Land Law 101 – The Bidders and Purchasers War

What happens when two parties purchased the same property? Whose claim is stronger?

Specifically and for example: a purchaser purchases a property from a property developer. At the same time, a bidder successfully bid for the property via an auction. In such a situation, who has rights/ claims over the property? This issue was dealt with by the Court of Appeal in QM Resources Sdn Bhd v Parade Hotel Sdn Bhd & Ors. Let us briefly look at the case.

Brief facts of the case

1. A building was erected on two pieces of land in Johor. 
2. The building was initially owned by Rinting Tenggara Sdn Bhd. Rinting Tenggara applied for a financial facility with CIMB to finance the purchase of the building.
3. A charge was created in favor of CIMB over the building.
4. Rinting Tenggara entered into Sales and Purchase Agreements (SPAs) with various parties.
5. The units on the ground floor were sold off to those parties However, the building was left abandoned.
6. Rinting Tenggara could not repay the financial facilities and was subsequently wound up.
7. To recoup their money, CIMB, as the chargor put the entire building up for public auction. 
8. During the auction, QM Resources successfully bid for the building.  

The Dispute

The parties who initially bought several of the commercial units/ lots on the ground floor (including Parade Hotel) claimed that they are the rightful owners of the commercial units/ lots on the ground floor of the building since they have entered into SPAs with Rinting Tenggara and as such, QM Resources did not acquire any legal rights to their units. 

QM Resources disagreed, claiming that they have successfully bid the property in observance of the law, specifically, the National Land Code.

The court’s decision

The High Court sided with Parade Hotel. On appeal, the Court of Appeal sided with QM Resources. 

The court’s rationale

First, the court looks at the rights the parties acquired through their respective transaction in this matter:

1. QM Resources bid and paid for the building via a public auction. In this regard, the purchase was done in pursuant to a statutory sale (namely under section 267(1) and section 259(3) of the National Land Code (the Code)), involving public auction under judicial supervision. Under such circumstances, the rights of QM Resources are in rem i.e. QM Resources can sue anyone and everyone (Parade Hotel and the rest of the parties included) who deprives it of its right to the building.
2. On the other hand, Parade Hotel and the rest of the parties who transacted with Rinting Tenggara were transactions made and done under contract. A transaction that is rooted under a contract merely obtains a right in personam i.e. they can only sue a particular individual/ company (in this case, Rinting Tenggara) if they were deprived of their rights. 

Secondly, the court has to decide who has obtained a better title for the commercial units/ lots on the ground floor. In this regard: 

1. The court first held that CIMB Bank, as the chargee of the building, has an indefeasible title to the land (i.e. title which cannot be defeated by anyone and by any means). The court referred to the case of Gondola Motor Credit Sdn Bhd v Almurisi Holdings Sdn Bhd and section 340(1) of the Code, which states that a chargee obtains an indefeasible title to a land/ property unless the title is made defeasible by section 340(2) of the  Code.
2. In this case, since CIMB’s title is indefeasible, as a successful bidder at a judicial sale/public auction conducted by the Court pursuant to the Code, QM Resources also obtains an indefeasible title to the building through CIMB whose interest under the Charge is indefeasible. 

Conclusion

Based on the pointers above, the Court of Appeal held that QM Resources’ claim is stronger than Parade Hotel’s claim. 

However, this does not mean that Parade Hotel and the other parties would have no remedy. The court noted that they could and should (depending on the terms of the SPAs between them and Rinting Tenggara) pursue a claim against Rinting Tenggara. Whether or not they will be successful (as Rinting Tenggara has been wound up) is another story altogether. 

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