The ink had barely dried on the contracts.
It was a warm April day in 2008 when Version Buy Sdn Bhd shook hands with the sellers. Three sale and purchase agreements were signed in one sitting—each deal precise, deliberate, and promising. The lands were prime: nestled in the heart of Kuala Lumpur. The promise was simple: clean title, no strings attached.
And then came the caveat.
Chapter One: The Discovery
Seven months later. November 2008.
A routine land search turned up something unexpected—an entry in the system. A private caveat had been lodged against one of the properties, Lot 525, by one Abu Mansor bin Khalid. The date: 11 November 2008.
To Version Buy, it was a thunderclap. Clause 2.1 of the SPA was clear: the properties must be free from encumbrances. No exceptions.
Version Buy’s lawyers fired off a letter to the vendors’ solicitors. The caveat, they argued, breached the sale agreement. The deal, they declared, was off. Deposits must be returned. Damages paid.
Chapter Two: The Disappearance
The reply came swiftly.
The vendors’ solicitors produced a land search dated 24 November 2008. No caveat appeared. The Registrar, it seemed, had rejected the caveat after lodgment.
So, the vendors argued, there was no breach. The property was never truly encumbered.
But for Version Buy, the damage was already done.
Chapter Three: To Strike or Not to Strike
Version Buy sued. The vendors, in response, applied to strike out the suit under Order 18 Rule 19 of the Rules of the High Court 1980. Their argument: the termination was unjustified, the suit unsustainable.
The High Court refused to strike. There were triable issues. But on appeal, the Court of Appeal disagreed. The case was struck out. The suit collapsed.
Version Buy turned to the final court in the land.
Chapter Four: The Federal Court Speaks
Two questions were put before the Federal Court:
- Did the lodging of a private caveat (even if later rejected) constitute an actionable encumbrance?
- Must a party wait for the actual registration of a private caveat before acting on an official search that reveals its lodgment?
The stakes were high. If the answer to (1) was yes, the vendors had breached the SPA. If the answer to (2) was no, Version Buy’s termination might be vindicated.
But the Federal Court delivered its verdict with finality.
The Legal Takeaway
The court dismissed the appeal. Their reasoning was crisp:
1. Effectiveness of a Caveat
- Under section 324(2) of the National Land Code (NLC), a private caveat becomes effective only when endorsed on the register document of title.
- The priority of a caveat dates from its lodgment (s. 324(2)(c)), but effectiveness requires endorsement.
- In this case, the caveat was rejected before registration. It was never entered onto the title. Hence, it had no legal effect.
2. The Registrar’s Role
- Under section 324(1), the Registrar performs an administrative function and must not assess the caveator’s claim.
- However, under section 323, if the application fails to comply with procedural requirements, the Registrar may reject it.
- Here, the caveator (Abu Mansor) failed to furnish evidence of his purported claim. The Registrar was entitled to reject it.
3. Meaning of Encumbrance
- The court held that the word “encumbrance” in Clause 2.1 of the SPA must be read in the context of section 322 of the NLC.
- According to section 5 of the NLC, a caveat must be registered to be effective.
- A rejected caveat is not an encumbrance. No breach of the SPA occurred.
Key Authorities Cited
- T Damodaran v. Choe Kuan Him [1979] 1 MLRA 39: Encumbrances must be registered interests to bind title.
- Eng Mee Yong v. Letchumanan [1979] 1 MLRA 143: Registrar’s role is administrative; he cannot assess the merit of the caveat claim.
- Mewah Plus Property Sdn Bhd v. Kluang District Govt Servants Coop [2000] 1 MLRA 67: Encumbrance means a defect in the registered title, not mere possession or physical issues.
- Lee Chin Cheng Dengkil Oil Palm v. Kaplands Sdn Bhd [2002] 2 MLRA 177: A valid caveat must be registered to freeze title.
Final Reflections
This case is a reminder that in land law, appearances can deceive.
A lodged caveat may ring alarm bells, but until endorsed, it is legally silent. For buyers and sellers alike, clarity lies in understanding what binds and what merely looms.
The Registrar is no judge of rights. He checks forms, not facts. A rejected caveat leaves no trace on the register—and creates no breach.
Principle prevails over perception.
Notes
This is a case study based on Version Buy Sdn Bhd v. Thong Wee Kee & Anor [2014] 6 MLRA, which was decided by the Federal Court. It is designed to provide educational value to you, the reader. Please do not treat it as a substitute for legal advice from a qualified lawyer. Please consult with a lawyer before taking any action based on its contents.
We do offer paid consultations in matters regarding land law and disputes in property transactions. Hit us up and get in touch. Thanks for reading!