Thomson J, under the shadow of Haji Abdul Rahman & Anor v Mohamed Hassan (1917) AC 209, was forced to consider the effect of English law of trusts and equitable interests on a contract for the sale of land.
His Lordship however sidestepped the issue and focussed on rights in rem and rights in personam instead.
Where there is a valid binding contract for the sale of land, the purchaser, when he has performed his side of the contract, acquires a right ad rem which is also a right in personam. In other words, he acquires a right to the land as against the vendor personally but not good against the world as a whole and, in due course, that right can become a real right good against the world as a whole on registration in accordance with the Land Code which has the same effect in our law as appearance before the Praetor in the law of Rome, delivery of seisin in the old English feudal law and infeftment by registration in the Register of Sasines in the modern Scots law.
Let's break it down.
1.There must be a valid binding contract.
2.The Purchaser must have performed his contractual obligations.
3.Purchaser then gets:
(I)Prior to registration: Right to land against the Vendor, personally
(II)On registration: Right to land as a real right against the whole world
Thomson J refers to similar concepts:
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What is "infeftment"?
An explanation of "infeftment" is found in the House of Lords decision of Burnett's Trustee (Respondent) v. Grainger and another (Appellants) [2004] UKHL 8, where Lord Hope of Craighead (para 12) describes "the passing of ownership: the real right" -
12. At the heart of Scots property law, as Professor Burns points out in the opening sentence of the chapter on infeftment in his Handbook on Conveyancing, 5th ed (1938), p 160, lies the maxim traditionibus, non nudis pactis, transferuntur rerum dominia. The adoption of this rule of the Roman law as part of Scots law can be traced at least as far back as Stair, The Institutions of the Law of Scotland (1693 edition), III ii 5. He accepts that some kind of possession is needed to accomplish real rights, so that thereby they may be "more manifest and sure". Erskine, An Institute of the Law of Scotland (Nicholson's edition), II i 18 too acknowledges the need for "greater certainty" and for the delivery of possession, or at least some public act, "by which it may appear that the former proprietor has given up his right." A statutory exception to what is required to transfer property in corporeal moveables applies in the case of sale. The property in goods passes by force of the contract of sale independent of delivery: Sale of Goods Act 1979, sections 17 and 18. But the rule that delivery is required to transfer ownership has always applied, and continues to apply, to all transactions relating to heritable property. Burns, using language appropriate to the feudal system of land tenure with which he was familiar, explains at p 160 how the principle operates:"To clothe the feuar with a real right in the lands he required, and still requires, more than the charter; he requires delivery. By that is meant delivery, not of the charter (though that also is necessary), but of the lands. Such delivery is infeftment."
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Lord Hope of Craighead also gives an illuminating explanation of the difference between the personal right and the real right, at paragraphs 17 and 18.
17. The effect of the provisions of the conveyancing statutes is that until the interest of the purchaser has been recorded or registered the seller remains vested in the real right. His relationship with the purchaser is, of course, controlled by the rights and obligations which were created by their contract. When the disposition is delivered the general rule is that it becomes the sole measure of the contracting parties' rights if there is a dispute about the subject to which right has been acquired by the purchaser: Orr v Mitchell (1893) 20 R (HL) 27, 29 per Lord Watson. The seller will usually have performed all the positive obligations arising from the contract of sale when the disposition is delivered to the purchaser on the date of settlement. But that is not an end of their contractual relationship. The seller remains bound not to derogate from his grant of the subjects as described in the dispositive clause. That is a matter of personal obligation, arising from the contract contained in the missives which he entered into with the purchaser.
18. Baron Hume explains the distinction between the personal right and the real right from the point of view of the purchaser in this way in his Lectures (1786-1822), vol II of the Stair Society edition, pp 2-3:"Those rights, again, that spring from a connection which is formed with an individual have … a much more limited and uncertain operation. In these, as in all other instances of right, there is to be sure a corresponding obligation somewhere; but it lies in this case with that individual alone who has been applied to or bargained with as the means of getting at the thing. He, to be sure, in return for what he has received, or in fulfilment of the expectation he has raised, is bound to make good his word, and put me in possession of the thing in question. But with respect to all the rest of the world, who have had no sort of concern with this bargain of mine, and are probably ignorant even of any such having been made; I have no manner of claim nor bond upon them to repair my loss, or consider my disappointment."
Source: Ibid.
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Actually, Burnett's case is helpful but, Malaysian law is stuck with the ghost of Lysaght v Edwards [1876] 2 Ch D 499 and Williams v Greatrex (1957) 1 WLR 31.
An example is found in the case of Wong Siew Choong Sdn Bhd v Anvest Corporation Sdn Bhd [2002] 3 AMR 2554, CA. The Malaysian Federal Court referred to the case (which played a pivotal role in the High Court stage) (Click HERE for the decision)
On another aspect, when the defendant sold the said land to the plaintiff, on the defendant accepting unconditionally the terms as embodied in letter (KAY-3) on 14 Oct. 1988, the plaintiff became a trustee for the plaintiff subject to the payment of the balance of purchase price (see Lysaght v Edwards (1876) 2 Ch. D 499 at 506, and Williams v Greatrex (1957) 1 WLR 31 at 36). These two cases were applied by the Federal Court in Temenggong Securities v Registrar of Titles (1972) 2 MLJ 45 FC.
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However, the Courts would ordinarily apply the doctrine of trusteeship in a contract for sale of land. An example is found in the House of Lords dictum in Jerome (Appellant) v. Kelly (Her Majesty's Inspector of Taxes (Respondent) [2004] UKHL 25
Sir George Jessel MR did indeed refer, in Lysaght v Edwards (1876) 2 Ch D 499, 506 (a case about the equitable doctrine of conversion) to what had been settled doctrine since the time of Lord Hardwicke:"What is that doctrine? It is that the moment you have a valid contract for sale the vendor becomes in equity a trustee for the purchaser of the estate sold, and the beneficial ownership passes to the purchaser, the vendor having a right to the purchase-money, a charge or lien on the estate for the security of that purchase-money, and a right to retain possession of the estate until the purchase-money is paid, in the absence of express contract as to the time of delivering possession".
But he went on to explain that the trusteeship is not an ordinary trusteeship, and that point has been made in many other well-known cases. In Shaw v Foster (1872) LR 5 HL 321, 338, Lord Cairns said:". . . that the vendor, whom I have called the trustee, was not a mere dormant trustee, he was a trustee having a personal and substantial interest in the property, a right to protect that interest, and an active right to assert that interest if anything should be done in derogation of it".
Similarly in Rayner v Preston (1881) 18 Ch D 1, 6, Cotton LJ said:"An unpaid vendor is a trustee in a qualified sense only, and is so only because he has made a contract which a Court of Equity will give effect to by transferring the property sold to the purchaser . . ."
31. There is a useful summary in the judgment of Mason J in Chang v Registrar of Titles (1976) 137 CLR 177, 184:"It has long been established that a vendor of real estate under a valid contract of sale is a trustee of the property sold for the purchaser.
However, there has been controversy as to the time when the trust relationship arises and as to the character of that relationship. Lord Eldon considered that a trust arose on execution of the contract (Paine v Meller; Broome v Monck). Plumer M.R. thought that until it is known whether the agreement will be performed the vendor 'is not even in the situation of a constructive trustee; he is only a trustee sub modo, and providing nothing happens to prevent it. It may turn out that the title is not good, or the purchaser may be unable to pay' (Wall v Bright). Lord Hatherley said that the vendor becomes a trustee for the purchaser when the contract is completed, as by payment of the purchase money (Shaw v Foster). Jessel M.R. held that a trust sub modo arises on execution of the contract but that the constructive trust comes into existence when title is made out by the vendor or is accepted by the purchaser (Lysaght v Edwards). Sir George Jessel's view was accepted by the Court of Appeal in Rayner v Preston.
It is accepted that the availability of the remedy of specific performance is essential to the existence of the constructive trust which arises from a contract of sale".
See also the judgment of Jacob J at pp189-190, concluding that,"Where there are rights outstanding on both sides, the description of the vendor as a trustee tends to conceal the essentially contractual relationship which, rather than the relationship of trustee and beneficiary, governs the rights and duties of the respective parties".
32. It would therefore be wrong to treat an uncompleted contract for the sale of land as equivalent to an immediate, irrevocable declaration of trust (or assignment of beneficial interest) in the land. Neither the seller nor the buyer has unqualified beneficial ownership. Beneficial ownership of the land is in a sense split between the seller and buyer on the provisional assumptions that specific performance is available and that the contract will in due course be completed, if necessary by the Court ordering specific performance. In the meantime, the seller is entitled to enjoyment of the land or its rental income. The provisional assumptions may be falsified by events, such as rescission of the contract (either under a contractual term or on breach). If the contract proceeds to completion the equitable interest can be viewed as passing to the buyer in stages, as title is made and accepted and as the purchase price is paid in full.
Source
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Coming back to the case of Wong Siew Choong Sdn Bhd, the Federal Court itself considered many authorities, which were conflicting in the question of whether a vendor, upon the execution of a contract for the sale of land, becomes in law a bare trustee:
We are, mindful of the fact that the question of when a vendor of land becomes a bare trustee for the purchaser has been a bone of contention within our legal jurisprudence on many an occasion. There had been a welter of authorities from time to time over this issue, and the answer to this pertinent issue had been in a state of flux. “Had” being the operative word, because we believe that the issue was finally put to rest in the case of Borneo Housing Mortgage Finance Bhd v Time Engineering Bhd (1996) 2 MLJ page 12 wherein Edgar Joseph Jr FCJ, after revisiting all legal pertinent pronouncements on this issue stated -
“In our view, the contractual events which result in the vendor becoming a bare trustee of the land, the subject matter of the agreement of sale and purchase, for the purchaser, is on completion, that is to say, upon receipt by the vendor of the full purchase price, timeously paid and when the vendor has given the purchaser a duly executed, valid and registrable transfer of the land in due form in favour of the purchaser, for it is then that the vendor divests himself of his interest in the land.”
Much wind was expelled by both counsels before us that both Borneo Housing Mortgage Finance (supra) and Temenggong Securities Ltd (supra) were decisions of the Federal Court. So too for a host of other decisions, viz-a-viz, Peninsular Land Development Sdn Bhd b K Ahmad (1970) 1 MLJ 149 FC., Ong Chat Pang & Anor v Valiappa Chettir (1971) 1 MLJ 224 FC and Karrupiah Chettir v Subramaniam (1971) 2 MLJ 116 FC where the question of when the vendor of land becomes a bare trustee for the purchaser may not have been consistently answered by the Apex Court.
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What we lack is a consistency in the Federal Court. Having said that, what would I have decided, if I were sitting on the panel of the Bench, to formulate a theory that can encompass all these myriad (and inconsistent) decisions?
That search remains ever relevant and ever on-going...
In the meantime, further reading:
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