The Federal Court in its decision dated 7 April 2015 in Damai Freight (M) Sdn Bhd v Affin Bank Berhad clarified an important issue of law, especially for banks and secured lenders.

The question of law posed to the Federal Court was:

“Whether a lender having an absolute assignment of rights to land may realise his security under the terms of the assignment, where the document of title to the land was issued subsequently, without the need to resort to the remedies under the National Land Code (NLC).”

The answer to this is yes.

In summary, the Federal Court’s findings were:

1. There was an absolute assignment and not one by way of charge only. The Bank should have all the rights, title and interest of the assignor.
2. When the title was issued to the Land, the Bank did not lose its security or its power of sale under the Loan Agreement Cum Assignment (LACA). The absolute assignment under the LACA survives.
3. The Bank is thus empowered to realise its security for the loans by way of private sale of the Land.
4. There is no necessity for the Bank to first create a charge or to resort to foreclosure under the NLC to realise its security. The Bank’s recovery action stands independently.
5. Section 206(3) of the NLC allows such a transaction relating to any alienated land to give effect to the contractual obligations and rights of the parties as they had determined in the LACA.