"Indeed, I would add that a solicitor for a party to a transaction has no business directly contacting the other party who is represented by another solicitor. Such direct contact with a person represented by another solicitor, would traverse the bounds of professional propriety, if no good reason exists or prior permission obtained."
per Justice Daryl Goon Siew Chye.
Leong Wai Hong and Karen Tan provide a commentary on the High Court's decision in Yap Piat Eng @ Yap Lien Eng & Anor v Yap Kok Sheng & 6 Ors  MLJU 572. Leong Wai Hong acted for the 3rd and 4th Defendants solicitors.
This is a land fraud case whereby properties had been fraudulently sold by a lawyer who purported to sell for the owners and without their knowledge. The buyer was represented by the 3rd and 4th Defendants solicitors. To finance the purchase, the buyer had obtained financing from Malayan Banking Bhd.
Justice Darryl Goon Siew Chye allowed the owners' claims for the transfer to the buyer as well as the charge in favour of Malayan Banking to be set aside. His Lordship dismissed the suit against the 3rd and 4th Defendants solicitors and the land office.
- Once the instrument of transfer is established to have been obtained by forgery or was insufficient or void, the title of the buyer from the sale by the lawyer is defeasible regardless whether he was privy to any fraud or not.
- When the bank is not a "purchaser in good faith" and "for valuable consideration", under section 340(3) of the National Land Code, the bank's interest would be defeasible.
The two Plaintiffs were the registered owners of 2 separate pieces of shop lots (the "Properties"). Sometime in 2016, the Properties were sold to the 2nd Defendant and registered in his name. The 2nd Defendant was represented by the 3rd and 4th Defendants. National Land Code charges were created and registered against the Properties by the 2nd Defendant in favour of the 6th Defendant/ Malayan Banking Berhad.
Both Plaintiffs claimed that they had never met or dealt with the 2nd Defendant or sold or transferred their Properties to him. It was the Plaintiffs' case that they had never instructed the 1st Defendant to act for either of them to sell their Properties.
The Plaintiffs, upon discovering the fraud, commenced legal action against the 1st Defendant solicitors, the 2nd Defendant buyer, the 3rd and 4th Defendant solicitors who acted for the buyer, the 5th Defendant land office and the 6th Defendant Malayan Banking Berhad. The Plaintiffs asked the court to set aside the transfers of the Properties, the charges created in favour of Malayan Banking Berhad and for the loss and damage that they had suffered.
Decision of the High Court
Claim against the 1st Defendant
The High Court found the 1st Defendant liable as he was responsible for the fraudulent sale and transfer of the Properties to the 2nd Defendant.
Claim against the 2nd Defendant / the Buyer
The High Court found that "the 2nd Defendant's titles to the Properties are defeasible." As the Plaintiffs did not sign on any of the disputed documents relating to the sale and transfer of their respective Properties to the 2nd Defendant, it follows that the registration of the 2nd Defendant as proprietor of the Properties "was obtained by forgery or, in any event by means of insufficient or void instruments". As such, His Lordship held that the Plaintiffs were entitled to invoke section 340(2)(b) of the National Land Code ("NLC") and ordered that "the transfer of the Properties to the 2nd Defendant are null and void and an order that the transfer be set aside and the 2nd Defendant is to be removed as the registered proprietor of the Properties".
Claim against the 3rd and 4th Defendants / the solicitors for the Buyer
In respect of the 3rd and 4th Defendants solicitors, the High Court was "of the view that in the circumstances of this case there exists no special circumstances, and it would also not be just and reasonable, to impose on the 3rd and 4th Defendants a duty of care owed to the Plaintiffs". Among the reasons for His Lordship's decision are the following:
- The evidence was clear that the 3rd and 4th Defendants were dealing with the 1st Defendant who had held himself out as the solicitor for the Plaintiffs. The 3rd and 4th Defendants had no dealings with either Plaintiffs and had not even met the Plaintiffs. There were no representations made by the 3rd or 4th Defendants to the Plaintiffs.
- There was also no evidence adduced by the Plaintiffs that the manner in which the solicitors handled the sale and transfer of the Properties, that is, specifically the fact that solicitors had dealt inter se without meeting either parties' clients or seeking verification of any fact directly from the other solicitor's client, fell outside the bounds of normal conveyancing practice in Malaysia.
The learned judge therefore dismissed the claim against the 3rd and 4th Defendants as it would not be just and reasonable to impose on the 3rd and 4th Defendants a duty of care owed to the Plaintiffs.
Claim against the 5th Defendant / Director of Lands and Minerals Selangor
The High Court also dismissed the claim against the 5th Defendant as the High Court found that "none of the allegations of fraud, negligence or statutory duty were made out". The High Court found that as far as the 5th Defendant was concerned, "the Properties had been properly transferred. The instruments in relation to the Properties that were presented for registration and registered were found to be fit for registration pursuant to section 301 of the NLC. Indeed, in this case, when there were instruments that were found wanting, they were rejected".
Claim against the 6th Defendant / financier
With regards to the 6th Defendant/Malayan Banking Berhad, the High Court held that despite the 6th Defendant having actual knowledge of the caveats lodged in respect of the Properties by the Plaintiffs and the allegation of a fraudulent transfer of the Properties to the 2nd Defendant, there was no evidence of any attempt by the 6th Defendant to obtain the views of the Plaintiffs and/or to make enquiries on whether the purported Powers of Attorney were genuinely executed by the Plaintiffs, which should, in the ordinary course of things, be made by a bank acting in good faith in view of the seriousness of the Plaintiffs' allegation. As such, the 6th Defendant was not a "purchaser in good faith" (see proviso to section 340(3) of the NLC). The High Court proceeded to give "a declaration that the charges created in favour of the 6th Defendant are null and void and an order that they be set aside and cancelled".
This decision reiterates the principle laid down in the recent Federal Court case of Pushpaleela a/p R Selvarajah & Anor v Rajamani d/o Meyappa Chettiar (and 2 Other Appeals)  2 AMR 442 where the Federal Court held that a solicitor owe a duty of care only to his client and does not owe a duty of care to the real owners of the land when there is a fraudulent transfer of the land.
This decision also highlights the risk that a buyer and a financier bank are exposed to in the event there is a fraudulent transfer of the land.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.