A legal firm acting as a stakeholder must adhere to fiduciary duties and cannot misallocate funds entrusted to them, as this constitutes negligence and a breach of trust.

Lee Swee Seng JCA:

[1] This is an unfortunate case where the partners of a legal firm, being the 3rd to the 6th defendants (D3-D6), found themselves liable for a substantial sum paid into the client account of the legal firm (the 7th defendant, D7) under a Sale and Purchase Agreement ("SPA"). The principal partner that handled the transaction, Madam Foo Foong Leng ("FL Foo") had gone the way of all the earth just before the dispute arose between the purchaser and the legal firm.

[2] The administrators of the said deceased Madam FL Foo, being the 1st and 2nd defendants, (D1-D2) were also sued for the loss suffered by the plaintiff purchaser who had deposited RM2 million into the client account of the legal firm of Messrs FL Foo & Co ("the Legal Firm") being the full purchase price of a floor of multi-purpose hall on the 17th floor ("the Property") in a 24-storey high rise apartment called Menara Rajawali in the township of Subang Jaya, Selangor.

[3] The fact remains that the said sum of RM2 million was not paid over to the developer, Link Ventures Sdn Bhd. The plaintiff purchaser said he was given a discount of RM360,000.00 by the developer which amount had been refunded by the Legal Firm to the purchaser.

[4] The defendants' version and in particular that of the partners sued and the Legal Firm (D3-D7) is that the SPA was a sham for an illegal money lending transaction and that all the parties were fully aware of this and alternatively the amount paid was a loan taken by Madam FL Foo personally for which the partners cannot be made liable. As the defence of the administrators of the late Madam FL Foo's estate in D1-D2 is that of a bare denial and putting the plaintiff to strict proof of his allegations, reference to the defendants' defence would more specifically refer to the defence of D3-D7.

[5] The High Court after examining the evidence adduced and hearing the witnesses held that the plaintiff purchaser had proved his case on the balance of probabilities "notwithstanding the existence of several suspicious and unusual circumstances" surrounding the case.

[6] The learned High Court Judge had found no evidence to substantiate the defendants' allegation that the SPA was a sham for an illegal moneylending transaction of a personal loan to the deceased Madam FL Foo.

[7] The High Court granted judgment to the plaintiff against all the defendants jointly and severally for the sum of RM2 million less the amount refunded of RM360,000 and an additional sum of RM250,000.00 being the loss arising out of the appreciation of the said Property plus interest and costs.

[8] Aggrieved by the decision, the partners of the Legal Firm had appealed to this Court in Civil Appeal No: B-02(NCVC)(W)-307-02-2018 ("Appeal No 307") and their appeal was heard together with another appeal by the administrators of the estate of the deceased Madam FL Foo in Civil Appeal No: B-02-(NCVC)(W)-582-03-2018 ("Appeal No 582").

[9] The parties shall be referred to as they were in the High Court.

Whether The SPA Was A Sham Agreement That All Parties Were Aware And That It Was A Facade For A Loan Given By The Plaintiff To The Late Madam FL Foo?

[10] The plaintiff's evidence is that he was interested in purchasing the Property from the developer and agreed to the purchase price of RM2 million. The building was already completed save for the issuing of the Certificate of Completion and Compliance ("CCC") which was to be issued shortly. He was instructed by the developer to see Madam FL Foo of the said Legal Firm who prepared the SPA and explained the terms and conditions to him.

[11] The plaintiff understood that the payment of RM2 million would only be released to the developer in accordance with the terms and conditions of the SPA and at least not until the CCC is issued, by which time he would be given the vacant possession and keys to the Property. He signed the SPA dated 12 June 2013 as the purchaser and the developer signed as the vendor. The said Madam FL Foo wit