Bank lost its charge because its solicitor knew of fraud allegations against the chargor: A Case Note on T Sivam v Public Bank[i]May 2019
Bank lost its charge because its solicitor knew of fraud allegations against the chargor: A Case Note on T Sivam v Public Bank[i]
By: Abdullah Abdul Rahman[ii]
- InT Sivam v Public Bank  MYFC 11, a charge in a land was set aside as the bank was deemed not to have obtained the charge in good faith due to the knowledge of its solicitor of the allegation that the chargor had become registered proprietor of the land by fraud.
- The solicitor had acted for a person whose name appeared as the registered proprietor of a land by issuing a notice demanding delivery of vacant possession. The recipient of the notice, who had been the previous registered proprietor of the land, replied that the land had been fraudulently transferred to the present registered proprietor from him.
- A few months later, the present registered proprietor obtained a loan from the bank secured by a charge. That solicitor now acted for the bank and the present registered proprietor in the loan documentation including the charge.
- The previous registered proprietor took action in court to set aside the fraudulent transfer. This was found in his favour.
- Subsequently, the previous registered proprietor took action in court to set aside the charge. The bank pleaded the proviso to s. 340(3) of the National Land Code (NLC) that it had acted in good faith.
- The case turned on the issue of whether knowledge of the solicitor of the allegation that the present proprietor had obtained title by fraud (‘the fraud allegation’) was imputed to the bank negating its good faith. The bank relied on the exception to the principle in Doshi v Yeoh Tiong Lay 1 MLJ 85 which had held that knowledge of a solicitor is regarded as the knowledge of the client EXCEPT that the solicitor’s knowledge of a fraud cannot be imputed to the client.
Whether knowledge should be imputed to the client where the solicitor has knowledge of the fraud allegations but not complicit in the fraud.
- The Federal Court in T Sivamdecided that the exception in Doshi’s case was a misreading of a passage in Halsbury’s Laws of England which had actually stated that the exception was applicable where there had been a fraud of the agent in the matter.
- In T Sivamthis meant that the exception would have been applicable only where the solicitor had acted fraudulently or had been complicit in the fraud. His mere knowledge of the fraud or the adverse claim would not stop the imputation. The solicitor had a duty to communicate the fraud allegation to the bank. In the event, his knowledge of the allegation was imputed to the bank negating its good faith. Thus, the bank could not rely on the proviso to s. 340(3) of the NLC.
Knowledge acquired by solicitor from a previous transaction not involving the client.
- The bank also disputed the imputation on the basis that the solicitor had acquired his knowledge from a previous transaction namely, the reply to the notice to deliver vacant possession. It was argued that knowledge acquired in a different transaction than the one the bank was being advised by the solicitor could not be imputed to the bank.
- The Federal Court disagreed by holding that it was not necessarily the case. In this regard, the Federal Court followed the judgment of Lord Langdale MR in Hargreaves v Rothwell 1 Keen 154 as follows:
“Where one transaction was closely followed by, and connected with another; or where it was clear, as in the case before the Court, that a previous transaction was present to the mind of the solicitor when engaged in another transaction, there was no ground for the distinction by which the rule, that notice to the solicitor is notice to the client, had been restricted to the same transaction.”
- In T Sivam, the two transactions were separated by about 3 months and the solicitor was actively involved in the first transaction. The Federal Court found that the two transactions were immediately consequent on one another, and were very closely connected that the first must obviously have been still present in the solicitor’s mind. The conclusion was that the solicitor could not claim to have forgotten the information in question.
- Under these circumstances, the Federal Court imputed knowledge that the solicitor had acquired in the earlier transaction to the bank in the subsequent loan transaction, although the bank was not interested in the earlier transaction. It matters not that the solicitor was unwilling to reveal his knowledge of the facts to the bank.
[i] This commentary was first published in LinkedIn on 8 June 2018