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1 of 1 DOCUMENT [2001] MLJU 188 2006 LexisNexis Asia (a division of Reed Elsevier (S) Pte Ltd) Malayan Unreported Judgments CHEANG KIM LEONG & ORS v KARTIKA AZMI & CO. & ORS HIGH COURT (KOTA BAHRU) ORIGINATING SUMMONS NO 24-151-2000 DECIDED-DATE-1: 26 APRIL 2001 SURIYADI HALIM OMAR J CATCHWORDS: Contract - Shares, sale of - Whether concluded contract - Partial purchase price paid before sale and purchase executed - Whether stakeholder liable for releasing money to vendors

GROUNDS OF JUDGMENT The first defendant is a firm of solicitors, whilst the second and third defendants were the shareholders of a company registered as Absolute Ascend Sdn Berhad (hereinafter referred to as the company). Initially the second and third defendants were one Zalilah bte Mamat and one Nik Rusdi bin Nik Mohd. Salleh, but subsequently substituted by the current defendants namely, Mohd Kamal bin Awang Kechik and Mohamad bin Yusof. The correctness of these substitutions could be [*1] amplified by the contents of KWM-1, a document supplied by the Registrar of Company, which put things in perspective. I now will delve into the facts proper. On October 20, 1999 all the plaintiffs had met at the first defendant's premises at No.16, Tingkat 1, Taman Uda Murni, Jalan Pengkalan Chepa, Kota Bharu, Kelantan. At that meeting the second and third defendants were present, together with one Kartika Wati bt Mohamed, a solicitor in the first defendant's firm. The undisputed fact was that the plaintiffs had indicated their desire to purchase the said company, through the format of buying over the shares of the latter, purposefully to take over a piece of land located at Jajahan Gua Musang, Mukim Ulu Nenggiri, Daerah Bertam, Kelantan (hereinafter referred to as the land), that had been sub-leased to the company by Yayasan Islam Kelantan, for agricultural purposes. The plaintiffs alleged that the defendants had also divulged that the Yayasan Islam Kelantan had also received the approval from the State Government to permit the impugned land to be converted to agriculture land. A letter dated July 29, 1999 and exhibited as exhibit CKL 2 in enclosure 4, confirmed that assertion. Apart from that piece of information, the said Kartika Wati bt

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Mohamed was alleged to have [*2] advised that if the plaintiffs were serious in acquiring the sub-lease over the land, a deposit equivalent to 10% of the purchase price grossing RM240,000, was required to be handed over to the first defendant. The latter was alleged to have held on to the money as a stakeholder, pending the finalization of the terms, yet to be resolved by the transacting parties. The said Kartika Wati bt Mohamed, was supposed to have further clarified that that deposit was to be the conclusive proof of the plaintiffs' sincerity and financial capacity. Whether the plaintiffs were intimidated by the information, that at about the same time another meeting was being held pertaining to the same land, between the defendants' representative and some other interested party, was not conclusively proved. On the same day i.e. October 20, 1999, at about 7.08 p.m., the first defendant faxed a copy of the draft agreement to the first plaintiff's personal office. Due to the odd time it was sent and received, the plaintiffs only managed to scrutinize it the next morning. The next day i.e. on October 21, 1999 at approximately 12.00 p.m. the plaintiffs had RM 240,000 tele-transferred to the first defendant. Three hours later a letter to confirm the transmission of that sum of money was faxed to the first defendant by the plaintiffs' solicitors. The transmission of this [*3] large sum of money was not disputed, as vide a letter dated October 26, 1999 (CKL 5) the receipt of that sum was confirmed. A supposed shocker appeared on the scene for the plaintiffs when, through a letter dated October 26, 1999 the first defendant insisted that an agreement had already been successfully concluded, and demanded full performance of the alleged contract, failing which the deposit sum of RM 240,000 would be forfeited. Thereafter these events took place, viz.: 1 On or about October 26, 1999 the plaintiffs informed the first defendant that page 5 of the draft agreement was missing. About the same period a copy of the draft agreement was faxed to the plaintiffs. On or about November 3, 1999 the first defendant faxed to the plaintiffs ' solicitors amendments to the said draft agreement. On or about November 9, 1999 the plaintiffs' solicitors demanded for letters of confirmation pertaining to certain matters be delivered to them, before further actions were undertaken. Among the confirmations was that the special condition (syarat khas) stated in the letter of July 29, 1999, would [*4] not be applicable prior to the execution of the Sub-Lease Agreement. Vide a letter dated November 8, 1999 the first defendant wrote, inter alia, that the proposed amendment to the draft sale and purchase agreement was to be delivered to them only after having obtained the requested confirmations. Vide a letter dated November 10, 1999 the first defendant faxed a letter demanding further payments, failing which the alleged contract would be terminated, and the deposit forfeited. On January 19, 2000 the plaintiffs wrote to the first defendant demanding the return of the RM 240,000.

Up to now, despite repeated demands by the plaintiffs none of the defendants have refunded the said payment, hence this action. Having perused the draft agreement, particularly CKL-3, I noticed: a the memo read "as per discussion";

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b c

the agreement was undated; the transacting parties names were not documented in the draft agreement;

[*5] d e the portion in "The First Schedule" was left blank; the agreement remained unsigned, particularly by the vendors, purchasers, witnesses, or by the concerned company (and without its seal); the impugned document remained un-initialed at every page, and for that matter unstamped; and at every page on the top right hand side, the word "DRAFT" was clearly imprinted.

Apart from CKL-3 i.e. the draft agreement, which had the word "DRAFT" imprinted all over the document, CKL 7 and 9 likewise suffered the same ignominious status. Aside from the above flaws, I also had to consider another salient fact i.e. if a contract had been concluded as alleged by the defendants but not by the plaintiffs, and the meeting of October 20, 1999 was merely to thresh out the terms, why then was there a meeting held by the first defendant with another party, in another part of the first defendant's premises? As this relevant fact was not denied, or replied in the defendant's affidavit-in-reply, I had to deem it that the first defendant [*6] had acquiesced to the existence of this meeting. On the other hand it was unclear whether the meeting related to the same land, bearing in mind that the assertion was too general and could be interpreted either way. Kartika Wati at paragraph 23 of her affidavit-in-reply, supported by KWM-8 also admitted that negotiations with other interested parties had taken place pertaining to the same land. Nothing sinister should be read into these negotiations, as it was logical and pragmatic for the plaintiffs not to put all their eggs in one basket by merely having the second and third defendants as their potential clients. To have other interested parties waiting at the sideline was certainly good business practice. The letters referred to by the first defendant, and exhibited as KWM-8 were dated August 10, 1999, October 4, 1999, October 5, 1999, October 7, 1999, October 16, 1999, October 18, 1999, and October 21, 1999. None of them could be said to be safely outside the concluded contract period that could indicate that the land was still up for grabs. Even the last letter would fail to defeat the latter conclusion, as this was a letter from faraway Melaka, making it improbable for Kesavan & Associates, the maker of that letter to have been privy to the outcome of [*7] the meeting at the first defendant's office in such a short time. A post-dated cheque dated October 25, 1999, inserted and compiled in KWM-8, which was attached to the abovementioned letter of October 7, 1999 had no consequential effect over the matter under discussion. As opposed to the evidence that seemed to support the case of the plaintiff, likewise I was able to identify substantial damning and cogent evidence, and conduct of the plaintiffs, that neutralized their stance. I begin with CKL-3 the draft agreement, which had been alluded to too by the plaintiffs, and not questioned by both parties as to its admissibility. By the conduct of the parties I was satisfied that it was a mutually agreed document. On that premise, it was permissible for me to zero in onto clause 4.1, which provided that the sale price was to be paid by the plaintiffs in certain fashion. Among the terms was that an initial sum of RM 240,000 was to be paid upon execution of the agreement. Not only was the amount stated but also of its status. Nothing was said of such payment as being part of a

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deposit or earnest payment. In simple terms, a first initial payment sum would be paid by the plaintiffs, presumably if everything went as planned by the parties. There was nothing hazy or unclear about this portion of the clause. [*8] Further perusal of the draft agreement showed that under clause 2, parties agreed to pursue the sale and purchase, on the basis of the approval letter dated July 29, 1999 given by the PTG (Pejabat Pengarah Tanah Dan Galian Kelantan). Interestingly this letter was exhibited by the plaintiffs, and not by the defendants. As there was nothing adduced to confirm the falsity of this document, which was adverted to by the plaintiff, I had to deem it that the latter was satisfied with its genuineness. After having considered all the facts, I was convinced that everything must have gone according to plan, from the point of view of the plaintiffs, as otherwise the money would not have been transacted, let alone in such haste. Being well-endowed entrepreneurs, and with legal counsel at their beck and call, the sending of the money must have been an act that was founded on logic, business acumen, profit oriented reason, and being fully satisfied that all the major legal niceties and wrangling had been resolved by then. The decisive piece of evidence that convinced me, and which culminated in my eventual decision, was the fact that the plaintiffs had specifically mentioned clause 4.1 as the basis of the transmission of the money in exhibit CKL-4. This exhibit reads: [*9] .................................. .................................. "Dear Sir/Madam, ..................................................................... ..................................................................... ..................................................................... .................................................................... We are instructed by our clients that our client have forwarded to you a sum of RM 240,000 today by tele-transfer being payment pursuant to clause 4.1(a) in the aforesaid draft agreement which sum is forwarded to you to be held as stakeholder pending finalization and execution of the sale & purchase of share agreement between the relevant parties in respect of AASB. Thank You Yours sincerely, For SAN & LOONG .....signature......" Scrutinizing the above letter, I was convinced that if the plaintiffs had not believed that a contract had been concluded, surely their solicitors [*10] would not have picked out clause 4.1 (a) out of the thick legal dossier. To

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appreciate this clause I herewith reproduce it. It reads: "4.1 The Sale Price shall be paid by the Purchasers to the Company and/or the Vendors through its Solicitors herein below mentioned in the following manners:(a) upon execution of this Agreement the sum of Ringgit Malaysia Two Hundred and Fourty Thousand (RM240,000.00) only the First Initial Payment as part of the Sale Price; (b) .... . ..... ..... ..... (c) ..... ..... ..... ..... If that were not the case, surely the plaintiffs could just as easily have resorted to some other equally acceptable excuse for its transmission. This stance also tallied with the first defendant's perception and interpretation of the status of the contract as reflected by KWM-4, which also referred to the money as being payment in pursuance of the same clause. It was too coincidental for comfort unless both had agreed [*11] that a contract in reality had already been concluded on October 21, 1999. There was nothing in law that stood in the way of the current parties to agree to a valid contract first, and with the finer details to be trashed out later, or the agreement be officially executed subsequently. Edgar Joseph Jr. SCJ in Ayer Hitam Tin Dredging Malaysia Bhd v YC Chin Enterprises Sdn. Bhd (1994) 2 MLJ 754/765 in crystal clear terms had remarked: "True it is that merely because the parties contemplate the preparation of a formal contract, that by itself will not prevent a binding contract from coming into existence before the formal contract is signed." Abdul Hamid F.J in Lim Keng Siong & Anor v Yeo Ah Tee (1983) 2 MLJ 39, at page 49 had occasion also to opine: "It is also our finding that on the evidence and the exhibits it was the intention of the parties to come to a definite and complete agreement on the subject of the sale and the mere fact that a written contract had to [*12] be drawn up and executed by them did not necessarily mean that there was no legally binding and enforceable agreement." To complete the matter at hand, having perused the available evidence I also failed to detect anywhere, be they letters, memorandums or any written document, that indicated that the impugned agreement was "subject to any suitable agreement" or "subject to the execution of a written agreement" or phrases to that effect. Expressions of such nature, which would be subject to question of construction would not result in any concluded agreement as the fulfillment of those expectations would be a condition precedent to any concluded agreement (Lockett v Norman Wright (1925) 1 Ch. 56; Low Kar Yit & Ors v Mohamed Isa & Anor (1963) 29 MLJ 165; Kapital Raya Sdn. Bhd. v Bloomville Corp Sdn. Bhd (1996) 3 MLJ 522; Kam Mah Theatre Sdn Bhd. v Tan Lay Soon (1994) 1 MLJ 108). The dearth of those phrases in the parties' oral or documentary communications merely strengthened my eventual decision, with the question of pre-conditions having become superfluous. [*13]

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With the strength of the above reasoning, and on a balance of probability, I was satisfied that the plaintiff had failed to prove that no valid contract existed between the plaintiffs and the defendants on October 21, 1999. In fact, I was fully convinced that by October 21, 1999 a contract had indeed already been concluded between the plaintiffs and the second and third defendants. With such a finding, and by the very failure of the plaintiffs to dispel the existence of a valid contract, which was the only basis of their case, and it not being incumbent upon any of the defendants to prove anything (sections 101 and 102 of the Evidence Act), the matter thus stopped there. This singular basis is amply laid down in CKL-10, a letter signed by San & Loong, Advocates & Solicitors for the plaintiffs. To resolve this issue of whether there was a valid contract or otherwise I had applied the objective or reasonable man test (Ayer Hitam Tin Dredging Malaysia Bhd v YC Enterprise Sdn Bhd (1994) 2 MLJ 754). I would like to touch now briefly on the meaning attributed to the word stakeholder in the context of this case, which has caused me some concern. This term is normally used by estate agents and the courts, to describe the status of an estate agent who has accepted a deposit either [*14] in the course of a negotiation, or after the conclusion of a contract (Lee Yoke Chye v Toh Theam Bock & Co. (1987) 1 MLJ 122). In relation to deposits held by an estate agent acting as a stakeholder, Sir John Pennycuick V.C in Potters v Loppert (1973) Ch. 399 at pages 405-406 had occasion to say: "Looking at the position apart from authority, one might perhaps at first sight rather expect that where any property is placed in medio in the hands of a third party receives that property as trustee, and that the property and the investments for the time being representing it represent the trust estate. Where the property is something other than money - for example, an investment - that must, in the nature of things, almost certainly be the position. But where the property is money - that is, cash or a cheque resulting in a bank credit - this is by no means necessarily so. Certainly the money may be paid to the third party as trustee, but equally it may be paid to him as principal upon a contractual or quasi-contractual obligation to pay the like sum to one or other of the parties according to the event. It must depend upon the intention of the parties, to be derived from all the circumstances, including any written documents, in which capacity the third party receives the [*15] money ... Turning now to authority, it is to my mind conclusive that, apart from agreement to the contrary, a contract deposit paid to a stakeholder is not paid to him as trustee, but upon a contractual or quasi-contractual liability with the consequence that the stakeholder is not accountable for profit upon it. The decisive case on this point is Harington v Hogart , 1 B & Ad. 577..............." (emphasis mine). Black's Law Dictionary, Sixth Edition defined stakeholder as follows: "Generally, a stakeholder is a third party chosen by two or more persons to keep on deposit property or money the right or possession of which is contested between them, and to be delivered to one who shall establish his right to it; ........................................... ..... A person with whom money is deposited pending the decision of a bet (q. v). His function is to receive the sums wagered and hold them against the determining event, whether the event be a horse race or otherwise,

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and then pay them over to the winner". [*16] Hashim Yeop A. Sani S.C.J in Toh Theam Hock v Kemajuan Perwira Management Corpn. Sdn Bhd. (1988) 1 MLJ 116/118 in succinct terms commented: "What is in essence stakeholding? The word 'stake' is in common parlance used to apply to any money to be disposed of in accordance with what may happen in future; and whoever is in possession of the money is often described as a stakeholder. The manner in which the money is to be disposed of depends on the terms on which it is held (emphasis mine)." Let us now gauge the current facts. Kartika Wati had asserted that the first defendant's capacity was not as a stakeholder but merely as a middleman in the sale and purchase transaction of the material shares of the company. Had the first defendant not been a solicitor's firm, I would have brushed aside that remark, as by whatever term she invoked, middleman, conduit, or whatever, it was undeniable that the first defendant certainly had acted in accordance with the instruction of the agreement, and hence fitted squarely within the definition of stakeholder (as per Hashim Yeop A. Sani-"whoever is in possession of [*17] the money is often described as a stakeholder). As the firm she represented was a legal firm, special extenuating factors existed which required consideration by me. It was indisputable that pursuant to clause 4.1 the payment by the plaintiffs had to be made through the vendors' solicitors; as further admitted by Kartika Wati bt. Mohamed at paragraph 9 of enclosure 7. Consequential to its role as the first defendant's solicitors the sum of RM 240,000 as reflected by KWM-4 in enclosure 7, was indeed received and handed over subsequently to the second and third defendants. In Toh Theam Hock v Kemajuan Perwira Management Corporation Sdn. Bhd (supra) the appellant was an advocate and solicitor and the respondents a housing developer. The latter retained the appellant as their solicitor, inter alia, to receive the 5% deposit of the purchase price in respect of the sale of certain houses. Having accepted the payments, the appellant deposited them in the client's account and in the process attracted interest. The respondent took an action in court to demand the appellant to deliver a list of all the monies, which had accrued interest pursuant to the payments. The High Court allowed the application resulting in the appellant filing an appeal before the [*18] Supreme Court. During the appeal, the matter to be considered was whether the appellant was a stakeholder, or whether he was a solicitor acting for the respondents at the time of collecting the 5% deposit of the purchase price. On this issue, Hashim Yeop A. Sani commented that as the respondent had entered the contract in the form of a sale and purchase agreement, they thus should not be allowed to resile from what they had contracted, and thenceforth allowed the appeal. The court viewed that the appellant could not be held accountable in respect of the interest on the deposits, up to the issuance of the Certificate of Fitness, as stated in the agreement. His Lordship in ringing terms stated that money may be paid to a third party as trustee, but equally it may be paid to him as principal on a contractual or quasi-contractual obligation to pay the like sum to one or other of the parties according to the event. On that point His Lordship clarified: "It must depend on the intention of the parties, to be derived from all the circumstances, including any written documents, in which capacity the third party receives the money". [*19] The above case on the other hand did not deny the fact that the appellant had acted as a stakeholder in the transaction. The respondents were merely denied of the interest as of right by virtue of the agreement, which mercifully was consistent with the provision of the Solicitors' Accounts Rules, 1967 as adverted to in the above case.

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Having considered the available authorities and also the facts of the current case, I was satisfied that the first defendant here had acted as a stakeholder for the second and third defendants, but limited to the payment only. I now touch on the poser of whether the first defendant was also a stakeholder for the plaintiffs. Reverting again to clause 4.1, it was clear that the plaintiff had no freedom of choice, in term of the selection of the party to receive the first payment on behalf of the second and third defendants. Had the first defendant disagreed, with it being retained to receive the first payment whether for the plaintiffs or the other defendants, there was nothing to prevent it from rejecting the said role. By its silent acquiescence, the first defendant thus had to perform to the legal hilt its contractual or quasi-contractual obligation as a stakeholder [*20] (Hastingwood Property Ltd. v Saunders Bearman Anselm (1990) 3 WLR 623). To wind up this point, clause 4.2 as reflected in CKL-7 (an exhibit tendered by the plaintiffs) clearly showed that the latter did mutually agree with the second and third defendants to appoint the first defendant as their common stakeholder. In a normal land transaction deal under the Torrens System, a solicitor is invariably appointed as a stakeholder, who would hold on to the purchase money until the registration of the transfer is completed (Tan Suan Sim v Chang Fook Shen (1980) 2 MLJ 66). In some cases the solicitor might not even be required to wait until the completion of the registration of the conveyancing document. Reverting to the current facts, the first defendant being a stakeholder and having certain responsibilities, must do the needful after everything in need of fulfillment for purposes of this contract had been done or the outcome was made known as per the agreement (Sorrel v Finch (1976) 2 AER 371; Skinner v Trustee of the Property of Reed (1967) 2 AER 1286; Dato' Seri Au Ba Chi v Malayan United Finance Bhd. & Anor (1989) 3 MLJ 434). Generally, any wrong committed by a solicitor acting as a stakeholder in the interim, resulting in the loss of the money is [*21] actionable, but subject to the usual safeguards. The contending parties here would have a contractual or quasi-contractual personal right of action to recover any proprietary interest in the money from the stakeholder, the outcome being dependant on whether the contract did proceed to completion or not. During the stakeholding period the stakeholder will not be accountable to either party, as during that period there is uncertainty as to which party will be entitled to the money under its custody. Even though the first defendant here appeared to have been overly hasty in transmitting the money to the other defendants, in the circumstances of the case as the plaintiffs had failed to overcome the first obstacle, the matter ended there without more. By failing to disprove that a contract existed, compounded by the other explanations supplied above, the plaintiffs therefore likewise must fail against the first defendant. On those grounds I had no hesitation in dismissing the case of the plaintiffs against all the defendants with costs.

M/s San & Loong, M/s Azahir Suraini & Azizan Ariff LOAD-DATE: 03/17/2006