Lien

SECURITY DEALING –LIENS ( S. 281 of NLC 1965) Definition: Lien is the act of  depositing something valuable  to the amount owed to the  person who holds the property. There must be an  intention to pledge  that  property. The person who holds the property has the right to that property  until payment is settled.  Lien occurs where there is no formal instrument of charge but the IDT has  been deposited as security for the loan.

Halsbury  Laws of England (Vol.19 at p.2) defines liens as: “ Lien in its primary sense is a right in one man to retain that, which is in his  possession belonging to another man until certain demands on the person in  possession are satisfied” In Palaniappa Chetty v Dupire Brothers & Anor. [1919] 1 FMSLR 370,  Earnshaw, J.C., FMS Court of Appeal had said that the meaning of lien is  said to have been derived through French from Latin that is ligo, ligamen is  that of binding or tying or securing something. A lien is one and a special  form of security. In fact “security” is the genus of which “lien” is a specie.  Osborn Dictionary: The right to hold the property of another as security for  the performance of an obligation Thus a lien is a dealing, which gives rise to a non­registrable interest in land,  lease or undivided share S. 281 provides that: “Any   proprietor   or   lessee   for   the   time   being   may   deposit   with   any   other  person or body as security for a loan, his issue document or title or duplicate  lease” Types of Lien 1st :

Equitable Lien – when IDT or duplicate lease has been deposited to the bank/lender

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2nd :

Statutory Lien – Bank/lender, as a lien-holder enters a LHC under S. 330 using Form 19D

Remedy if loan is not paid? S. 281 (2) : 1. Obtain judgement by civil action (prove the debt), then 2. Apply to court for an order for sale (like foreclosure) Note : See connection between Ss. 281 and 330 (1). Can any person who has the IDT lodge a LHC? Who can create a lien? S. 281 (1) : “Any proprietor or lessee” Registered Proprietor or Lessee or Co-Proprietor Q: How if the proprietor deposit the IDT to the lender as security for a loan? A loan does not mean the proprietor’s loan. It could be some one else loan. Note: wording of s. 281 ”…any person…” In Peter P’Chient v Ramasamy Chetty (9) 3 FMSLR 220 :Watson JC: proprietor only since he is the only person that entitled to have the custody of the IDT See Perwira Habib Bank (M) Bhd. V Loo & Sons Realty S. B. (No. 1) [1996] 3 MLJ 409; (No.2) [1996] 3 MLJ 421 Who can be the Lien Holder? S. 281 (1) : “Any other person or body” Persons listed in Ss.43 & 205 (3) . Consider also S.433B Subject matter of lien What can be the subject matter of lien would be alienated land or lease of land. A lien may be effected over an undivided share. This means that a co-proprietor in an undivided share may effect lien over his share in land as mentioned in S. 343 (6) of NLC 1965. Why lien?

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The concept of lien is an exception from the general principles of registration of title. This is because a lien is a dealing which gives rise to a non-registrable interest (As highlighted in S. 206 (2) (b)) Non-Registrable Interest – No special instrument (Form) for a lien. However, as mentioned by SY Kok such unregistrable interest covered by a lien are recognized by the NLC as being entitled to protection via the caveat system In order for a lien to be recognized under the NLC, the lien-holder must under S.281 (1) (a) (b) enter a lien-holder’s caveat, which will restrain other dealings on the land. A lien is an exception especially made for the purpose of enabling business men to raise money on loan speedily. This is because a lien can be created faster than a registered charge. Comparing with the creation of charge – F.16A signed by both parties & must be attested by lawyers – properly executed – Must be stamped with the appropriate stamp duty (After Oct 1978, property must be valued 1st before instrument can be stamped. It takes about 3 months) Unlike Lien, to create it is very easy, where a lien-holder just needs to fill in Form 19D & lodge LHC. In practice : Lien is created while pending the adjudication & stamping of the memo. of transfer See: Ngan Khong v Bamah bt Pakeh [1935] MLJ 16 Principle : Right to enter caveat passed on the transferee See : Standard Chartered Bank v Yap Sing Yoke & Ors [1989]2 MLJ 49 Principle : Plaintiff who deposited the IDT acquire an equitable interest. It is not been affected in the absence of a caveat. He has a better claim.

Difference between a charge & a lien 1. To create a charge. Need to use Form 16A To create lien. No special form. But Lien Holder must lodge caveat in Form 19D 2. Remedy. For charge – Sale and/or taking possession

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For Lien-Holder – Prove debt by civil action, then get remedy of sale 3. Charge – more complicated Lien - simple/easier (Simpler form of security) 4. Default: charge: OOS & possession. Default: Lien: OOS only

Case : In Heap Huat Rubber Co Sdn Bhd. V U.O.Bank Ltd., Justice LC Vohrah acknowledged that there is a distinction between a lien & a charge See SY Kok’s article on the advantages of a lien over charges. At page lvi Characteristics of lien a. Borrower and lender b.Deposit of IDT/duplicate lease c.Intention to create lien d.Security for a loan Paramoo v Zeno Ltd [1968] 2 MLJ 230 Principle:  The Plaintiff’s  lien has a  priority over the 2 nd  defendant’s claim  because   there   was   an   intention   to   create   a   lien   from   the   fact  gathered by the court & as the IDT has been deposited to the lender  as security for loan & not for any other purposes. However : The element of intention is not satisfied if possession of the iDT  was obtained through fraud or misrepresentation & the deposit of  title as security was never authorised by the registered proprietor Other case: Nallamal & Anor. V Karrupannan & Anor. [1993] 3 MLJ   476

In  Mercantile   Bank   v   The   Official   Assignee   of   the  Property  of   How   Han The [1969] 2 MLJ 196 Raja Azlan Shah J. :  “ You can apply for LHC at anytime as long as you have   the title of the property”  There is no specific duration – “as soon as possible”

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However  failure to enter a LHC will not necessarily deprive the lender of a  right to a lien in equity so long as the prerequisite intention to create a lien is  complied with & deposit of the title to the land  are present.  S. 206 (3) of NLC recognize the existence of a right to an equitable interest  under the contract in question Held : Though registration of a LHC is essential for a valid statutory lien, the  court can still gives effect to equitable rights existing between the parties.  Mercantile Bank had an equitable right to a lien.

At p. 197 Raja Azlan Shah J : As the interest is “equitable & non­statutory”  in case of  two conflicting equities, the 1st in time prevails.

General view : This retention of the IDT gives priority to LHC. Raja Azlan Shah : “The registration of the caveat  does not confer priority nor  does it create new right. It temporarily protects such rights in anticipation of  legal proceeding” In case of conflicting between 2 equities; a lender who is prior in time & with  whom the title has been deposited will not lose his priority merely on account  of his failure to enter a LHC In Standard Chartered Bank v Yap Sin Yoke & Ors [1987] 2 MLJ 49 This case dealt with an unregistered charge which the High Court accepted  as   a   lien   in   equity.   According   to   Justice   Lamin,   an   equitable   lien   is   not  affected by the absence of a caveat The learned judge followed Raja Azlan Shah’s decision in Mercantile Bank  Ltd’s   case,   where   he   held:   “The   registration   of   a   caveat   does   not   confer  priority nor does it create new rights” The court also held in this case that an equitable lien holder has priority over  a judgment creditor who had subsequently lodged a Prohibitory Order (PO) As a lien holder, the chargee may lodge a caveat to protect his interest. As  held in Standard Chartered Bank v Yap Seng Yoke & Ors (1989) 2 MLJ  

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49, a lien holder may enter a caveat to perfect the security at any time. Thus  protected, the lien holder may seek remedy under the NLC as his interest is a  security   interest   within   cognizance   of   the   NLC   and   does   not   depend   on  contractual relief. In another case :  Heap Huat Rubber Co. Sdn. Bhd. V United Overseas Bank Ltd [1992]   3 CLJ 1589 Held : Until LHC is entered, no lien was created or could arise & at the time  the lien created there were no restriction on the creation of a lien on non­ citizen. A valid lien had come into existence Principle: The entry of LHC need not be made contemporaneously with the  deposit of the IDT However in more recent case: Perwira Habib Bank M’sia Bhd. V Tin Siang Sdn Bhd & Ors [1992] 4   CLJ 1875; [1995] 4 CLJ 619 This case dealt with the application to remove a LHC on the ground that the  IDT was deposited merely for safe keeping. The   application   was   dismissed   by   Justice   LC   Vohrah   because   evidence  showed that the title was deposited to secure a loan. Held :   The Plaintiff was a lien holder & entitled to a lien once the title be  deposited   though   the   application   to   sell   the   land   was   opposed   because   no  agreement between lender & borrower that LHC be entered  High   Court   :   LHC   declared   invalid   by   the   High   Court   &   ordered   the  Appellant return the IDT Determination of lien: S 331 a.

withdrawal of the caveat by the lender

b.

Upon payment of the sum due

c.

Upon order of sale by the court under s. 281(2) 6

d.

Upon order of court because it had wrongfully been entered

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