Should lawyers keep interest on deposits?

June 30, 2007

EN BLOC SALES

Should lawyers keep interest on deposits?


AS OWNERS of a small condo which was sold en bloc recently, we now encounter a problem with our legal consultant with regard to interest on moneys held by the solicitor as stakeholder. He quoted the following ruling from the Law Society to support his claim to the money:

'The question as to who should be entitled to the interest on moneys held by a solicitor as stakeholder is entirely a matter of contract. If the contract is silent then the solicitor can retain the interest for his own benefit.'

The owners are asking for the substantial interest earned from the large amount of money/deposits held by the lawyer as stakeholder.

However, the lawyer went on to quote a letter from the Law Society of Feb 25, 1989, published in The Straits Times under the heading, 'Money held by lawyer as stakeholder no longer client's', to reinforce his point.

But the point is that, in 1989, there was hardly any en bloc sale. In my layman's view, what the Law Society was trying to address was the sale and purchase of a single unit of a building, not the situation of a large en bloc or collective sale.

If this were not the case, the interest alone would amount to as much as or even more than the consultation fees we are paying the lawyer for the job.

In addition, how are the owners, who are mostly ordinary men and women, expected to know that should the contract, or the Collective Sale Agreement in our case, be silent on this point, then the interest earned would go to the lawyer?

It seems that lawyers know about this Law Society ruling. However, if a lawyer held back this knowledge when negotiating the appointment terms with the owners, can the lawyer still claim caveat emptor on the part of the owners as a form of natural justice?

Considering the case of, say, a billion-dollar collective sale, if the interest accrued were to go to the lawyer, then he need not be paid any more consultation fee as the interest alone would add up to a few million dollars.

Teo Kim-See

The Straits Times (Singapore)
July 3, 2007 Tuesday
Keeping interest earned on stakeholdings


I REFER to the letter, 'Should lawyers keep interest on deposits?' (ST, June 30).

There has been a tendency by many solicitors, with regard to en bloc property sales and, indeed, many regular property transactions, to insist that interest earned on stakeholding monies belongs to them. Clearly, this is not the case according to the Honourable Justice Choo Han Teck in his judgment in a prominent property-law case in 1998.

In most real-estate deals, it is common to find that owners do not receive the interest earned on stakeholdings. Often this is the result of either owners being unaware of the case-law mentioned above or misdirection by their sales consultants or solicitors, who refer to the infamous Law Society letter of 1989 to justify their entitlement to the interest.

One should not forget that the ruling by the Law Society is applicable only to its members and is certainly not enforceable on their clients or members of the public.

To ensure their claim on stakeholding interest income, sales-committee members in en bloc sales, owners and laymen should follow some basic procedures.

They should instruct their solicitors at the time of appointment that any stakeholding interest should be paid to them. For solicitors to profit from interest earned on stakeholding monies while also receiving their professional fees is akin to having 'two bites of the cherry'.

Additionally, solicitors who receive fees for their professional services on such deals are duty bound to protect the interests of their clients.

Many collective-sale agreements prepared by solicitors are silent on such 'interest' issues. Such an omission may potentially be construed as a conflict of interest on the part of the solicitors as it does not ensure the best terms for their clients.

Caveat emptor is not adequate reason for a client who is paying a fee for professional legal services to not receive the best terms afforded by the law.

There should be provision for such cases, where the sales committee, having not been advised on such 'interest' issues by the solicitors, is able to address the issue without losing the full right to the interest.

Another layer of protection is to engage the Singapore Academy of Law to act as custodial keeper of the stakeholding money. This move hedges against any risk of flight by rogue lawyers.

July 6, 2007

INTEREST EARNED ON STAKE IN EN BLOC SALES

Who gets money a matter of contract


I REFER to recent letters to the Forum concerning interest on stakeholders' monies.

As a matter of law, if there is no agreement otherwise among buyer, seller and stakeholder, the interest earned on the stake belongs to the stakeholder.

In collective sales, it is good practice for the lawyer to draw the issue of interest specifically to the attention of the sales committee at the time of entering into the collective-sale agreement. Ultimately, it is a matter of contract. The lawyer's role as stakeholder is, in fact, a valuable additional service involving responsibilities to both seller and buyer and, notwithstanding the existence of alternatives such as a bank guarantee, remains the most popular mechanism.

Philip Jeyaretnam
President
The Law Society of Singapore