LAW 554

LIEN
 Definition
 Halsbury Laws of England (Vol
19 p2.): “Right of one man to retain
the property belonging to another
man until certain demand of the man
in possession of the goods are
satisfied”
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 Section 281(1) NLC:
 Any proprietor or lessee for the time being may deposit
with any other person or body, as security for a loan, his
issue document of title or, as the case may be, duplicate
lease; and that person or body-
(a) may thereupon apply under Chapter 1 of Part 19 for the
entry of a lien-holder’s caveat; and
(b) shall, upon the entry of such a caveat, become entitled to
a lien over the land or lease.
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Any proprietor or lessee

may deposit with any other
person or body
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his issue document of title

or duplicate lease
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as security for a loan

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And that person or body may

apply for the entry of a lien-
holder’s caveat;
THAT PERSON OR BODY (LENDER)
shall…

 upon the entry of the caveat, become

entitled to a LIEN over the
land/lease.
 Modus Operandi
 LHC LHC
RP/Lessee Deposit IDT As security
with Lender for a Loan

Lender
keeps
IDT

Statutory
Lien Lender enter
Holder LHC Lien
(SLH) Holder
(ELH)
 What can become the subject matter:
 IDT-Registered Proprietor (Sec 281(1) NLC);
 Copy of IDT- co-proprietor (Sec 343(6) NLC); and
 Duplicate lease-Registered lessee (Sec 281(1) NLC).

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 Types of Lien

Statutory Lien
Equitable Lien

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Elements of Statutory Lien:

1. Deposit of OR IDT/Duplicate lease

2. Keeping of IDT
3. Intention to create lien
4. Entry/lodgment of Lien-Holder Caveat

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 1.Deposit of IDT/ Duplicate lease

 The right to create Lien belongs only to Proprietor of

the appropriate interest.
 3rd Party cannot create a lien on behalf of the
Proprietor
 It was decided by the court that the right to deposit
the title as security for a loan is restricted only to the
proprietor (Peter P’Chient v Ramasamy Chetty
(1923) 3 FMSLR 220)

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 Other Cases:
 Perwira Habib Bank (M) Bhd v Megat
Najmuddin Megat Khas & Ors (1999)
5MLJ 334
 Perwira Habib Bank (M) Bhd v Loo &
Sons Realty Sdn Bhd & Anor (No.
1)(1996) 3 MLJ 409
 Hong Leong Finance bhd v Staghorn Sdn
Bhd (2005) 5 MLJ 101
 United Overseas Bank (Malaysia) Sdn Bhd
v. UJA Sdn Bhd & Anor (2010)6 CLJ 204
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 Hong Leong Finance Bhd v Staghorn Sdn Bhd (2008)
5 MLJ 101-
 Allowed lien to be created over a 3rd pty loan provided that
there is an authorisation by the registered proprietor for
the borrower to use the proprietor’s land as security for a
loan granted in favour of the borrower by the lender

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2. Keeping of IDT/ Duplicate lease

 The Lender must keep the IDT at all material time.

 Case:
• Sitambaram Chetty v Ramanathan Chetty (1922]
3FMSLR 8

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 Can the Lender parts with the IDT?

 Lender may parts with the IDT provided that the lien is a
statutory lien
 Section 281(4) briefly allowed the lien holder to part with
IDT upon:
i. written request made by proprietor or lessee; but
ii. only restricted to produce the IDT or lease at any
Registry or Land Office.
 Parting with the possession of IDT for purpose for which
it is required under NLC or any other laws, will not cause
the lien to be lost.

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 Cases:
 Ormomrm Manickavasagam Chetty
of Teluk Anson v Thomas James Mc
Gregor of Penang (1933) MLJ 295

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 3. Intention to Create Lien
 This can be inferred from:
1) the type of transaction entered into by the
parties;
2) the conduct of the parties as a whole;
3) the nature of the agreement.

 Thus the transaction MUST BE a security

transaction i.e to obtain loan, the conduct of the
parties i.e deposit and keeping the IDT must be
for the purpose of the loan and the agreement
executed by the parties is a loan agreement.
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 HOWEVER , the element of intention is
not satisfied if possession of IDT was
obtained through fraud or
misrepresentation and the deposit of
IDT as security was never authorised by
the Registered Proprietor.

NO AUTHORISATION BY THE
PROPRIETOR
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 Cases:-
 transaction does not include
any loan arrangement.
 Master Strike Sdn Bhd v
Sterling Height Sdn Bhd (2005)
3MLJ 585

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 act of depositing title by Borrower to Lender
originated from a loan transaction
 Standard Chartered Bank Bhd v Yap Sing Yoke
(1989) 2 MLJ 49

 the agreement executed between the parties

incorporate the intention to use the title as a
security
 Paramoo v Zeno Ltd (1968) 2 MLJ 230

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 4. Entry/lodgment of LHC
 Lodgment of LHC in pursuant of Section 330(1)
NLC
 Lien is created upon the entry of LHC
and not before.
 Effect of lodgment of LHC
 the lien is governed by the NLC;
 it will restraint all dealings with the land;
 In the event of default by the Borrower, the Lender is entitled
to invoke remedy available under Section 281(2) NLC

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 SECTION 281(2) NLC
 LH is entitled to apply for an Order for Sale
(OFS)

 This can only be invoked after the lender had

obtained judgment from the court for the
amount due to him from the borrower

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 Remedy available under Section 281(2) NLC
i.e right to recover debt (judgment debt) is
still within limitation allowed under
Limitation Act. Delay will render the action
statute barred.

 Cases:
 Alagappa Chetti v Periyanayagam (1908)
Innes 117
 Cheong Kam v Loke Chow Tye (1924) 4 FMSLR
294
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 Effect of non-lodgment of LHC

o X lodgment of LHC the lien becomes an

equitable lien
o LHC can be entered at any time
o Failure to caveat timeously will not, for
that reason alone, cause the prior
uncaveated lien to loose priority against
later caveated interest

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 Equitable Lien
s when Lender/Creditor FAILS to
 I
enter Lien-Holder caveat (LHC)
BUT still keep the title as security
 The act of keeping the IDT,
RETAINS the right of the lender as
lien holder and is known as
“equitable lien”.
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 This type of lien creates an “equitable” interest
in the land or lease.

 Creditor possess a right to a lien in equity

which is enforceable by way of
specific performance (contract entered
by the parties-good in law under Section
206(3) NLC)
 Mercantile Bank Bhd v The
Official Assignee of the Property
of How Han Teh (1969) 2MLJ
169

 “In other words, although failure to lodge a caveat

does not entitle the depositee with whom the
issued document of title is deposited, to a lien
under the Code, he still possesses a right to it in
equity, he can exercise that right by registering the
caveat….at any time”( Raja Azlan Shah J)

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 Standard Chartered Bank Bhd v
Yap Sing Yoke (1989) 2 MLJ 49

 Lamin J stated: “as the IDT was at all time in the

custody of the P, it had acquired a lien in equity
over the land. The equitable interest is not affected
by the absence of a caveat. The P had by right to
lodge a caveat and may do so at any time under the
provision of the NLC, 1965”

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 Conclusion
 Advantages of Lien than of Charge:-
 Simple form of security
 Security can be perfected in a shorter
time
 Cheaper and less time consuming (no
payment of stamp duty)
 Lien is useful as an interim measure prior
to the preparation of a charge

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 Creation LHC (330)
 Who can enter LHC? Person/Body who is in
possession of the OR IDT or any other subj matter of
lien as security for a loan
 Statutory form – Form 19D
 Registrar duty purely administrative – receive 19D,
enter LHC on IDT, serve 19A on proprietor
 LHC effective upon endorsement by Registrar
 The effect of LHC as section 322 (2) to (7)
 Determination of LHC (331)
 Withdrawn by LH
 Land subjected to LHC is sold pursuant to order of the
Court by virtue of section 281(2)
 Cancelled by Registrar upon proof to his satisfaction
that sum due under the lien has been fully paid
 Court order the Registrar to cancel entry
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