Allegedly misusing RM500k from sale of client's home, what legal actions can be taken against the viral law firm?

There are bad apples in every profession and the Malaysian legal community unfortunately had to endure the ire of netizens recently due to the actions of a lawyer allegedly misusing a huge sum of his client’s money for his own personal use.

Going viral online, a Malaysian shared the nightmare that he and his family purportedly endured after a law firm allegedly used up the family’s proceeds from selling their home, a whopping RM500,000!

At first, everything went smoothly, with the buyer making payment via cheque sent to the law firm. However, things started to take a turn for the worse when the firm suddenly informed the family that they wouldn’t receive the money until the name-changing process was completed. Furthermore, the victim shared that the law firm afterwards repeatedly claimed that the process was unsuccessful due to misspellings without providing any proof.

When confronted, the man claimed that the law firm shockingly confirmed that they had used all of the proceeds from the sale. Problems further arise as the money was meant to be used by the family to purchase a new property, with the Sales Purchase Agreement (SPA) already signed.

With the post garnering widespread attention, many questions arose from Malaysians as to how the law firm could allegedly use the RM500,000 when the money rightfully belonged to the client. Furthermore, many were dumbfounded as to why the payment for the sale of the client’s property was made to the law firm instead of directly to the property owner.

Besides that, many, including the victim, were asking what legal actions could be taken against the lawyer and law firm for supposedly swindling the RM500,000 money from them.

Well, join us as we try to answer all of the questions above by delving into the relevant laws and conventions below.

Why was payment made to the law firm and not directly to the owner?

Let’s first establish why payment for the property sale was made to the law firm instead of the owner directly. Toward that end, we must first know what an SPA is.

A contract between a seller and a buyer pertaining to the details of a property purchase, SPA is a legally binding contract which outlines the mutually agreed upon conditions between both parties.

Accordingly, it is an industry-standard for the money involved in the transaction to be held by a lawyer, who is acting as a stakeholder. Should one party cancel the transaction halfway, the law firm is responsible for returning the money to the purchaser, thus avoiding any unwanted situations where the seller runs away with the money without actually selling the property.

Hence, that was why the payment was made to the law firm, as the lawyer was acting as a stakeholder in the SPA transaction.

As such brings us to a common problem surrounding SPA transactions in Malaysia, which is a purchaser and seller using the ‘services’ of the same lawyer for the sale. This is a common misunderstanding as many Malaysians do not know that in an SPA transaction, the general rule is for each party to be represented by their own lawyers. This is to prevent any conflict of interest in the event of disputes between the parties.

When there’s only one lawyer in an SPA transaction such as what supposedly happened in the viral post, the lawyer is actually only representing the purchaser and not the seller, which is the victim in this case. Whether knowingly or unknowingly, the vendor was not represented and the purchaser’s lawyer was only utilised to witness and attest the relevant documents in relation to the SPA transaction.

Applied to the subject matter at hand, should there be two lawyers since the very start of the SPA transaction, i.e. the victim being represented by his own lawyer who he trusts, the balance purchase price of the property would’ve been remitted into the account of the seller’s lawyer. This is because the seller’s lawyer would be the stakeholder before releasing it to the vendor instead of the lawyer representing the purchaser, which only safeguards the interest of the latter. 

What legal actions can be taken against the law firm?

With that in mind, there are very strict regulations for a lawyer to act as a stakeholder, something that the legal practitioner in this case has clearly breached.

The most glaring of which is Section 14.10(3) of the Rules and Rulings of the Bar Council below:

As per the above, the regulation clearly prescribes that a solicitor acting as a stakeholder for 2 or more parties must strictly adhere to the terms of the stakeholding at all times. No money or document held by a Solicitor as stakeholder shall be released, utilised, applied or otherwise dealt with by such Solicitor except in accordance with the terms of the stakeholding or with the express written consent of all relevant parties.

Therefore, a lawyer utilising a client’s money is clearly a breach of this regulation. As such amounts to a breach of duty which may lead to the lawyer and law firm facing disciplinary actions and getting their licence revoked by the Malaysian Bar. The victim can lodge a report to the Malaysian Bar regarding this case and based on the viral posting, the family has already done so. 

Moreover, the victim can also initiate a civil suit against the lawyer and the law firm to get back the RM500,000 allegedly owed and other damages incurred.

Besides that, the victim can also lodge a police report so that a criminal charge can be established against the lawyer for his purported actions.

The most relevant law pertaining to the case is Section 405 of the Penal Code for Criminal Breach of Trust (CBT) below:

If found guilty of CBT, Section 406 of the Penal Code prescribes punishment of imprisonment up to 10 years, whipping and a fine.

Moving forward, let’s hope that appropriate action be taken against the lawyer and law firm for any offences they’ve committed, as legal practitioners should know more than anyone else that no one is above the law. More importantly, let’s hope that the victim is fairly compensated for the alleged ordeals they faced.

Furthermore, let this be a lesson to all of us of the importance of having your own lawyer that you trust representing you in an SPA transaction. While appointing just one lawyer in an SPA transaction may save you some money, it ultimately doesn’t protect your interest in the transaction and leaves you at risk of something such as this happening.

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