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 D!"on#r$% The right to hold the property of another as security for
the performance of an obligation
Thus a lien is a dealing, which gives rise to a non-registrable interest in land,
lease or undivided share
S. 281 provides that:
Any proprietor or lessee for the time being may deposit with any other
person or body as security for a loan, his issue document or title or duplicate
lease
Types of Lien
1
st
: E&'"#b() L)n when IDT or duplicate lease has been deposited to the
bank/lender
1
2
nd
: S"#"'"or$ L)n Bank/lender, as a lien-holder enters a LH under !" ##$ usin%
&or' 1(D
R)*)+$ f (o#n s no" ,#+-
!" 2)1 *2+ : 1" ,btain -ud%e'ent b. ci/il action *pro/e the debt+, then
2" 0ppl. to court 1or an order 1or sale *like 1oreclosure+
Note : !ee connection between !s" 2)1 and ##$ *1+" an an. person who has the IDT
lod%e a LH2
./o !#n !r)#") # ()n-
!" 2)1 *1+ : 30n. proprietor or lessee4
5e%istered 6roprietor or Lessee or o-6roprietor
7: How i1 the proprietor deposit the IDT to the lender as securit. 1or a loan2 0 loan does
not 'ean the proprietor8s loan" It could be so'e one else loan"
9ote: wordin% o1 s" 2)1 4:an. person:4
In Peter PChient v Ramasamy Chetty (9) 3 FMSLR 220 :;atson <: proprietor onl.
since he is the onl. person that entitled to ha/e the custod. o1 the IDT
!ee Perwira Hai !an" (M) !h#$ % Loo & Sons Rea'ty S$ !$ (No$ () )(99*+ 3 ML,
-09. (No$2) )(99*+ 3 ML, -2(
./o !#n b) "/) L)n 0o(+)r-
!" 2)1 *1+ : 30n. other person or bod.4
6ersons listed in !s"=# > 2$? *#+ "
onsider also !"=##B
S'b1)!" *#"")r of ()n
;hat can be the sub-ect 'atter o1 lien would be alienated land or lease o1 land" 0 lien
'a. be e11ected o/er an undi/ided share" This 'eans that a co-proprietor in an undi/ided
share 'a. e11ect lien o/er his share in land as 'entioned in !" #=# *@+ o1 9L 1(@?"
./$ ()n-
2
The concept o1 lien is an eAception 1ro' the %eneral principles o1 re%istration o1 title"
This is because a lien is a dealin% which %i/es rise to a non-re%istrable interest *0s
hi%hli%hted in !" 2$@ *2+ *b++
9on-5e%istrable Interest 9o special instru'ent *&or'+ 1or a lien"
Howe/er, as 'entioned b. !B Cok such unre%istrable interest co/ered b. a lien are
reco%niDed b. the 9L as bein% entitled to protection /ia the ca/eat s.ste'
In order 1or a lien to be reco%niDed under the 9L, the lien-holder 'ust under !"2)1 *1+
*a+ *b+ enter a lien-holder8s ca/eat, which will restrain other dealin%s on the land"
0 lien is an eAception especiall. 'ade 1or the purpose o1 enablin% business 'en to raise
'one. on loan speedil." This is because a lien can be created 1aster than a re%istered
char%e"
o'parin% with the creation o1 char%e
&"1@0 si%ned b. both parties > 'ust be attested b. law.ers properl. eAecuted
Eust be sta'ped with the appropriate sta'p dut. *01ter ,ct 1(F), propert. 'ust
be /alued 1
st
be1ore instru'ent can be sta'ped" It takes about # 'onths+
Gnlike Lien, to create it is /er. eas., where a lien-holder -ust needs to 1ill in &or' 1(D >
lod%e LH"
In practice : Lien is created while pendin% the ad-udication > sta'pin% o1 the 'e'o" o1
trans1er
!ee: N/an 0hon/ v !amah t Pa"eh )(931+ ML, (*
6rinciple % 5i%ht to enter ca/eat passed on the trans1eree
!ee : Stan#ar# Chartere# !an" v 2a3 Sin/ 2o"e & 4rs )(959+2 ML, -9
6rinciple : 6lainti11 who deposited the IDT acHuire an eHuitable interest" It is not been
a11ected in the absence o1 a ca/eat" He has a better clai'"
Dff)r)n!) b)"2))n # !/#r3) 4 # ()n
1" To create a char%e" 9eed to use &or' 1@0
To create lien" 9o special 1or'" But Lien Holder 'ust lod%e ca/eat in &or' 1(D
2" 5e'ed." &or char%e !ale and/or takin% possession
#
&or Lien-Holder 6ro/e debt b. ci/il action, then %et re'ed. o1 sale
#" har%e 'ore co'plicated
Lien - si'ple/easier *!i'pler 1or' o1 securit.+
=" De1ault: char%e: ,,! > possession" De1ault: Lien: ,,! onl.
ase : In 0)#, 0'#" R'bb)r Co S+n 5/+. 6 U.O.5#n7 L"+.8 9's"!) LC 6o/r#/
acknowled%ed that there is a distinction between a lien > a char%e
!ee !B Cok8s article on the ad/anta%es o1 a lien o/er char%es" 0t pa%e l/i
C/#r#!")rs"!s of ()n
a" Borrower and lender
b"Deposit o1 IDT/duplicate lease
c"Intention to create lien
d"!ecurit. 1or a loan
Paramoo v 6eno Lt# )(9*5+ 2 ML, 230
Principle: The Plaintiffs lien has a priority over the 2
nd
defendants 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
=
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 & non-statutory
in case of two conflicting equities, the 1
st
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 Shahs decision in Mercantile Bank
Ltds 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
?
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 Msia 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)
@
d. Upon order of court because it had wrongfully been entered
F