Court of Appeal upholds High Court’s decision that a solicitor does not owe a duty of care to a non-client

As for the negligence alleged against the third defendant (the solicitors), although the learned HCJ found the third defendant was reckless, no duty of care is owed to the plaintiffs as there was no solicitor-client relationship between the third defendant and the plaintiffs. We see no good reason to disturb the finding of fact made by the learned HCJ.
 
per YA Dato' Hadhariah binti Syed Ismail, Judge of the Court of Appeal.
 
Witter Yee and Cedric Chan Yew provide a commentary on a decision by the Court of Appeal in Wong Ing Tong v Yap Piat Eng @ Yap Lien Eng & Anor and other appeals [2023] 2 MLJ 1. Counsel from Skrine, including Witter Yee and Cedric Chan Yew, represented the 3rd and 4th Respondents, who were the solicitors of the 2nd Respondent (buyer). Our commentary on the High Court’s decision can be read here.
 
Brief Facts
 
There are three appeals from the High Court in this matter: 
  1. An appeal by the 2nd Respondent (buyer) against the decision of the High Court which held that the transfer of two properties (“Properties”) was obtained by forgery and the 2nd Respondent’s titles to the Properties are defeasible (Appeal No. 104); 

  2. An appeal by the Appellants (registered owners of the Properties) against the decision of the High Court which held that (a) the Appellants had failed to prove fraud against the 2nd to 5th Respondents; (b) the 3rd and 4th Respondents (buyer’s solicitors) owed no duty of care to the Appellants; and (c) the Appellants had failed to prove fraud, negligence and breach of statutory duty against the 5th Respondent (Director of Land and Mines Selangor) (Appeal No. 144); and 

  3. An appeal by the 6th Respondent, Malayan Banking Berhad (“Maybank”) against the decision of the High Court which held that Maybank was not a ‘purchaser in good faith’ within the meaning of the proviso to section 340(3) of the National Land Code (“NLC”) and the charges created under the NLC in favour of Maybank were void and set aside (Appeal No. 145). 
The facts of the High Court proceedings are accessible in our previous article. In short, this appeal concerns the fraudulent transfer of the Properties to the 2nd Respondent (buyer) who was represented by the 3rd and 4th Respondents (buyer’s solicitors). Charges under the NLC were also created and registered against the Properties by the 2nd Respondent in favour of Maybank.
 
The Appellants claimed that they had never met or dealt with the 2nd Respondent, or sold or transferred the Properties to him. The Appellants then commenced legal action against the 1st Respondent (a solicitor who purported to represent the Appellants), the 2nd Respondent, the 3rd and 4th Respondents, the 5th Respondent and the 6th Respondent. The Appellants sought to set aside the transfers of the Properties, the charges created in favour of Maybank and for the loss and damage that they had suffered. The High Court ruled in favour of the Appellants and set aside the transfers of the Properties and also the charges in favour of Maybank. However, the Appellants’ claim against the 3rd and 4th Respondents and the 5th Respondent were dismissed.
 
Dissatisfied with the High Court’s decision, the Appellants, the 2nd Respondent and Maybank appealed to the Court of Appeal on the grounds stated earlier in this article.
 
The Court of Appeal’s Decision
 
The Court of Appeal (presided by YA Dato’ Has Zanah binti Mehat, YA Dato’ Hadhariah binti Syed Ismail and YA Dato’ Indera Mohd. Sofian bin Tan Sri Abd. Razak) unanimously dismissed all three appeals and affirmed the High Court’s decision. YA Dato' Hadhariah binti Syed Ismail held that the Court of Appeal “find no merit in the appeal” and there was no need for appellate intervention in the High Court’s decision.
 
Appeal by the Appellants (Appeal No. 144)
 
In respect of the Appellants’ contention that the High Court had failed to consider the fraud committed by the 2nd to 5th Respondents and the 3rd and 4th Respondents’ breach of duty of care owed to the Appellants, the Court of Appeal in dismissing the appeal, agreed with the High Court that the Appellants did not know and had no dealings with the 2nd to 5th Respondents. Thus, it was impossible for the Appellants to prove fraud against the 2nd to 5th Respondents.
 
As for the allegations of breach of duty of care against the 3rd and 4th Respondents, the Court of Appeal found no reason to disturb the finding by the High Court that no duty of care was owed by the 3rd and 4th Respondents to the Appellants as there was no solicitor-client relationship between the 3rd and 4th Respondents and the Appellants, notwithstanding that the 3rd Respondent had acted recklessly in attesting the signature of the 1st Appellant on the memorandum of transfer (Form 14A, NLC) when the 3rd Respondent did not actually witness the purported signing of the form by the 1st Appellant.
 
Appeal by the 2nd Respondent (Appeal No. 104)
 
The Court of Appeal in holding that that there is no appealable error to warrant appellate intervention and dismissing the 2nd Respondent’s appeal, concurred with the High Court that section 340(2)(b) of the NLC expressly provides that forgery by itself is sufficient to make a registered title defeasible even though the proprietor or the transferee is not a party to the forgery. It affects the immediate purchaser even if he is an innocent purchaser for value.
 
Further, the Court of Appeal also agreed with the High Court that the Appellants as the true owners of the properties would have had the original titles to the Properties in their possession. As the Appellants did not sell the Properties, it was only logical to say the Appellants remained the true owners of the Properties. The Court of Appeal went further to state that even if it is true that the 2nd Respondent had genuine titles, it does not change the fact that the transfer of the Properties never took place. Therefore, the 2nd Respondent is an immediate purchaser of a title tainted with forgery and as such, the 2nd Respondent acquired a title that is not indefeasible under section 340(2)(b) of the NLC. The bona fide of the immediate purchaser is not a shield of indefeasibility.
 
Appeal by the 6th Respondent (Appeal No. 145)
 
The Court of Appeal in dismissing Maybank’s appeal, held that a reasonable and prudent purchaser in Maybank’s position would have investigated as to what, why and how the Appellants had alleged there was a fraud. If Maybank had conducted an investigation, it would have discovered that the documentary evidence relied upon to effect the transfer of the Properties to the 2nd Respondent were tainted with forgery.
 
However, Maybank proceeded to grant a loan to the 2nd Respondent and create the NLC charges despite having actual knowledge of the dispute of ownership and the allegation of fraud of the Properties. Thus, the Court of Appeal held that Maybank's conduct excludes ‘good faith’, which in the context of the proviso to section 340(3) of the NLC does not simply mean absence of fraud, deceit or dishonesty, but includes a consideration of the following factors: (a) the requirement to act honestly, reasonably and fairly (T Sivam a/l Tharamalingam (as representative/ administrator for the estate of Nagamuthu a/l Periasamy, deceased) v Public Bank Bhd [2018] 5 MLJ 711); (b) the knowledge of a dispute as to the ownership of property and knowledge of allegation of fraud that vitiates good faith (T Sivam’s case (supra)); and (c) elements of carelessness and negligence that negates good faith (Au Meng Nam & Anor v Ung Yak Chew & Ors [2007] 5 MLJ 136.
 
Hence the Court of Appeal concluded that the High Court did not err in finding that Maybank was not a ‘purchaser in good faith’ within the meaning of the proviso to section 340(3) of the NLC in this case.
 
Comments
 
This Court of Appeal decision reiterates the principle laid down in the landmark case of Pushpaleela a/p R Selvarajah & Anor v Rajamani d/o Meyappa Chettiar (and 2 Other Appeals) [2019] 2 AMR 442 where the Federal Court held that a solicitor owes a duty of care to his client only and the duty of care does not extend to non-client where the solicitor unknowingly represented the fraudster in a fraudulent transfer of land.
 
This Court of Appeal decision also highlights the risk that a buyer and a financier bank are exposed to in the event there is a fraudulent transfer of property and serves as a reminder to the buyer and also the financier bank to conduct comprehensive due diligence in property dealings to safeguard their interests over the property.
 
Case Note by Witter Yee (Senior Associate) and Cedric Chan Yew (Associate) of the Dispute Resolution (Banking and Finance) Practice of Skrine.

 

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