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Whose claim is stronger in this scenario: A purchaser who purchased a property or a bidder who successfully bid and purchased the same property via a public auction? This question was dealt with by the Court of Appeal in QM Resources Sdn Bhd v Parade Hotel Sdn Bhd & Ors1. Let us briefly look at the case.
Brief facts of the case
A building was erected on two pieces of land in Johor. In this regard:
- The building was initially owned by Rinting Tenggara Sdn Bhd, a property developer. In order to finance the purchase of the building, Rinting Tenggara applied for a financial facility with CIMB, and a charge was created in favor of CIMB over the building;
- Rinting Tenggara entered into Sales and Purchase Agreements (SPAs) with various parties for the purchase of certain commercial units/ lots on the ground floor of the building. However, the building was left abandoned;
- Rinting Tenggara could not repay the financial facilities and was subsequently wound up;
- To recoup the money owed by Rinting Tenggara, CIMB put the entire building up for a public auction; and
- During the auction, QM Resources successfully bid for the building.
This is where the dispute kicks in. Parade Hotel and the rest of the parties who initially bought several of the commercial units/ lots in the building 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 claimed otherwise. Hence the dispute – who is the rightful owner of the commercial units/ lots on the ground floor of the unit.
The court’s decision
The High Court sided with Parade Hotel and the rest of the parties who initially bought the ground floor units. Upon appeal by QM Resources, the Court of Appeal allowed the appeal i.e. the Court of Appeal sided with QM Resources.
The court’s rationale – who has a stronger claim? Bidder or Purchaser?
In order to determine who has the stronger claim, the court first looks at the rights in which the parties had obtained when they performed their transaction:
- 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 Code2 (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.
- 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.
Next, the court has to decide who has obtained a better title for the commercial units/ lots on the ground floor. In this regard:
- 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 Bhd3 and section 340(1) of the Code4, 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.
- 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 Code5, QM Resources also obtains an indefeasible title to the building through CIMB whose interest under the Charge is indefeasible.
Based on the pointers above, the Court of Appeal held that QM Resources’ claim is on a stronger footing and is good as against the entire world as compared to Parade Hotel and the other parties’ claim.
Does this mean that Parade Hotel and the other parties would have no remedy at all? Not so, as the court pointed out – they could still (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 to be told on a later day.