of Appeal
accordingly ordered for the Bank to make compensation payments to
the Purchaser (in the sum of RM16,165,681.80) for the reduced size
of land received by the Purchaser. The computation of loss was made
by way of pro-rating, i.e. by dividing the purchase price with the
size of the land.
Comment
This case has a significant impact on the disposal of charged properties under the NLC. Whilst the auction sale of the property is carried out by the Court or the Land Administrator, the chargee is the vendor in the auction sale, and the proclamation of sale is a contract between the chargee and the purchaser. As such, there is a burden to ensure that the details and information of the property as stated in a proclamation of sale are complete and accurate, failing which the chargee may be sued for breach of contract and held liable for damages.
Footnote
1 Para [61] of [2020] MLJU 82
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