The Court of Appeal in Champion Score Sdn Bhd v. Mohd Sobri Chew bin Abdullah [2025] CLJU 514 overturned a moneylender’s claim to a property charged by a developer after it was sold to a purchaser. The ruling, involving a joint-venture housing project by Syarikat Perumahan Negara Berhad (SPNB) and UDI Property Sdn Bhd, protects homebuyers’ rights and sets precedents for developers under the Housing Development (Control and Licensing) Act 1966 (HDA) and the National Land Code (NLC).
- The plaintiff purchased a house in “The Golf Garden” project in Penang under a tripartite Sale and Purchase Agreement (SPA) with SPNB (proprietor) and UDI Property (developer).
- Unbeknownst to him, the developer later charged the property to Champion Score (the moneylender) using an irrevocable Power of Attorney (PA) from the proprietor.
- Upon discovering the charge, the plaintiff sued the proprietor, the developer, and the moneylender, seeking to cancel the charge and transfer the unencumbered title to himself.
- The High Court declared the charge void and ordered the title transfer. The moneylender appealed, arguing the charge was indefeasible under the Torrens system.
- The Court of Appeal dismissed the moneylender’s appeal, upheld the High Court’s decision. The purchaser had earlier succeeded at the High Court in obtaining an order to cancel the charge and compel the transfer of title to his name.
- The Court ruled that the charge was invalid and void under Section 340(2)(b) of the NLC, as it was created via an insufficient instrument.
- The developer, acting as a bare trustee after receiving the full purchase price, lacked authority to charge the property, and the PA did not permit such actions.
- The ruling reinforced the HDA’s protections for homebuyers, ensuring developers honor statutory SPA obligations.
- Bare Trusteeship Limits Authority: Upon receiving the full purchase price, the developer and the proprietor become bare trustees, with a legal duty to transfer an unencumbered title. This legal status prevents them from encumbering the property; any subsequent charges are voidable.
- Statutory SPA Protections: Clause 2(1) of Schedule G prohibits encumbering sold properties without purchaser consent. This mandatory HDA provision voids non-compliant encumbrances.
- Power of Attorney Restrictions: PAs must be strictly construed. The developer’s PA, meant for title registration, did not authorise charging sold properties, making the charge instrument insufficient under Section 340(2)(b) NLC.
- Torrens System Exceptions: The Torrens system prioritises registered titles, but charges by bare trustees are defeasible if created via insufficient instruments, regardless of the chargee’s bona fides.
- Avoid Encumbering Sold Properties: Charging sold properties sold violates Clause 2(1) of Schedule G, risking void transactions, litigation, regulatory penalties and reputational damage that could deter lenders.
- Limit Power of Attorney Scopes: Draft PAs for title registration only, excluding charges on sold properties. Register PAs and ensure it comply with HDA to prevent misuse.
- Verify Property Status: Conduct due diligence to ensure loan collateral properties are unsold and unencumbered, especially in “sick” or abandoned projects, to avoid lender scrutiny.
- Manage Joint-Venture Risks: Define clear contractual and operational boundaries in joint-venture agreements to prevent unauthorised dealings, ensuring HDA and SPA compliance.
- Implement Compliance Controls: Establish audits and legal reviews to verify SPA adherence before creating encumbrances, particularly in joint-ventures.
– By George Miranda, Joy Sam Jia Qian, Nurafiqah ‘Izzati –
This article is for general information purposes only and does not constitute legal or professional advice. It should not be used as a substitute for legal advice relating to your particular circumstances. Please note that the law may have changed since the date of this article.
