SETIA MAKMUR FACILITIES MANAGEMENT SDN BHD v TETUAN RAHMAN MOHAMED & ASSOCIATES PENCELAH Sejati Grand Development Sdn Bhd

Case Significance

A firm statement that a solicitor holding money as stakeholder owes a fiduciary duty of neutrality and strict compliance with the stakeholder undertaking, and cannot invoke a dual role to justify withholding the stake or interfering with the beneficiary's contractual performance.

This decision of the High Court of Malaya at Alor Setar concerns a claim against a firm of solicitors acting as stakeholder under a property redevelopment agreement. The plaintiff, Setia Makmur Facilities Management Sdn Bhd, a facilities-management and property-services company, had taken over an abandoned development project comprising numerous titled plots in Sungai Petani that had gone into liquidation. The defendant, Tetuan Rahmah Mohamed & Associates, held stakeholder monies and was bound by a stakeholder undertaking in connection with that redevelopment. The plaintiff alleged that the defendant had wrongfully withheld the stakeholder monies and interfered with the completion of the plaintiff's contractual obligations, amounting to a breach of fiduciary duty, breach of trust and wrongful interference with contractual performance, and sought a declaration to that effect, restitution of the monies withheld, and damages. The defendant denied wrongdoing and counterclaimed that its conduct was lawful and consistent with its professional obligations.

After a full trial the court found in the plaintiff's favour. It held that a solicitor holding money as stakeholder occupies a position requiring neutrality and strict compliance with the stakeholder undertaking, and that the defendant's dual role as stakeholder and as representative of a party to the agreement did not entitle it to act unilaterally against the interests of the party for whose benefit the stake was held. The court found that the defendant had continued to refuse to fulfil its obligations without reasonable justification, relying on unsubstantiated allegations, and was not entitled to terminate the arrangement unilaterally; the plaintiff, by contrast, had made genuine efforts to resolve matters amicably. The court held that the defendant had breached her fiduciary obligations and the terms of the stakeholder undertaking, causing significant prejudice to the plaintiff, and allowed the plaintiff's claim in full. The counterclaim, being predicated on the defendant's own wrongful acts, necessarily failed. The judgment is a firm statement of a stakeholder solicitor's fiduciary duty of neutrality.