Introduction
Restrictive covenants are often used by developers as a tool to regulate and control a development, where it generally sets out the rights and obligations of property owners on what they can or cannot do on their piece of land within a development.
In
Bandar Eco-Setia Sdn Bhd v Angelane Eng [2016] 1 MLJ 764, the Federal Court recognised that a deed containing restrictive covenants is an important tool used by a developer to regulate a development and to foster a communal lifestyle, enhance enjoyment, and to support beneficial activities for all homeowners within the development.
Thus, these restrictive covenants are contained in a deed which is executed between the developer and the property owner, and it is usual that these restrictive covenants will not be endorsed on the title of the piece of land owned by the owner within the development.
Is a Restrictive Covenant Enforceable Under the National Land Code 1965?
The enforceability of a covenant was revisited by the Federal Court in the case of
Sitrac Corporation Sdn Bhd v Lai Chin Wah & Anor [2023] CLJU(O) 33 and
PDI Design & Associates Sdn Bhd v Sitrac Corporation Sdn Bhd [2023] CLJU(O) 32, where the issue to be determined was whether a landowner’s statutory right for conversion, sub-division and amalgamation of a title land under Sections 124, 135 and 146 of the National Land Code 1965 could be waived or contracted out by way of a deed executed between the landowner and developer.
The Court of Appeal in
Lai Chin Wah & Anor v Sitrac Corporation Sdn Bhd [2023] 6 CLJ 232 found that such waiver or contracting out was illegal, null and void, namely:
“[96] We are of the considered view that the various clauses referred to in the S&P and the DOC, which the plaintiff complained that the defendants had breached are in the nature of terms which, if enforced, would defeat the relevant provisions of the NLC and the policy of the Torrens system of registration of land titles where the title and all the terms and conditions and restrictions in interest endorsed on it is everything. The clauses highlighted are void and unenforceable under s. 24(b) of the Contracts Act 1950.
…
[116] It would be against public policy for a developer/vendor who has contracted to take away the statutory rights of a weaker party to now seek the court’s assistance for an equitable remedy of specific performance to be given for the enforcement of the waiver of such a statutory right. We would be sending a wrong message if we were to allow such a term to be enforced which has the effect of taking away a statutory right which is part of the incidents of ownership of land.”
It is noteworthy that in
Lai Chin Wah & Anor v Sitrac Corporation Sdn Bhd [2023] 6 CLJ 232, the Court of Appeal found the restrictive covenants contained in a deed to be void and unenforceable as it is inconsistent with the Torrens system, where title is conclusive proof of ownership and encumbrances on a piece of land.
The above findings made by the Court of Appeal was contrary with an earlier decision of the Court of Appeal,
PDI Design & Associates Sdn Bhd v Sitrac Corporation Sdn Bhd [2023] 2 CLJ 911 which followed the legal principle laid down in the case of
Bandar Eco Setia (supra) and held that:
“[54] Berhubung dengan DOC telah ditandatangani oleh defendan, kami berpandangan bahawa undang-undang di Malaysia telah mengiktiraf pemakaian DOC bagi pengurusan konsep hartanah dan komuniti terkawal bagi memastikan penghuni-penghuni mengekalkan konsep projek yang diperkenalkan oleh pemaju semasa pembelian hartanah tersebut. Penerimaan konsep tersebut dapat dilihat di dalam kes-kes yang telah diputuskan di Malaysia Bandar Eco-Setia Sdn Bhd v. Angelane Eng [2016] 3 CLJ 173; [2016] 1 MLJ 764 dan Leisure Farm Corporation Sdn Bhd v. Loh Yuen Seng & Ors And Another Suit [2019] MLJU 1993.”
Thus, there were two conflicting Court of Appeal decisions on the enforceability of the very same of Deed of Covenants, whereby leave to appeal to the Federal Court was granted concurrently on 30 Jan 2023, and both appeals to the Federal Court were to be heard together.
Issues to be Determined by the Federal Court
There were two core issues considered by the Federal Court in
Sitrac Corporation Sdn Bhd v Lai Chin Wah & Anor [2023] CLJU(O) 33 and
PDI Design & Associates Sdn Bhd v Sitrac Corporation Sdn Bhd [2023] CLJU(O) 32, namely:
- Whether a landowner can waive his statutory rights for conversion, sub-division and amalgamation of title a land under Sections 124, 135 and 146 of the National Land Code 1965 under a deed of covenant executed between the landowner and the developer; and
- Whether a restrictive covenant in a deed of covenant executed between the landowner and the developer could be enforced pursuant to section 206(3) National Land Code 1965.
Waiver of a Statutory Right by a Landowner — Is It Permissible in Law?
The Court of Appeal
Lai Chin Wah & Anor v Sitrac Corporation Sdn Bhd [2023] 6 CLJ 232 held that it was against public policy for a developer to take away statutory rights of a buyer under the National Land Code 1965, as such statutory rights are incidental to ownership of land under the Torrens System.
Generally, a contracting party can waive a statutory right conferred if such statutory provision confers a pure personal benefit and right to the contracting party who intends to waive it.
The courts in Malaysia have recognised this legal principles and examples where a statutory provision is capable of being waived are as follows:
- A surety waiving his statutory right under Section 86 of the Contracts Act 1950. In Ooi Boon Leong & Ors v Citibank NA [1984] 1 MLJ 222 where the Privy Council held that:
“The argument founded on a comparison between (i) sections 86, 92 and 94 and (ii) certain other sections of the Act which are expressed to be “subject to a contrary intention” or the like also fails. Random recognition in certain sections of the Act of the fundamental principle that contracting parties are at liberty to express their intentions in their contracts as they please is quite insufficient to support the contrary proposition that the absence of such recognition in another section implies the absence of freedom to contract. If freedom to contract is to be curtailed in relation to a particular subject matter, their Lordships would expect the prohibition to be expressed in the statute, and not left by the legislature to be picked up by the reader as an implication based upon sections dealing with different subject matters. Furthermore, it may be noticed that when the Contracts Act intends to render an agreement void, it says so in express terms; see sections 25 to 31 under the cross-heading “Void Agreements”, read with the definitions in section 2(e) and (g).”
- A party waiving his statutory right to the defence of limitation under the Limitation Act 1953. In Siew Hong & Ors v Lim Gim Chian & Anor [1995] 3 MLJ 141 where the Court of Appeal held that:
“…
The doctrine of estoppel — whether one calls it promissory estoppel, estoppel by encouragement or estoppel by convention does not really matter — has reached such a stage that it may be used to deprive a litigant of the benefit of a procedural statute such as the Limitation Act 1953. The law upon this subject has been stated by Edgar Joseph Jr J (as he then was) in Alfred Templeton & Ors v Low Yat Holdings Sdn Bhd & Anor [1989] 2 MLJ 202 at pp 244–245. A reading of his Lordship’s judgment in that case has left me with the impression that little or nothing may be usefully added to the learning contained therein.
Another way of stating the doctrine when applying it to written law is comprised in the maxim ‘equity will not permit statute to be used as an engine of fraud’. It is a doctrine of wide operation. Its content was explained by Mohamed Azmi SCJ in Rasiah Munusamy v Lim Tan & Sons Sdn Bhd [1985] 2 MLJ 291 at p 296 in the following words:
It is not a fraud in the common law sense, but an unmeritorious and unconscionable conduct which is known as constructive or equitable fraud (see Spry on Equitable Remedies (2nd Ed) at p 236).
The doctrine, when invoked, has the effect of precluding a litigant who is guilty of unconscionable or unmeritorious conduct from relying upon a statutory provision that would defeat his opponent’s case.”
- A shareholder in a private limited company waiving his pre-emption rights under Section 85 of the Companies Act 1965. In Pan Choon Weng v Mexvin Chow Yew Hoong & Ors [2023] 10 MLJ 544, Su Tiang Joo JC held that:
“[87] In the instant case, save for asserting that his agreement to waive his pre-emptive rights is contrary to s 85 of the CA 2016 and reg 41, the plaintiff has not shown that it would be contrary to public policy to allow such an agreement.
[88] Instead, in my view, the shareholders’ agreement merely seek to regulate the private interests of shareholders in a private company limited by shares which was incorporated and operated with the view to seeking profits on a commercial basis for themselves, the shareholders.
[89] Thus, the general rule elucidated in Danaharta Hartanah that any person can enter into a binding contract to waive benefits conferred on him by an Act of Parliament would apply in the circumstances of this case.
[90] Wherefore, I accept the collective submissions of the defendants (D1 to D8) that the plaintiff by entering into the shareholders’ agreement, and in particular agreeing to the provisions of cl 3 thereof, had waived his rights to be first offered the allotment of the new shares and this agreement is valid and enforceable.
[91] In other words, the parties to the shareholders’ agreement can and in fact have waived, the operation of s 85 of the CA 2016 and reg 41.”
Conversely, if a statutory right was enacted by Parliament to serve a broader public purpose and to protect a class of people, such a statutory right cannot contractually be waived at all.
A protective class refers to groups of people that specific statutes are designed to safeguard from discrimination, exploitation or harm. These laws ensure that these groups of people aren’t subjected to unfair treatment in areas like employment, housing, education and public services. It’s all about leveling the playing and ensuring equity in society.
Examples of a protective class of people where the Courts found that such waiver of a statutory right not permissible are as follows:
- A housebuyer under Housing Developer (Control and Licensing) Regulations 1989 in Sentul Raya Sdn Bhd v Hariram a/l Jayaram [2008] 4 MLJ 852 where the Court of Appeal held that:
“In our opinion there is no merit in the appellant's argument. So far as s 56(3) of the Contracts Act 1950 is concerned, it deals with contracts generally. The contract which has fallen for construction in the present cases is a special contract. It is prescribed and regulated by statute. While parties in normal cases of contract have freedom to make provisions between themselves, a housing developer does not enjoy such freedom. Hence, parties to a contract in Form H cannot contract out of the scheduled form. Terms more onerous to a purchaser may not be imposed. So too, terms imposing additional obligations on the part of a purchaser may not be included in the statutory form of contract.”
- A borrower under the Moneylenders Act 1951 in Powernet Industries Sdn Bhd v Golden Wheel Credit Sdn Bhd [2020] 10 CLJ 374 where the Court of Appeal held that:
“…Difficult questions can arise where a person attempts by contract to waive a right conferred on him by statute. Although there is a general principle that a person may waive any right conferred on him by statute (quilibet potest renunciare juri pro se introducto ), difficulties arise in determining whether the right is exclusively personal or is designed to serve other more broad public purposes. In the latter situation, public policy would require that the right be treated as mandatory and not be waivable by the party for whose benefit it operates. Whether a statutory right is waivable depends on the overall purpose of the statute and whether this purpose would be frustrated by permitting waiver. (emphasis added)
[84] Based on the principles enunciated in the cases mentioned above, we are of the view that the Act is a manifestation of a social legislation and is designed to regulate the business of moneylending and to protect borrowers. As such, regardless of the circumstances which gave rise to the waiver/estoppel, a moneylender cannot rely on such waiver/estoppel to preclude the borrower from asserting his rights as provided for under the Act. Thus, in the context of a contravention of s. 16 of the Act, it is our view that the borrower is entitled to raise and rely upon the moneylender's contravention of the Act in opposing the claim for recovery of the monies that were lent.”
- A beneficiary under the Distribution Act 1958 in Lim Sok Wah v Lim Boon Cheow & Anor [2021] 10 CLJ 52 where the Court of Appeal held that:
“[44] The learned judge in Appeal 631 was mindful of this legal principle and the said Federal Court authority of Chor Phaik Har (supra). Further, we find that the learned judge in Appeal 631 was right in her approach when she cited the Supreme Court case of Kimlin Housing Development Sdn Bhd (supra) in holding that Lim Theng Hoe (deceased) could not contract out the statutory right and entitlement of the respondent in Appeal 631 under the deceased's intestacy or the Distribution Act and that the agreement dated 25 July 1973 was against public policy. The learned judge quoted the following passage from Kimlin Housing Development Sdn Bhd as follows:
The question whether a person entitled to the performance of a statutory duty can effectively waive performance of the duty by the person bound and the latter can effectively contract out of performing the duty, depends on the language of the particular statute and, if this is not clear, on the overall purpose of the statute and whether this purpose would be defeated by permitting waiver and contracting out. Trietel on Contract (at p 782) has correctly pointed out:
Difficult questions can arise where a person attempts by contract to waive a right conferred on him by statute. Although there is a general principle that a person may waive any right conferred on him by statute (quilibet potest renunciare juri pro se introducto), difficulties arise in determining whether the right is exclusively personal or is designed to serve other more broad public purposes. In the latter situation, public policy would require that the right be treated as mandatory and not be waivable by the party for whose benefit it operates. Whether a statutory right is waivable depends on the overall purpose of the statute and whether this purpose would be frustrated by permitting waiver.
In applying the law to the facts of the case, the learned judge aptly found as follows:
To me, the purpose of the Distribution Act is to ensure that a beneficiary who is entitled to have a share in the estate is not left out. There is no provision for waiver in the Distribution Act. This being the case, the plaintiff could not contract out of the Distribution Act. Clause 2 of the 1973 agreement which sought to exclude the plaintiff's statutory right under the Distribution Act is against the public policy because it defeats the purpose of the Distribution Act. This is fortified by section 9 of the Act...”
Another key factor whether a statutory right can be waived is to critically analyse the underlying intention of the statutory provision, namely:
- If the statutory provision provides a mandatory obligation for a person to abide by; in such circumstance, this statutory right cannot be waived at all; or
- If the statutory provision provides a pure right or benefit which may be exercised by the person if he wishes to do so, this statutory right may be waived.
Sections 124, 135 and 146 of the National Land Code 1965 provides that a registered proprietor of land may make an application to either convert, sub-divide or amalgamate his land subject always to the State authority’s approval. The operative word in these sections is that “a registered proprietor may apply”, which connotes that a registered proprietor has an unfettered choice whether to submit such an application to convert, sub-divide or amalgamate his land with the State authority.
This unfettered choice granted to registered proprietors by Parliament is benefit which is conferred to all registered proprietors under the National Land Code 1965, and the registered proprietors cannot be compelled by anyone to exercise these statutory benefits under Sections 124, 135 and 146 of the National Land Code 1965.
Furthermore, Sections 124, 135 and 146 of the National Land Code 1965 are general rights of a registered proprietor of a land and it was never intended to protect any class of persons and in such circumstance, a registered proprietor is able to waive these statutory rights, if he chooses to do so.
Based on the above, the Federal Court in
Sitrac Corporation Sdn Bhd v Lai Chin Wah & Anor [2023] CLJU(O) 33 and
PDI Design & Associates Sdn Bhd v Sitrac Corporation Sdn Bhd [2023] CLJU(O) 32 held that the questioned clause in the Deed of Covenants which restricted the landowner’s rights under Sections 124, 135 and 146 of the National Land Code 1965, was valid and enforceable as these were purely statutory benefits which a landowner could waive.
Interestingly, the decision made by the Federal Court in
Sitrac Corporation Sdn Bhd v Lai Chin Wah & Anor [2023] CLJU(O) 33 and
PDI Design & Associates Sdn Bhd v Sitrac Corporation Sdn Bhd [2023] CLJU(O) 32 is consistent with New Zealand’s Court of Appeal decision in
Landco Albany Ltd v Fu Hao Construction Ltd [2006] 2 NZLR 174 (“Landco’s case”).
Landco’s case concerns a party’s right in waiving his statutory right to lodge a private caveat under the New Zealand Land Transfer Act 1952 where the New Zealand Court of Appeal held that:
“[49] What has to be remembered is that the Torrens system protects registered interests, not unregistered interests, and that its twin guiding principles are indefeasibility of title for registered interests and the protection of those who deal with registered proprietors.
[50] In our view the integrity of the system is not depreciated by declining to recognise a public policy invalidation of no-caveat clauses, and there are reasonable commercial and private reasons why such clauses may be stipulated and accepted.”
Restrictive Covenants Can Co-Exist Under the National Land Code 1965
Section 206(3) of the National Land Code 1965 provides that:
“(3) Nothing in sub-section (1) shall affect the contractual operation of any transaction relating to alienated land or any interest therein.”
In
Haji Abdul Rahman and Anor Another v Mahomed Hassan [1917] A.C.209, the Privy Council drew a distinction between dealings with land and contracts in respect of the land.
Thus, Section 206(3) National Land Code 1965 is an acknowledgment of the legal principle enunciated in
Haji Abdul Rahman and Anor Another v Mahomed Hassan [1917] A.C.209 as opined by David S.Y. Wong in
Tenure and Land Dealings in the Malay States, where he said:
“While the Privy Council decision may be said to have long settled this point, it may be further noted that the National Land Code 1965 now contains an acknowledgement of the distinction in an express provision which states the provisions of the Code requiring dealings to be effected in the statutorily prescribed manner shall not affect the contractual operation of any transaction relating to alienated land or any interest therein”
The application of
Section 206(3) National Land Code 1965 to contracts involving alienated lands or any interest were further succinctly explained by the Federal Court in the following cases:
- Damai Freight (M) Sdn Bhd v Affin Bank Bhd [2015] 4 MLJ 149 which held that:
“
Section 206(3) of the NLC, by providing a liberal application of equity, recognizes the contractual operation of any transaction relating to alienated land or any interest therein. In this regard, we see no reason as to why a similar recognition would not be accorded to the bank in exercising its power of sale over the land in accordance with the contractual provisions under the LACA.”
- In S&M Jewellery Trading Sdn Bhd & Ors v Fui Lian-Kwong Hing Sdn Bhd [2015] 8 CLJ 16 where it was held that:
“Evidently, while s. 206(1)(b) of the NLC provides for the right ad rem, s. 206(3) provides for the right in personam. The NLC recognises the distinction. “That the Code itself recognises such rights finds expression in s. 206(3). See also Mercantile Bank Ltd v. The Official Assignee Of The Property Of How Han Teh [1969] 1 LNS 106; [1969] 2 MLJ 196” (Luggage Distributors (M) Sdn Bhd v. Tan Hor Teng @ Tan Tien Chi & Anor [1995] 2 CLJ 713; [1995] 1 MLJ 719 per Gopal Sri Ram JCA, as he then was). In Low Lee Lian v. Ban Hin Lee Bank Bhd [1997] 2 CLJ 36; [1997] 1 MLJ 7, the Federal Court per Gopal Sri Ram JCA, as he then was, especially quoted the following passage from the judgment of Raja Azlan Shah J, as HRH then was, in Mercantile Bank Ltd v. The Official Assignee Of The Property Of How Han Teh [1969] 1 LNS 106; [1969] 2 MLJ 196:
Digressing for a moment, it is to be emphasised that here, as in other areas of our land law, it is important to distinguish between rights ad rem and rights in personam. That the Code expressly preserves this distinction was recognised by so learned a judge as Raja Azlan Shah J (as he then was) in Mercantile Bank Ltd v. The Official Assignee of the property of How Han Tek [1969] 2 MLJ 196 at p 198:
The Official Assignee’s view is not correct, Vallipuram’s case (Vallipuram Sivaguru v. Palaniappa Chetty [1937] MLJ 59) is against him. He forgets that independent of our land legislation our courts have always recognised equitable and contractual interests in land. See Loke Yew v. Port Swettenham Rubber Co [1913] AC 491. See also s. 206(3) of the National Land Code.
A right
in personam arises from a contractual relationship between contracting parties and such right is enforceable under Section 206(3) National Land Code 1965 even though this right is not (or is incapable of being) endorsed or registered on the title of an alienated land.
Thus, the Federal Court in
Sitrac Corporation Sdn Bhd v Lai Chin Wah & Anor [2023] CLJU(O) 33 and
PDI Design & Associates Sdn Bhd v Sitrac Corporation Sdn Bhd [2023] CLJU(O) 32 concluded that the restrictive covenants in the Deed of Covenants were terms of a contract which were
in personam rights were enforceable by the contracting parties in accordance with Section 206(3) National Land Code 1965.
Conclusion
The Federal Court’s decision in
Sitrac Corporation Sdn Bhd v Lai Chin Wah & Anor [2023] CLJU(O) 33 and
PDI Design & Associates Sdn Bhd v Sitrac Corporation Sdn Bhd [2023] CLJU(O) 32 affirms that restrictive covenant in a deed are contractual rights that can exist alongside the National Land Code 1965 without the necessity for express endorsement on the land title pursuant to Section 206(3) of the National Land Code 1965.
However, if the restrictive covenants infringe any of the statutory provisions in the National Land Code 1965 that requires mandatory compliance or to protect a specific class of persons, such restrictive covenants will be void and unenforceable as it would be against public policy.
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