Vinceng Ng J:

[1] The plaintiffs' were the mortgagees of the vessels "JADE PHOENIX" and "GOLDEN PHOENIX" ('the said vessels') which were owned by the Phoenix Bulkship Company I, Inc. and the Phoenix Bulkship II, Inc respectively (hereinafter referred to as "The Phoenix Companies"). Upon default by the Phoenix Companies in the performance of their obligations to the plaintiffs, the plaintiffs sought to arrest and foreclose on the vessels. In or about May 1985, the defendants were retained by the plaintiffs to act for them in the proceedings and commenced to arrest and foreclose on the said vessels, which were laid off at the port of Labuan, East Malaysia. The defendants are a firm of advocates and solicitors in the States of Malaya entitled to practice law in the States of West Malaya only.

[2] On 7 June 1985, Admiralty Suits in Rem No. 2 and No. 3 of 1985 were filed in the High Court of Borneo at Kota Kinabalu for foreclosure of the said vessels. Subsequently, the plaintiffs here and defendants in the Admiralty Suits in Rem No. 2 and No. 3 of 1985 consented to judgment and the said vessels were eventually sold on 26 January 1990 through a public auction pursuant to an order of sale, which was conducted by and under the direction of the Sheriff. Both the vessels were successfully bidded for by the plaintiffs, as they were the sole bidders, at a credit bid of US$25.1 million.

[3] On 5 February 1990, the third party forwarded the Auctioneer's bills for the total sum of US$506,351 to the defendants and notified the defendants of the Sheriff's Commission of US$627,975, the quantum of which neither the defendants nor the plaintiffs queried. In May 1990, on behalf of the plaintiffs, the defendants remitted to the third party an aggregate sum of RM3,026,257.85 in full satisfaction of the Auctioneer's Fees (RM1,362,084.10) and Sheriff's Commission (RM1,664,173.75) on the auction sale. Accordingly, the third party disbursed the said sums and forwarded to the defendants, the receipts for such payments issued by the Auctioneer and the Sheriff.

[4] On 7 June 1990, the third party issued to the plaintiffs his professional bill ('the Bill') for US$300,000. No payment was made on the bill despite reminders and requests made to the defendants. Subsequently, on 23 March 1991, the third party sent a revised bill addressed to the defendants and the plaintiffs for the sum of US$531,000, (hereinafter referred to as 'the Final Bill'). The said Final Bill was to supersede the earlier Bill dated 7 June 1990, which was thereby withdrawn and cancelled. The Bill was based on the sum of US$25.1 million that was realised at the auction sale calculated in accordance with the 13th Schedule of the Sabah Advocates Remuneration Rules 1988. The Final Bill was sent to the defendants to be forwarded to the plaintiffs. According to the third party, the Bill was revised and replaced by the Final Bill because the rate of charges applied in the earlier bill dated 7 June 1990 for US$300,000 was in breach of and not in accordance to the 13th Schedule of the Sabah Advocates Remuneration Rules 1988, though it was issued by reference to the said Rules.

[5] By a letter dated 29 April 1991, addressed to the then third party's solicitors Messrs Skinner Lind Robertson, Willie & Wong, the plaintiffs, through their solicitors Messrs Allen Gledhill, denied any relationship between them and the third party and rejected any liability on the Third Party's Final Bill. Vide a letter dated 10 June 1991, the defendants also denied liability to pay the third party. Then, towards the end of September or early in October 1991, the Sheriff forwarded to the third party a sum of RM1,350,595.20 being the refund made to the plaintiffs on the excess of the Sheriff's Commission in respect of the auction sale. The third party notified the defendants of the refund by a letter dated 2 October 1991 and proceeded to apply the said refund of RM1,350,595.20 towards the set-off of his Final Bill